London property prices fall in real terms as forced sales mount

In real terms, anyone who bought in London in 2016 and sells today has lost purchasing power: prices have risen less than inflation. The market is also facing forced sales as mortgages jump from 0% to 5% or more, and as the non-dom tax regime (a favourable scheme for wealthy foreign residents) comes to an end.

Property investment is not really an investment, no matter how much it is dressed up with leverage. And London is the best example of this. Since 2016, nominal housing prices in the British capital have risen by between **10%** and **14%**. Over the same period, inflation has climbed **41.8%**. The maths is simple: whoever bought then and sells today has lost money in real terms. They have not gained. They have lost.

## Brexit, stamp duty and the Grenfell tower dried up demand

The British market is sophisticated and professional because buy to let, renting out property as an investment, is deeply rooted in the culture. But in 2016 prices were very high and reasons began to emerge that restricted demand. Brexit dried up part of the foreign demand, the kind that does not care whether the price is 500 or 520 because what it wants is to buy.

Then came the changes to stamp duty, the tax on property transactions. The Government went from collecting **900 million** a year to **16,000 million** a year. Those millions reduce the payment capacity built into prices. And in 2017, the tragedy of **Grenfell** Tower was an earthquake for the entire property market. Buyers now need to look at the **ESW1** certificate, which flags the condition of a building's facade. A B2 rating makes a property effectively unfinanceable. There is a huge mess over who pays for facade repairs to bring buildings back into compliance, and that leaves buildings unsellable because they cannot get a mortgage. In the property world, without a mortgage there is no market.

## The monthly payment going from 2,000 to 3,000 pounds

Three more blows have been added to the previous ones. The first two significantly increase the supply of homes for sale: rental regulation has become unattractive and many buy to let investors are selling at market prices. And many people cannot afford to pay. The fixed-rate mortgage at **0%** so common in 2021 has been renewed in 2025 and 2026 at more than **5%**. That means many monthly payments have gone from **2,000** to **3,000 pounds**, and that is not affordable. Those who cannot manage it, sell.

The third blow is the cost of mortgages. They are between **5.5%** and **6%** for two- and five-year fixed terms. Variable rates are around **7%**, and buy to let rates add half a point. Financing a rental property no longer makes sense. On top of that there is a huge monthly cost that banks factor in when granting much less financing: the service charge, the equivalent of community fees, which in most flats runs at **500 pounds** a month or more. In two-bedroom apartments it can exceed **8,000 pounds** a year.

## The end of non-dom and a mansion tax that could drop to 1.5 million

The market is falling hard, with some areas already below their levels of 20 years ago in nominal terms. Add to that the evaporation of the **non-dom** regime and a mansion tax threshold set at **2 million** that could drop to **1.5 million**. Recent studies show that, over 20 years at current inflation, there are millions of homes where the mansion tax would apply. In other words, a one-off tax today that is being drafted so it can be applied on a massive scale across the country.

London is starting to resemble what peine in Spain: in 2008 sellers held out, but they gave in in **2012** because there was no financing, and prices fell dramatically until **2014**. In the property market, what crushes prices are long periods of weak demand. Sellers can ride out a bump; several weak years sap their sarracena and they sell. In London, a city built for non-doms without non-doms, buy to let offers no returns and mass sell-offs are taking place. The market is likely to stay weak because mortgage rates will remain high, and in a country where wages rise slowly for such a large purchase, that deters buyers. This is not about investment, but about diversifying wealth across countries and currencies. If you are considering buying, it is wise to seek professional advice first.