New Luxury-Home Tax Might Weaken Entire London MarketNeil Callanan
Higher taxes on luxury homes might weaken London’s entire housing market following May’s national election, Fitch Ratings Ltd. said.
The Labour Party and the Liberal Democrats, the party that governs the U.K. with the Conservatives, have proposed increasing levies for the most expensive houses and apartments if they are elected. That might hurt luxury-home prices and have a knock-on impact on lower-value properties, Fitch said Wednesday in London.
Value increases are already being constrained by slow wage growth and any interest-rate increase might erode confidence in the market, Fitch said. London home prices fell 2.5 percent from August through November, according to an index compiled by the country’s statistics office. In the city’s wealthiest neighborhoods, values declined for a third month in January, Knight Frank LLP said in a report on Wednesday.
The government’s Help-to-Buy lending program, which enables purchasers to take out a loan with a down payment of as little as 5 percent, may lead to increased risk-taking by lenders, Fitch said in the report.
“As product availability increases, lenders’ risk appetite may return, putting downward pressure on mortgage interest rates,” the ratings company said.
The value of the U.K.’s buy-to-let mortgage market has risen to 1 trillion pounds ($1.5 trillion) from 300 billion pounds in 2009, according to the company. More than two-fifths of the properties are in London, where the City of London borough council is weighing an investigation into the impact the investors are having on the U.K. capital’s new-build homes market.
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