While chatter around the impact the General Election result is set to ramp up again, the impact on financial markets is likely to stay minimal especially if the current poll predictions materialise.
- Markets likely to remain calm even if Labour win a super-majority.
- Efforts will continue to avoid bond markets turbulence.
- Uncertainty still surrounds prospects for a CGT rise under Labour, although it’s far from clear if this would happen.
- A pledge to establish closer ties with Europe may be welcome for many investors given the Brexit effect on valuations.
- A result leading to a coalition government could cause some volatility.
- British ISA plans may be put on ice.
- There appear to be no plans to cut stamp duty on UK share purchases or increase the dividend or capital gains tax allowances.
- Changes to advice guidance boundary rules expected to progress.
- Investors should maintain a keep calm and carry on attitude.
Even a Labour super-majority is unlikely to dramatically unsettle investors. It would enable the new government to get on with their agenda, which has largely been digested by markets. Anything other than Labour dominance is more likely to be unnerving given expectations. It could weaken the position of Keir Starmer and his ministers and hamper their ability to drive change.
An emphasis on keeping bond markets calm
Shadow Chancellor Rachel Reeves has made it clear that if she becomes Chancellor, she intends to be economically responsible, and focus on stimulating long-term growth, rather than immediate boosts to consumer spending power. She wants to avoid sparking the kind of bond market turmoil, which erupted after Kwasi Kwarteng’s mini-Budget. That’s why there were no surprise announcements in the manifesto, with the party being super-careful about pledging changes to spending or fiscal rules that could rattle financial markets. The priority will be on keeping the waters calm in the aftermath of the election, even with a super-majority. There may be some minor announcements before an expected budget in the Autumn in a bid to build trust.
There is more of a risk of market turbulence after a few years of a new government bedding in, especially if the economy took a turn for the worse and the tax take dips. It would be very hard for Labour to cut services and do anything drastic with public spend and they appear to be in a bit of a tight spot with their fiscal commitments. However, Rachel Reeves has suggested that in the future borrowing rules could distinguish between day-to-day spending and investment to propel long-term growth, potentially loosening the purse strings to further support and partnerships with the private sector, above and beyond the current manifesto commitments. So far, such indications do not seem to have perturbed the debt markets, with bond investors appearing to be more sensitive to interest rate speculation than the investment plans of an incoming government.
Uncertainty surrounds potential increase in CGT in the future
Questions remain about whether Labour could increase capital gains tax in the future but it’s still far from clear if this would happen and what form it would take. However, valuations, which have been languishing lower partly due to the Brexit effect, could be positively impacted if Labour wins, given recent pledges for closer trade ties between the UK and the EU and less of a focus on regulatory divergence.
Impact of a minority administration
A minority administration or coalition would be more unsettling as it would mean more uncertainty and it may hamper bringing in Labour’s agenda, and potentially hold back investment due to the need to integrate other parties’ promises made on the campaign trail. However, pledges on certain sectors such as tougher fines for water companies still probably would not be rolled back, given recent public outcries.
The British ISA could stay on ice
There has been a lot of talk about the potential for a British ISA to help kickstart more investment into the London Stock Exchange – however, there was no mention of it in the major parties’ manifestos. Both Labour and the Conservatives have said they want to encourage saving and investing. This could be done through lifting the overall ISA allowance, rather than introducing another layer of complexity.
If the aim is to make investing in UK equities more attractive, there are other measures which could be used. All too often, retail investors are cut out of IPOs and secondary capital raising rounds. It’s essential that the FCA Review of the listing regime puts improving retail investors’ rights at its heart. There was no mention in the manifestos of cutting stamp duty on UK share purchases or increasing the dividend or capital gains tax allowances, which may disappoint some investors.
