Election Fever


There’s no doubt about it: The general election will influence the direction of the residential property market significantly, in the coming months, especially in London.

With just six months remaining until next year’s general election, many people are still undecided about which party to vote for. To simplify things hugely: There are a huge amount of things to consider when casting your vote: from education and tax to Europe and the NHS, there are a wide range of things that people need to consider when electing a new government.

ABCHowever, there is another important issue that many of us need to deliberate and that is which government is best suited to oversee the residential property market?
Labour and the Conservatives are currently neck-and-neck in various polls, while in spite of weaker support, the Liberal Democrats’ will be hoping to win enough seats to see it return to Government as part of a Coalition, in the event of another hung parliament.

“From Help to Buy to Right to Buy, government policies can have a big impact on housing and property prices, in particular.”

Home prices have increased twice as fast under a Conservative government since 1970, at an average of 19% per year compared to a Labour performance of 10% per annum, based on data sourced via the Nationwide House Price Index. A glance at the total increase shows that home prices appreciated the most under Tony Blair’s tenure, up 211.3%, followed by that of Margaret Thatcher, with prices increasing by 187.9% during her time at No.10.

However, on an annualised basis, UK prices performed most strongly under Edward Heath when growth averaged 32.8% per annum, although high inflation rates contributed to the strong growth recorded during his premiership.

Of course, a sharp rise in prices can be of comfort to some homeowners who may be potentially seeking to cash in on the boom and downsize to a cheaper property. However, it often concerns those with aspirations to gain a first foot on the housing ladder or upsize to a larger more expensive property, and so they may be hoping for lower price increases or even a drop in values altogether.

The property market promises to be a major issue in the run-up to next year’s general election, but what are the main policies the parties are proposing to attract your vote - and how might the result affect you?

The Conservative party has vowed to develop 100,000 starter homes which would be offered to first-time buyers under the age of 40 at a discount of 20%.

While more residential properties are needed to help solve the mounting housing crisis in this country, various experts believe that the Tory proposal for house building does not go far enough.
Brian Berry, Chief Executive of the Federation of Master Builders (FMB), commented: “The Prime Minster has quite rightly placed housing on an equal footing with health and education, but 100,000 new homes is still too few when we need to be building 240,000 new homes every year.”
Under a Conservative government, housing benefit would be scrapped for 18- to 21-year-olds, which will have a knock-on effect for landlords who accept DDS tenants. However, the policy is a climbdown from previous plans to exclude people under 25 from claiming housing benefit, which was blocked by the Liberal Democrats.

The party also want to introduce a rent-to-buy fund enabling young people to rent homes at discount rates and have the first option on buying the property under the initiative, in yet another effort to help more people gain a first foot of the housing ladder.

The Labour leader Ed Miliband also wants to help increase the volume of first-time purchasers by boosting house building rates to 200,000 a year by 2020.

Stewart Baseley of the Home Builders Federation has welcomed the commitment by Labour to increase housing supply. “Whilst we have seen a big increase in house building activity in recent months, we are still not delivering enough homes to meet the country’s needs,” he said. Labour would also give local authorities greater power to stop buy-to-let investors purchasing new homes or allowing them to be left empty. →

While it is completely understandable that Labour want to prioritise first-time buyers by handing local authorities the power to restrict both buy-to-let, and buy to leave sales of their pledged 200,000 new homes by 2020, the implications of this policy concern Richard Lambert, CEO at the National Landlords Association. He said:

“Without imposing new covenants or planning restrictions, which would risk scaring off investors, homeowners and lenders alike, it remains unclear how they could achieve this goal,”

Labour’s flagship housing policy is for the introduction of an annual Mansion Tax for owners of £2 million-plus properties, many of which are located in London and the South East.

“The introduction of a mansion tax would disproportionately penalise homeowners in London and the South East who are already responsible for the vast majority of property tax take in the UK,” said Lawrence Hall of Zoopla.

If the Mansion Tax is introduced, Rightmove Director, Miles Shipside, believes that those sellers who have had their homes valued at over £2 million will need to lower their expectations on the deal they will be able to secure, in the same way stamp duty bands affect asking prices.

He commented: “It [Mansion Tax] isn’t something that is going to help boost home ownership, and other policies that could be considered are scrapping stamp duty for first-time buyers, and far more wide-reaching commitments to build a lot more houses.”

While the threat of a mansion tax remains a deterrent to buy property at the top end of the market, the ricochet effect would almost certainly affect the lower end of the market.

Liberal Democrats
The Lib Dems have championed the idea of a Mansion Tax for years - initially it was a 1% tax on residential properties worth over £2 million – but now it is in the form of adding higher council tax bands.

The Liberal Democrats has also vowed to significantly increase the supply of new homes if elected at next year’s general election by delivering 300,000 new homes per year, supported by a ‘radical approach’ to house building and the construction of various garden cities.

While welcoming the Lib Dem’s house building target, the FMB’s Brian Berry said that it was rather “ambitious”, suggesting that it is unrealistic. He said:

“The last time we built over 200,000 new homes was in 1988,”

The Lib Dems may also scrap the Help to Buy scheme and potentially replace it with a new Help to Build initiative.

Election run-up (and beyond)
The general election will have an enormous impact on the housing market over the next few months, especially in London, with a degree of buyer uncertainty already starting to appear in the run-up to next year’s voting, which, along with concerns regarding a potential interest rate rise and warnings of a house price bubble, has contributed to the recent slowdown in the housing market. One only needs to look at the impact that the Scottish independence referendum had on the housing market north of the border to see the degree of uncertainty that politics can generate in the property market.

However, growth should get back on track after the election, with home prices in London, at an average of 33%, set to outstrip the 30% growth estimated across England and Wales over the next five years, according to a new projection made by Rightmove and Oxford Economics.
While the uncertainty of next May’s general election may dampen demand to some degree in the sales market, the rentals market will almost certainly flourish, with rents expected to rise across many parts of the capital, on the back of higher demand from people looking to rent.