Subdued would probably best describe the UK property market over the last few months, a state exacerbated over recent weeks because of the snap election and the resulting sense of uncertainty. Uncertainty now threatens to linger somewhat longer given last week’s surprise result.
At the start of the election campaign it seemed almost unthinkable that the Conservatives would find themselves having to form a minority government with support from the DUP, and that the country would be on the brink of commencing Brexit negotiations in the middle of a political storm. At a time when the property market and wider economy desperately needed stability it is somewhat ironic that we now have anything but, despite the strong and stable promise that prompted the election.
Perception and reality
Opinions from opposite ends of the political spectrum agree that the situation is messy and higher levels of uncertainty are always going to be unwelcome news in the property market which thrives on confidence and clarity. However, the initial fallout from the election result appears to be far more measured than many were expecting, particularly in the financial markets. Several economists and commentators for institutions have stated that in their opinion, not a lot economically has changed and that the outlook might actually improve. This is due to the expectation that a Tory led administration will now have to adopt a more fiscally-stimulative position.
There is also an expectation that the government will conduct Brexit negotiations from a more collaborative stance and that we are likely to see a so called ‘soft Brexit’ with keen focus around a trade deal and rights of EU workers already resident in the UK. Separate to Brexit, the possibility of a second Scottish independence referendum now also looks less likely.
A resilient property market?
Events of the last few years have served to demonstrate that there is normally a ‘wait and watch’ period associated with shock political and economic events, but this can be relatively short lived after a period of adjustment. The UK property market has continued to defy expectations of late, with increasing house prices and there is a consensus view amongst all political parties that more homes need to be constructed across the country.
Whilst the election result will create further unwanted distraction over the coming weeks and months, arguably there are greater challenges affecting the property market at present; such as the impact of stamp duty changes, affordability issues and a lack of supply of stock.
House price indices over the last quarter have shown a gradual cooling of the rate of average house price inflation and transaction volumes are also scaling back – a trend that the government will surely not want to gather momentum over the coming months.
Business as usual
Fundamentally, from our perspective the market has remained unchanged from before the election. Since Friday, Garrington has already received a number of new client mandates to progress property searches, have had existing agreed transactions proceed to exchange of contracts and have not directly seen or heard of any transactions faltering as a result of the election result. So, the early signs are that buyers and sellers alike are taking this latest twist of the current political saga in their stride.
Sale values will undoubtedly fall under tighter scrutiny in a cautious market. Looking back in history, house prices under the coalition government of 2010 fell by 3.4% in the first six months before rebounding to an annual growth of 2.2%. However, not since February 1974 has the UK been ruled by a minority government. In the six months following that election house prices rose by just 2.1%, before rising more strongly once a majority government was formed in October 1974.
Despite issues and uncertainty, people will always have drivers to move home such as job relocations, changes to family circumstances, and in a wider financial sense, bricks and mortar remains a proven good long term investment compared to many other asset classes.