Higher taxes and uncertainty over the EU referendum helped dampen prime London property prices last year as sellers accepted more realistic offers, according to the estate agent Savills.
Average house prices for prime property in central London fell by 6.9% last year compared to 4.9% across the whole of London.
Savills said sellers were adjusting prices to align with buyer expectations following increases in stamp duty and economic uncertainty over the vote to leave the EU.
This means that prime central London prices are down 12.5% in total since the December 2014 peak when stamp duty was increased.
Stamp Duty Land Tax is a progressive tax that you start paying on properties worth more than £125,000. As the price of the property increases, so does the rate of stamp duty.
In December 2014 the government scrapped the old slab structure and introduced a new banding system to help benefit anyone purchasing a home priced under £937,500. Those buying a home above this amount now face a bigger tax bill.
You now pay 0% up to £125,000; 2% to £250,000; 5% to £925,000; 10% to £1.5million and 12% above that.
Lucian Cook, Savills UK head of residential research, said there had also been a “dearth” of transactions following the introduction of the new 3% stamp duty increase on second homes in April last year.
“Committed sellers increasingly understand the need to factor in both the additional stamp duty and economic uncertainty to their price expectations in order to attract still very cautious buyers.
“Further price adjustments, coupled with the currency play for international buyers, appear to have triggered greater buyer commitment and prime London sales volumes picked up significantly in September, October and November before easing back in December.”
According to data from Lonres, central London sales of properties worth over £1 million were 21% down year-on-year in 2016.
In the three months to the end of July, transaction volumes were running at about half the same period in 2015, but in the last quarter of the year had recovered to within 16% of 2015 full year numbers.
Sales of properties worth over £5 million in the 11 months to November were 17% below those in this in the same period of 2015.
The very top end of the market in the 11 months to the end of November saw £1.43 billion spent on properties worth over £20 million compared to £1.07 billion the previous year.
“But buyer sentiment remains fragile. Improved transaction levels are the result of adjusted pricing and should not be seen as a precursor to price rises in the foreseeable future. High stamp duty rates and the uncertainty created by negotiations to leave Europe will still need to be factored into expectations on value,” said Cook.
Savills predicts prime London prices will remain static over the next two years, with a recovery in growth not expected until 2019.
