Interest Rate Cuts More Significant for Housing Market Than General Election, Says Savills

In a recent analysis, Savills, a leading real estate advisory firm, has highlighted that affordability driven by interest rate cuts is a more crucial factor for home buyers than the upcoming General Election.

Prime Minister Rishi Sunak has set 4 July as the date for the General Election. This political event might cause some potential buyers and sellers to pause their property market activities, waiting to see how new government policies might affect the housing sector. However, Lucian Cook, the head of residential research at Savills, believes that the pace and extent of interest rate cuts will have a more profound impact on the market than the election's timing or outcome.

Cook stated, "The fall of headline inflation to 2.3% in the year to April suggests we could see two or three cuts in the bank base rate this year. This likely scenario points to a relatively stable mortgage market in the short term, with prospects of lower borrowing costs as the year advances."

He further explained that with a shorter-than-expected lead-up to the election, there is a greater chance for buyer demand to strengthen during the autumn, once the uncertainty surrounding the election dissipates.

In the high-end property market, a survey conducted by Savills in March revealed that 79% of respondents felt the election would not affect their commitment to move within the next 12 months. Cook noted that affluent domestic buyers are aware of potential changes, such as increased taxes, VAT on private school fees, and targeted measures for overseas buyers. Despite these factors, there is a sense of preparedness among wealthy buyers.

Cook added, "The prime market has already factored in the possibility of a government change, particularly as no new aggressive wealth tax proposals have emerged. However, the tax treatment of non-domiciled individuals remains a potential disruptor, suggesting a cautious outlook for the prime central London market this summer. This could lead to increased short-term price sensitivity and potentially hinder the long-overdue market recovery."

On a broader scale, while a change in government might not drastically alter the macro-economic landscape, it could shift the focus of housing delivery and planning. The Labour Party, for instance, has pledged to deliver 1.5 million homes over the next five years, a plan that could reshape the housing market over time but is unlikely to have a significant immediate impact.

There are also ongoing concerns about whether key property-focused legislation on leasehold and rental reform will pass through Parliament. Paula Higgins, chief executive of the HomeOwners Alliance, emphasised the importance of leasehold reform, stating, "We urge the government to include Leasehold Reform in their legislative agenda. This is a practical issue currently stalling many buyers. The bill will have a tangible impact on those purchasing flats and existing leaseholders who have been waiting for clarity on the costs associated with extending their leases."

As the political landscape evolves, the focus remains on how economic measures, particularly interest rate adjustments, will shape the housing market's future.