Is this time different?
There are a number of issues to take into consideration regarding the UK as a whole, the UK economy and UK property market. The election on the horizon is not only set to be one of the closest in recent history but also a number of new facts are coming into play. Whether or not these new factors impact the medium to long term performance of the UK property market remains to be seen but they are worth taking note of.
New political powers
While traditionally nationalist in Scotland and Wales have tended to have little impact on the UK election as a whole. However, last year’s failed independence referendum in Scotland seems to have reignited nationalism across the country and the SNP is set to sweep the board with the majority of Scottish seats in the Houses of Parliament. If you also consider the potential impact of Welsh nationalists, albeit not to the same extent as the SNP, nationalist parties could hold the balance of power in a close-run election.
Whichever party or coalition eventually forms the new government there are billions of pounds worth of savings or additional funding required. The only real difference at the moment, when looking at Labour and the Conservatives, is whether they will cut public spending, increase taxes or introduce a mixture of the two. However, the SNP in particular is pushing for a massive increase in public spending to the tune of £180 billion.
There is every chance that a lesser focus on balancing the books could place the ongoing UK economic revival in jeopardy and leave the country saddled with even greater debt. This would obviously have an impact upon the employment market, the economy as well as household spending. The knock-on effect to the UK property market, especially on domestic buyers, could be catastrophic if we are faced with a double whammy of increased debt and reduced economic activity.
There are so many mixed signals in the UK at the moment from both a political and financial point of view that it is sometimes difficult to know who is “telling the truth”. Over recent months we have had statements from the Bank of England suggesting base rates will go up, they will remain static, they will go down and we have now gone full circle with a recent suggestion that the next move will be up!
Against this background is it any surprise to see some investors sitting on the sidelines awaiting the outcome and the consequences of the next general election. Historically property markets have never really changed their long-term opinion on a change of government but this time does feel very different – with a lot more factors in play and greater uncertainty/concern.