Prime London Property Market: UK Politics Take Centre Stage as Global Risks Recede

The Middle East conflict is no longer the dominant force shaping the outlook for the UK property market.

Provided there is no significant escalation in Iran, the power struggles on the left and right of UK politics will have a bigger impact than movements in energy prices or mortgage rates this year. This is particularly true as the US and Iran inch towards a peace deal.

As we approach the tenth anniversary of Brexit, the tensions exposed by the EU referendum are still simmering. The recent local elections were the latest sign that voters are losing faith in Labour and the Conservatives, the two parties that have dominated British politics for a century.

On the left, there is an unofficial Labour leadership contest taking place as Manchester Mayor Andy Burnham attempts to become an MP in the constituency of Makerfield in north-west England. We explored the implications of his attempt to unseat Keir Starmer in more detail last week.

Burnham’s policies remain somewhat vague and changeable, which is no surprise given that he is trying to appeal to a wide range of electorates. A profile in the online Manchester newspaper The Mill this week concluded that he was a good communicator but appeared to lack a consistent governing framework.

Other candidates for the top job include Wes Streeting, who has begun to sketch out his vision for the country, including a change to capital gains tax rates, which we also explored last week.

Blair Joins the Fray 

Former Prime Minister Tony Blair joined the conversation this week by publishing an essay with his thoughts on how Labour should be governing. While raising bigger questions around welfare spending and the net zero agenda, one point he made was that aligning rates of income tax and capital gains tax had previously been dismissed as a bad idea.

Why does this ideological wrangling matter for the property market? In simple terms, if a government isn’t prepared to cut spending meaningfully or introduce broad-based tax rises, the financial reality faced by any Chancellor means we are likely to see another so-called ‘smorgasbord’ of tax rises on assets such as wealth and property.

A Prime Minister to the political left of Keir Starmer may also mean increased speculation around policies such as rent caps, a trial balloon that the current government quickly shot down in April.

With the Labour Party likely to retreat into its political comfort zone, it’s difficult to see an outcome where the government doesn’t move to the left, irrespective of who is leader.

Meanwhile, on the right of UK politics, the debate has primarily focussed on the issue of immigration, arguably one of the drivers behind the vote to leave the EU in June 2016. 

Polling suggests that a feud between the leader of Reform (Nigel Farage) and Restore (Rupert Lowe) could split the vote and increase the chances of Burnham’s victory in Makerfield. The odds of Labour winning have been shortening in recent days.

There are several moving parts but the outcome of this factional infighting across the UK political spectrum is key for the future of the property market, wider economy and ideological direction of the government.

Adverse Landscape

Meanwhile, the adverse tax landscape is one reason that prices remain under pressure in prime London property markets. High rates of stamp duty and the lack of a viable replacement for the non dom regime are two issues causing buyers to hesitate. Higher borrowing costs as a result of the Middle East conflict is also a drag on demand.

Average prices in prime central London (PCL) fell 3.6% in the year to May after a 0.7% decline over the last three months. The total decline since the last peak in August 2015 is 22.1%.

Meanwhile, prices in the more domestic and needs-driven market of prime outer London (POL) fell 0.5% over the 12-month period, taking the total decline since the last peak in mid-2016 to 7.2%.

The total number of exchanges in PCL and POL in the first four months of this year was 12% lower than in 2024, Knight Frank and LonRes data shows. Comparisons with last year are distorted by stamp duty changes. 

The downwards pressure on prices seems set to continue. The number of new prospective buyers in London was 18% below the five-year in the first four months of this year, Knight Frank data shows. Meanwhile, the number of listings was 11% higher, according to Rightmove.

How long the downwards pressure continues will depend on what happens at Westminster in the coming months.