Does the PM’s election gamble also mean borrowers will be taking a risk if they buy property during this uncertain period?
Prime Minister Theresa May’s snap general election may be a clever political move to strengthen her position in Brexit negotiations. But could her concern about striking a good deal with Europe be to the detriment of those also wanting to get a good deal when buying a house here in the UK?
The housing market is similar to many others in that it tends to do well when there is political and economic stability, which underpin consumer confidence.
On the face of it, our current political situation is anything but stable. This election will be the fourth time a national vote has been called in as many years and, despite May’s strong standing in the polls at the moment, the election of Donald Trump as US president and the overthrow of France’s traditional political parties are salutary reminders that anything is possible at a time when ‘people power’ appears to be the order of the day.
May has taken a calculated risk and she knows it. Could her gamble mean borrowers will also be taking a risk if they buy property during this period of uncertainty?
Although some would advise a wait-and-see approach, others will point to the fact that, with Labour leader Jeremy Corbyn’s approval ratings so low, a Conservative success seems reasonably assured. The City appears confident of a Tory win and the recent strengthening of the pound indicates that a victory for May will be viewed as a victory for UK Plc.
In its April 2017 Residential Market Update, Knight Frank says the housebuying season (which typically takes place in spring and autumn) will have a bigger impact on housing sales than the general election.
It says: “The UK housing market is likely to continue on its current trajectory in the run-up to the election, with price growth expected to continue to ease in the coming months. As ever, the headline numbers mask a multi-speed market, with the latest data from the ONS showing that average house prices in the East of England rose by 10 per cent in the year to February, compared to 4 per cent in Greater London and 2 per cent in the North-east.”
Mercury Homesearch founder Jeremy McGivern acknowledges in his most recent newsletter that “the side-effect of the election is that it will likely cause many people to further delay any decisions about acquiring property until June”. However, he points out that: “Politics has never had any effect on the UK property market. The property cycle has repeated like clockwork with only two exceptions – the two world wars.
“We have had kings, queens, Conservative and Labour governments, and various incompetent pieces of legislation. We have been in and out of Europe, fought several wars over 400 years, and built and lost an empire. We have suffered IRA bombing campaigns and a ‘brain drain’ in the late 1970s when the UK was even described as ‘the sick man of Europe’. None of which has ever affected the property cycle.”
It is inevitable that, when apparently momentous events such as a general election, Brexit and a possible second Scottish referendum all loom on the horizon, potential homebuyers could be reluctant to take the plunge. However, that may be irrational decision making. Despite slower house prices, there is much evidence that property investment in the UK is still a sound choice.
It is also worth bearing in mind that what look like turbulent times here at home are mere surface ripples compared to other parts of the world. For Far and Middle Eastern investors, as well as those across Europe, the UK property market – and London in particular – remains an attractive proposition.
London is, and will remain, a leading global powerhouse. The UK economy is regarded as being strong, our political system stable (yes, honestly) and our property market an appealing investment.
The election may make it feel as if we are in for a bumpy ride but most of the indicators I am seeing seem to show it is likely to have far less impact on the property market than the normal market forces of supply and demand.
Peter Izard is business development manager at Investec Private Banking