Sales of high-end homes in central London have dropped to a new low, according to Knight Frank’s latest research.
The fall follows policy changes, including the end of non-dom tax status and increased Stamp Duty rates, that are affecting wealthy buyers.
The agency reported that the number of property sales in prime central London declined by 7% in the six months to May, compared with the previous year.
There was also a 13% drop in the number of new prospective buyers registering during the same period, signalling a continued cooling of demand.
Property values in the capital’s most exclusive postcodes also fell. The average price in prime central London declined by 2.2% in the year to May.
That figure marks the steepest annual fall since August last year, and prices fell 1.4% in the latest quarter — the sharpest quarterly drop in nearly five years.
By contrast, prime outer London saw some resilience. Prices there rose by 1.1% over the same 12-month period, supported by needs-based and domestic demand.
Knight Frank said higher reliance on overseas buyers in prime central areas is making those markets more sensitive to tax policy and global shifts.
Tom Bill, head of UK residential research at Knight Frank, linked the market downturn to political decisions and ongoing economic uncertainty.
He said: “The key question is: will the Chancellor interrupt the process of a market that is re-pricing and getting back on its feet?”
Bill added: “The Government will not be enjoying headlines about departing wealthy foreign investors, but the issue of how it treats wealth is a live discussion inside the cabinet.”
He referenced recent political signals on the government’s fiscal direction. “Prime Minister Keir Starmer recently said the UK can’t tax its way to growth,” Bill noted.
“However, it followed the leaking of a memo from deputy PM Angela Rayner to the Chancellor last month which set out ways to do precisely that.”
Chancellor Rachel Reeves now faces a difficult balancing act. Bill said she must meet fiscal rules while avoiding major political fallout.
He explained: “Cut spending, which will annoy both backbenchers and frontbenchers. Raise taxes, which voters won’t like and could be self-defeating.”
“Or convince highly sceptical financial markets that she is going to loosen her own fiscal rules without sending bond yields and mortgage rates higher.”
“It’s an unenviable position. But it’s also why any policy that drives away foreign investment or shrinks the tax base in such circumstances has obvious flaws,” he concluded.