A poll this morning suggested there could be a hung parliament after the next election with the Tories failing to obtain a majority. This sent shockwaves through the financial markets with sterling falling sharply although a further poll suggested that the Tories were still 15% ahead of Labour and the currency recovered. The general consensus seems to be that the Tories will obtain a larger majority than they have at present but there has been a recovery in the Labour vote.
Mortgage funding has also fallen to a seven-month low in the UK amid concerns that political uncertainty is holding people back from buying houses. While we fully appreciate that mortgage lending is falling, and has done over the last few months, it is sometimes difficult to understand this against the continuous upward trend in UK house prices. The reality is that the reduction in housing stock available has had a far greater impact than the reduction in mortgage lending. In other words, there are few houses and still more competition from buyers.
Labour policy on housing
The Labour party has promised to invest billions of pounds into the UK property market, build an array of council houses and looking to control rental inflation. While these policies have caught the attention of the general public the problem is that alienating buy to let investors is not good for the property market and the billions of pounds of investment do not appear to have been funded, as yet. Many experts believe that as we approach polling day more voters will become concerned about Labour’s history of spend, spend, spend and resort to the more financial market/business market friendly Tory party. Is this a case of better the devil you know?
Taking away the smoke and mirrors
While the Labour Party has been found out with regards to an array of funding issues with “new policies” the fact is that all political parties like to stretch the truth. They have a habit of announcing new funding more than once, giving the impression there is multiple funding, and they have been known to spend one pot of money numerous times over. If we take away the smoke and mirrors from the UK property market we see chronic underinvestment in housing for decades. We see chronic underinvestment in council housing for decades. What next?
The bottom line is that political parties, and would-be governments, have little or no money to play with therefore many of these policies will be watered-down. There were hopes that an increase in property stamp duty would help to ease the pain but this has raised nowhere near what was expected, indeed the situation in Scotland is even worse. There is also a need to balance the number of new build properties because if the market is flooded this will impact local property prices and potentially alienate home owning voters.
The Conservative party fully expected to walk back into government on the 9 June with a larger majority and a stronger hand when it comes to Brexit negotiations. However, today’s fall in sterling on concerns of a “hung parliament” should refocus all political parties as some polls show that it is still all to play for. The reality is that the Conservative party is still ahead in even the worst case polls but issues such as housing need to be addressed and followed through with as soon as possible. If Labour is showing a significant recovery under what many claim to be the worst party leader in 50 years, what could they do under a more favourable leader? That is a question which the Tory party will be asking for many months to come.