Market Insight - May 2017
Search for a property

Firing the Starting Pistol

Quick on the draw....


In previous elections, the housing market has been affected by the uncertainty. Analysis of nine general elections between 1979 to 2014 shows that there tends to be a slowdown in activity in the run up to election day followed by a bounce back afterwards. But this time there are less than 50 days until the vote, so there isn't enough time for political uncertainty to have a big impact on the housing market. Furthermore, it seems highly unlikely that the Conservative Party will lose power, indeed it is expected to increase its majority.

Speculation as to why Mrs May changed her mind seems to rest on giving her greater power in Parliament regarding policies on Brexit. If that is the case and she gains seats, that could actually reduce uncertainty - about the negotiations at least.

Price growth since referendum

 

 

House prices still rising

 

Whatever the outcome of the election, the effect of Brexit on the housing market is limited on the short term. Most demand is domestically driven and international buyers are still benefiting from a weaker sterling, which cushions them from any risk of a fall in prices. 

So far, they've done quite well as prices have continued to rise since the referendum result - despite the previous Chancellor's warning that house prices could collapse by up to 18% over the next two years, which now seem very wide off the mark. But looking ahead the picture could be different. How much will depend on how negotiations affect the UK's economic performance - particularly jobs. In the worst case scenario, investors could lose confidence in the UK's ability to thrive outside of the EU. That could hit sterling, which would help exports, but would make it more difficult for most households who would face higher prices.

Interest rates and the labour market are the most important drivers of the housing market's fortunes, so if uncertainty affects investment in jobs and interest rates increase, households will struggle to meet their mortgage payments causing an increase in forced sales and falls in house prices. That is a worst-case scenario. If the economy is in the doldrums, it’s unlikely that the BoE would consider an early rise in rates – that would be unsettling and could crush households and businesses at just the time we need them to spend and invest. The Bank has form on looking through inflation targets to the general health of
the economy.

Investors too may take a longer-term view about the UK’s performance. In the short term there may be uncomfortable adjustments, but in the medium to longer term the UK could become a less regulated and hence a more flexible economy, able to respond more swiftly to changing conditions. That would give it an advantage and help boost potential growth.

While we can be fairly sure of the result of the election, nobody yet knows how the Brexit negotiations will go. It seems most likely that in the short-term uncertainty and transition costs of leaving the EU will dampen the pace of the UK’s economic growth and cause some wobbles in the financial markets. But in the medium to long term, the economy will find its way. It may ultimately be smaller than it would have been had the UK remained in the EU, but it does not mean that it will fall into recession. Nor that the UK, currently the fourth largest economy in the G7 will suddenly fall into the lower ranks of developed economies.

 

 

 

 

 

Focus Economy Sales Lettings Market Indicators

Our website uses cookies so that we can provide a better service. Continue to use the site as normal if you’re happy with this, or find out how to manage cookies.
x