The effect of the Conservative Government on property

Tuesday 09 June 2015

 The Conservative party came into power in the United Kingdom with an overall majority of 331 seats and 51% of the vote on May 7^th 2015. David Cameron will stay on as Prime Minister this time without having to form a coalition with any of the other parties, but what impact will this new conservative government have on property?

The run up to the election has a big effect on would-be sellers, in that they have been waiting to see who comes into power before selling their property. This slow rate of housing transactions is shown by the 3.1% decline in revenue in the first three months of 2014 and mortgage approvals being 20% below the levels recorded in early 2014. This temporary lack of supply has the consequence of actually driving up house prices. Similarly the affluent end of the housing market experienced uncertainty ahead of the election due to talk of mansion tax. Now that the election is over and the Conservatives are in power there should be a positive impact on the housing market. Prices will continue to rise but not by as much and we can look forward to a healthy level of buyers and sellers

Top end of the market

At the top end of Britain’s housing market property firms are predicting that the Conservative government’s victory will lead to a surge in the purchasing of £2m plus houses. Lucian Cook the head of Savills residential research in the UK was quoted as saying that “we expect much of the deferred demand for the pre-election period to flow back into the prime market over the remainder of 2015 and 2016”. This could be particularly true due to mansion tax being removed from the market.

Mansion Tax

Mansion tax was a proposed plan put forward by former Labour leader Ed Miliband, the idea was to put a mansion tax on homes worth more than £2 million with a series of bands for different priced properties. This flagship policy was created with the intention to help pay for future investment in the NHS.

It was estimated by Labour that the mansion tax would apply to less than 0.5% of the homes in the UK and people who earn less than £42,000 per annum can defer the tax until their property changes hands. Asking those who make the most to make a bigger contribution and redistribute wealth more fairly.

Nevertheless, with approximately 97,000 properties over the mansion tax limit of £2m in the capital alone a consequence of the scheme would be a disabling of the London property market. Labelled ‘short-termist’ by Lord Mandelson the tax would be disproportionate in its effects, with the people living in London and the South East worse off due to the higher property values. Lord Mandelson went on to say that people ‘simply don’t have the incomes, or the wealth, or the assets, to support [the mansion tax]’.

Stamp Duty

Before the election took place Chancellor George Osbourne announced an overhaul of stamp duty which is intended to work as an alternative to mansion tax. Previously stamp duty worked on a ‘slab’ system jumping from 1pc to 3pc at the £250,000 threshold which was below the average sales price of a home in London. Lucian Cook of property developer Savills said of the previous stamp duty system ‘first time buyers…see a sizeable chunk of their equity siphoned off to the Treasury [and] this makes it harder for them to raise the deposit needed to get the mortgage they require’. Combined with stricter mortgage lending criteria, lack of wage growth and rising house prices young professionals and families have had a difficult time getting the money for a deposit let alone stamp duty.  

The new stamp duty system means that the amount owed goes at a graduated rate (similar to income tax). Thus reducing the burden of stamp duty which will result in families and young professionals being able to get on the property ladder. Due to stamp duty changes putting an end to conversations about mansion tax ‘[it gives] all of us in the housing market the long awaited clarity at the top end of the market’ said the managing director of high end estate agent Rokstone Becky Fatemi.

First Time Buyers

Being able to buy their own property was at the top of a lot of voter’s lists, therefore the Conservative government paid particular attention to them when trying to entice voters. Two of the main systems which will assist people in buying their first home were the help to buy scheme and ISA.

The help to buy scheme helps buyers by either lending them the money for a deposit as part of an equity loan scheme or providing them with a mortgage guarantee. This scheme from the Conservative government has had the biggest effect of the housing market. According to the financial times this scheme has enabled 70,000 people into the housing market and its equity loans have helped to finance the purchase of £10bn of housing.

The help to buy scheme also benefits construction groups as it acts as a stimulant for new planning and development. The greatest effects of the scheme are suggested to be outside areas of high house price growth in London and the Southeast. Leading London estate agent and global property consultancy Knight Frank said of the scheme; ‘[it] helps buyer’s access better mortgage deals, result[ing] in developers and house builders submitting higher numbers of planning applications and taking on larger schemes’.

ISA

In the last budget before the general election took place, Chancellor George Osbourne revealed the Help to Buy ISA. The idea behind this saving scheme is to help future homeowners to save for a deposit to buy their first home. With stricter rules on getting mortgages and high property prices the government will effectively ‘top up’ your savings up to a maximum of £3,000 per person. This money can only be used for individuals purchasing UK properties of up to £450,000 in London and £250,000 for the rest of the UK.

According to George Osbourne, the ISA is designed ‘to tackle two of the biggest challenges facing first time buyers – the low interest rates when you build up your savings, and the high deposits required by the banks’. Once ministers have finalised the details with the industry these ISAs should be available from autumn 2015 and they will then go on for four years. After you have got one there is no time limit on when you can use it and how fast you have to save. The money in the account can also be accessed at any time but with the government bonus only added when it is used for a deposit on a home.

Under Supply

According to the Office for National Statistics in 2013/14 around 120,000 new homes were completed in the UK which is well below the 200,000-300,000 a year that experts say are needed. So the conservative government have pledged to increase housebuilding by building 200,000 new starter homes for first time buyers, priced at a 20% discount to the market level.

Yet in order for this to happen more certainty in the planning process is needed.  As currently there is an obstacle-laden planning system with some building companies arguing that the current planning system restricts small builders’ ability to grow. To boost development volumes local authority planning departments may need to recruit more people to ease the bottleneck in planning applications.

Prime Minister David Cameron is quoted as saying that the ‘dream of the property owning democracy is alive…offering you security at every stage of your life’ but ultimately the Conservative government has not successfully incentivised or worked with private house builders to increase housing stock. Therefore the supply-demand imbalance results in house prices being driven up. Rather than throwing money at first time buyers perhaps the government needs to firstly build enough homes to end price inflation to stop people getting stuck in a lifetime of renting.