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London’s luxury market takes a knock

London - London’s luxury homes will slump in value this year after Britain voted to leave the European Union, according to Savills.

Prices for the homes will drop 9 percent this year, the most since 2008, compared with a zero percent forecast made in October, the broker said in a report on Wednesday. Uncertainty surrounding the outcome of the UK’s negotiations to leave the political bloc will accelerate declines that began when higher sales taxes were introduced last year, Savills said.

The Tower Bridge is seen in this cityscape of London. File picture: Sxc.hu. Credit: FREE IMAGES

Savills, which had estimated values would surge 21.5 percent in the five years to 2020, cut that forecast to 3.2 percent.

“Brexit has clearly been a reality check for the high-value end of the market which had already been the most affected by a succession of property tax hikes,” said Savills Research Director Lucian Cook. “It’s difficult to see where upward pressure on pricing will come from until we know the outcome of the negotiations.”

Read also: Brexit talks: May keeps Europe guessing

Vendors of luxury homes were already struggling to sell their homes after the stamp duty sales tax rose to as much as 15 percent in April of this year for landlords and second-home owners. Following the referendum, potential buyers will wait to assess how Brexit negotiations proceed and the economic impact if the UK doesn’t secure passporting rights to sell financial services into the EU, Savills said.

Read also: May shrugs off veto threat by EU members

London’s most expensive homes have been the worst performers in central London’s best districts in the last five years, the report shows. The value of homes priced at 10 million pounds ($13 million) or more has risen 1 percent in the period compared with a gain of almost 35 percent for those priced from 500 000 pounds to one million pounds.

There was a three-percentage point increase in stamp-duty sales tax for landlords and second-home owners in April, which followed an increase in the charges for all luxury-home buyers in 2014. For owner occupiers, the hike means that a 12 percent tax rate is paid on portions above 1.5 million pounds.

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