George Osborne’s changes to stamp duty a decade ago have hammered the capital’s luxury property market.

The number of homes in London worth £1 million or more has plummeted by 16% since 2014, according to new research. In stark contrast to the rest of the country, where million-pound homes have increased by 70% over the same period, the capital’s expensive properties are falling out of favour.

Experts are pointing the finger at former Chancellor George Osborne, whose overhaul of stamp duty in 2014 saw taxes on expensive homes skyrocket. Estate agency Savills, which conducted the analysis, says the tax grab is largely to blame for the capital’s flagging luxury market.

What changed in 2014?

Before 2014, stamp duty was charged at a single rate on the entire purchase price of a property. Osborne replaced this with a tiered system, similar to income tax, where higher rates only apply to the portion of the price above certain thresholds.

While this seemed fairer on paper, it meant that anyone buying a property over £1 million saw their stamp duty bill shoot up dramatically. For sellers, this meant accepting a lower sale price to attract buyers put off by the huge tax burden.

Prime property hit hardest

The result? Prices in the prime London property market have tumbled by 17% since Osborne’s changes came into effect.

“The prime property market is disproportionately impacted by stamp duty reform,” explains Lucian Cook, residential research director at Savills. “Osborne’s big changes to it in 2014 acted as a brake on prices in that market. Before that, London was in its zenith.”

London exodus fuels property boom elsewhere

Adding to London’s woes, the pandemic triggered a mass exodus from the capital, with families seeking more space and greenery in the suburbs and beyond. This has fuelled a mini property boom outside of London, pushing prices up and making it a more attractive option for those with £1 million to spend.

Brexit and a 2% stamp duty surcharge introduced on foreign buyers in 2021 have further dampened demand for London’s priciest properties.

Uncertainty reigns

Looking ahead, potential buyers of million-pound homes are holding back, worried about further tax hikes in the upcoming October Budget.

This uncertainty is overshadowing the positive impact of falling mortgage rates, which would normally encourage buyers to aim for more expensive properties.

“People in the prime London market will need to have realistic expectations for what their homes are really worth,” warns Cook.