London falling

12.12.18

Recent statistics have revealed that on average London house prices have fallen by 2.9 percent in the last year. Landlords and investors across the UK will find this troubling news and it comes in the wake of political uncertainty surrounding Brexit and the introduction of punishing tax reforms that the buy-to-let and sales market in both London and the rest of the UK have plummeted. The report, which analysed house prices for luxury properties worldwide, placed London poorly compared to the capital’s counterparts.

As Brexit negotiations continue and the future relationship between the UK and the European Union remains undetermined, landlords and investors have chosen to postpone all activity until a clearer picture is painted. London has suffered the consequences of these uncertainties more than any other major city in the UK, and paired with the changes to stamp duty tax, the future of the market is worrying.

Property prices in the once booming London market are now trading between 10 to 20 percent below their record-high four years ago, and these trends are expected to deteriorate further in the following months. Despite the current unsettling trends and punishing reforms, the market had begun to stabilise and somewhat prosper in previous years. However with the departure of the UK from the EU on the horizon, it could be a long time before London is able to continue as a leading buy-to-let and property sale hotspot.

London was placed 38th in a list of 43 global destinations when analysing luxury house prices. The report awarded Singapore the top spot with an average house price growth of 13.1 percent in the last 12 months. Edinburgh closely followed with a growth in the housing market of 10.6 percent, and Madrid took third place with a rise of 10.1 percent.

It’s not just Brexit uncertainties that have led to decline in prices in London. Harsh tax reforms and the changes to mortgage interest relief come as an unwelcome hit to landlords all over the city. Investors meanwhile, are still struggling to overcome the punishing changes to stamp duty tax in 2016, with a 3% surcharge being added. Landlords purchasing a secondary home for buy-to-let purposes would now be required to pay additional tax to meet new demands set out by the government. Landlords with an exclusive London property portfolio would bear the brunt of these changes due to the high entry costs required by the market.

Changes to mortgage interest relief have also hit the buy-to-let London property market hard, and landlords are no longer able to claim their mortgage interest against income tax on rent. As of 2020, landlords will only be able to claim a 20 percent tax credit on mortgage interest paid, and this is expected to result in a heftier tax bill.

Some areas in London have suffered more than others, with an average house price decrease of 7.6 percent in Westminster and 6 percent in Hammersmith, according to the Office for National Statistics. The daunting trends however have not been seen throughout every borough in London, with Kensington and Chelsea boasting a 4.1 percent rise in house prices, followed by a modest 1.5 percent rise in Greenwich.

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