It's Not Trump v Khamenei — It's Starmer v Burnham: Why UK Property Prices Are Suffering

As Middle East tensions ease and US–Iran peace talks inch forward, the dominant force bearing down on the UK prime property market is not a foreign adversary. It is the Labour Party tearing itself apart on the road to Makerfield

By Susan Essex

01 Jun 2026

For the past eighteen months, mortgage brokers advising clients in the upper echelons of the London property market have had one eye permanently trained on the Strait of Hormuz. The Middle East conflict sent energy prices lurching, pushed swap rates higher and gave buyers at every price point an excuse to hesitate. That excuse is quietly dissolving. As the United States and Iran inch towards a negotiated settlement, the conversation in Westminster is filling the vacuum — and for anyone whose business touches prime London property, it is a considerably less comfortable one.

Tom Bill, head of UK residential research at Knight Frank, put it plainly in his market note of 29 May: the power struggles on the left and right of British politics will have a bigger impact on property this year than movements in energy prices or mortgage rates. The data behind that judgement is sobering. Average prices in prime central London (PCL) fell 3.6 per cent in the year to May 2026, with a further 0.7 per cent decline recorded in the final three months alone, according to Knight Frank. The cumulative fall from the August 2015 peak now stands at 22.1 per cent.

The Makerfield Moment

At the heart of the political turbulence is a by-election scheduled for Thursday 18 June in the constituency of Makerfield, north-west England — a date confirmed by Wigan Council. The seat was vacated by Labour MP Josh Simons specifically to allow Greater Manchester Mayor Andy Burnham a route back into Parliament and, thereafter, a formal bid for the Labour leadership. A Survation poll conducted 18–22 May for The Times and Sunday Times placed Burnham (Labour) on 43 per cent against Reform UK's Robert Kenyon on 40 per cent, a margin well within the margin of error of ±5.4 percentage points (source: PollCheck/Survation, 26 May 2026).

For mortgage professionals, the prospect of a Burnham premiership matters because it almost certainly means a government positioned further to the political left than the present one. His platform has included calls for stronger state control over housing and infrastructure, and financial market commentators have flagged that the ideological direction of travel is hostile to the concentration of wealth that tends to be stored in prime London postcodes.

"With the Labour Party likely to retreat into its political comfort zone, it's difficult to see an outcome where the government doesn't move to the left, irrespective of who is leader."

— Tom Bill, Head of UK Residential Research, Knight Frank, 29 May 2026

Blair Enters the Ring and CGT Returns to the Agenda

The debate gained a new dimension this week when former Prime Minister Tony Blair published an essay on Labour's governing priorities. Among his observations was a notable one: the previously dismissed idea of aligning income tax and capital gains tax rates should not be discarded out of hand. That single passage sent a shudder through wealth advisers and property lawyers — not because it represents current policy, but because it signals the intellectual space in which the next Labour leader may operate.

Wes Streeting, another potential leadership candidate, has already sketched out a vision that includes changes to capital gains tax rates. The pattern is consistent: every leadership contender is reaching for the same toolkit of asset taxation, which in the UK context inevitably means property. For brokers arranging mortgages on second homes, investment portfolios or higher-value primary residences, these are not abstract ideological disputes — they are the forces shaping client appetite and transaction volumes right now.

If any Chancellor finds it impractical to cut spending meaningfully or introduce broad-based income tax rises, the financial logic points, as Bill puts it, towards another "smorgasbord" of taxes on wealth and property. A government that drifts leftward — irrespective of whether Starmer or Burnham occupies Number Ten — is, for these purposes, a government in search of the same revenue sources.

The Stamp Duty Millstone

The tax environment is, of course, already hostile. SDLT thresholds reverted to pre-2022 levels in April 2025. According to analysis published by London Business News on 20 May 2026, a buyer acquiring an average £2 million prime property in central London now hands HMRC £153,750 in stamp duty before a single key turns. Add the additional-property surcharge or the non-resident surcharge and the bill climbs past £250,000. For a buyer financing that acquisition with a mortgage, the transactional friction is now so great that hesitation is not merely rational — it is the default position.

The abolition of the non-dom regime has compounded the problem, with Knight Frank citing the lack of a viable replacement as a specific drag on demand. Analysis published by Mortgage Introducer, drawing on Hamptons data using Connells Group buyer registrations, shows that demand from Middle Eastern buyers — a cohort once synonymous with prime London activity — has fallen to its lowest share since 2013, running 58 per cent below the level recorded in March 2025. While North American buyers have partially filled the gap, their focus has shifted towards mainstream London and owner-occupation rather than prime central London investment.

