Luxury Property Prices in London Fall For Fourth Quarter Straight

Prices for luxury homes in London fell for the fourth quarter in a row according to Knight Frank. Average prices for homes over £1 million dropped by 6.7% in the first quarter of 2009, bringing the total year-to-date fall to 24%, the largest recorded drop since Knight Frank began their price index in 1976.

Much of the reason for the fall (prices across the rest of the UK fell only 18% in the same period) is the loss of confidence in the banking sector. Luxury home prices in London are driven to a large extent by massive bonuses issued to bankers. The public backlash against paying million pound bonuses after the banks managed to drag the UK into the worst recession for years are obviously going to continue to bring prices down. It is estimated that another 60,000 jobs will be lost in the financial services sector over the next two years.

Knight Frank expect prices to continue to decline, although they predict they will level out at around a 35% fall from the 2008 peaks and are confident that foreign buyers will fill the gap left by domestic buyers. The pound has fallen drastically against both the US Dollar and the Euro, although the government seems now intent on raising every penny possible in taxes, so I anticipate some changes in the tax laws regarding foreign residents. Currently, foreign residents enjoy a tax-free status as regards their overseas earnings and I expect that to change if foreign buyers begin to dominate the luxury property market.

Knight Frank