With the prime minister’s future in question, the UK housing market is facing another period of political uncertainty.
Buyers and sellers are left speculating on how a potential change in leadership could affect the market, though it is widely expected that Keir Starmer will not remain in Downing Street by the end of the year. Until a formal leadership challenge takes place, the full implications for policy, taxation, and housing remain unclear.
The market has navigated similar periods before, including the resignations of Boris Johnson, Theresa May, and Liz Truss. Even Rishi Sunak’s departure following the July 2024 general election was largely anticipated, demonstrating how political shifts can quickly influence market sentiment.
“The prime minister has a mandate from 14 million people to get a job done” was a familiar-sounding comment made days before Boris Johnson left office in July 2022,” said Tom Bill, head of UK residential research at Knight Frank.
Unfortunately for Keir Starmer, there does not appear to be an obvious way out from his current predicament, according to Bill.
A worse-than-expected result at the Gorton and Denton by-election next week, more revelations about government appointments or a poor set of local election results in May are three possible triggers for his exit. The only uncertain thing is the timing.
Recent reports from the RICS, Nationwide and Halifax all painted an improving picture for house prices and demand in January, but they predated the latest political upheavals, which were caused by the appointment of Peter Mandelson as US ambassador.
So, how did the housing market cope during the last four prime ministerial departures?
The answer is not very well in the short-term.
Bill explained: “Resignations have tended to cause mortgage approvals and new buyer registrations to temporarily dip, as the chart shows.
“However, the politics can’t be looked at in isolation. Mortgage costs (represented by the five-year swap rate) also set the tempo.
“A spike in borrowing costs sent demand lower and ushered in the departure of Liz Truss in October 2022, but housing market activity was supported in early 2023 as rates initially fell back.
“And when Theresa May resigned in June 2019, the availability of sub-2% five-year fixed-rate mortgages softened the blow.
“Any new occupant of Downing Street will still be worried about another ‘Liz Truss moment’ but increases in government spending will put upwards pressure on borrowing costs. A negative reaction on bond markets towards his successor is one reason Keir Starmer has given to justify remaining in office. He may be proved right.
“What is certain now is that the Labour Party will tack to the left politically to appease its own MPs. In some ways, the identity of a new Chancellor could prove more important for fiscal policy and the housing market.
“While rates have jumped in recent weeks, they could begin to stabilise at lower levels in coming months.
“Expectations of an imminent cut grew following the Bank of England’s meeting this month. Soft labour market and inflation data this week will further increase the likelihood of a cut next month and another before December.
“It would help sustain buyer demand through the next few months as the drama at Westminster unfolds.”
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