The number of homes sold for £1m or more in England and Wales has collapsed by 62.5% in just two years as the property market feels the effects of tax hikes, global economic turmoil, and uncertainty surrounding the Brexit referendum.
Transaction data from the Land Registry shows that in August 2014 when the housing market was in full recovery mode across the UK, and prime residential property in central London was reaching its peak, there were 1,473 transactions where homes went for more than £1m in the month. But by August 2016, this had plummeted to just 552 transactions over £1m.
"There will be few tears shed for estate agents or their millionaire clients struggling to sell their homes but don't put away the man-size too fast," said Henry Pryor, a buying agent and housing market commentator. "In fact the problems affecting the top rungs of the housing ladder could and probably will infect the lower priced properties."
The recent crash in prices of major commodities such as oil, the Chinese economic slowdown, sanctions on Russia over its war on Ukraine, and persistent weakness in western developed economies, all cooled foreign demand for property in the UK, particularly in London.
Moreover, a series of tax rises starting with a sharp increase in stamp duty on expensive homes at the end of 2014 softened demand at the top of the housing market. Other increases include an annual levy on empty homes owned offshore and a surcharge of 3% on basic stamp duty rates for additional properties purchased, a move designed to target buy-to-let and second homeowners.
The vote to leave the EU in the 23 June referendum has also created a period of political and economic uncertainty in the UK, compounding the effect of existing issues in the £1m+ end of the property market. But Pryor played down the impact of Brexit.
"Confidence is like smoke, hard to physically grab but suffocating and it's transaction friction (not Brexit!) that is responsible," he said. "The cost of buying and selling has just got too much – even for the very rich."
Pryor also noted that 40% of sales are to cash buyers. "If the bank of mum and dad's assets are worth less then they can't afford to give their kids money to buy their overpriced two bed flat," he said.
"Without the leg up the kids have less to spend and so prices fall accordingly. You see the madness of the market of late has been that parents have been lending money so their kids can afford to pay the silly prices that mum and dad have been asking for their houses. When the handouts stop then so does the market."
The property industry is calling on Chancellor Philip Hammond to reverse his predecessor's stamp duty increases to free up the market again. Some industry experts argue the increase has ended up costing the treasury money by dampening transactions and so reducing the stamp duty haul.
Paul Smith, CEO of haart estate agents, urged the government to overturn its stamp duty rises "to increase fluidity within the market as these charges are without doubt causing a log-jam – no wonder when buyers have to fork out an extra 3% on top of the 7% they are already paying."
"With purchase taxes so high the market will continue to struggle at the top end," Pryor said, highlighting risks such as Brexit coming to fruition, the potential election in the US of Donald Trump, and another general election in the UK before 2020.
"Will the chancellor relax his grip on the market's throat in the Autumn Statement? It would make good sense but could look like bad politics. I know which of these two I would expect to win when lowering stamp duty land tax for millionaires is floated."