Over the next few days we will see perhaps the most turbulent political environment the UK has seen for many years. The Conservative party is struggling to put together a minority government held up by the DUP and the Labour Party is waiting in the wings to put together some kind of rainbow alliance. Whatever happens over the next few days it seems almost inevitable there will be yet another general election within 12 months. This will cause undue damage to the UK economy in the short term and affordability will become the biggest concern for the UK property market.
Economic growth
It is inevitable that economic growth in the UK will slow in the short term and with inflation towards the higher end of the recent range the real value of the pound in your pocket will fall. This will impact the affordability factor for UK property and probably push more people to the rental market. Indeed, a recent survey suggested that two thirds of UK tenants still expect to be living in the rental sector in three years. This is before we even begin to factor in any potential problems with the Brexit negotiations.
Theresa May is unlikely to be the UK Prime Minister by the end of 2017 and many believe she will actually be gone in just a matter of days. This uncertainty is already concerning the credit rating agencies with Moody suggesting the UK credit rating will fall in the short term.
UK property prices
Even though economic growth in the UK could stall in the short term, amid ongoing political uncertainty, UK property prices are unlikely to fall too far. The simple fact is that as the affordability factor becomes even more stretched in the short term more people will be forced to turn to the rental market. We may see a little softening of rental prices as incomes are squeezed but this should not be too dramatic because demand for rental property will remain strong.
It is also worth noting that the more trouble for the UK pound the more attractive the UK property market becomes to overseas investors. Let’s not forget that the UK is one of the major economies of the world and the UK property market, even excluding London, is still much sought after. The simple fact remains that the UK population continues to grow, new build numbers are well behind those required to serve even current demand therefore UK property prices will always have a backbone of support.
Could the UK population take another election?
Despite the fact we have had referendums and elections aplenty over the last few years it seems almost inevitable there will be yet another election within 12 months. Even if the Conservative party fails to cement an agreement with the DUP and Jeremy Corbyn steps forward with his rainbow alliance, any of these two shaky government setups would be unlikely to last very long. There is simply too much divergence within the UK political arena with the SNP still pushing for independence, the Liberal Democrats in denial of Brexit and the Labour Party flip-flopping between support and resistance to any Brexit deal.
Indeed just today we had a suggestion from the Labour Party that the DUP might be able to support a minority Labour government on some issues, despite the fact that Labour supporters are demanding the DUP plays no role. Confused?