A July election is exactly what the downtrodden market has been crying out for

Announced by a sodden Rishi Sunak, the news of a summer General Election was the ray of sunshine that London estate agents have been waiting for. 

After all, rain clouds have darkened the capital’s housing market for close to a decade. 
Sales were sluggish during the Brexit years, there was an urban exodus during the pandemic, and mortgage holders have stomached 14 consecutive rate rises over the past two years.

The increased cost of borrowing and record rents has created an even greater affordability barrier for first-time buyers getting on the ladder in one of the most expensive cities in the world. 

Estate agents don’t tend to elicit much sympathy — think Foxtons-branded minis covered in household rubbish in the early noughties, and the hateful agents flogging luxury pads in the Netflix reality show Buying London.

But their mood can be a barometer for wider economic confidence, and they are about to party like it’s 2020 (or January 2020 to be precise). But why? 

The property sector is eyeing up a repeat of the Boris Bounce following the last general election on December 12 2019. After a prolonged slump, the clarity created by the landslide victory sparked a flurry of home sales.

The data tells the story.

In the year to November 2019, just prior to the election, house prices in London slid 0.9 per cent in an era dogged by political uncertainty. In the short window between the election and the start of the pandemic (November 2019 to March 2020), values rose by 2.95 per cent (Land Registry).
 
Rightmove reports a similar knee-jerk reaction after the May election in 2015. Year-on-year sales dropped eight per cent in May but were up three per cent in June. In addition, prices nudged up 0.6 per cent in the year to May and by six per cent in June.

A general election in isolation would do little to command house price movement, but the wider political, economic and fiscal context can have a direct impact, and arguably this time around the context is even more pertinent. 

The toxic combination of stubbornly high inflation and rapidly rising interest rates since the pandemic has stifled movement in the housing market, more so than Brexit did. According to Rightmove, it is taking over seven months to move home, on average, and pent-up demand from last year is flowing into 2024.

The next six weeks could unlock this demand.

Just hours before Sunak called the General Election, 10 Downing Street announced that inflation was “back to normal” as a result (mainly) of falling energy costs.

The latest figures from the Bank of England (BofE) showed that inflation had fallen to its lowest level since 2021. The Consumer Price Index (the main measure used) fell from 3.2pc in March to 2.3pc in April, well down from a peak in late 2022 of over 11 per cent. 

The mortgage market has already started to react and reprice, and it is likely borrowers will see more favourable deals pop up over the next few weeks — especially with the next BofE Monetary Policy Committee meeting due on June 20. 

A first interest rate cut in more than four years will buoy the housing market too, just a week before the general election. 

This momentum, with positive economic news, and the stability a general election result can bring – regardless of who wins — should mean first-time buyers and families use the summer months to bag a more palatable mortgage deal and move on with their lives.

Blog Post from The Standard