It has been a busy fortnight for news, dominated by the UK General Election which delivered an inconclusive result, only adding to market uncertainty. Alongside this, the property market has been affected by new numbers on inflation and house prices, currency fluctuations, and the political fall-out of the tragic Grenfell Tower fire.
Unexpectedly, voters delivered a hung parliament, meaning that Theresa May remains as Prime Minister (for now) but lacks a Conservative majority. The immediate impact of the result was a sharp but short fall in the pound. She reportedly told her backbenchers – ahead of negotiating an agreement with Northern Ireland’s DUP to keep her in office – that the Tories would ease off on austerity. What this means in practice is unclear, but public spending will probably be higher than anticipated by Philip Hammond’s budget particularly in Northern Ireland, with the DUP likely to insist on investment as a condition of their support. Most economists agree that this would have generally beneficial effects on consumer demand, which should support the property market, and it may also involve greater levels of housebuilding. The elephant in the room remains Brexit, with many Conservative moderates urging May to soften her line given the need to work with other parties. Whilst a softer Brexit would be preferable for businesses and markets, the time May has now wasted on an inconclusive General Election, and her lack of majority, will make negotiations more difficult: the possibilities of both a softer Brexit and of a cliff-edge no-deal Brexit have probably both increased.
Alok Sharma has replaced Gavin Barwell – who lost his seat but was promoted to a job in 10 Downing Street – as Housing Minister. He is being urged to implement the White Paper as soon as possible.
The ONS reported that both CPI and CPIH inflation had increased last month (to 2.9% and 2.7% respectively). This reflects a rise in food, holiday and clothing prices. Once again, prices rose faster than wages, and benefits are frozen in nominal terms, meaning that real incomes, especially at the lower end, are falling. This is a bad sign for demand in the property market: it will take people far longer to save up to buy a house, something that is becoming less possible for many. However, high inflation also reduces the liabilities of borrowers, so it’s good news for those who borrowed to invest in housing. And the pressure on demand doesn’t seem to be filtering through just yet: asking prices, outside Greater London, are rising. The question will now be, will the Bank of England raise interest rates to fight inflation? If it does, this will hit borrowers, but it is unlikely to do so until we see wages rising more quickly.
In the wake of the tragedy at Grenfell Tower, a spotlight will surely be shone on building regulations. The government may now recommend, or even enforce, the retrofitting of sprinklers, which it was advised to do but rejected a few years ago. Landlords would be well-advised to make sure that all tenants know what to do in case of a fire, and to invest in making their properties safe before regulation is forced onto them.