Uncertainty in politics impacts UK housing market outlook

surrounding Peter Mandelson’s appointment as US ambassador. When looking at historical data, it is evident that prime ministerial resignations tend to cause temporary declines in mortgage approvals and new buyer registrations. However, Bill pointed out that political factors cannot be viewed in isolation from mortgage costs, which are directly influenced by five-year swap rates.

“A spike in borrowing costs resulted in decreased demand and led to Liz Truss’s departure in October 2022. Still, housing market activity received support in early 2023 as rates initially decreased,” explained Bill. “Similarly, when Theresa May resigned in June 2019, the availability of sub-2% five-year fixed-rate mortgages helped soften the impact.”

Interest rate outlook
Bill recommended that any upcoming government should be cautious about replicating the bond market response witnessed during Liz Truss’s short term in office. Starmer has highlighted this concern as a reason for staying in power, arguing that increased government spending could push borrowing costs up. The Labour Party is expected to lean leftward to meet the wishes of its parliamentary members, with the next Chancellor’s identity potentially carrying more weight for fiscal policy and housing prospects than that of the prime minister.

Despite recent rate hikes, expectations for Bank of England rate reductions have grown following the latest monetary policy meeting. The release of bleak labour market and inflation data this week increased the possibility of a cut next month and another before December, which might bolster buyer demand through the phase of political transition. The short-term trajectory of the housing market hinges on the interaction between political developments in Westminster and the broader interest rate environment forthcoming in the months ahead.