It would be fair to say that last month’s General Election result came as a surprise to many, with Boris Johnson’s Conservative party winning a landslide majority of 80 seats. It’s the largest Conservative majority since 1987 with the party making a net gain of 48 seats and winning the highest percentage of the vote in 40 years.
So, now that the election has provided a decisive result, what is likely to be the impact on mortgages and house prices in 2020? We look at the expert predictions for the property and mortgage markets this year.
House prices set to rise in 2020
In December, leading property website Rightmove reported that house prices had dipped by 0.9% in the month, and that the number of properties coming on to the market was 8% lower in 2019 than in 2018. Sales in 2019 had also fallen 3% year-on-year.
Now that the election result has provided a ‘window of certainty’, Rightmove predict that house prices will rise by 2% in 2020 and that the landslide could encourage a flurry of activity amongst movers this spring.
Miles Shipside, director and housing market analyst said: “The greater certainty afforded by a majority government gives an opportunity for a more active spring moving season, with some release of several years of pent-up demand.
“Given the Brexit track record to date, further political twists and turns should not be ruled out, though with a large majority there is a higher possibility of an end to the series of Brexit deadlines, and the prospect of an orderly resolution.”
A property price rise of 2% this year would be twice the previous annual rate of just 0.8%. Rightmove also say that there would be regional variations in 2020, with London experiencing more modest rises of 1% and the northern regions seeing more dramatic rises of between 2% and 4%.
Other factors which influence prices – such as interest rates remaining low, competitive mortgage prices and high employment, not to mention average wage growth outstripping house price growth – would also prove helpful, Rightmove said.
Rightmove are not the only experts predicting house price rises following the General Election result. Tomer Aboody, director of property lender MT Finance, said the next 12 to 18 months would see ‘positivity filter back into the market’.
He predicted property prices would increase across the country with London experiencing the greatest gains.
However, former Royal Institution of Chartered Surveyors Chairman, Jeremy Leaf, believes that any post-election bounce will only happen if there was an early clarification on the Brexit timetable.
“It would be surprising if there is a significant increase in values over the next few months,” he adds.
“Prices have been underpinned for some time by a shortage of supply, so any rise is likely to be more than outweighed by the usual increase in stock covering most price ranges at this time of year.”
Long-term mortgages for first-time buyers
One of the main pledges made by the Conservative party in their manifesto was to introduce a long-term fixed-rate mortgage product for first-time buyers, particularly aimed at buyers with small deposits.
Similar to some of the schemes available in the US, the government wants to support first-time buyers by enlisting institutional investors, such as pension funds, to offer these long-term loans, rather than traditional banks. It wants to see these mortgages offered to borrowers with 5% deposits, calling the current market “restrictive and expensive”.
The pledge has been met with mixed reactions. While the idea of a ‘lifetime’ mortgage means that borrowers would be protected against interest rate rises, it could saddle borrowers with early repayment charges for many years and make it more difficult for people when their circumstances change; for example, if they wanted to move house.
Laura Suter, personal finance analyst at investment firm, AJ Bell, said: “It’s not clear how these would be offered, with the party just saying they would encourage the mortgage industry to increase the availability of these products.
“A significant mental shift is required for Brits to sign up to these long-term mortgages, as even ten-year deals are rarely used in the UK – in part because of the often eye-watering exit penalties should you want to get out early.”
Affordability tests set to be relaxed?
One of the Conservatives’ other election pledges was to loosen the affordability tests that mortgage lenders must apply to potential home buyers.
One of the consequences of the financial crisis was that mortgage lenders introduced much tougher underwriting criteria for borrowers looking for a new mortgage. As well as increasing the requirement for proving income, borrowers now have to satisfy a test to establish that they could afford the mortgage both now and if interest rates were to rise in the future.
This can mean borrowers taking out cheap loans at rates of less than 3% are tested to see if they could afford rates of 7% and above. If they can’t afford these increased payments, many borrowers are seeing their mortgage application rejected.
In a bid to get more people on the housing ladder, the Conservatives have pledged to ease these underwriting rules, arguing that more than two million people could afford a mortgage at a rate of 2.35% but would fail the current affordability tests.
Help to Buy to be extended to 2023
In a further boost to homebuyers, the Conservative manifesto also pledged to extend the Help to Buy Equity Loan scheme to 2023.
This initiative allows borrowers to take out a loan from the government of up to 20% of the value (40% in London) of a new-build home.
Keeping the scheme going for another three years will help many more buyers, but many experts are concerned about what would happen once the scheme ends in 2023 – an area of the manifesto which was also unclear.
Mortgage expert Richard Hayes says that if the Conservatives kept their promise on extending Help to Buy, it would be welcome news for first-time buyers.
“Help to Buy was extremely successful and extending it further will open up a reliable path to home ownership for first-time buyers in all parts of the United Kingdom,” he says.
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