What impact will the general election have on the mortgage and housing market?

Posted on 25 April 2017 by Richard

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Ever since becoming Prime Minister following the EU referendum Teresa May has insisted the next General Election will be in 2020 and has consistently played down the prospect of an early election. Her reasons for this were simple enough - she didn’t want to cause unnecessary instability during the long Brexit negotiations.

Whilst her abrupt change of mind, which amazingly didn’t leak until a few minutes before the official announcement, was no doubt influenced and motivated by party political considerations, a key factor appears to have been that the initial EU response to the Article 50 letter had been more hard line than expected. Mrs May no doubt feels that obtaining her own majority, especially with the probability of a much larger one, will significantly strengthen her negotiating hand - but what impact will it have on the housing market?

We asked for your views:

Immediately after the announcement of the snap election we asked for your views on Twitter with the question: If you were looking to buy, sell or remortgage your home does the prospect of a snap election change your immediate plans?

Of 142 people who cast their vote in just 23% said that it was going to influence their plans. So what impact, if any will the unexpected election have on the housing market? We asked our expert Ray Boulger for his analysis.

What impact will this snap election have on the housing market and mortgage rates in general?

Since the election announcement there has been no significant reaction in the gilt market, or to swap rates, so there is no reason to expect any short-term impact on mortgage rates. However, sterling has improved by over 2%, which will help mitigate inflationary pressures.

The short timescale between now and the election means that there is unlikely to be much impact on the number of housing transactions. Most transactions which will complete between now and the election will already be in progress and with the result of this election, although not the size of the majority, being one of the most predictable in many years, anyone deferring planned activity in the housing market is looking for an excuse to do so, rather than doing so because of the election.

Analysis of sales transactions over the course of the last nine general elections indicates there is usually a slight dip in activity pre-election, but post-election there is always some bounce-back in the number of sales. However, this year it is going to be more difficult than usual to assess any election impact on activity.

This is because of the massive distortion in transactions last year following the 3% stamp duty surcharge imposed from 1 April. As a direct consequence of this, housing transactions in March 2016 were 87.3% higher than in March 2015 and all of the twelve months since then have shown year on year falls. Furthermore, transactions in April 2016 were 57.1% lower than March 2016. Any impact the election has on transaction volumes will be trivial compared with the impact of the stamp duty surcharge!

Therefore, if you were thinking of putting your home on the market, or it already is, and/or you are planning to buy or remortgage, you should continue as normal. There are plenty of low mortgage rates around at the moment and there is little reason to think that will change because of the election.

What is much more interesting is how this election will impact the political arena and our political leaders. A comment I have heard from several sources is that the early election increases uncertainty. I take the opposite view - there is actually minimal uncertainty over which party will be in Government on June 9 but after the election there will now be three years of certainty, rather than one, in terms of which party will be in Government post Brexit. I believe this is much more important, both in terms of strengthening the Government’s negotiating hand and providing a reasonable time frame for the Government to legislate for the most important post Brexit decisions.

The early election also slightly improves Labour’s chances of not being in power until at least 2025. Despite Jeremy Corbyn claiming he will not resign if he loses the election it is hard to see how he can avoid this. However, the big question is whether those entitled to vote for the next Labour leader will vote for someone who might actually be able to win an election. The Liberal Democrats should gain seats again after their dire 2015 performance and so Tim Farron’s position as leader should be safe, but whether UKIP do well enough to save Paul Nuttall is more difficult to say...

Got a question on the housing market or mortgage rates that you'd like to put to our team? Enquire here or call us now on: 0344 346 3672

Categories: House Prices, Government


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