London falls behind as global prime sales gather pace

New Knight Frank data from the world's super-prime property market lays bare the impact of the government's reforms to wealth and property taxation.

Sales of homes worth at least US$10 million in London slid again in the final quarter to just 35, dropping the UK capital into seventh place – behind Sydney, Miami and Singapore. Aggregate value in London was broadly flat at US$724m (+2% QoQ) despite lower transactions.

London is reversing amid a recovery in global super-prime activity. Across our 12 key markets, we tracked 555 transactions, up 17% quarter on quarter, with an aggregate sales value of US$10.3 billion (+20% QoQ). The average sale price rose to US$18.6 million (from US$18.1 million in Q3). Those quarterly sales bring the annual total to 2,164, which is the second-strongest tally since 2021.

Policy missteps

There is little doubt as to where money that might once have been destined for London is being invested. Dubai saw 143 deals worth US$2.5bn during the final three months of the year, up 39% QoQ by count and 27% by value. That caps a new record year for the city, with 500 sales – just over three times London’s tally. 

To be sure, the London data can be interpreted two ways. Clearly, the most damaging aspects of the government's reforms to the non-dom regime, particularly those relating to inheritance tax, are prompting buyers to invest elsewhere. But secondly, owners of London's super-prime homes aren't selling up in large numbers either. The likes of the UAE, Italy and Switzerland present the capital with stiffer competition than they once did, but there remains a sense that none yet offer the complete package in the way London does – at least not for now. 

Both major UK political parties have historically had historically taken a pragmatic approach to economic policymaking when London’s prosperity and its role as a global financial centre are at stake – though there have been clear ideological swings and policy missteps along the way. But there has historically been a willingness to correct course when policy moves in the wrong direction – and many of London's wealthy population are betting that this will happen again, whether under this administration or the next. 

See the report for more.

Greater numbers

UK house prices returned to growth in January – rising 0.3% after a 0.4% dip in December, Nationwide reported this week. That tallies with other indicators suggesting that the economic clarity provided by the Budget at the end of November wasn't enough to revive activity before Christmas, but that buyers have emerged in greater numbers in the new year.

Lenders approved 61,000 mortgages to home purchasers during December, the Bank of England reported on Friday. That's down 1,600 from November and is the lowest reading since June 2024.

Activity will recover if affordability improves, though there are now questions as to how likely that is. Earnings growth has been outpacing house price growth alongside falling mortgage rates, but both trends may run out of steam this year - more on that in a moment.

Still, first-time buyer activity is rebounding strongly and was 20% higher than a year earlier, supported by a recovery in high loan-to-value lending. Santander this week launched a five-year fixed rate product at 98% loan-to-value.

Sounding the alarm

Swap rates, instruments that lenders use to price mortgages, have surged in the past fortnight following stronger-than-expected economic data. Tom Bill took a deep dive into those numbers on Monday, and I recommend his latest Housing Unpacked podcast with Pepperstone research analyst Michael Brown for more.

Lenders have already reacted – Nationwide, NatWest and Santander all announced hikes to their ranges this week; "these are fairly small increases at the moment, but they threaten to sap momentum from the recovery in activity that was so strong through January," Hina Bhudia of Knight Frank Finance tells the FT.

Investors have pared bets on rate cuts from the Bank of England – only one is now considered a near certainty this year, but as Michael Brown told Tom, there are good reasons to be sceptical of recent data points. Companies are sounding the alarm on earnings calls and a growing number of economists think the job market is weakening more rapidly than the Bank of England's forecasts suggest. 

New forecasts from The National Institute of Economic and Social Research suggest the unemployment rate will rise to its highest level in more than a decade later this year. It thinks the BoE will cut twice to 3.25% by the year end.

In other news...

Australian central bank reverses course with interest rate increase (FT).