How will next year’s general election affect the property market – and in particular the threat of a ‘mansion tax’ on properties valued at over £2m?
While general elections inevitably have a dampening effect on the market as buyers and sellers wait to see what new policies will be introduced, the proposed ‘mansion tax’ for properties valued at over £2m has caused ripples of concern in the capital where most of these properties are located.
In addition to the various arguments about whether a mansion tax is fair, the fear is of course that a mansion tax could create a collapse in the £2m+ market. It could even be argued that it would affect the market below this point if buyers are concerned about their property’s value rising above the threshold in the future.
‘Agents are reporting a continued slowdown in some areas as buyers and sellers nervously await news on the upcoming election and the potential for mansion tax,’ reports Stephanie McMahon, Head of Research at Strutt & Parker. ‘As is often the case in uncertain times, it may also be that transaction levels will decrease in the run up to May 2015, but values could hold up better than expected.’
Latest Land Registry statistics suggest that the market has not stalled in the run-up to the election; prices were up 16.4% over the same month last year and 14.7% up year on year in prime central London (18.4%/13.8% in Greater London).
Naomi Heaton, CEO of LCP, specialist fund and asset managers, comments, ‘It is to be expected that PCL growth will taper off for the next six months, given the extremely high growth levels over the last year and traditional market jitters before any general election. However, there is no evidence that the long-term fundamentals for growth will not remain in place. Any slowdown now will present a buying opportunity’.
Chloe Leefe of Mountgrange Heritage goes further. ‘Election – what election?’ she says. ‘Whilst people are talking about it, it isn’t having as negative an effect on the market as I thought it would. Yes, people are making more measured decisions but that isn’t a bad thing and that isn’t all down to the impending election; the market is less feverish now.
‘People are still buying,’ she adds. ‘We’ve sold two properties in the last two weeks, both over the asking price and both above the ‘scary’ £2m mansion tax mark. It seems that the threat of the mansion tax isn’t putting people off. Perhaps they don’t believe it will actually happen.’
Tom Bill, Head of London Residential Research at Knight Frank, notes that while the prospect of a mansion tax has contributed towards slowing demand, annual price growth has not deviated far from an average of 7.9% over the last two years. ‘Our view is that will change next year, when we forecast zero growth,’ he says. ‘If the threat of a mansion tax recedes, some degree of recovery is likely in the second half of 2015, as pent-up demand is released.’
Howard Elston of Aylesford International believes a sensible alternative would be ‘a new Council Tax banding to redress the ludicrous situation where a two-bed flat in South Kensington pays the same amount as a mansion in The Boltons.
‘A mansion tax would probably never really bring in the income that central government has gained from stamp duty in a booming market, unless they lower the threshold to the £1m level,’ he adds. ‘Where does this all end? None of us will know until after next May.’
Words by Karen Tait
- Strutt & Parker predicts 5% growth across the UK and 2% in PCL, commenting that ‘these forecasts are a stark contrast to 2010 and 2011 when PCL prices surged by over 13% year-on-year’.
- Knight Frank forecasts zero growth for PCL, and 3% growth for prime outer London. ‘Whatever the outcome of the election, our view is that growth will be less marked over the next five years than the last five.’
- Savills expects ‘values to plateau or possibly see small falls in locations with a high concentration of properties over £2m, as both overseas and domestic buyers remain cautious’. Forecasts: London 5%; Central London –1%; Outer London 1%.
- Hamptons International: PCL 3%; Central London 7%; Greater London 3%. ‘The continued rapid pace of growth [in PCL] in 2014 means that the capacity for further growth is limited.’