Advice/guidance boundary rules expected should progress
It was disappointing we didn’t get any mention in the manifestos of all the great work that has been done to help clarify the rules around helping people get to grips with their finances. Currently financial advice is well regulated, but it’s costly and so is only used by a small proportion of people. Firms can provide guidance, but can’t currently personalise it, or use it to drive people towards positive outcomes, without it being classified as advice. So far, in the review of the boundary between guidance and advice, the FCA and Treasury proposed a new category of targeted support, so providers could make recommendations based on what ‘people like you’ should do. This would make the information more useful, without crossing the line into advice.
Given the support from across the political spectrum for this idea, it’s to be hoped that this was eased out of the manifestos purely on grounds of space. A new government has the opportunity to accelerate this process to a conclusion, and it would be a crying shame if an election did anything to hamper its progress.
The NatWest share sale
Although the NatWest share sale has been put on ice, due to the General Election campaign, it was mentioned in the Conservative manifesto as still being part of the plan. It was omitted from the Labour manifesto but there are hopes it will still progress.
Schemes like this have the power to encourage new investors, so ideally this will be revisited. Research from HL shows that past privatisation schemes brought in newcomers and super-charged investing habits for many novice shareholders. 25% of people say they invested in privatisations between the late 1970s and 2014. Of this group, a third of people (34%) still hold at least one of the companies they invested in, so schemes like this do have the power to incentivise people to start on an investment journey.
Keep calm and carry on
Ultimately, the attitude investors should take amid some uncertainty about what could lie ahead under a new administration is keep calm and carry on. Keep your eye on long-term goals, and stay diversified across a range of sectors, asset classes and geographies.”
Labour v Conservative (& others) Housing Policy
Aneisha Beveridge, head of research at Hamptons says “when it comes to housing policy, there is little difference between the two major parties. Both are fighting for the centre ground with a focus on helping more people become homeowners. To meet that goal, both parties have set out plans to build more homes, offer a mortgage guarantee scheme to help people with low deposits into homeownership and clamp down further on landlords. And it’s the rental market, in particular, that could see the biggest change, particularly if the polls are right and Labour win a majority.
We saw in the local elections that much of the shift from the Conservatives to Labour came from mortgaged households, and that’s likely to play out in the main vote, too. But with little substantial housing policy on the table, it’s people's finances and the path of mortgage rates, the latter primarily controlled by the Bank of England rather than the government, that will dictate how people feel. “While there are no signs that demand for housing has dipped in the run-up to the election so far, as always, confidence and clarity are key for the market in the long term. Most new governments tend to come with a honeymoon period when simply being different from the previous one is enough to generate a feel-good factor. This, alongside greater clarity about future plans, should improve confidence, which means we expect the second half of the year to come with a boost that should extend into the housing market.
The relatively high level of political instability in recent years has heightened the level of uncertainty for many investors, small businesses and even individuals. Rather than developing a long-term strategy for stamp duty, corporation tax and capital gains, as well as the tax and regulatory environment for second homeowners and landlords, there has been near-constant tinkering with the rules and rates in different directions. For many, this has made long-term business planning tricky and needs to be a key consideration for the next government.”
Summary of the main political parties’ stances on housing
Conservative Party
- Building Targets: Commit to building 300,000 homes annually by the mid-2020s.
- Home Ownership: Extend the Right to Buy scheme to housing association tenants.
- Planning Reforms: Simplify and accelerate the planning process.
- Affordable Housing: Increase the number of affordable homes in new developments.
Labour Party
- House Building: Pledge to construct 1.5 million new homes over the next decade.
- Renters’ Rights: Introduce rent controls and enhance tenant protections.
- Public Housing: Significantly expand council housing.
- Green Homes: Retrofit existing homes for energy efficiency.
Liberal Democrats
- Housing Supply: Aim for 300,000 new homes per year, including 100,000 social homes.
- First-Time Buyers: Implement rent-to-own schemes.
- Environmental Focus: Ensure new homes are zero-carbon by 2025.
- Empty Homes: Bring vacant homes back into use.
