High-end property owners baulk at the prospect as brokers report a market paralysed by fear
Speculation over a mansion tax—once dismissed as mere political posturing—reached such a pitch over the weekend that London brokers now fear it has frozen the capital’s housing market.
Reports that the tax will be introduced in Chancellor Rachel Reeves’s November Budget meant brokers were today inundated with calls from anxious buyers and sellers, as reported in The Telegraph. The reports suggest Reeves could impose a 1 per cent levy on the portion of a property’s value exceeding £2 million. An owner of a £3 million property, for example, would face an annual bill of £10,000.
The mere possibility has been sufficient to disrupt established patterns of behaviour among both buyers and sellers. Brokers report a marked reluctance to proceed with transactions, as clients adopt a wait-and-see approach ahead of the Budget.
This sense of paralysis only exacerbates the uncertainty in the lead-up to the Budget, which is expected to feature numerous tax increases as the Government attempts to plug a £30 billion black hole in the nation’s finances.
“There has been a definite reduction in purchase activity in what is normally a very busy month,” Leo Karasavvas, managing director at Prolific Mortgage Finance, told Mortgage Introducer before the weekend. “The threat of a mansion tax, as well as the potential abolition of stamp duty for first-time buyers, has created a huge cloud of uncertainty for the purchase market—one the majority want clarity on before pulling the trigger, which is totally understandable.”
The impact is most pronounced in prime London neighbourhoods, where properties commonly breach the mooted threshold. Sellers, wary of being caught by a new tax, are either slashing asking prices in the hope of completing before any announcement, or withdrawing their homes from the market altogether. Buyers, meanwhile, are increasingly hesitant, fearing that a hasty purchase could saddle them with an unexpected annual liability.
This climate of uncertainty is not confined to private individuals. The London Stock Exchange has seen shares in major property firms slide, reflecting investor unease about the potential for a sudden policy shift. Mortgage brokers, for their part, are caught in the crossfire, fielding anxious calls from clients and attempting to provide reassurance in a market where the rules may soon change.
When pressed to rule out a mansion tax, Housing Secretary Steve Reed repeatedly declined to offer any assurances, stating only that it would be inappropriate to comment ahead of the Budget. Meanwhile, Chancellor Reeves has signalled that all options remain on the table.
Think tanks and economic institutes have weighed in, with the National Institute of Economic and Social Research urging the Chancellor to consider a modest rise in income tax as a less disruptive alternative to property-based levies. Their analysis suggests that while an increase in income tax would dampen consumption, a mansion tax or similar wealth-based measure could distort the market and deepen regional inequalities.
Karasavvas added: “With so many fixed-rate deals coming to an end over the next 12 months, a pent-up demand of purchases awaiting the outcome of a very important Budget, and a host of lenders who have taken the leash off the loan-to-income caps, it promises to be a very strong market in the near future. But at present, it’s tools down on the purchase front until the Budget is announced.”
