David Cameron’s Conservative Party look set to secure sufficient parliamentary seats to create a working majority, which ought to boost market confidence. However the lack of a significant majority, even with potential coalition allies, points to risks during the forthcoming five year parliamentary term, which could test the resilience of the new government.
Housing market impact
A new Conservative-led government promises “more of the same” in terms of housing market policy.
The main initiatives announced by the party prior to the election relate to attempts to raise new-build delivery through a focus on brownfield development land, a new Right-to-Build initiative and self-build friendly policies.
The Conservative Party has also focused on easing the path to home ownership through an extension of the Right-to-Buy to apply to tenants of registered social landlords, and through an expansion of the existing help-to-buy programme.
As with all policy programmes put forward by the main parties, the Conservative manifesto maintained a notable focus on encouraging delivery and, to a lesser extent, on measures designed to tackle housing affordability issues.
The main market impact is likely to be seen through renewed economic and consumer confidence following the return of what looks likely to be a relatively sustainable government.
In the housing market this should be expressed through rising transaction volumes in Q2 and Q3, and price rises in the mainstream market during the remainder of 2015.
Knight Frank UK mainstream house price forecast 2015 to 2019 = 18.2%
The immediate removal of the risk of Mansion Tax should be a boost for the prime London and prime country markets, and the £2m-£5m bracket in particular, which has experienced weak trading conditions since the beginning of the year.
Our view is that price growth will remain subdued in central London, as stock volumes remain high through the year. The most notable impact of the election will be felt on transactions volumes which are likely to rise across all price brackets.
Knight Frank Prime Central London house price forecast 2015 to 2019 = 22.1%
Right to Buy
- Policy: Right to Buy extended to housing association tenants and sale of expensive houses held by local authorities – helping to fund a £1bn brownfield regeneration fund, to build 400,000 new homes by 2020.
- Knight Frank view: Funding to help unlock the development of new homes is welcome and a new fund for regenerating brownfield sites for development could help spur a greater delivery of homes. However, the ‘Right-to-buy’ pledge could potentially interfere with the delivery of new homes, as the sale of housing association properties may impact these organisations’ ability to access funding for development in the short-term. The ‘one-for-one’ rule must be implemented to increase supply.
Help to Buy ISA
- Policy: The Help-to-Buy ISA will help first-time buyers save for a deposit. The bonus represents 25% of the amount saved with a maximum government contribution of £3,000 on £12,000 of savings.
- Knight Frank view: The higher deposits required by lenders since the financial crisis have been one of the hurdles facing those trying to climb onto property ladder, so any help to address this is welcome. We are already seeing lenders starting to accept smaller deposits, but the overarching challenge of affordability will only be addressed in the long-term by boosting the supply of housing.
New homes for first-time buyers
- 200,000 new homes would be sold at a 20% discount to first time buyers under 40 over the next five years. This is in addition to the 275,000 affordable homes target. The construction would take place on brownfield land.
- Knight Frank view: The key issue will be the rules surrounding the calculation of the discount. Development on brownfield land is more expensive than greenfield land, so the funding support promised by the Conservatives for development in these areas is crucial.