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The UK general election 2024 and its impact on the mortgage and housing market.
- threekeysmortgages
- Jun 27, 2024
- 5 min read
As a mortgage advisor, part of my role is to help you navigate through the complexities of the housing market, especially during times of economic and political change. With the UK general election looming, many of you might be wondering: how will this affect my mortgage? What can I expect for house prices? Let's dive into some insights and predictions to help you stay informed.
The Current Landscape
Leading up to any general election, uncertainty tends to ripple through financial markets, including the housing sector. This time is no different. Prior to the announcement of this general election there was speculation of a possible Bank of England base rate reduction in June. As soon as the election was announced I knew we would not see anything until at least the next MPC meeting in August.
As we approach July 4th, political campaigns are in full swing, each party advocating different policies that could potentially shape the housing market for years to come. Because of this, it has naturally left the housing and financial markets in a position of ‘wait and see’.
Impact of a Conservative Win
Historically, under Conservative leadership since 2010, the housing market has experienced notable fluctuations. Mortgage rates have seen highs and lows, closely tied to changes in the Bank of England base rate and economic policies aimed at stabilizing the market. The Conservatives have introduced initiatives like Help to Buy and made adjustments to Stamp Duty, influencing buyer behaviour and market dynamics.
Should the Conservatives secure another term, we might anticipate a continuation of policies aimed at promoting homeownership and stimulating housing supply. This could mean potential stability in mortgage rates, although market conditions and broader economic factors will continue to play a crucial role.
Its fair to assume that as we were heading toward hitting the inflation target and the Bank of England was edging toward rate cuts, if the Tories remain in power, the path will continue as it was.
Impact of a Labour Victory
On the other hand, a Labour victory could usher in different economic strategies that might impact the housing market differently. For instance, Labour has proposed ambitious plans to increase housing supply, potentially aiming to build 1.5 million homes over the next five years. Such initiatives could impact housing affordability and rental markets, influencing both buyers and sellers.
Labour's policies, such as the Freedom to Buy mortgage scheme aimed at assisting first-time buyers, could introduce new dynamics into the mortgage market. This might include incentives or regulations that reshape how mortgages are accessed and utilized, potentially affecting interest rates and lending criteria.
1. Freedom to Buy Scheme
Labour has pledged to make the current mortgage guarantee scheme permanent under the new name "Freedom to Buy". This initiative, initially introduced by the Conservatives, aims to assist first-time buyers by enabling them to secure mortgages with deposits as low as 5%, with the government acting as a guarantor for part of the loan. This scheme is projected to help over 80,000 young people step onto the property ladder within the next five years.
The permanence of the scheme, according to Labour, is intended to provide stability and certainty for prospective buyers, particularly those facing challenges in saving for substantial deposits amid rising house prices. By reducing the entry barrier, Labour aims to empower more individuals to achieve homeownership, thereby potentially stimulating housing market activity.
2. Impact on Mortgage Rates and Affordability
Labour's commitment to economic stability and fiscal discipline is aimed at maintaining low mortgage rates. They emphasize stringent fiscal rules and economic institutions to safeguard against economic shocks that could otherwise impact mortgage affordability. By ensuring stability, Labour seeks to mitigate the risk of sudden increases in mortgage costs, which have historically strained household finances under previous Conservative administrations.
3. Housing Supply and Development
Beyond mortgage policies, Labour's housing strategy includes ambitious plans to build 1.5 million new homes over the course of the next Parliament. This initiative is intended to alleviate housing shortages and meet growing demand, particularly in urban centres where affordability remains a pressing issue. Additionally, Labour proposes reforms to planning regulations to expedite development on brownfield sites and prioritize local residents for new housing allocations, effectively challenging the dominance of international investors in the property market.
4. Taxation and Foreign Investment
Labour's stance on taxation includes measures to increase Stamp Duty Land Tax (SDLT) on foreign buyers, aiming to rein in speculation-driven price inflation and generate revenue to fund housing initiatives. This move is part of their broader strategy to rebalance the housing market in favour of domestic buyers and renters, addressing concerns about affordability and accessibility.
Potential Challenges and Considerations
While Labour's proposals offer promising avenues for expanding homeownership and addressing housing shortages, some industry experts caution that policies like the Freedom to Buy scheme may have limitations. For instance, concerns persist about whether reduced deposit requirements alone will suffice to improve affordability, particularly in high-cost regions like London where property prices remain prohibitive for many first-time buyers.
Moreover, the effectiveness of Labour's housing and mortgage policies will depend on their implementation and ability to navigate broader economic challenges. External factors such as global economic conditions and market sentiments could also influence the outcomes, underscoring the need for adaptive policy frameworks and strategic oversight.
Experts believe overall Labours plans will have a net positive effect on the mortgage and housing market.
The Influence of Previous Elections on the Real Estate Market
Richard Donnell, the executive director at Zoopla, suggests that the upcoming general election is expected to slow down the pace of purchase transactions. This anticipated reduction in activity might result in fewer completions than Zoopla’s predicted 1.1 million for the year. However, it’s unlikely that this election will have as dramatic an impact on the housing market as seen in past elections, largely because the policy differences between the two major parties are not substantial.
Additionally, data from Compare My Move looks at how house prices have changed after the last seven general elections. Their findings indicate that, on average, house prices increase by 4.6% in the 12 months following an election. Interestingly, the data shows a slight difference in the impact of each party on this increase. Under a Labour government, house prices tend to rise 1.1% more than under a Conservative government. The most significant increase in house prices occurred after the 2015 general election, where prices rose by 8% in the year following David Cameron’s Conservative majority win. According to Compare My Move, “One of the most significant factors affecting house prices since 2005 is whether the winning party has achieved a majority. When a party wins a majority, house prices increase on average by 6.9% more than when the election results in a hung parliament.”
As your trusted mortgage advisor, at 3 Keys Mortgages, we're here to provide clarity and expert guidance regardless of the election outcome. Whether you're considering buying your first home, looking to remortgage, or simply wanting to understand how political changes might impact your financial plans, we're dedicated to helping you navigate these uncertainties.
Final Thoughts
While the general election undoubtedly introduces uncertainty, it's essential to remember that the housing market's resilience often surpasses short-term political shifts. Economic fundamentals, interest rates, and supply-demand dynamics remain pivotal factors shaping the market's trajectory.
Overall, it appears that the two parties do not have significant differences in their policies that would greatly influence the housing and mortgage market. While there is speculation that some of Labour's proposals could lead to higher inflation and potentially affect interest rates, the overall impact seems limited. What we do know is the markets will remain cautious until after the election. We need to then see what happens with the MPC meeting in August and of course wait for the winning government's budget later in the year.
At 3 Keys Mortgages, we're committed to staying updated on market trends and policies to provide you with the best possible advice tailored to your needs. Get in touch today to discuss your mortgage options and how we can assist you in achieving your homeownership goals.
Stay informed, stay prepared, and remember, 3 Keys Mortgages is here to help you every step of the way.
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