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UK hung parliament: what does it mean for politics and property?
June 9, 2017Article by Ray Withers
The result overnight was not what we were expecting, and many people have already been asking what it means for investors, so I thought I would follow up on my last post to give some early commentary on what the hung parliament means and what affect we think it will have on the property market.
A hung parliament – what does it mean?
A hung parliament is the result when no single party has an outright majority of elected MPs (more than half of the total available). The party that has the most seats, in this case the Conservative party, is first given the chance to form an alliance with other parties. This can be either a formal coalition that results in a combined absolute majority, or a looser agreement of support for minority rule. If such efforts fail, the leading opposition party, in this case Labour, has the chance to do the same.
The most likely deals at this point are a coalition between the Conservatives and the DUP of Northern Ireland (largely pro-Brexit, but with Northern Irish interests and avoiding a land border front of mind). Labour, the SNP of Scotland, and the Liberal Democrats have all either explicitly ruled out or are extremely unlikely to enter an alliance with the Conservatives. These parties are commonly floated as a potential ‘progressive alliance’ that could offer support to Labour, but the appetite of Labour itself is unclear.
What is certain is that parliament returns to work on Tuesday, and the commencement of Brexit negotiations follows close behind, so politics will move quickly towards a firm outcome. Theresa May has just spoken with the Queen and announced her intention to form a government with national stability as its central aim.
What are the likely outcomes for the property market?
- Continuity under the Tories will indeed produce stability in the market
- A coalition with the DUP will be positive for Northern Irish interests and property
- A minority government will take a little longer to crystallise but a lasting mandate and clarity for homebuyers will follow close behind – the fundamentals remain stellar
- In either case Theresa May’s hard Brexit may well be softened, improving the long-term economic outlook and boosting investor confidence
- In the short-term, a weaker pound is attracting foreign buyers
Market momentum and fundamentals
The FT reported just yesterday that the snap election ‘chilled the housing market’. Sales volumes fell in April and May, with RICS members citing election hesitation as the main factor and expecting a ‘spike in activity’ when the polls conclude. We may now expect that hesitancy to persist among first time buyers and domestic investors in the days until a government is formed.
But the end of the election still represents the beginning of a longer-term period of stability. With no further deadlines impending until we exit the EU in 2019, the market should kick back into gear soon. With a chronic shortage of homes and the greatest proportion of privately renting households in decades – the case is still clear for UK assets.
In the meantime, the biggest immediate consequence of the election – a 2% decline in the value of the pound to a two-month low – has spurred renewed interest from international investors. As the political wheels begin to turn again, this window may close relatively soon. Sterling already recovered slightly to $1.27 in mid-morning trading, but remains cheap against the dollar and euro.
This shift in the currency market also benefits the UK hospitality industry, which will expect to welcome more inbound visitors as well as domestic tourists who prefer a staycation to a depressing visit to the bureau de change.
Brexit Secretary David Davis this morning expressed the possibility that Mrs May’s hard Brexit lacks support and may shift to more optimistic economic ground. Considering the historic importance of those negotiations, a little more political horse-trading in the short term would be well worth a sunnier long-term outcome.
These unique circumstances demand that politicians unite in the best interests of the country, as they did in 2010. We might also assume that common ground will be sought and embraced wherever possible. And one such shared concern in all the party manifestos was housing. An easy win on relaxing planning and freeing up new projects could well be in reach.
Although the news this morning was bewildering, there are good reasons for investors to remain optimistic. To keep up to date, follow us on LinkedIn, Facebook or keep an eye on this blog and we will keep you posted as the situation developers. As always, we welcome your questions and comments.