How will an early General Election impact the housing market?
The last year was one of surprises, not least the British people’s vote to leave the European Union.
The housing market then surprised many, with average prices rising by 4.5%, largely thanks to an economy that sustained momentum in the face of considerable political and economic uncertainty.
On Tuesday we were taken by surprise yet again, with the Prime Minister announcing she would seek an early General Election, which is now confirmed to take place on 8 June.
This coincided with an announcement of our own – the publication of our latest UK House Market Prospects with detailed forecasts into the residential market, underpinned by the economic insight of BNP Paribas bank.
The obvious question then is what impact the election will have on our forecasts, which set out average house price growth of circa 2.2% in 2017, a rise of £4,460 that will see the average home worth circa £210,400 at the end of the year, and rising to a total in the region of 10.1% over the four-year period, which will see the average house price reach just shy of £227,000 by 2021.
These take account of slower growth and a rising interest rate and inflationary environment that will put pressure on real incomes, together with affordability pressures and an on-going lack of supply protecting prices in areas of high housing need.
We don’t see this picture changing dramatically following the confirmation on Wednesday that an election would be held on 8 June. Furthermore, with the election less than two months away, it is unlikely that any short-term hit to sentiment will be profound.
In London, we expect to see a return to growth this year with prices rising by 1.3% and reversing the decline in prices seen over the last 12 months to February (RICS), with continued demand-side pressure and renewed sales activity in several locations. Our research, carried out with Professor Patrick Minford at the University of Cardiff, forecasts London’s average house price growth to reach a total of 6.8% by the end of 2020, leaving the average home worth more than £505,000 .
While affordability pressures and higher levels of caution will no doubt impact the market, burgeoning PRS providers will continue to seek our new opportunities across the capital and beyond.
Strong performance is expected from several key regions, in particular the South West (22.2% growth forecast over the four years from 2017 to 2020), South East (17.3%) and East and West Midlands (13.6% and 13.1%), with those areas more vulnerable to the slowing economy and weakening pound likely to experience markedly lower levels of growth.
However, the story will become less about regional trends with growth and activity focused on those cities with a strong economic story, many of which are set to outperform London. The North East, for example, features an extremely wide range of growth at a city level, with Newcastle Upon Tyne performing significantly more strongly than the regional average and likely to experience a less dramatic down cycle.
The housing white paper is just one of the political interventions set to influence the UK housing market over the next few months, as we wait to see the impact of changes to tax relief for buy-to-let investors and the on-going negotiations on the UK’s exit from the European Union. With no doubt more surprises to come as we shape our future relationship with the EU and the wider world, we will return to these issues in future editions of UK House Market Prospects.
To download the full report “UK Housing Market Prospects – Spring 2017” click the button below: