Political uncertainty following last week’s by-election is expected to dampen activity in the UK’s high-value property markets, according to analysis from Knight Frank.
The by-election result, which saw Labour finish third behind Reform and the Green Party in a previously safe seat, has raised questions about the government’s stability. Helen Thomas, CEO of political and economic consultancy Blonde Money, described the outcome as “seismic” and indicated that “political instability is rising”.
Transaction volumes decline
Tom Bill of Knight Frank noted that a potential leadership contest would cause hesitation in the market, while the prospect of wealth taxes could have longer-lasting effects on prime central London (PCL). He warned that a new government could push mortgage rates higher if financial markets disapprove of its fiscal policies.
Transaction data shows the number of exchanges in PCL and prime outer London (POL) fell 11% in the year to January compared to the previous 12 months. The decline followed an extended period of speculation around property taxation ahead of November’s Budget.
Supply outpaces demand
While market sentiment has improved since new high-value council tax bands came in lower than anticipated, supply has recovered faster than demand, maintaining downward pressure on prices. Knight Frank data indicates sales instructions in London during January were 16% higher than the five-year average, whilst new buyer registrations were 4% lower.
Average prices in prime central London fell 4.9% in the year to February, compared to a 5% decline in January. In prime outer London, prices dropped 0.5% in February, the widest decline recorded in 21 months.
Price gap widens
The gap between price growth in prime central and outer London reached its widest point in nine years last month. Average prices in PCL remain 22% below their August 2015 peak, though this relative value is supporting some demand.
Bill added that whilst this week’s Spring Statement has generated little speculation about tax rises, uncertainty remains about who will be making fiscal decisions later in the year. The combination of political uncertainty and stamp duty burden in a falling price environment continues to constrain positive sentiment in high-value markets.
