After what must have been the most prolonged exercise in kite flying in the run up to a Budget, the introduction of an annual tax surcharge for properties worth over £2m, at levels somewhat lower than many will have feared, is probably the least worst outcome for owners of prime property.
Charges will range from £2,500 per annum on properties worth £2m to £2.5m to £7,500 per annum for those in the highest band, at £5m+.
And with the uncertainty in the run up to the budget having already impacted prices, the impact on the market will be much less severe than it would have been in the event of an open-ended mansion tax.
However unwelcome any tax increase, the certainty which this provides will allow buyers and sellers to formulate plans which have been put on hold over recent months. This is likely to underpin a short term pick up in market activity, especially given the breathing space offered by a delay in implementation whilst the valuation exercise is conducted.
Over the longer term the measures are likely to act as slightly greater incentive for older home owners to downsize and, in some cases, heavily mortgaged owners of high value homes to move to a less valuable property pushing some demand out of London into the commuter zone. However, this impact will be tempered by any ability to defer any charges until sale or death which should prevent a rush of stock coming to the market.
In the more domestic markets, it will temper the size of mortgage those using debt to fund a purchase would otherwise be able to secure. But in reality this will be more dependent on the pace and scale of future interest rate cuts.
At the very top of the market the policies themselves are not big enough to warrant a change in the demand supply dynamic of the central London market.
All of this, combined with the fact that some of the risk at the top end of the market has already been priced in, is likely to mean that, overall, any further impact on prices is relatively modest, although it is likely to be a further drag on the recovery of the prime market. However, it is likely to have a disproportionate impact on second home markets which are already dealing with an increased stamp duty surcharge and the doubling of council tax in most cases.