Prices in prime central London increased 0.9% in February
Over the last 12 months prices have increased 8.4%
Last year’s stamp duty increase has reduced annual prime central London sales volumes by 15%
With the countdown to the 2013 Budget underway, Liam Bailey, Global Head of Knight Frank Residential Research, looks at the impact last year’s increase in Stamp Duty has had on the market. For the prime central London market, the most important policy to come out of the 2012 Budget was the increase in stamp duty for residential transactions over £2m. The Chancellor’s introduction of a new 7% SDLT rate for the purchase of residential properties over £2m came into effect immediately.
Using transactions data and our own market knowledge, we have calculated the impact that the new rates have had, and we have estimated the likely impact on Stamp Duty receipts for the full tax year 2012-13.
At the time of the 2012 Budget, HMRC forecast that the increased levy would help net an additional £150m.
Taking this into account, Knight Frank have calculated that by the end of March, HMRC will have collected some £223m in additional tax revenue since the 40% rise in stamp duty was implemented in 2012, £73m more than originally forecast.
While the announcement in the Autumn Statement that the Chancellor planned to introduce “no new property taxes”, combined with the clarity provided by the draft Finance Bill encouraged potential purchasers to return to the market at the latter end of the year, we believe the longer term impact of the stamp duty increase has been to reduce total £2m+ sales by around 10% below the level they would otherwise be if the new Stamp Duty rates had not been introduced.
In February, the average price of prime central London property increased at its highest rate in 10 months, climbing 0.9%. Prices have been rising every month since November 2010 and now stand 55% above the March 2009 market low.
As was the case for much of 2012, the lower end of the market continues to be the strongest performer. Prices in the £1m-£2.5m bracket increased by 1.7% on a monthly basis in February and have risen by 2.1% in the last three months. Conversely, the £10m+ market has been more sedate with a 0.1% increase in prices in February and a 1.6% rise in the past three months.
As we highlighted last month, the fall in the value of sterling has increased the appetite for prime central London homes among overseas buyers. Figures from Knight Frank’s Global Property Search website confirm this, with a 16% monthly rise in euro-denominated buyers looking at prime central London property in January.
In France and Italy, where concerns over the introduction of wealth taxes and political uncertainty form the wider economic backdrop, searches increased by 33% and 36% respectively over the course of the month. Further afield, searches from Chinese and the US also climbed by 35% and 53% respectively.
