House prices at the top end of the market are faltering due to stamp duty reforms – and estate agents are calling for the government to reverse the trend for the sake of the wider property market.
Prices in the top quarter of the London market dropped 5.4 per cent between the second quarter of 2015 and the same period this year, according to data from estate agents Stirling Ackroyd.
Former chancellor George Osborne increased stamp duty on properties priced at more than £1,125,00 in 2015. This year, the government also introduced a higher tax rate for people buying a second home.
The reforms have been "holding back" London's high-end property market, Stirling Ackroyd said. A property costing £2m now comes with a stamp duty bill of £153,750, and if that property is being sold as a second home, the stamp duty will be £213,750.
Prices on high-end homes in central London have been the hit hard; in Chelsea, prices have fallen by as much as 10 per cent already this year.
In West Kensington W14, prices have fallen by 12.3 per cent between the second quarter of 2015 and the second quarter of 2016 – slicing £160,000 off the average house price in the area.
Nick Davies, head of residential development at Stirling Ackroyd, said that buy to let investors are disappearing, which will feed into higher rental prices.
Davies added: "Targeting top end buyers of properties valued at over £1m might have been good politics at the time, but the policy is crippling prime central London, with potentially damaging consequences for the capital's property market down the road.
"Most Londoners are unlikely to weep for wealthy second home buyers, but the reality is that without movement at the top, the middle and lower end of the chain are being blighted by a shortage of available properties, leading to intense competition and spiralling prices"