Election Outcome Gives Rise to Optimism

· Electoral support for Conservative Party collapses;

· New government pledges to build 1.5m new homes;

· Cut in interest rates eagerly anticipated.

7 July, 2024

Chapeau to Sir Keir Starmer. As comebacks go, his landslide victory is unparalleled in modern political history. The Labour Party was a trainwreck after the 2019 General Election, convincingly won by Boris Johnson with his promise to get Brexit done. Which was kind of ironic.

Because it was the same Boris Johnson, his gaze firmly fixed on Number 10, who fronted the 2016 Brexit campaign promising ￡350m-a-week in additional funding to the NHS. Whilst it wasn’t the only reckless lie brandished in the referendum, it was a whopper. By 2019 the nation was heartily sick-to-death of the endless shenanigans about what Brexit meant.

And the alternative at the polls in 2019? Jeremy Corbyn’s grab-bag of loopy promises. Along with the now newly minted PM riding shotgun, in his guise as shadow Brexit minister, contorting himself in knots as to whether Labour policy was to stick or twist. The stuff of political satire.

With the Labour Party in tatters, it fell to Sir Keir to drag them out of the mire. After some early wobbles, he couldn’t in his wildest of dreams have conjured up the Tory implosion that followed. Partygate, Kwasinomics and a revolving door of ministerial appointments, some lasting just days. Malcolm Tucker would have had a field day.

Those critical of Starmer’s ‘small target’ campaign strategy miss the obvious point. Electorates don’t vote oppositions in. They boot governments out. After 14 years in office the Tories were on the nose. Public services hanging by a thread. A hefty percentage of the populace feeling worse off.

But Starmer wasn’t shy about his ambitions for housing, promising to build 1.5m new homes in his first term of government. Homebuilders are smacking their lips in anticipation and equity markets have given it the thumbs up. The day after the election the share prices of major homebuilders rose between 2.8% and 4.5%.

Fundamental to achieving this goal is reform of the planning system but Labour faces an uphill battle as you can read here.

Eyes on the Prize

The new administration has a multifaceted plan for tackling the nation’s housing crisis, including supporting the Mortgage Guarantee Scheme (MGS) to help ease the path to home ownership for those with a modest deposit. Realistically, there are no quick fixes and these initiatives to help first-time-buyers and low-income earners into affordable housing will play out over years, not months.

Those with more immediate ambitions in the housing market will be anxiously awaiting the next meeting of the Bank of England (BoE) Monetary Policy Committee (MPC) on 1 August. At its last meeting on 20 June, it predictably kept on hold the highest cash rate in 16 years.

Whilst the headline inflation rate has receded to the BoE target of 2%, services inflation has remained stubbornly high at 5.7%. Other economic data related to wages growth and employment is mixed. A rate cut amidst an election campaign may also have been controversial, with the risk of politicizing monetary policy.

Whilst the BoE’s official stance is that “we need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now,” it is no secret that Governor Bailey is one of the nine MPC members most hawkish on cutting rates. Markets have been pricing in a more than 40% chance of the BoE making its first quarter point cut on 1 August.

Swap markets have responded favorably to the positively nuanced dialogue from Threadneedle Street. Barclays is one of the first high street banks to cut rates on some of its two and five-year fixed mortgage rates, with others sure to follow. With a rate cut in the offing there is a sense of anticipation that home lenders are itching to aggressively expand their home lending portfolios.

In Other News

The past week has brought mixed news for the housing market. Data from home lender Nationwide suggests that the average house price in the UK in June edged up 0.2% from the previous month and increased 1.5% annually. This on the back of a monthly uplift of 0.4% in May which followed contractions in March and April. In London, the average property price rose by 1.6% annually to ￡525,248.

This good news on the price front was tempered by BoE data which showed that net mortgage approvals for house purchases fell to 60,000 in May, down from 60,800 in April and 61,086 in March.

And Finally…

Markets like certainty. With the election now out of the way, we can expect financial markets, the business community, and consumers to respond positively to an injection of political stability and a sense of urgency to put economic growth on a more positive trajectory and improve living standards. That positive sentiment extends to the housing market.

But the question as to whether the autumn housing market produces a surge in activity and increase in prices hinges on one crucial variable: interest rates. The first cut to the cash rate since March 2020 is tipped to stimulate demand from homebuyers in excess of new property listings. In real-estate parlance, the pendulum will swing in favor of it being a seller’s market.

Supported by rising wages and improved housing affordability, the outlook for moderate price growth is favorable.

Finally, at the end of a sometimes-rancorous election campaign, kudos to Rishi Sunak for his dignified exit. His endorsement of his successor in Number 10, respectfully cast as “whatever our disagreements in this campaign, he is a decent, public-spirited man who I respect” should encourage the broader community to rally behind the new government in the face of formidable challenges.