With both the Conservative and Labour conferences taking place this month, speculation over the timing of the next general election is increasing. Although the Conservatives have until January 2025, rumours abound that an election could be called earlier, possibly when inflation hits 3%.
But what impact will this have on the property market? As a rule, the market does not respond well to uncertainty, but JLL analysis of activity and prices pre- and post-election back to 1997 shows a mixed picture. In 1997 and 2001, both Labour victories, price growth was higher annually in the six months following an election than in the six months prior. In 2005 price growth was higher prior to the election, but for all the following elections there was little difference. More recently only 2019 saw an initial rally in prices post-election, before the impact of the first lockdown in March 2020 muddied the waters.
The election analysis suggests economic factors rather than the election itself have a far greater impact on prices and sales volumes. Certain markets may see a more significant slowdown, such as prime central London in the run up to the 2019 election, when fears on wealth tax hit the top end. But overall, the biggest spikes in activity have been around changes in tax rules (such as Stamp Duty Land Tax) rather than the result of an election.
And for those concerned over the prospect of a new Labour government impacting their house price, historic growth was 26% higher under Labour. In the 13 years Labour were in power between 1997 and 2010 house price rose by an average of £23.35 per day, compared with £18.50 in the 13 years since when the Conservatives have led.
The housing market
Rising rates this summer meant fewer mortgaged home buyers looking to enter the market. In August mortgage approvals were at their lowest level for six months, with just over 45,000 loans approved. Down by a third on a busy August last year.
A slowing in activity in the mortgage market is not having as significant an impact on transactions as expected, with the latest government figures suggesting 87,000 homes changed hands in August, 16% lower than August 2022. Cash buyers so far in 2023 accounting for 34% of sales, up from 30% in the same period a year ago.
Of course, mortgage approvals are often a lead indicator, meaning we’d expect activity to remain more subdued in the run up to Christmas. Yet the outlook for rates is improving.
With base rates held at 5.25% we have seen more favourable rates in the mortgage market. Figures from Lifetime Capital show best buy rates (available at lower LTV) improved following the MPC meeting, with five-year fixes now at sub 5% (4.94%) and two years fixed rates at 5.39%, both around 50 basis points lower than they were at the end of July. Will this be enough to tempt buyers back? We’ll see, but it is certainly heading in the right direction.
House prices
September figures from Nationwide show average house prices were unchanged in September compared with August, down -5.3% year-on-year, reflecting a fall in average prices of £14,500. The highest falls in prices were in the South West, where average values in the year to Q3 2023 fell -6.3%. But the South West has still recorded the highest growth in England compared with values pre-pandemic. London, which has recorded more modest price growth since Q1 2020 saw a less significant annual fall of -4.3%.
Rents
Rightmove figures suggest little respite for prospective tenants, as competition for rental properties remains high. The number of requests for viewings rose to an average of 25 per property in Q3 2023, up from 20 this spring and an average of six in 2019. Strong demand supporting further increase in asking rents of 10% nationally and 12% in London in the year to Q3 2023.
Housing supply up, but not all it seems…
Housing starts which had settled at sub 40,000 in the last two quarters increased significantly in the three months to June, according to the latest government figures, up 90% on the ten year quarterly average to reach 73,600 homes in Q2 2023. This appears counterintuitive, as rising debt, building and material costs all challenge developer viability. But changes to building regulations, bringing in new rules on energy efficiency, came into force in June, with increased developer obligations not applicable to starts prior to this date. We expect a significant drop off in starts over the next couple of quarters as a result, so be careful of those headlines.
