Since the election earlier this year it seems that the political arena has separated to an extent not seen for many decades. We have the Labour party lurching to the left and the Conservative party lurching to the right with some experts believing this has increased the political risk associated with UK property investment. So, what factors need to be taken into consideration from a political standpoint when looking at UK property?
While it will depend on which side of the fence you are sitting there is no doubt that the economic policies of the Labour party and the Conservative party are very different. The Conservative party, with a majority in the House of Commons, stands accused on a regular basis of overdoing austerity and threatening the long-term economic growth of the UK. Some would argue, with a valid point, that ever increasing national debt (now over £1 trillion) needs to be addressed and George Osborne is doing a good job.
However, there is a very different standpoint for those looking towards the Labour party with a suggestion that the only way for long-term economic growth is to invest, invest, invest. The idea is that increased investment in the UK economy will increase output and eventually this investment will be repaid and more. The UK economy has performed admirably since the 2008 US mortgage led crisis, although growth is expected to dip under 2% for 2016.
How does this affect UK property?
Sometimes it is very difficult to match the performance of the UK economy against the performance of the UK property market. When you bear in mind that property prices in London have now topped their pre-2008 level this perfectly illustrates the ever growing demand for UK property. While foreign investors seem to take the limelight with regards to UK property there is no doubt that domestic investors have a major part to play. So, would slowing economic growth and or greater short-term national debt have an impact upon UK property prices?
In many ways the UK property market is dominated by the affordability factor which has been tightened with the introduction of new mortgage regulations. The authorities are obsessed with ensuring only long term affordable mortgages are agreed and if the UK economy was to slow then this would impact household income and the mortgage industry. This in itself would obviously reduce demand for UK property which would take some of the steam out of the market. If the budget books were not balanced with a new Labour government then this also carries an array of risks. Are we stuck between a rock and a hard place?
There are positive and negative aspects of both the Labour party and the Conservative party economic policies in the short to medium term. Further investment by a future Labour government will increase short to medium term economic activity but would also increase the national debt – at least in the short to medium term. Further austerity by the Conservative party could slow economic growth in the short to medium term although some would argue the economy would be on a firmer footing in the longer term.
As ever, the devil is very often in the detail and while the Conservative party has promised greater austerity in the short to medium term and the Labour party greater investment in the UK as and when it is in power, do politicians always deliver on their pre-election promises?
In theory there could be a greater political risk associated with investment in the UK property market but what politicians suggest ahead of an election is not always what they deliver. Despite many experts attempting to talk down the UK property market, and indeed the UK economy, it is still one of the strongest in the Western world.