A brief analysis of the Labour party’s policies and their implications for the housing sector
Written by Cooper Associates Mortgages
The Labour party, led by Keir Starmer, won the general election on 4th July 2024, ending the Conservative party’s 14-year rule. The Labour party has promised to be “the party of homeownership” and to boost the supply and affordability of housing in the UK. Here, we will examine some of the key policies that the Labour party has proposed and how they might affect the property market.
Labour’s housing policies
The Labour party has made housing one of its main priorities, recognising the challenges that many people face in accessing and affording homes. Some of the main policies that the Labour party has announced are:
- A commitment to building 1.5 million new homes over the next five years, with at least half of them being affordable and social rented homes.
- A Freedom to Buy Scheme to help first-time buyers secure a mortgage, by providing a government guarantee for 95% mortgages. This scheme would replace the Conservative party’s Mortgage Guarantee Scheme, which was last introduced in 2022.
- A First Dibs for Local People policy, which would give local residents priority access to new developments and prevent overseas investors from buying up properties before they are available to the domestic market.
- A tax on foreign buyers, which would impose a surcharge on the purchase of residential properties by non-UK residents.
The impact of Labour’s policies on the property market
The property market is currently relatively resilient and has weathered the uncertainty and volatility caused by the Covid-19 pandemic, Brexit, and the previous general elections.
The Labour party’s policies are likely to have an impact on the property market, depending on the segment, location, and timing of the market.
In the short-term Labour’s Freedom to Buy Scheme could give a boost to the demand side of the market, especially as you would expect, from first-time buyers. This could, in turn, support the house price growth and the mortgage market as more people would be able to access homeownership.
In the medium term we could see a dampening effect, after a change to building policy, as this would lead to a surge in the supply of new homes, especially affordable and social rented homes, which could ease the pressure on the demand side of the market, and help to moderate the house price growth in the long run.
A shift in the balance of power between local and foreign buyers, as the latter would face higher costs and lower availability of properties. This could benefit the local buyers, who would have more opportunities and choices in the market, and reduce the risk of speculative and empty properties. However, this could also reduce the inflow of foreign capital and investment into the UK property market, which could have a negative impact on the liquidity and stability of the market.
Impact on Interest Rates
The Bank of England are entirely independent and set the rates without interference from government, however predicting the exact impact on interest rates following an election can be complex due to the multitude of factors involved. Here are some interest rate scenarios that may play out:
- Interest Rate cuts could be delayed: Some experts suggest that the Bank of England may delay expected interest rate cuts to avoid their decisions becoming politicised during the election period. It is believed interest rate cuts are likely to occur between September and November 2024.
- Labour’s expectation of rate reductions: Labour leaders have indicated that they expect to see interest rates come down shortly after a Labour victory, aiming to boost living standards.
If Labour is successful in implementing their policies it is likely interest rates will come down, however the speed at which the interest rates were forecasted to come down is in question, as this may now be slowed dependent on the implementation of policy. It’s important to note that these are predictions and the actual outcome will depend on various factors, including the specific policies Labour implement, the overall economic environment, and the independent decisions made by the Bank of England.
Thomas Jackson, Managing Director of Cooper Associates Mortgages, commented: “The current property market is relatively stable in comparison to previous years, with interest rates being relatively constant throughout 2024. As always it is important to get advice to ensure that whatever the political climate, you secure the best mortgage for your situation.”
The future of interest rates and housing is always uncertain as we can never truly know what actions a new government will take, however, right now, indicators show the market is strong and stable with interest rates likely to come down towards the end of 2024.
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