The latest figures from Zoopla show that house prices in London and the south have fallen for the first time in 18 months, driven by fears around changes to property taxes ahead of the November Budget. This shift in the market marks a significant moment in the post-pandemic property boom, with many buyers holding off on decisions as the government’s plans evolved.
Budget Uncertainty Damps Demand
According to Zoopla’s House Price Index, house prices in London have fallen by 0.1% year-on-year, while the South East and South West saw similar declines of 0.1% and 0.2%, respectively. The slowdown comes after months of speculation surrounding the government’s intentions to introduce new property taxes, particularly a potential annual tax on homes valued over £500,000.
The market’s response to this uncertainty has been significant, with Zoopla recording a 12% decline in buyer demand and a 4% drop in sales agreed during the four weeks leading up to November 23. Richard Donnell, executive director at Zoopla, noted that while speculation around the Budget created turbulence, the end of this uncertainty should give the housing market a much-needed boost in the coming months. “The Budget bark was worse than the Budget bite,” he said, emphasising that the relief felt by both buyers and sellers will likely lead to a resurgence in activity as the year progresses.
Impact of the Mansion Tax Proposals
One of the major points of contention was the potential introduction of a so-called “mansion tax” on homes worth more than £500,000, a measure that could have significantly impacted property values in high-demand areas such as London. Although the government ultimately shelved proposals for this tax, it did announce a new council tax surcharge on homes valued over £2 million, which will come into effect in April 2028.
This new surcharge, which will range from £2,500 to £7,500 annually depending on the value of the property, will affect fewer than 1% of homes in the UK. However, the introduction of this tax is expected to continue to cause unease in the market. Tom Bill, head of UK residential research at Knight Frank, expressed concerns that the uncertainty around the tax thresholds could create further complications, especially as property valuations are conducted and challenged in the years leading up to the tax’s implementation.
Despite this, the overall impact on the housing market may be less severe than initially feared. With the more immediate threat of higher taxes removed, sellers in London and the South East, where properties above £500,000 are more common, are likely to see a surge in buyer activity. However, an increase in the number of homes available on the market could keep prices from climbing too rapidly.
A Resilient Nationwide Market
While the southern regions of England have felt the most significant effects of this uncertainty, other parts of the UK are experiencing stronger growth. The wider UK market saw a 1.3% increase in house prices year-on-year in October, with the North West, in particular, seeing annual price rises of nearly 3%. This contrast highlights the regional disparities that continue to shape the housing market, with more affordable areas seeing continued growth despite the slowdown in the south.
In the wake of the Budget, Zoopla predicts a rebound in housing activity in early 2026, as buyers and sellers return to the market with greater confidence. The key to this recovery, however, may lie in addressing the ongoing challenges of affordability, with stamp duty and rising property values creating ongoing pressure for prospective homebuyers.
While the short-term outlook for the housing market remains cautious, the end of the Budget uncertainty offers a glimmer of hope for a revitalisation in activity across the country. As the market stabilises, the true effects of recent tax reforms and changing policies will become clearer, offering insights into the long-term trajectory of the UK’s property sector.
