Why we could be on the cusp of the perfect property investment environment
Property investment has been on a bumpy road for three years. Three votes in three years have taken its toll on the UK property market:
- Rising property values were temporarily bolstered by the 2015 general election, which saw a shaky coalition government replaced by a shaky Conservative majority.
- Last year, the EU Referendum delivered the UK electorate’s vote for Brexit. Property prices in London fell in response. After a sticky few months, property prices in the rest of the UK have continued their upward trajectory – albeit at a slower pace than in 2016.
- Now we’re faced with a general election.
Pundits and polls are forecasting a big win for Theresa May’s government. In this article, we look at what such a convincing win for the Conservatives may mean for property investment in the UK.
The government the UK elects means more today than ever before
June’s election is the most important vote since… well, since last May’s Brexit poll. Regarding general elections, it is the Brexit negotiations that make this the most important for decades – possibly in living memory.
There is no doubt that a landslide victory for the Conservatives will bring stability to the political environment in the UK. It should also strengthen Theresa May’s hand when negotiating the terms of Brexit. It may help her deliver the longer-term economic growth that dictates investment property performance in the UK.
Perhaps equally importantly, a large Tory majority in Parliament will produce the political stability that the UK has lacked for seven years – and particularly during the shenanigans of the last three years.
What effect has politics had on property UK?
Hindsight is the best property investor in the world. Looking back, it’s easy to surmise that the uncertainty caused by a frustrating political environment has transferred itself to the UK property market. Homeowners have been more reticent to move. First-time buyers have found it more difficult to save a deposit. Investors in property have been hit hard by stamp duty increases, and changes to UK property tax.
With the political uncertainty, developers have pulled back on building. Even though investment news is confused in the property world, it is clear that stock on the market has collapsed to an eight-year low. It has helped to support prices. As has a fall in the value of the pound, which has made property investment in the UK much more attractive for overseas investors.
A decisive general election result could refocus domestic property buyers
Should the Conservatives win, the huge majority expected, the dependency on overseas investors could reverse.
The pound may strengthen – certainly in the short term – which could serve to deter some foreign investors.
However, it looks likely that domestic property investors and home buyers will benefit from low rates through to 2020. That is the message coming from the Bank of England and the National Institute of Economic and Social Research, which has said the BoE wouldn’t raise rates until after Brexit. If this forecast turns out to be true, then we’ll be looking at a record low-interest rate environment for at least another two years, and possibly into 2020.
We could be heading into a perfect environment for investment property in the UK:
- Political certainty through to 2022
- A beneficial Brexit
- Low-interest rates
- Faster economic growth
- A shortage of housing supply, with developers slow to deliver increased volumes
- Continuing high demand for homes and a growing private rented sector
For this forecast to pass, property investors must hope that the June general election will deliver the sizeable Conservative victory that most pundits expect. Perhaps then some stability will return to the market, and investors in property in the UK can once more invest with some certainty.
We could be on the cusp of the type of property market that investors love, with prices returning to above-average growth rates and rents rising at least as fast.
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