London's luxury property market is crumbling and this is terrible news for affordable housing
If luxury properties don't tempt the rich then those in a lower band will, pricing out prospective buyers with less money.
Houses in the most sought after areas in London - such as Belgravia, Kensington, and Knightsbridge - are selling at a huge discount, according to LonRes data cited by the Financial Times.
For example, 59% of sales in Knightsbridge and Belgravia were selling at a discount of at least 10%. Meanwhile over half the properties on sale in Mayfair and Marylebone had similar discounts applied.
LonRes data from the FT also showed that houses on the market for £5 million or more were hit by an 11.1% discount on average. Stamp duty is probably the biggest issue right now for wealthy property owners.
Firstly, anyone buying a property over £1.5 million is stung with a huge 12% stamp duty fee.
Stamp duty is a tax placed on buyers when they purchase a property in the UK. It is payable on completion of the property - once both vendor and buyer sign all the documents and the funds for lawyers, housing deposit and/or capital, are transferred in one go via your solicitor.
So this works out to an extra £93,750 if you're buying a property at £1.5 million, according to the government's stamp duty tax calculator. However, if you're buying a property for £5 million, you'll be forking out £513,750 just in stamp duty fees.
Secondly, if you own more than one property, a 3% stamp duty is applied. The new fee came into force in April and is applicable to buy-to-let investors and those who are buying a second home. This 3% fee is on top of the extra cost of a new purchase in April.
The knock-on effect on affordable housing
This only squeezes the already squeezed market.
High home prices have become so normal that developer Telford Homes, which focuses on "non-prime" areas of London, said that with average prices "comfortably below £600,000" its apartments are "relatively affordable."
Low supply and high demand has pushed the average price of houses in London to a huge £524,000, according to the Office for National Statistics.
To put this into perspective, the average Londoner earns around £30,000, so those in the capital are already squeezed for cash to buy a place. In fact, London's property market is already at a tipping point because people are borrowing so much money, something has to give.
Already at the bottom end of the luxury property market - around the £1.5 million mark - home buyers are starting to drift away.
Rob Tincknell, chief executive of the Battersea Power Station Development company (BPSD), told The Guardian that the £1.5 million apartments being built in the Battersea power station redevelopment are being held back from the market because not as many people want them.
So what does this all mean? As London's richest slip from luxury properties to avoid fees, they're likely to turn so-called affordable housing into something completely unaffordable for the average Londoner.