Whilst stamp duty changes have certainly been a contributor to these price falls, there are other factors also affecting the prime London housing markets.
Central markets
Central London markets have also been affected by international buyers’ increased exposure to capital gains tax and inheritance tax, leading to more reluctance in taking advantage of the weaker sterling.
The uncertainty surrounding the UK’s vote to leave the EU has exacerbated the slow down resulting from tax changes. This has largely been driven by the unknown future, as opposed to any recognised weakening, of London’s economy.
In these higher value markets, values fell by -0.8% over the quarter, much less than the falls of -4.8% seen in the previous six months. That leaves them -13.2% below their 2014 peak. Even at the very top end of the market, in the £10m+ range, prices appear to be stabilising.
Outer prime London
Following a fall of -2.3% in the fourth quarter of last year, prices in outer prime London have so far remained flat in 2017, meaning they are now -2.7% lower than their previous peak in 2014.
Despite low interest rates, these more domestic markets continue to be constrained by mortgage regulation. This means that those who need to borrow have begun to reach the limits of loan to income ratios.
The underlying outcome, across all of prime London, is that sellers have had to adjust their expectations. There is evidence that the resulting price cuts are beginning to coax buyers back into the market, although it remains price sensitive.