The closing months of 2019 saw the UK election campaign culminating in a landslide win for the conservative party with it’s largest overall majority in over thirty years. This was accompanied by the UK economy reportedly growing at its slowest pace since the financial crisis.
The press coverage since has been filled with journalists catchphrases from ‘Boris Bounce’ to ‘Boris Brexit Bounce’, ‘Boris Honeymoon Period’, ‘Boris Sigh’ (of relief). One thing is for certain, there is going to be a Boris byword no matter what!
Brexit is a conundrum, two experienced economists can have diversely different views on how it is going to impact the economy. No-one can predict the future, however there is clearly a certain expectation that confidence and stability will begin to return to the UK housing market now that the parliamentary gridlock has been ended. Whether it’s the party you voted for or not, we’ve got a government that ‘in theory’ has a large enough majority to make decisions and implement them.
With this comes greater certainty, but the power of journalism on consumer confidence should not be underestimated. We have a habit of writing our own future and if the country is being told by its press there’s a Boris Brexit Bounce, odds are there will be! The pent up demand from buyers and investors that have been holding off making that property purchase, which they desperately want to make due to historic uncertainty, may now find enough justification to take the leap.
This could create a sellers market, resulting in a slight bounce at the start as savvy vendors realise their ability to justify asking for higher prices and take advantage of this pent up demand. However, this is likely to be short lived and will likely plateau as more properties are released into the market and, as the months move on, potential concerns return around the potentially unknown trading relationship with the EU and the risk of a hard exit from the transition phase towards the end of 2020.
Historically, general elections do not appear to have generated volatility in house prices, then again, we are in unchartered waters. That said, even after the referendum decision to leave the EU, activity slowed due to uncertainty. However, it’s reported that UK annual house price growth still continued to rise in line with its previous trend.
So will there be a bounce? A bounce in price? A bounce in demand? A bounce in supply?
I have not seen any forecasts suggesting that the UK economy is going to crash post Brexit. GDP is expected to continue to grow no matter what the outcome, wages are expected to continue to grow faster than inflation and there is a fundamental shortage of UK homes, with the London population alone historically forecast to grow to 9.5m by 2026.
I expect short-term confidence will spur activity in the market, most likely starting in the second quarter of the year following a degree of clarity post 31st January Brexit date. This could be seen as a ‘honeymoon period’, which may bring increased public spending and lower taxes. The housing sector specifically could benefit from Mr Javid’s past experience as secretary of state for housing, and see a further boost if the Budget brings new assistance for first time buyers and greater incentives for regional developers as suggested, and even more so if the government reverts back to its radical stamp duty reforms. This political positivity dovetails nicely with the overdue nature of a London bounce, a housing market that has not seen any real positive growth since 2014, but has significant pent up demand from investors sat on the side-lines, who will now likely have the confidence to deploy their cash.
Just how significant the price bounce is remains to be seen, however logic certainly suggests it will be heading in the right direction for most.
