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General election uncertainty lowers competition and house prices

The UK housing market is experiencing notable shifts due to the impending general election on 22 May, as highlighted by Knight Frank. The estate agency suggests that this period could be favourable for homebuyers, given the political uncertainty contributing to a recent drop in house prices.

Reduced competition benefits buyers
Tom Bill, head of UK residential research at Knight Frank, emphasised the unique market conditions: “Amid the political fanfare of the last three weeks, the fact financial markets have pushed out their rate cut expectations to November has slipped under the radar. It is largely thanks to the stubbornly-high services inflation number of 6% released on 22 May, although the picture has since become hazier.”

This inflation data has complicated expectations, with recent strong UK private sector wage growth dampening hopes for an early rate cut. Bill noted, “Overall, mortgage rates are unlikely to fall meaningfully any time soon and that, together with a degree of political uncertainty, is keeping demand in check.”

Knight Frank’s data reveals a significant decrease in competition among buyers, with 5.9 new prospective buyers for every sales instruction in May. Bill added, “Buyers have only faced less competition once during the last five years, two months after the mini-Budget in December 2022.”

Impact of supply and demand on prices
The increase in housing supply coupled with reduced demand is exerting downward pressure on house prices. “As the Nationwide and Halifax indices have demonstrated in recent months, higher supply and lower demand is putting downwards pressure on prices. It is something that sellers should bear in mind,” said Bill.

Moreover, a significant number of homeowners are transitioning from sub-2% mortgages, adding another layer of complexity to the market dynamics.

Future market outlook
Looking ahead, the autumn market may benefit from greater political clarity post-election, but the question remains whether it will also be buoyed by a rate cut. “Inflation data this Wednesday will provide a good steer as to whether current expectations for November look too gloomy or if a cut is more likely in August or September,” Bill commented.

Regardless of the timing, increased competition among buyers is anticipated after the summer. Bill concluded, “Whatever month it happens in, buyers can certainly expect stiffer competition after the summer.”

This evolving scenario underscores the importance for UK landlords and homeowners to stay informed and adaptable to the shifting market conditions. The political and economic landscape will continue to play a crucial role in shaping the future of the housing market.