Last week Haart, the UK’s largest independent estate agents, advised would-be property buyers to secure a deal before May’s general election. Their Chief Executive claimed that ‘History tells us property prices tend to take an upward swing after a general election’. He suggested that both first time buyers and those looking to upsize to a larger property would benefit from securing a new home.
Certainly there are several factors that suggest that the market is likely to continue rising in 2015, with UK prices in March up 5.6% on the same month last year. Even in London, where prices had been falling, March 2015 saw an increase of 6.7% on the previous year.
Demand for property remains high across the UK, and even areas with previously lack-lustre markets have seen rising prices. The Land Registry has reported a 3.7% rise in prices in the North East, a 5.4% rise in property prices in Wales and a 10.5% rise in the market in the East of England.
There are several reasons for a rising market across the UK. The Government’s ‘Help to Buy’ scheme has enabled many first time buyers to enter the market, pushing up demand. At the same time, recent Stamp Duty reforms and the announcement of the Homebuyers ISA look set to bring home ownership within reach of more working families. In the medium term it is expected that these measures will push prices higher.
The Royal Institute of Chartered Surveyors (RICS) has also announced that it expects prices to rise, this time driven by a second monthly fall in the number of homes coming on the market. RICS said that the imbalance of supply and demand is likely to increase house prices, with election uncertainty reducing the number of properties that were coming to market. In fact, 70% of UK surveyors have predicted price increases in the year ahead.
All of these factors would tend to suggest that buying sooner rather than later is likely to save you money. But is the general election itself likely to influence the property market? Based on figures from the 2001, 2005 and 2010 elections, data from the Land Registry suggests that general elections do not significantly influence the trajectory of house prices.
In all of the election years surveyed there was a gradual upward trend in house prices in England and Wales, with no significant rise or fall observed in the months around the election. In 2001 the monthly average cost of a home grew steadily, with an average price of £87,165 in January, £89,341 in April and £91,165 in June. Similar steady rises can be seen in 2005 and 2010.
While the election itself may not influence the property market, new policies proposed by the main political parties could influence UK house prices in the short and medium term. The Labour Party’s proposals to introduce rent caps may well discourage some would-be landlords, as annual rent rises would in future be linked to the consumer price index.
Labour’s proposed Mansion Tax could well affect the luxury property market across the UK. Applying to homes worth £2 million or more, the tax will charge homeowners who pay the higher or top rate of income tax from £250 per month.
The tax will particularly affect those who own or invest in the highest value properties, particularly second homes worth tens of millions of pounds. While the Mansion Tax may deter some foreign investors from buying in London, the tax will not affect 99.5% of UK homeowners.
The Conservatives’ proposal to extend the right-to-buy to housing association properties may also be a factor that affects property prices in the medium term. While tenants who opt to buy their social housing property would have to repay some or all of any discount if they sell their home within 5 years, those who are able to access the scheme may be able to sell in areas of high demand for large profits.
Housing associations may be able to use the profits from right-to-buy sales to build new social housing in less expensive areas, perhaps reducing asking prices in locations where it is more affordable to build new homes, as well as introducing extra competition for private landlords.
A recent article in MoneyWeek pointed out that in April’s budget the Chancellor George Osborne extended the ‘Help to Buy’ scheme until 2020. This seems to suggest that, should the Conservatives remain in power, house prices are likely to continue to rise. However, MoneyWeek noted that only one of the two ‘Help to Buy’ schemes was included in Osborne’s pledge.
The Chancellor has promised to retain the first part of the scheme, which relates to the purchase of new-build homes, but he has not given the same guarantee for the second part of ‘Help to Buy’, which enables people to buy any home worth under £600,000 with a 5% deposit. This second scheme is a lot more risky than the first, so it is possible he could reduce or scrap it in the next parliament. If this were the case, it could drastically affect the property market, particularly in London.
With the Shadow Chancellor Ed Balls publicly attacking the second Help to Buy scheme (“the taxpayer should not be guaranteeing mortgages on homes worth as much as £600,000”, Evening Standard), it is possible that its days are numbered whoever resides in 11 Downing Street.
So, if you are looking to buy a home in 2015, should you seize the moment or bide your time?
For many homebuyers it would seem that there is little incentive to buy a new home simply because a general election is imminent. While several factors suggest house prices are likely to rise, the election itself is unlikely to fuel a surge in prices. In fact, for most buyers it makes sense to wait and see what the next government’s housing policies will be.
However, there is one exception. If you are relying on using the ‘Help to Buy’ scheme to purchase a (non-new-build) home this year, it may well make sense to put in an offer before the votes are counted. If the scheme is indeed scrapped, you might miss an opportunity to own your dream property.