With the election now over, and with no signs that the Bank of England will increase rates any time soon, the anticipated pre-election hit to the housing market, although once serious, is now buried. Property sales and transactions slowed in the months running up to the election from as far back as May 2014, but now that David Cameron has swept back into Downing Street after the Conservatives secured a dramatic and unexpected election victory, winning their first outright majority in parliament since 1992, the uncertainty that hung over the housing market has disappeared, and many property experts are anticipating greater activity in the market from now on.
Confidence and stability result in a buoyant economy and this will have a significant impact on the property market. Under a majority Conservative Government, both the sales and rental markets are set to strengthen, fuelled by higher demand from buyers and tenants, which should leave vendors and landlords in a very strong position.
Bob Young, CEO of Fleet Mortgages, commented: “There are clearly a number of positives for the housing and mortgage market from this Conservative Party victory, not least the fact that the Tories tend to be far less interventionist than the Labour Party which means they are unlikely to meddle in the housing market, particularly the private rental sector.”
The Mansion Tax is dead
Ed Miliband proposed higher Stamp Duty rates for foreign buyers, effectively discouraging foreign investment. He also planned to introduce a Mansion Tax that would have penalised homeowners at the high-end of the market, and would also have had implications on lower rungs of the property ladder as the added tax burden got passed down in higher valuations on cheaper stock.
The FairHomeTax Campaign has been working tirelessly, lobbying MPs to recognise that Labour’s Mansion Tax idea was flawed. Howard Cox of the FairHomeTax Campaign said: “We spoke with 34 Labour MPs in the last three months and it was clear that these politicians were nervously split on their support of a Mansion Tax and thought it could even influence voters to sway from Labour.” Thankfully, the Mansion Tax is now not an option and this should see the return of more homebuyers, providing a further boost for the market, especially in London and particularly above the £2m level.
A rather anxious private rented sector (PRS) breathed a sigh of relief the morning after the general election after it was clear that Ed Miliband’s Labour Party, with its ill-thought-out housing policies, would not be forming the next government.
It is widely believed that Labour’s plans to cap rents, ban letting agent fees, make three-year tenancies the norm, and restrict tax relief for landlords who do not keep properties to basic standards, would have had an adverse impact on the PRS.
“[Labour’s] policies would have almost certainly backfired because they did not understand the economics of supplying private housing to rent”
While acknowledging that Labour had tenants’ “concerns at heart”, Richard Lambert, CEO at the National Landlords Association (NLA), points out that their policies would have almost certainly backfired because they did not “understand the economics of supplying private housing to rent”. He believes that these changes would have made the housing crisis “worse, not better”, and could have deterred many people from investing in the buy-to-let market which in turn would reduce the supply of housing stock in the PRS.
Following the Conservative election triumph, there are now signs of renewed confidence in the property market, offering a much needed boost following months of uncertainty and the threat of Labour’s policies.
Demand for property is set to soar in the coming months, on the back of greater consumer confidence. This is not solely due to the post-election feel-good factor.
Greater demand from purchasers is also being fuelled by Britain’s economic recovery, higher employment levels, a rise in real wages, and record-low mortgage borrowing rate. Furthermore, the Help to Buy ISA and the Help to Buy Scheme have been extended until 2020, providing many more prospective buyers access to homeownership.
Among the growing volume of potential buyers are buy-to-let investors, which is unsurprising given that rental prices are increasing and buy-to-let mortgage rates are cheap. Buy-to-let landlords have benefitted from a booming property market, earning returns of up to almost 1,400% since 1996 - capital growth and returns combined - beating returns on all other mainstream investments, including commercial property, UK government bonds, shares and cash, and that trend looks set to continue.
“Buy-to-let property represents a sound investment in an asset class through which individuals or institutions can achieve significant and sustained returns”, said Peter Grant of Grant Property Investment.
The recent overhaul of the pension system that enables over-55s to withdraw money from their retirement savings could lead to even more people investing in property, with government figures suggesting that one in three homes will be owned by private landlords by 2032. Ben Burge of housebuilder, Larkfleet Homes said, “The latest reports and figures confirm that buy-to-let property is an excellent consideration for potential ‘silver landlords’.”
While demand for property continues to rise, and not just from enthusiastic investors in search of high returns, there remains a lack of new housing coming onto the market which could push property prices and rents even higher in the coming months. For almost three decades, the supply of new housing has fallen well short of the level needed to match growth in demand. The Conservatives are championing homeownership and a property-owning democracy through new policies. They are planning to develop 200,000 starter homes for first-time buyers by 2020, more garden cities and a further 400,000 new homes from brownfield sites.
However, we are all acutely aware of the overwhelming need to develop more residential properties, with experts estimating that around 250,000 new build homes are needed annually to cope with existing housing demand. There is nowhere near that level of properties currently being built or likely to be delivered in the near future, according to the Federation of Master Builders (FMB).
Almost unbelievably, the FMB reports that a lack of bricks and bricklayers, caused partly by the last recession, will threaten future house building plans, adding to the growing supply-demand imbalance. This in turn could push property prices higher.
UK house prices increased by over £100 a day in April, taking the average value across Britain to almost £200,000, the latest Halifax data shows. A further surge in values is expected to be triggered by the general election result and a lack of new housing stock coming onto the market.
“Price momentum could be set to pick-up once again as the supply of stock to the market continues to fall,” said Simon Rubinsohn, RICS Chief Economist. Intriguingly, data from the Nationwide House Price Index reveals that home prices have increased twice as fast under a Conservative government since 1970, at an average of 19% per year compared to Labour’s 10%, and initial signs are that history may be set to repeat itself (see infographic).
Ultimately, the most positive aspect of a conclusive election result, in any event, is that the political uncertainty that surrounded the housing market and wider economy can now be eliminated and the recovery can continue, enabling buyers, sellers, landlords and tenants to plan for the future with confidence, ensuring that it’s back to business as usual.
Keeping an eye on the market for the future. Sign up for our newsletter and wewill keep you up to date with all that's happening on the market.