Election Result and Mortgage Rates

Posted on 13 April 2010 by sukhpal deol


How will the election result impact mortgage deals and rates in the next few months?

Hi Sukhpal

You will find a full article under the Mortgages and Me section of this website entitled:

'Bank rate held, politics still key'.

Peter

Further to the above the following may be helpful:

All the recent marginals polls suggest that the risk of a hung parliament is significantly lower than indicated by the national polls. The most recent marginals poll is from PoliticsHome, which has commissioned YouGov to provide weekly regional voting intention data during the election campaign. This week’s poll shows a national swing from Labour to Conservative since the 2005 General Election of 5% but a much higher swing in the marginals rich North and Midlands. For example the swing is 8.5% the North East, 7.5% in the North West, 9% in the West Midlands and 7.5% in the East Midlands.

A hung parliament, or even one where the overall majority is very small, say under 10 seats, is usually a recipe for indecision, at least as far as nasty medicine is concerned, as all the parties think ahead to another election in the relatively near future and aim to avoid alienating the voters with unpopular decisions. This seriously increases the risk that the UK’s enormous fiscal deficit will not be addressed as robustly as the markets consider necessary, with the likely consequences being an increase in gilt yields, which would filter through to the cost of fixed rate mortgages, a fall in sterling, or both.

A hung parliament would also significantly increase the risk of the UK losing its AAA credit rating. Despite the credit rating agencies demonstrating their incompetence in the run up to the credit crunch, what they say still has a surprisingly large amount of influence and so, whatever one’s views of the agencies, what they say can not be ignored.

Anyone considering a new mortgage before the election therefore can’t afford to ignore political considerations, not only because of the impact the result could have on interest rates but, perhaps even more importantly, also because of the impact the result will have on the UK economy. Because the market is expecting a small overall Conservative majority, but recognizing the risk of a hung parliament, a small part of the likely increase in gilt yields if we get a hung parliament is already reflected in current yields. Therefore in addition to a hung parliament resulting in an increase in gilt yields and mortgage rates I would expect gilt yields and the cost of fixed rate mortgages to fall modestly if the Conservatives secure a sufficient overall majority to enable them to govern for a full term.

There is unlikely to be much effect on tracker rates in the short term. It is fixed rates where the main impact will be, and primarily longer term fixes of 5 years or more. The election is unlikely to have much impact in the short term on the number of mortgage deals available.

Ray

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