How London’s Booming Property Market Was Ruined by George Osborne’s  Ill-judged Tax Reform

Stamp duty reform has driven down the number of £1m homes in the capital

George Osborne’s redesign of England’s stamp duty taxation has driven down the number of £1m homes in London over the past decade, analysis shows.

Since 2014, the number of homes valued at £1m or more in the capital has fallen by 16% – but across the rest of the country, the number of million-pound homes has grown by 70%.

The analysis of the date confirms that the trend in the prime property market was primarily a consequence of higher taxation, “most notably stamp duty”.

There is now doubt that the prime property market is disproportionately impacted by stamp duty reform.

“Osborne’s big changes to it in 2014 acted as a brake on prices in that market. Before that, London was in its zenith.”

In December 2014, then-Conservative chancellor Mr Osborne announced major reforms to stamp duty.

He abolished the “slab” system in favour of charging on “slices”. This meant stamp duty began to work in a similar way to income tax, with higher rates only charged on the parts of the price above the thresholds.

More expensive homes suddenly saw their stamp duty liabilities shoot up. This then ate into the potential profit owners could make if they decided to sell, as buyers now had to factor in much higher bills for these types of properties.

Stamp duty for properties above £15.m is now 12%, plus an extra 3% for properties not designated as the buyer’s primary home, plus an additional 2% for overseas buyers.

Since Mr Osborne’s changes, prices in the prime London market have fallen by 17%.

In the years prior to 2014, most of the growth in £1m homes was centred in London, with the capital’s housing market quicker than the rest of the nation’s to rebound from the lows of 2008 and 2009.

In fact, I would go so far as to say that on reflection, overseas buyers were encouraged to invest in to the upper quartile after the economic crash, as there were many high-end developments sat around facing bankruptcy.

In the UK, the property market is normally a bottom-up market, that is to say, flats and starter homes begin to rise, which then filters outwards and upwards, but after 2008, the market was a top-down led market. Overseas investors ploughed funds in to the top end and it filtered downwards, which may have been different to the norm, but that was all well and good, until…

The government exploited the recovering market to introduce stiff anti-money laundering laws, which then allowed them to the seize property and assets from the very investors who they had previously encouraged.

This was then followed by George Osborne’s brainwave, resulting in the value of the upper quartile in London being lower today than it was then! In essence, these changes turned the high-end property market in London into a pyramid scheme.

Initially, fewer buyers were moving out to the commuter zone too, instead choosing to stay in London and benefit from this house price growth.

In more recent years, the opposite has happened: the pandemic pushed swathes of Londoners to the commuter belt and beyond.

This has caused a mini house price boom outside London, reflecting a race for space and the dash to the countryside where many families and young couples found they could get more for their £1m.

Brexit, as well as the 2% stamp duty surcharge applied to foreign property buyers since 2021, has further dampened demand for London’s more expensive homes.

Taking this into consideration people in the prime London market will need to have realistic expectations for what their homes are really worth.

In the run-up to the October Budget, buyers are continuing to approach the £1m home market with caution – predominantly due to the uncertainty surrounding potential tax changes.

This uncertainty is mitigating the effect of falling mortgage rates in this part of the market.

Typically, cuts to the Bank Rate and falling mortgage rates leave more wriggle room for buyers to afford higher monthly mortgage repayments, propping up their appetite for pricier properties.

Exposure of the main home to tax is going to temper the impact of any Bank Rate cuts and falls in interest rates.