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Lack of political clarity will put UK property market recovery on hold, experts believe

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Lack of political clarity will put UK property market recovery on hold, experts believe

Monday, 10 May 2010

Hung parliament hits property

The approach taken by whoever forms the next UK government to public sector debt and spending cuts will have the most impact on the real estate market, according to experts. The main impact of a hung parliament will be further and continued low transaction numbers and the possibility of price fall in the mainstream property market, according to Yolande Barnes, head of Savills Residential Research.

‘Where and in which sector these fall will be determined by the type of government that is formed and consequently what type of economic policies will ensue in the next budget, on which sectors tax rises impact and how public sector spending are made. This will take time to determine and the housing market hiatus will continue until there is more certainty,’ she explained.

Political uncertainty associated with a hung parliament presents significant new risks, as well as some opportunities, for the housing market, said Liam Bailey, head of residential research at Knight Frank.

‘The housing market saw a marked slowdown in activity in the run up to the election, mortgage approvals fell 30,000 between January and March compared to the previous three months and sales volumes across the UK have declined,’ he explained.

‘Knight Frank’s research in London confirms that buyers and prospective vendors have been increasingly likely to sit and wait for some post election clarity. Unfortunately we still do not have that clarity,’ he said.

‘Irrespective of the composition of the next Government, the future outlook for the UK’s housing market will be determined by a single policy issue the approach taken to tackling public sector debt,’ he added.

If there is a stable coalition he expects house prices in the UK to end the year down slightly but said these falls ought to be modest. ‘The trends also point to slow growth in sales volumes over the year, reversing the pre-election slowdown,’ he added

But an unstable coalition could be riskier for the property market and could result in a greater number of mortgage arrears, even defaults with higher mortgage costs and also much slower return of growth to mortgage lending over time.

‘We can at least say with more confidence that the current trend towards a two tier market, split between an active mid and upper end and a more depressed lower end will continue. Mortgage availability will remain tight over the next two years, especially as the banks begin to repay government loans. The banks will also continue to ration mortgages using sharply differentiated lending rates depending on deposit levels,’ said Bailey.

‘Despite all of the uncertainty we find ourselves in the days after the election, we stand by our current forecast that house prices in the UK will end the year 3% lower when compared with the start of the year and that prices in the central London prime market will rise by 3%,’ he concluded.

Transaction volumes will be squeezed, according to James Thomas, head of residential investment and development at Jones Lang LaSalle. ‘Some sellers might choose to await clarity on the necessity of HIPS prior to marketing a property while some buyers will await a further possible stamp duty review. For developers, the ability to expediently process planning applications will be inhibited further as the power of centralised planners versus local councils now hangs in the balance,’ he explained.

‘For many employees in the public sector, the imminent spending cuts pose a significant threat to their remuneration and job security. There will be a long list of repercussions and transparency and detail on housing policy is crucial. The sooner this can be provided the better,’ he added.

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