The Effect of the Election on the Property Market

As the election comes ever closer the effect of the election on the property market is becoming more and more pronounced.

With labour threatening the “Mansion Tax” and the abolition of the “Non-Dom" tax status,  the top end of the property market in England and Wales has practically drawn to a halt and is even threatening to go into reverse as there are very few buyers that are willing to risk saddling themselves with properties which are not only going to be costly in terms of taxation, but are then going to be even harder to resell.

The Conservative policy of a referendum on membership of the EU coupled with the threat of UKIP influencing an exit from the EU and fears of the economic instability that may prevail as a result of such the UK leaving the EU, is certainly making people think twice about taking on such a large financial commitment as purchasing a house.

This coming election stands apart from the previous elections over the last four decades in that the votes are likely to be diluted amongst a wider range of political parties. Gone are the days where we can be certain of either a strong Labour government or a strong Conservative government, we now have 7 separate parties vying for power with the smaller parties playing a greater role than ever before, each commanding enough of the votes to potentially influence policy and the end result threatens to be a weak coalition government.

The prospect of a weak coalition government in which no one party will be able to fully implement policies, resulting in stagnant governments and a succession of “no confidence” votes and new elections. The result of all this uncertainty and instability is that the ability of an investor to predict which way the market is likely to go, and have confidence in their conviction is greatly diminished resulting in less and less investors being prepared to commit themselves to the UK housing market.  The prospect of a second election soon after the coming election, is threatening to cause the property market (especially London to grind to a halt).

The Labour party’s threatened rent restraints and greater regulation for the private letting market is likely to cause the institutional property investors, such as the pension funds, to think twice before investing in a large portfolio of buy to let properties.  Indeed, not only will the threat of rent control discourage investment in the buy to let properties, but may also lead to landlords selling their properties (especially in London) as it becomes clear to them that they will not be able to afford their mortgage repayments or recoup their investment.  Further cuts in public spending and threats of tax hikes particularly in terms of corporation tax,  result in the population being uncertain as to their ongoing income and job stability and companies losing the confidence to invest in the long term.

Uncertainty over the future of the “Help to Buy” and similar schemes which have helped boost the construction industry, but makes it difficult for construction companies to plan very far ahead for future developments. If the Conservative party is to return to power, they have pledged to maintain the scheme until at least 2020 whereas the Green Party pledges to end the scheme,  UKIP pledged to review the scheme. The uncertainty over the scheme is likely to result in 1st time buyers holding back until they have a clearer picture as to whether or not the scheme will continue to run. Further uncertainty looms over the construction industry as the Labour and Liberal parties pledged to introduce a greater number of smaller builders to break the “monopoly” of the large developers in the market.

The period directly before the election has traditionally seen a slowdown in transactions with a hike in the number of transactions directly after the election, with post-election sales increasing by anything from 20% (in 1997) to 24.8% (2005) and 23% (2010) in the first three months after an election.

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