How a Labour government could affect house prices
AS voters head to the polls today, it is widely expected that Labour will come out on top.
But what does that mean for house prices now and down the line?
Labour has announced a number of policies around housing, which experts believe could provide a much-needed boost to the stagnant property market.
House prices and transaction volumes have both slowed significantly over the past few years, with the average house price now standing at £281,000, according to the Office for National Statistics – down from £288,000 this time last year.
This has largely been attributed to high mortgage rates pricing out buyers, experts say.
Data from Nationwide released this week found transactions involving a mortgage are down by nearly 25% over the past year.
General elections often don’t help the housing market as people like economic stability.
But experts believe the housing market could be kick-started by Labour government – if it delivers on its promises.
Plus, they added that a new period of political stability with a strong majority government could give households more confidence to buy or sell.
The property market under Labour may also benefit from base rate cuts from the Bank of England (BoE), which are widely expected to kick in later this year.
The BoE voted to keep the base rate at a 16-year high of 5.25% in June, but analysts predict it may be cut at the next decision.
Cutting the base rate would help to bring down mortgage rates, which would ease pressure on households and could encourage more people to buy or sell their homes.
Alice Haine, personal finance analyst at Bestinvest, said: “Throw in some interest rate cuts from the Bank of England, with the first reduction expected as early as next month on August 1, and the market could experience a surge in demand.
“Several major lenders have already begun trimming their headline deals and, with mortgage approvals remaining robust, house prices may improve from here.”
In terms of policies, Labour has promised to build 1.5million homes over five years with the aim of getting more people on the property ladder.
It also pledged that new buyers will get first dibs on properties in new developments before they are sold to overseas investors.
Both of these policies could ease some pressure on the stretched housing market and encourage more first-time buyers to get onto the ladder.
“Long term, Labour’s pledge to build more homes and help first-time buyers via a permanent mortgage guarantee scheme will only help strengthen the market
Marc Von Grundherr
“Building more houses is the most effective way to make property affordable, because it brings supply and demand back into a better balance, and helps younger people get onto the property ladder without having to over-stretch themselves,” Ms Coles explained.
Another promise from Labour in its manifesto was to create a permanent mortgage guarantee scheme, which would see the Government act as a guarantor for people unable to save for large house deposits.
Coupled with a pledge to build more properties, experts said this could help get more people onto the housing ladder, which would be good news for house prices.
Marc Von Grundherr, director of Benham and Reeves, said: “Long term, Labour’s pledge to build more homes and help first-time buyers via a permanent mortgage guarantee scheme will only help strengthen the market – although this is, of course, dependent on these promises actually being delivered.
“While some buyers and sellers may have put their plans on hold until the election dust has settled, we now anticipate the market will continue to move forward on a positive foot and the prospect on an interest rates cut will only fuel market momentum.”
However, a temporary mortgage guarantee scheme already exists – and it hasn’t been hugely popular.
Since its launch in April 2021, the scheme had accounted for just 1.6% of all mortgage completions as of March this year.
Kerr & Watson director and co-founder Stephen Kerr said the low uptake makes him “question its effectiveness.”
“From my perspective, the scheme has faced challenges in gaining widespread adoption,” he said.
So, the permanent scheme may need a shake-up in order for it to be as effective as Labour hopes.
Experts also say Labour’s plans to introduce VAT on private school fees could push up house prices in some areas in the same way that top state schools already do.
“Labour’s plans to introduce VAT on private school fees could see more demand filtering into the state and grammar school systems which may, in turn, increase the house price premiums we already know are evident around high performing state schools,” said Frances McDonald, director of research at Savills.
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.
Variable rate mortgages often don’t have exit fees while a fixed rate could do.