‘Fragile’ London housing market buckles under Budget tax fears

London’s luxury property market has been hammered by fears of a mansion tax, new figures show.

Sales of homes worth £5m or more plunged by 65pc last month, according to data from property analyst LonRes. New sales instructions dropped by almost 19pc and the number of homes on the markets jumped by 15.6pc as buyers held back.

The average price for a home in London fell by 5.8pc in October when compared with the same month last year, marking the biggest annual decrease since February 2024.

Anthony Payne, the chief executive of LonRes, said: “I grew up with the old adage that ‘sticks and stones may break my bones, but words never hurt me’.

“But somebody needs to explain to Rachel Reeves that her words really can hurt people. Her words have really had an impact on the market.

“It was a tough market anyway … but as soon as she started flying some kites, everybody was taken by surprise, like a rabbit in headlights, and everybody just stopped.”

London’s property market has been shaken by reports that the Chancellor is considering a potential mansion tax on homes worth more than £1.5m, and a doubling of council tax rates for homes in the highest bands.

The top end of the market has already been stung by the Chancellor’s crackdown on non-doms last year.

Separate findings by Knight Frank showed fears of a mansion tax have dragged down house prices at the top of the London market at the fastest rate in more than four years.

Mr Payne noted that although multiple homes have changed hands for more than £10m in recent weeks, these were “the exception rather than the other way around”.

Recent notable deals include George Lucas, the Star Wars director, buying a £40m mansion in St John’s Wood in north-west London in September.

“People are waiting to see what comes out of the Budget and whether they can afford what they thought they could afford a few weeks ago,” Mr Payne said.

Nick Gregori, the head of research at LonRes, said London’s luxury housing market remained “fragile”.

He said: “Under offer levels continue to look robust but stubbornly refuse to translate into actual sales, with the existing lack of confidence in the market exacerbated by fears of significant tax changes in the upcoming Budget. This has started to impact prospective sellers too.”

Mr Gregori added that the prospect of an income tax rise and persistently high borrowing costs has further dented buyer confidence.

“These factors will erode buying power from consumers, putting further pressure on the property market,” he said.

Beyond just London, the UK’s housing market cooled in October according to surveyors. Buyer demand, sales activity and new instructions all fell further into negative territory, the Royal Institution of Chartered Surveyors said.