The London real estate market is losing steam with sales struggling to complete.
Tax changes, Brexit uncertainty, higher house prices and difficulties in getting a mortgage approved are making it increasingly hard for people to buy homes in the U.K. capital.
Real estate companies have admitted that a slowdown in sales has affected their profits. London-focused chain Foxtons reported a loss of £2.5 million for the first half of the year, compared to a profit of £3.8 million a year earlier.
Savills also said Friday that residential transactions fell 7 percent in London during the first half of 2018, denting its profits. These were down by 18 percent in the first half of 2018, from a year ago.
Data from Reapit Group, a real estate software company, showed that, on average, houses in the Greater London region were withdrawn from sale after 5.7 months.
Almost two-thirds of London properties for sale that departed the market in 2017 were withdrawn, not sold.
According to Gary Barker, Chief Executive at Reapit, 38 percent of the London-based withdrawals had actually received an offer from a prospective buyer but, in most cases, these were never accepted “indicating that offers fell below the selling price.”
“The market might be constraining because buyers think they should get a good deal due to Brexit fears and sellers not wanting to drop their prices,” he told CNBC via email.
People’s perception of the property market is one of the main reasons for sluggish sales, Sam Cullen, U.K. housebuilders analyst at Berenberg, told reporters.
He said that changes in stamp duty — a tax on purchased properties — are also affecting sales. “If you buy a £1.4 million flat, you have to pay an additional £20,000 in tax duty compared to pre-2014.”
More recently, the current government announced in November that first-time buyers buying a home of up to £300,000 would be exempted from stamp duty.
As a result, Cullen said, people are staying in the rental market for longer, saving up to buy a bigger first home while avoiding stamp duty.
At the same time, buyers are being put off by uncertainty regarding the U.K.’s withdrawal from the European Union, which is due to take place on March 29. There’s currently no agreement in place as to Britain and the EU’s relationship after that date.
A number of political and market events last year intensified the drop in house sales. These included the start of the negotiating process that will take the U.K. out of the EU, a snap election in May, and the first increase in interest rates since the financial crisis in November.
According to Reapit’s data, withdrawals of property from the London marketplace peaked in May and November; traditionally, withdrawals peak in July and November.
“The number of sales in London fell by 9 percent in 2017 compared to 2016 — and the weakening had already begun in 2016,” Reapit said in its report. House transactions also fell in the capital due to higher house prices, which grew about 1.1 percent in that year compared to an average of 4.6 percent across the U.K., the company said.