Tax rises hit the price of luxury homes

ANTICIPATION of increased taxes and lower bonuses has resulted in prices for London’s luxury homes increasing at the slowest rate for a year.

According to Savills, the UK estate agent, prices for houses and apartments worth over £1m increased in the first quarter by only three per cent, compared with 4.6 per cent in the last quarter of 2009.

It said the government’s decision in December to tax bonuses over £25,000 has taken its toll on the “high end” real estate market.

“Some of the heat has come out of the market and values continue to be sustained largely by still relatively low stock levels,” says Yolande Barnes, head of Savills residential research. “We’ve also yet to see any significant influx of bonus money though, which suggests buyers are still keeping their options open.”

Barnes added that the surprise announcement of a higher stamp duty band in last week’s Budget may prevent big falls as it is expected to bring sales forward into the 2010/11 tax year. But she warned prices will decline one per cent overall this year.

International buyers are currently propping up London’s market and now account for 60 per cent of the prime central London market, up from the normal 50 per cent. The weakness of sterling has made the UK attractive as an investment market.