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How Does Property Fare In Uncertain Times

Addressing the European Election season & Property

The global political arena feels rather busy of late with barely a month passing before the next political upheaval is faced, realised, or avoided. Donald J Trump’s election as the 45th President of the United States of America this January was the first new office directly affecting the global market. Whilst some lamented his arrival in the White House, others have welcomed it, most notably his supporters and businesses, both big and small, for his stance economic prosperity. As the first real estate developer ever to hold the position of President in America, Trump sees himself as the consummate dealmaker, so much so that his famed book is called ‘The Art of Deal’. It remains to be seen whether the world’s fears are unfounded, but it’s worth remembering that a country, certainly the USA is governed by more than one man.

Across the Atlantic there has been a flurry of political activity. The elections in Holland saw their ruling party comfortably maintain their majority, fending off the very real threat of the populists Geert Wilders Freedom Party gaining power. Collectively, Europe and its leaders (believers in free trade – essential for the property market) breathed a sigh of relief, knowing that the right kind of populism had triumphed.

April then saw Theresa May and the Conservative Party call a snap election in the UK having previously repeatedly ruled this out. Ostensibly the reason given for calling the June 8th snap election was so that she could strengthen her negotiating position in the looming Brexit negotiations and potentially have a mandate from the British public to enter them. Unfortunately, these designs backfired on the Conservatives, with Jeremy Corbyn closing the Labour party’s representative gap by thirty-three. It seems unknown in her manifesto and her interviews whether Great Britain will leave, and with a good deal if possible.

May saw the French choose Emmanuel Macron in their Presidential elections. As with the Dutch elections, the success of Mark Rutte and the People’s Party for Freedom and Democracy, his victory coming comfortably at the expense of the far right Marine le Pen and her National Front party. As Rutte’s party’s name entails, the backbone of the European economy, free trade, prevailed again.

So what does this have to do with my investments and the overall shape of the UK property market? Elections almost always seem to bring uncertainty to currency and markets, but does this particular election cycle warrant more worry than past ones?

Donald Trump’s attempt to ‘Make America Great Again’ has seen his approval ratings fall to a historic low, but it has previously been suggested that property markets around the world will benefit from his election as the President of the United States, but a lot will depend on how the country’s economy and dollar performs after the initial shock factor of his arrival in office has passed.

Experts have posited that it could be good news for US investment in the UK property market as London, in particular, is regarded as a safe haven for real estate investors.

The results of elections on our own soil are obviously more likely to have a direct impact. Analysis of previous UK elections shows us that the housing market has been affected by the uncertainty. Typically, there tends to be a slowdown in market activity as Election Day approaches but usually succeeded by a boom immediately afterwards. However, with this particular snap election having been called and concluded within two and a half months, the UK property market has seemingly come away unscathed, perhaps only a blip of movement in the grand scheme of things.

The political happenings on our doorstep have had undoubtedly have the biggest impact on the UK and the UK housing market as they very much effect Europe’s position an the stance that it will take in Brexit negotiations. On the surface, the election of Rutte in the Netherlands and Macron in France and the avoidance of potential Nexits and Frexits gives us much to be relieved about. Both very much believe in a united and strong Europe, and it’s central tenet of free trade all throughout.

Macron’s views and position are notably important to the UK. Very much pro-business, he is a firm believer in free trade and also the need for EU reform. He believes in markets and the balancing of budgets, but also that the Euro is a project that is very much incomplete. Macron’s intent for a stronger Europe can only pragmatically be achieved through reform. It’s no coincidence that his first call as President was to the German Chancellor Angela Merkel, perhaps to collaborate on reform.

The election of Macron is a plus for the UK, as it should herald a co-operative approach in relations to the EU. For the UK to prosper outside of the EU, it very much needs a close free trade agreement with the EU, and Macron’s election and views very much boost the chances of this happening. In tandem, a stronger better functioning Europe, something that Macron very much hopes to bring about, increases the UK’s chances of prospering outside of it. It is very much to the UK’s advantage to see an increase in the growth and efficiency of our principal trading partner.

Amongst all of the political happenings, it’s also worth remembering what’s happening with the Stirling. Post-Brexit it has not fared as well as some might like and it’s value has declined, but this has led to the highest levels of Foreign Direct Investment since 2005 as investors look to take advantage of the weak Stirling and achieve more value for their money.

Conversely though the decline in Stirling’s value and measures introduced in the 2015 Spring Budget are beginning to take effect and this has not been such a boon for landlords.

The changes that are being tapered in over a four-year period that began on 6th April 2017 reduce the tax relief landlords are able to claim to 
the basic tax rate of 20%. This means that it’s the landlords with highly mortgaged property portfolio who will be most affected by these changes and this includes a large part of landlords who buy to let.

The upside of the current times is that mortgage lenders are keen to lend, mortgage rates are becoming more competitive and the pace of house price growth is waning. These add up to a less bad, if not rosy, scenario for ability to buy. So, we can face the music and dance.

The recent inconclusive results of the UK’s general election whilst initially potentially worrying for some may not have that much impact on the UK property market. The conservatives are still in power, admittedly with a reduced majority, but it is their policies that govern the market, and there has been no change to their policy towards the property market, either in their manifesto or Theresa May’s Queen’s speech. As with Brexit, the property market hasn’t been affected by the uncertainty and foreign and local investors still have faith in the UK property market.

Brexit negotiations are now under way, but this in itself has resulted in no change as yet to the UK property market. Time will of course tell what the impact will be and we will need to wait and see how the negotiations proceed as to what the impact (if any) is.

As always, the current political climate and Brexit negotiations mean that there will be winners and losers. Bad news for some heralds silver linings for others, it just depends which side of the fence you’re on.

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Daniel Levene2018-11-16T22:46:11+00:00