What Does Last Week’s Conservative Victory Mean For The Property Market?
It has now been over three years since the British people voted to leave the European Union and yet it was only on Friday, after a brief but bloody election campaign, that the fact of our leaving finally solidified into something approaching a certainty. Boris Johnson reclaimed his position as prime minister; the conservatives gained the historic majority they will surely need to push Brexit through to completion; and the British populace delivered a clear and unambiguous message to its politicians: we are sick to death of Brexit; we want it to be completed as quickly and efficiently as possible; all other matters of policy are of only incidental importance until this has been done.
This result has so far proven wholly positive insofar as the markets are concerned. The pound-to-dollar exchange rate is up to its highest level since May 2018; the pound-to-euro exchange rate is up to a three-and-a-half year high; the FTSE share index rose 1.7% on the back of the election result, and the FTSE 250, an index comprised of medium-sized firms with a UK focus, leapt 3.5% to a record high.
The manner of our exit from the EU is still to be decided, but we now, at the very least, have a number of certainties upon which to construct the future of our nation: for one, we know that we will be leaving the EU – talk of a second referendum can, for better or worse, be put to bed. We also now know, beyond any shadow of a doubt, that the conservative party, with Johnson at its helm, will be the one guiding our ship through the storm. There are still myriad questions left to be answered – many a plotline yet to be resolved – but at least we are finally moving forward, away from potentialities and possibilities and towards something certain and concrete.
With the election beginning to shrink into the rear-view mirror and Boris securely installed in number 10, the next question left to ask is how might a Tory government impact the property market?
The conservative focus this election has clearly been on Brexit, and their lack of inspiration with regards to their housing policies clearly reflects this preoccupation. They have promised, for example, to build 1 million new homes over the next five years, with the net annual increase in housing stock to rise to 300,000 by 2024. These figures may sound impressive at a glance, but they were arguably the least ambitious of all the housebuilding targets presented by any of the major parties. Moreover, latest official figures have the current net annual increase to the housing supply at 241,000 – this new housing target, therefore, does little more than promise business as usual.
The conservative manifesto also outlined a plan to introduce lifetime fixed-rate mortgages for first-time buyers with a 5% deposit. This policy bears a striking similarity to Gordon Brown’s lifetime mortgage scheme which never took off, and many pundits are dismissing it as well-intentioned but ultimately impractical. Furthermore, rates are currently so low that it’s hard to see how people would benefit from these lifetime mortgages. As things currently stand, specifics are yet to be hashed out, but its difficult to see how this proposal could work; the early consensus seems to be that this innovation is uninspired, unoriginal, and unlikely to bring about the effects for which it was originally conceived.
The conservatives have also announced that they are going to introduce a stamp-duty surcharge of 3% for foreign buyers, a policy that has been largely welcomed by the general public but extremely unpopular among estate agents and house builders. Interestingly and anecdotally, since the election results were first announced last week, we at Private Finance have experienced an influx of enquiries from high-net-worth property investors looking to plant a foot on the UK property ladder. This is likely to be the result of an interaction of causes, with investors looking to take advantage of the stability offered by the conservative party’s re-election while also wishing to invest before any such surcharge can be put into effect.
The Bright Side
Despite transaction volumes falling quite considerably over the past few years, with buyers and sellers retreating from the market until an end to Brexit is in sight, house price growth has actually remained reasonably steady since the referendum results were first announced. Up to November, for example, Nationwide has annual house price growth at 0.8%, Halifax has it at 0.9%, Rightmove has it at 0.3%, and the Office of National Statistics, which lags a month or so behind the other indices, has annual house price growth up to September at 1.3%. These numbers are far from spectacular – in fact, they’re well below the market’s trend rate of growth – but they suggest an encouraging degree of resilience in the property market and presage a promising future for homeowners across the country.
As can be seen from the above, the housing policies laid out in the conservative manifesto are reasonably tame (conservative, you might say) and seem unlikely to rock the boat in any substantial way. But with the housing market chugging steadily along despite all predictions to the contrary, it could well be argued that this tack is precisely what the economy needs right now. Big changes are inevitable over the coming months and years; why do anything to add further uncertainty to the equation?
This being said, there has been some speculation with regards to further potential policy changes that might be implemented that were omitted from the manifesto. Most notably, Boris Johnson has previously talked about raising the stamp-duty threshold from £125,000 to £500,000 while also reducing the top rate of stamp duty from 12% to 7%. Research suggests that this could lead to a saving of around £3.2bn in stamp duty costs for movers and result in an additional 131,000 completions over the course of a year.
The conservative re-election is likely to administer an adrenaline shot to the housing market, and a smooth, ‘deal-brexit’ will surely do the same. Were these developments to combine with a radical readjustment to stamp duty such as that described above, the housing market could well experience something resembling a boom at some point over the next few years.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE