What is the point of owning a mansion in Mayfair?
London’s luxury property market has bigger problems than the ‘exodus’ of wealthy non-doms
As a student living in South Kensington, I used to spend hours walking the streets of central London with my pocket-sized A-Z. Quite often, I’d be in search of a new pub; but not always. Sometimes I’d just explore, admiring rows of elegant stucco-fronted houses, and wonder who lived in the dark rooms inside, beyond the glossy black railings — and who would, who could, buy one?
Well, if various newspaper reports are to be believed, it’s not wealthy non-doms any more. Since the rules changed in April, they’ve all hotfooted it to Dubai or Milan or other places that aren’t going to try to levy a 40 per cent inheritance tax on their worldwide assets when they die.
Prices in what estate agents call prime central London have fallen recently — down 3.7 per cent in the second quarter of 2025, compared with the same period last year, according to Savills, an estate agent. Knight Frank says the number of sales of London homes worth £5mn and above were down 15 per cent in the year to June.
The industry has been quick to blame the exodus of the wealthy. But to do so, especially since there are doubts over the numbers leaving, is to miss the forest for the trees.
The fact is, the market for luxury homes in London has been dead for more than a decade.
And why? To answer that, I find myself asking the same question I did as a map-clutching student — albeit with a slightly different emphasis: who in their right mind would buy one?
EuroMillions winners, perhaps; maybe the odd business mogul for whom money has ceased to be a concern. But for everyone else, even if they had the money, it’s not clear how buying a mansion in Mayfair would make much financial sense. What would be the point?
This isn’t a frivolous question. Homes priced at £5mn or more might only make up 0.1 per cent of total residential transactions across the country, but they account for a far higher proportion of the value of properties transacted (4.2 per cent). They also make up a chunk of the stamp duty collected (11.3 per cent); and then there are the professional fees and tax receipts that they generate.
So what is the economic case for buying such a home? Let’s take a real-world example: there’s a 10-bedroom mansion and mews in Mayfair that’s currently listed for both sale and rent. It’s an impressive, imposing home — and, my trusty A to Z informs me, is within stumbling distance of Ye Grapes pub.
But if you paid the asking price of £20mn, you would also pay at least £2.3mn in stamp duty — and that’s as a domestic buyer purchasing a primary residence. For a non-UK resident buying a second home, that sum rises to £3.7mn.
A rounding error for the types of people who buy mansions in Mayfair, right? But if you compare that to the annual asking rent of £570,000, it puts its value into perspective. For the amount a UK-residing owner-occupier would have to pay on the stamp duty alone, they could rent the place for four years. For an overseas buyer who already owns a property, it’s six and a half years.
And what if you’re renting it out? From an investment perspective, you’re looking at a gross yield of just 2.9 per cent: there are clearly other attractive alternatives out there such as gilts — especially once you factor in the costs of renting and void periods (this mansion has been available to rent for a year, by the way).
Low rental yields have been a feature of the top-end housing market for more than 10 years. LonRes data shows the average gross rental yield in central London was 2.6 per cent at the end of 2014; they have risen in the past few years, up to 4 per cent, but this varies by property type. In Mayfair, the average yield is currently around 3.1 per cent.
So, the bigger attraction for investors is wealth preservation and capital growth.
Unfortunately, capital growth has been absent for a decade. Savills says the average value of homes in central London has fallen by 22.4 per cent in nominal terms since its 2014 peak — that’s -45 per cent in real terms. The situation is less severe when you look at what is transacting rather than the whole stock, but it’s not exactly the long-term inflation busting growth that buyers might have assumed they were getting.
The killer blow to London’s luxury market came not, therefore, with the non-dom changes announced during last year’s Budget, but in the stamp duty reforms of a decade before.
Switching from the “slab” system (where a single rate is paid on the whole purchase price) to a “slice” (where successive bands of the purchase price are taxed at increasing rates) in 2014 may have lowered stamp duty costs for the majority of buyers. But for the sale of multimillion pound properties — which naturally are concentrated in a few postcodes in central London — it increased the stamp duty payable, from 7 to 10.3 per cent of the purchase price for a £10mn home.
The blow took a little time to register: I recall estate agency chief executives were dancing in their offices when the threat of former Labour leader Ed Miliband’s mansion tax was eliminated by David Cameron’s election win in 2015, only for them to be hit the next year by George Osborne introducing the higher rate of additional duty on second and investment homes. Looking back, that might have been the final nail in the coffin for prime central London’s house price growth — but it’s been further hammered down by Brexit and the economic malaise since the vote.
It would be silly to suggest that owning a mansion in Mayfair is entirely without appeal. It’s a trophy home, a symbol of wealth and status and, thanks to its address, it may be a relatively safe option, given the global economic and political insecurity we’re currently experiencing.
Having a mansion as part of your portfolio can also provide cheaper debt than other forms of borrowing, thanks to the ease of getting a loan, even with current mortgage rates. This can be useful for providing emergency liquidity in the form of a mortgage agreed over the weekend to meet your Monday superyacht downpayment — as one homeowner in Belgravia found out last year.
But it’s risky. Despite a decade of falling prices, central London homes remain prohibitively expensive, especially given the broader interest rate environment.
A further damper is the growing number of properties for sale. Data from LonRes, which covers homes listed publicly and off-market, shows the number of £5mn-plus homes available to buy has risen by 68 per cent over the past three years, compared with 26 per cent for the wider central London market — and the number of homes is still rising.
At the least, that will limit future price growth and may even put downward pressure on prices if we start to see more motivated sellers.
As a result, mansions in Mayfair and other parts of central London might be the cheapest they’ve been for over a decade but, with limited prospects for future growth and higher interest rates, most potential buyers appear to think they’re still too expensive.
I don’t get to explore central London as much these days, but I try to keep up with the changes. For example, one of my favourite Mayfair pubs back in the day was the Red Lion on Waverton Street. Unfortunately it closed in 2009 and was converted into a mansion. Given what’s happened to house prices in the area, maybe they should have kept it as a pub.