Election snapshot

Throughout this publication we have acknowledged how in some sectors and regions of the UK pre-election political uncertainty has affected the housing market. Until the first budget of our newly formed coalition there is little to suggest that in the short term, at least, householders and the property industry have little from which to gain in confidence.

Putting to one side the likelihood of this coalition standing the test of time and the uncertainty that this engenders, the most significant policies to the UK housing market are those relating to how the national debt is handled. A picture will, we suspect, emerge in the run-up to the first budget – expected 50 days after the formation of the coalition.

Cuts and taxes

We expect the new coalition to front up to the economic problems sooner rather than later, looking to deliver the bad news as soon as possible. Austerity measures and higher taxation, achieved perhaps through a rise in VAT to say 20%, could easily impact on what remains relatively fragile sentiment in the mainstream market, pointing to continued volatility within this market.

The depth of cuts in public spending, and the ensuing impact on regional economies, will undoubtedly affect the extent by which the already emerging North-South divide continues to widen in the housing market. Equally a close eye will be kept on bond yields and correspondingly whether the current benign prognosis for interest rates holds good.

In the prime markets a sigh of relief followed the decision to archive the Liberal Democrat proposals for a mansion tax over £2million. Of course the political horse-trading led to the Conservatives having to drop ‘an equivalent’ proposal, which in this case means an increase in the Inheritance Tax Threshold.

Most people were prepared to accept some degree of tax rise but the proposed changes to bring Capital Gains Tax rates more in line with those for income tax have set the pulses racing among second-home owners unable to rely on main residence relief, as well as residential investors and owners of development land.

Stay of execution

Already we have seen those with houses on the market rush to push exchanges through before budget day. Only a further stay of execution until the beginning of the next fiscal year would open up a window for those yet to market their property to make a dash for lower tax rates.

This could distort the properties available to buy in some localised markets in the short term, while in the longer term the prospect of a higher tax charge on disposals could make assets less tradable – a concern for investors where capital returns are all important.

More generally across the prime markets, the strength of sterling will be critical to the strength of overseas demand especially in London, meaning the reaction of international money markets to the larger economic issues will probably have the biggest impact in this sector.