Hung parliament is a disaster for house prices

by John Fitzsimons on 07 May 2010  |  50 comments
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The housing market may have staged a recovery over the past year, but I think that will now come to a sharp halt.

How long did you manage to stay up? I made it to 3.30 am before finally calling it a night, once it was absolutely clear that there would be a hung parliament.

It now appears clear that David Cameron and the Conservative Party will have an opportunity to rule in a minority Government, but I predict the lack of a decisive winner will emphatically put the brakes on the recovery that the housing market has staged over the past 12 months.

Why? The market had begun to slow down anyway ahead of the General Election, with many buyers and sellers opting to adopt a ‘Wait and See’ approach. This was borne out by figures from the Bank of England this week which showed a quite drastic slowing in mortgage lending. Net lending secured on dwellings in March increased just £0.3bn compared to £1.8bn in February (the preceding two months also totalled far higher levels - £1.5bn and £1.4bn respectively).

Given that this is normally the time of year that we would see a decent Spring bounce, this is a clear sign that the brakes have already been applied somewhat. Those brakes will now be applied even more sharply following the General Election result.

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This is because there is now bound to be a period of horse trading over any housing issues just to get any changes through. In many ways, a decisive result (in any direction) would have been better for the housing market as at least there would be some certainty over the future direction for the market.

Stamp Duty

Let’s start with the one housing issue that did receive some decent national exposure – the Stamp Duty tax. In what looks like being Alistair Darling’s last Budget, a temporary raise in the threshold to £250,000, albeit only for first-time buyers, was instituted. The Conservatives want to make this permanent. But would they be able to get the required legislation through? I’m not so sure, particularly when the Lib Dems want a wholesale restructure of the tax.

Indeed, would it even make it into their first Budget, given the state of the economy? Again, I’m a little sceptical.

HIPs

What about home information packs (HIPs)? While the Tories (and much of the housing industry to be fair) decry the packs as one of the worst property wastes of money ever, and demand they be scrapped, Labour are big fans, while the Lib Dems want to cut the packs themselves but keep an element of them. Any possible reform of this area will almost certainly have to wait.

Housebuilding

The biggest issue, the elephant in the room if you like, is of course housebuilding itself. It’s been clear for years that the level of housing stock in the UK is simply too small to meet the demand, particularly with the population continuing to grow. This is the one area where each of the parties have some quite distinctive plans. I’ve written before about my belief that the Tory plans for housebuilding will not only fail to address the shortage, but they will also push house prices up.

But all of that is a fairly moot point given there is very little chance of actually getting any legislation containing the plans through a hung parliament.

And until that uncertainty is addressed, it’s hard to imagine the banks are going to be keen to up their mortgage lending. They have too much to lose. Indeed, the Association of Mortgage Intermediaries has emphasised that the nation’s current budget deficit will only serve to increase the cost of mortgage funding – in other words it will start to cost us more to buy our homes. Again, without a majority, it will be somewhat difficult for the Conservatives to take real action on the budget deficit.

Are there any winners from this? According to financial analyst Jones Lang LaSalle, UK housing will now represent an even more attractive bet for foreign investors. The analysts suggest that a hung parliament will put further pressure on sterling. As a result the lower volatility of the housing market will be more appealing than things like the bond and equity markets.

So in short, any help for first-time buyers, changes to HIPs, reform of the planning process and the mortgage lending world look like they will be in limbo for a while.

Hardly time to pop the champagne is it?

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