Key Numbers at a Glance

Prime Central London prices: −3.6% in year to May 2026 (Knight Frank, 29 May 2026)
Prime Outer London prices: −0.5% over 12 months (Knight Frank, 29 May 2026)
PCL/POL exchanges Jan–Apr 2026: 12% below same period in 2024 (Knight Frank/LonRes)
New prospective buyers in London: 18% below five-year average, Jan–Apr 2026 (Knight Frank)
London listings: 11% higher year-on-year (Rightmove, as cited by Knight Frank, 29 May 2026)
SDLT on a typical £2m PCL purchase: £153,750 (HMRC current rates, via London Business News, May 2026)
PCL total decline since August 2015 peak: 22.1% (Knight Frank, 29 May 2026)
Makerfield by-election polling: Burnham (Lab) 43%, Kenyon (Reform) 40% (Survation for The Times, 18–22 May 2026; MoE ±5.4pp)

What the Rate Environment Actually Means

Mortgage brokers will be aware that the Bank of England held rates at its most recent meeting, and there are early signs that a more stable rate environment is beginning to shift client behaviour. As reported by Mortgage Introducer, Sam Fox of UK Mortgage Centre described the shift: the direction of travel is becoming clearer, feeding through into lender pricing and client confidence, with buyers moving from "let's wait and see" to "let's secure something and review if things improve."

Kevin Gibson of Ascot Bridging Finance similarly told Mortgage Introducer that the rate hold was providing clients with renewed certainty around planning, whether purchasing, refinancing or exploring bridging options. The consensus among brokers speaking to this publication is that a more stable, if still elevated, rate environment is beginning to generate pipeline activity — particularly in the mainstream residential and bridging sectors. The prime central London market, however, operates on a different calculus. Its buyers are, as Knight Frank notes, typically more discretionary, and the political risk premium now attaching to prime London assets is not one that a base rate hold alone can dissolve.

Reform, the Right, and the Risk to the Vote

The turbulence is not confined to the Labour Party. On the right of UK politics, the confirmed candidate list for Makerfield now includes Rebecca Shepherd standing for Restore Britain — the party led by Rupert Lowe following his split from Nigel Farage's Reform — alongside Reform's Robert Kenyon. The fractured right-of-centre vote could prove decisive in a constituency where Reform swept 50 per cent of the vote in the May 2026 local elections against Labour's 23 per cent across the Makerfield wards, according to ITV Granada. Knight Frank's Bill observed that the odds of a Labour victory have been shortening in recent days.

The broader context is one of a party system in genuine crisis. The May local elections delivered further evidence that voters are losing faith in both Labour and the Conservatives, the two parties that have dominated British politics for more than a century. As the United Kingdom approaches the tenth anniversary of the Brexit referendum, the fissures exposed by that vote have not healed. That fragmentation generates exactly the kind of policy uncertainty that discourages high-value property transactions — purchases that are, by their nature, long-duration financial commitments made on the basis of a stable legal and fiscal environment.

What This Means for Mortgage Professionals

For brokers advising clients in the prime central and prime outer London markets, the near-term picture is clear: supply is rising, demand is falling, and the political environment offers no obvious catalyst for recovery before the Makerfield result on 18 June. Knight Frank data shows new prospective buyers in London running 18 per cent below the five-year average in the first four months of this year, while listings are 11 per cent higher according to Rightmove.

Knight Frank's Q2 2026 housing market forecast, published on 27 April, revised its prime central London price expectation for the full year to minus two per cent — a downgrade from the flat outcome it had previously anticipated. The caveat the research team attached is instructive: it noted the particular uncertainty around whether Rachel Reeves and Keir Starmer would still be in Downing Street after the summer. That question will be substantially answered by the Makerfield result.

Brokers who have clients considering transactions in prime London — whether as owner-occupiers, investors or those revisiting buy-to-let portfolios following the introduction of the Renters Rights Act — would be well served by framing the conversation explicitly around political risk. The global backdrop has rarely looked less threatening as a near-term driver. The domestic backdrop has rarely looked more consequential.

The old adage holds that property investment requires a long time horizon. In the current climate, that horizon runs to 18 June — and then, depending on what happens in north-west England on that day, possibly considerably further still.

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