What is the Effect of a Looming General Election on the Property Market?

On 7th May 2015 the British Voters will make their way to the Polling Stations up and down the country for the General Election. What are the likely effects of the upcoming election on the Property Market both before and after the General Election?  

Economic Stability

The lead up to the election may cause a period of uncertainty where potential buyers and sellers are uncertain to what the future holds for them for example, in terms of their job prospects, salary or the cost of living such uncertainty can cause the property market to slow and has prices to fluctuate as buyers become reluctant to commit and sellers rush to rid themselves of properties which they fear they may be unable to sell after the election.  

A further reason for caution is whether or not the incoming Government will be likely to raise interest rates and income tax.

It is common for house prices to drop in the months leading to an election and for there to be a surge in the immediate aftermath as those buyers and sellers who have hedged their bets before the election have more certainty.

Mortgages

The availability of mortgages may start to tighten as lenders become more conservative in their approach to risk especially in the case of workers in certain industries such as banking, or the Green Energy industry - (both debated political topics on which the parties have differing views). A cautious approach by the lenders may also be reflected in the level of lending to industry and small businesses particularly as two of the parties standing for election are raising a question mark over the nations’ membership of the EU.

Mansion Tax

The shadow of the Labour Party’s mansion tax (on properties worth over £2 million) looming could see prices of large or valuable properties falling as their owners rush to sell them and the buyer’s delay their decision as to whether they should buy them.

Ed Balls the Shadow Chancellor in the Labour Party sought to reassure London homeowners that the tax is nowhere near as onerous as previously thought, Ed Balls explained that those properties in the lowest band between the value of £2 to £3 million will only be liable to pay £250 per month or £3000 per year. Or those owners on a low income of below £42,000 per year can defer the charge until the property changes hand. This means those with properties over £3 Million will be hit the hardest and owners on a low disposable incomes will be unable to move.

Capital Gains Tax (CGT) and Foreign Investors

Currently only UK residents are subject to Capital Gains Tax (CGT) on gains made when selling residential properties which are not their main residence. Investors from overseas do not have to pay CGT when selling residential properties and this is one of the factors that has made England and Wales (most notably London) such an attractive proposition to foreign investors, particularly in the buy to let sector.

From April 2015 foreign investors will have to pay CGT which will mean increased costs to foreign property investors when they dispose of their properties. So far there is little evidence that overseas owners are looking to sell up, however there are reports from some major estate agents that the rates of foreign investment in London is beginning to slow though they put this down more to a fear of uncertainty over interest rates and a slowdown in the growth of the economy due to a change in economic policy should there be a change in Government, rather than fear of the impending CGT.

Caution in the Buy to Let Sector

The possibility of a Labour Government bringing in restrictions on rent may, on the one hand, cause a slowdown in the buy to let property market as landlords fear investing in property without knowing the level of return they will be able to achieve over the long term. On the other hand, some buy to let investors may take the view that they need to sell those properties on which they have the highest level of lending and on which rent restrictions would have the most adverse effect.

Help to Buy

The Conservative Party has pledged to expand their “Help to Buy” scheme should they be re-elected. It is conceivable that, particularly first-time buyers may be tempted to hold back and wait until after the election to see if they can take advantage of an expansion in the Help to Buy schemes should the Conservative Party be re-elected. 

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