The general election will take place on July 4. Will a new government be the answer to mortgage borrowers’ prayers or is the prospect of affordable repayments just a D:Ream? We discovered…
‘It can only get better’ was the (unintentional) soundtrack to Rishi Sunak’s election speech yesterday – and it’s a sentence that will have most mortgage lenders nodding in agreement.
Labor leader Keir Starmer has hailed the election as an opportunity for change. And for those struggling to pay off their mortgages or those worried about refinancing a more expensive mortgage, change would undoubtedly be very welcome.
But what could a change in government mean for your mortgage and finances? What effect could the election campaign have on the economy and… interest rates?
We take a look at what mortgage experts think the general election and a possible new government will mean for homeowners and buyers.
How do general elections affect mortgages?
Mortgage prices are influenced by several factors, but are strongly linked to the Bank of England’s base rate(s). Lenders also set their prices based on how the economy and markets are doing.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “A general election in Britain could significantly impact mortgage rates, often indirectly, through its impact on economic conditions, investor confidence and monetary policy decisions.
“During the run-up to elections, uncertainty about the future political landscape typically causes fluctuations in financial markets.
“This instability may prompt lenders to take a more cautious approach, potentially delaying significant interest rate cuts until the economic outlook becomes clearer.”
Will the elections have consequences for the next interest rate decisions?
The decision makers at the BoE, the Monetary Policy Committee (MPC), will meet on June 20 to make their decision on interest rates.
Most experts say they have remained at 5.25% since August 2023 I believe the BoE will reduce this in August. It is currently believed that they will remain at 5.25% in June – although that is not certain.
Can a general election change this?
It depends, says Mendes, on the financial policies of the new government. “A government pursuing an expansionary fiscal policy could prompt the Bank of England to raise interest rates to curb inflation, which would result in higher mortgage rates,” he said.
“Conversely, a government focused on spending cuts and reducing public debt could support lower interest rates, making mortgages more affordable.”
How will a change in government affect mortgage prices?
Mendes believes that the winning party’s policies also play a crucial role in shaping mortgage rates themselves. Obviously these are influenced by interest rates, but there are other factors to consider.
“If the new administration implements measures aimed at stimulating the housing market,” Mendes said, “such as tax incentives for homebuyers or reforms to mortgage regulations, this could impact lenders’ products.”
He used the example of how Rishi Sunak’s stamp duty holiday the market for first-time buyers was stimulated during the pandemic.
In short, policies that promote economic growth and stability generally lead to lower mortgage rates, according to Mendes, because lenders feel more secure in a robust economic environment.
Will a new era in politics improve housing?
Housing – or the lack thereof – is one of the biggest challenges facing society. In addition to the low housing supply, there is a great need for more support to help people buy their first home.
Laura Suter, personal finance director at AJ Bell, said: “The state of the housing market is a major concern for many Britons.
“First-time buyers will want to see an expansion to help them get their foot on the ladder, while existing homeowners will be hoping for policies that moderate inflation and increase the likelihood of interest rate cuts.”
Meanwhile, Elliott Culley, director of Switch Mortgage Finance, said via the Newspage Agency: “Housing was not taken seriously under the recent Conservative government. Since 2010, more than fifteen Housing Ministers have left the housing sector in ruins.
“If Labor wins, they must tackle the problems in the sector head on. Now that we’re in election season, let’s take a look at what pledges are being made. This will give us insight into how the economy will respond.”