Keir Starmer’s resignation will not automatically cause house prices to fall or mortgage rates to rise, but it does inject another dose of uncertainty into the UK property market.
The biggest issue is not who
occupies Number 10. It is how financial markets judge the economic policies of
the next Prime Minister and Chancellor.
Mortgage lenders price many
fixed rate deals using swap rates, which reflect expectations about future
interest rates. If investors become concerned that a new government will borrow
and spend significantly more, gilt yields and swap rates could rise. That would
make it harder for lenders to reduce mortgage rates and could even push some
deals upwards.
So far, the immediate market
reaction has been relatively restrained. However, buyers and sellers dislike
uncertainty, particularly when it involves taxation, borrowing and the cost of
mortgages. Some households may pause until the leadership contest and future
economic direction become clearer.
An Andy Burnham government
could also bring longer term changes to property taxation. He has previously
supported reforming council tax and stamp duty, potentially replacing them with
an annual tax linked to property values.
Scrapping stamp duty could
encourage more people to move and improve mobility within the property market.
However, an annual property levy could increase costs for some homeowners,
landlords and owners of more expensive homes.
For now, this wont stop the
property market. Serious buyers will continue buying and motivated sellers will
continue selling.
Yet the speed and confidence of
the market will depend on one thing above all else: whether the new government
can convince financial markets that its economic sums add up.
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