London house prices fell by 2.5 per cent in the year to June as official figures revealed a growing North-South divide in the UK property market.
While average home values across the UK rose by 2 per cent to £272,000 over the 12-month period, London suffered its tenth consecutive month of price declines. In contrast, property values in the North West and North East grew by more than 4 per cent.
The steepest drop occurred in the City of Westminster, which includes central London neighbourhoods such as Mayfair, Belgravia and Marylebone. Prices in the borough plummeted by 25 per cent to £854,198 in the year to June, wiping £290,624 off the value of an average home.
In Kensington and Chelsea, another of London's most desirable areas, average property prices fell by over £215,000, or nearly 15 per cent. Values in the borough dropped from approaching £1.5 million to around £1.25 million over the past 12 months.
Other parts of the capital also suffered significant downturns. Average house prices in the City of London fell by 20 per cent, while values in Tower Hamlets and Hammersmith and Fulham both dropped by 13 per cent.
The central London boroughs of Westminster, Kensington and Chelsea, and the City of London represent Prime Central London, historically considered among the most lucrative real estate markets in the world.
Tax changes and wealth tax fears
Industry figures point to tax policy changes and rising borrowing costs as key factors driving the downturn in the capital. The slump follows Labour's clampdown on non-domiciled tax status and the threat of further wealth taxes, which have prompted an exodus of affluent residents and entrepreneurs.
Non-domiciled status is a UK tax scheme that historically permitted individuals residing in Britain whose permanent home was abroad to avoid paying UK tax on foreign earnings and capital gains.
Demand in London has also been dented by higher stamp duty rates on expensive properties and a surcharge on second homes. Buyers face an additional so-called "mansion tax" of up to £7,500 a year on homes valued at more than £2 million.
Stamp duty, officially known as Stamp Duty Land Tax, is a progressive tax charged on residential property purchases in England and Northern Ireland, with higher rates applied to higher price bands.
The tax increases come at a time when even well-off families are struggling to afford expensive homes in pricey areas due to elevated mortgage rates. UK borrowing costs have remained high following successive interest rate hikes aimed at controlling inflation.
North-South divide in property prices
Economists say London is facing unique structural pressures that set it apart from regional markets. Paige Tao, an economist at PwC, said the "regional picture is becoming more divided" as prices rise in the North while falling in the capital.
"London's underperformance is more than a mortgage rate story," Tao said. "High starting valuations, higher transaction costs and greater sensitivity to international demand mean London must adjust more than most regions."
PwC is a major international professional services network that monitors UK economic and real estate trends.
Stacy Eden, head of real estate at RSM UK, also highlighted the widening regional gap. Eden said there are "significant disparities between regional markets with prices largely rising in the North, and either declining or not moving in the South."
"This is particularly evident in London, where penal rates of stamp duty and larger mortgages at ever higher mortgage rates are most keenly felt," Eden added. RSM UK is a leading audit, tax and consulting firm.
Calls for stamp duty cuts
The latest market data follows warnings from the construction sector about the impact of high transaction taxes. Just last week, Jason Honeyman, chief executive of Bellway, one of Britain's largest housebuilding companies, called for an immediate cut to stamp duty to help revive the housing market.
Bellway, headquartered in Newcastle upon Tyne, is a FTSE 250 housebuilder that constructs thousands of residential properties across England, Wales and Scotland each year.
