How will Liz Truss becoming Prime Minister impact the economy and property market?
Tue 06 Sep 2022
Since the pandemic, property prices have, on average, risen in England by 22% and by 30% in Wales according to the Government’s Land Registry data. This rise was completely unexpected with most forecasters at the time believing that property prices would fall due to the economic disaster caused by the pandemic.
In 2022, most forecasters predicted this unexpected price growth would run out of steam and rises would return to their more normal 3-4% per annum. However, although there are some signs of growth rates reducing, prices by June this year continued to rise.
As a result of this continued property boom, some forecasters are now suggesting that with a cost of living crisis looming for both consumers and businesses and increases in interest rates which will affect some mortgages, it’s likely the gains made over the last few years will fall back, albeit slightly. For instance, Capital Economics suggest the price rise to date may fall back from the 23% growth to around 17% growth over the next couple of years, effectively seeing price falls of around 5% to 2024.
Will Liz Truss becoming Prime Minister have a positive or negative impact on the property market?
With Liz Truss being announced as the new Prime Minister, we consider below how this might impact on the property market.
However, it is worth pointing out that just now, it isn’t easy to forecast what happens next, with or without new domestic policies. That’s because so much depends on things outside our control - such as how long the war between Russia and Ukraine lasts – especially with the direct impact this is having on the price of energy and food across the globe.
But we do have some idea of the impact of changes that might occur in England when it comes to housing (Wales has its own housing policy). This is based on statements Liz Truss has made during media interviews as well as past comments.
To date, Liz Truss has expressed the following thoughts on the English housing market:-
- Suggested that national housing targets are scrapped, leaving local councils to influence the level of new homes in their area
- Reduce ‘red tape’ which she feels holds back housebuilding, including planning restrictions and help drive more housebuilding through tax cuts
- Help more renters on the property ladder by allowing their rental payments to be taken into consideration when assessing mortgage affordability.
Michael Cook, Group Managing Director at Leaders Romans Group (which we're part of) believes that Liz Truss is “a pro-property developer and said that one million homes should be built on the ‘green belt’ around London. Additionally, she vowed to introduce zones in the North of England with lower business rates and fewer or no planning restrictions to encourage investment.”. In addition, she is looking to “make buying and renting property cheaper and easier” and that “landlords will not have to face as many regulations as they do currently.”
Will Liz Truss becoming Prime Minister have a positive or negative impact on the economy?
On top of this, she has stated that economic growth across the UK will be a top priority and to kick this off, she is planning:-
- £30 billion of tax cuts: including reversing the 1.25% National Insurance increase, stopping the planned corporate tax rise from 19% to 25% and even cut taxation for general workers
- To consider investment in infrastructure
- Temporary suspension of the green levy on utility bills.
So far, it looks like our new Prime Minister could have quite a positive impact. Tax cuts and a reduction in energy bills will help counter, for some, the cost of living crisis, while investment in infrastructure can support the building of more, much needed, new homes. Any reduction in red tape and regulation will be welcomed, especially if it could boost property supply in the future.
The concern though is that although these policies may drive economic growth which would certainly support the property market, if they also raise inflation and borrowing costs, it might negate the growth.
With Liz Truss announced as the new Prime Minister, what should tenants, sellers and buyers do now?
Over the next few months we will see the impact on the financial markets and indeed whether the property market will continue to rise, albeit at a slightly lower level. However, even though the new Prime Minister will take office over the next few days, it’s unlikely any new policies will have much effect on the property market for the rest of the year.
So if you are considering move this side of Christmas or in the New Year, what should you do?
For tenants, the sooner you can find somewhere to rent, especially if you can find an energy efficient property that has an EPC rating of A-C, the better.
For sellers, people tend to come back from the summer holidays deciding to move, so now is a great time to get your property on the market and secure a sale prior to Christmas, before any energy bill hikes kick in over the coming months.
For buyers, if you can find the property of your dreams, now could still be a good time to buy while mortgage rates are still relatively low. This is because the current UK base rate is 1.75% and this is expected to further increase as the Bank of England tries to curb inflationary rises. Locking in a good rate now could save you money in the long term.