It was hard enough trying to work out where next mortgage rates were going, and then Rishi Sunak announced his bombshell election for 4th July. The question now is, how much will this affect the UK housing market and how?
The housing market is all about confidence, and if anything, more uncertainty around an election would normally be bad news. However, if the polls are to be believed, the outcome of the election is anything but uncertain – with most polls saying that Labour are over 20% in the lead. In fact, the money markets are talking positively about the potential for a post-election growth spurt in the stock market, which could be the single biggest impact since Brexit in 2020.
Historical context
The last time a Labour government came into power under Tony Blair, there was an 8% boost to the markets. Although past performance is not necessarily an indicator of future success, there is a lot of speculation that the type of stability that the city expects to follow a Labour win would be good for the markets and the economy as a whole.
It’s true that in recent years, the once key strength of the Tories in the economy has been anything but stable, and we have lurched from one self-inflicted crisis to the next. This, combined with the pandemic, Ukraine, and now Gaza, have all created a level of uncertainty not seen since the 1930’s.
Housing market resilience
You would be forgiven if you thought that all of this would stop the housing market in its tracks, but the Great British public is made of sterner stuff. Incredibly, the market has been relatively resilient, but there are a variety of pressures currently building that could send the cork well and truly flying out of the bottle, if Keir Starmer finds himself in No.10 Downing Street on 5th July.
Interest rates and the Bank of England's dilemma
At the time of writing this, the news of the upcoming election added to the sticky Core and Services inflation figures, meaning that it is unlikely that the Bank of England will reduce interest rates in June. The UK Central Bank will not want to be accused of interfering in politics by reducing rates just prior to a vote, and seeming to favour the incumbent administration.
Global economic pressures
We are also subject to global pressures and the opposing forces of The Federal Reserve (Fed) in the US, who are trying to cool down a resilient economy that is unlikely to see many, if any, reductions until next year, and the European Central Bank (ECB) in Europe, which looks likely to be the first of the major central banks to start on a downward track in June. If anything, we should be more in tune with Europe, but old habits die hard, and the UK markets do seem to find it hard to wean themselves off US influence.
Post-election economic outlook
However, once the votes are counted, and if, as anticipated, we wake up to a Labour government, I would not be at all surprised if the Bank of England feels safe to make their move at the next meeting of the Monetary Policy Committee (MPC) in August. At this point, and supported by the tailwind of a new administration's feel-good factor, I think we could see a significant upturn in market activity and, in turn, renewed upward pressure on house prices from late summer into autumn, and beyond.
This is likely to be further supported by more attractive mortgage rates as the Bank of England releases the reins further towards the year-end and into 2025. How long the feel-good factor will last, however, is hard to predict.
Is it time to make your move?
Now could be a very opportune moment to make your move if you are looking for some independence by entering the housing market, as I can only see house prices going one way. The question is – “do I fix my mortgage rate, or do I opt for a flexible tracker product that allows me to fix when more attractive rates become available?”
This is a question that I would be asking my expert mortgage adviser from Capital Private Finance as soon as I can make an appointment.
Contact us today to discuss your mortgage options and make the most informed decision for your future.
Author:
James Keable
Financial Services Director at Capital Private Finance Ltd