Green Party
- Sustainable Housing: Prioritize building energy-efficient, zero-carbon homes.
- Rent Control: Implement rent controls for affordability.
- Public Housing: Expand social housing stock.
- Community-Led Housing: Support community-led housing initiatives.
SNP (Scottish National Party)
- Affordable Housing: Deliver 110,000 affordable homes by 2032.
- Rent Controls: Introduce a national rent control system.
- Homelessness: Enhance support services to reduce homelessness.
- Energy Efficiency: Focus on energy efficiency improvements for existing homes.
Plaid Cymru
- Welsh Housing: Ensure 50,000 new social and affordable homes in Wales.
- First-Time Buyers: Provide grants and support for first-time buyers.
- Sustainable Homes: Emphasize environmentally friendly construction.
- Renting Sector: Strengthen tenant rights and introduce rent controls.
DUP (Democratic Unionist Party)
- House Building: Increase social and affordable housing in Northern Ireland.
- Home Ownership: Promote first-time buyer assistance schemes.
- Planning System: Reform planning to encourage development.
- Energy Efficiency: Support retrofitting homes for energy efficiency.
Reform Party
- Planning System Review: Fast-track planning and tax incentives for brownfield site development. Implement ‘loose fit planning’ for large residential projects with pre-approved guidelines.
- Social Housing Law Reform: Prioritize housing for local residents and those who have contributed to the system, placing foreign nationals lower on the priority list.
- Scrap Section 24 for Landlords: Repeal the restriction on landlords deducting finance costs and mortgage interest from tax on rental income to encourage small landlords.
- Abolish Renters’ (Reform) Bill: Enhance monitoring and enforcement instead of existing legislation, focusing on addressing bad practices among landlords.
- Leaseholder Protection: Ensure transparency and consent for charges, enforce Section 106 agreements, and make it easier and cheaper to extend leases and buy freeholds.
- Incentivize New Construction Technology: Promote modular construction, digital technology, and efficient building practices to speed up housing development and reduce waste.
Each party’s housing policies reflect their broader political philosophies, from market-driven solutions and homeownership incentives to social housing expansion and tenant protections. The Reform Party emphasizes quick fixes and systemic changes to accelerate housing development and address landlord concerns.
HOUSEBUILDING & HOMEOWNERSHIP
Conservative Policy: In their 2024 manifesto, the Conservatives pledged to deliver 1.6 million homes in England in the next Parliament. When the 2023 data is released, they are expected to meet their 2019 manifesto pledge of building one million homes during their parliament. Net additional homes totalled 935,204 over four years to March 2023.
Their headline policies are:
- Introduce a new and improved Help to Buy Scheme. This will enable first-time buyers to purchase a new-build home with a 5% deposit using a 20% government equity loan. The scheme will be partly funded by housebuilders, and we await more details.
- Continuation of the Mortgage Guarantee Scheme to help increase the availability of 95% LTV mortgages.
- Prioritise housebuilding on brownfield sites and raise density levels in cities. The party’s proposed ‘brownfield presumption’ will mean that if housebuilding drops below expected levels in Britain’s 20 largest cities and towns, it will be easier to get permission to build on previously developed brownfield sites.
- Support local and smaller builders by requiring councils to set land aside for them and lifting Section 106 burdens on more smaller sites.
- Renew the Affordable Homes Programme to deliver homes of all tenures.
- Support those who want to build their own home by simplifying the planning process, while also supporting more community housing schemes.
Labour Policy: Early signs suggest housing may lie higher on the Labour Party’s agenda than it has been in the run-up to most previous elections. This raises the chances that housing will sit closer to the Prime Minister and Treasury than it has under previous governments. Their manifesto outlined an ambition to build 1.5 million new homes over the next parliament.
Their headline proposals are:
- Restore housing targets: by updating the National Policy Planning Framework and ensuring planning authorities have up-to-date Local Plans.
- First dibs for first-time buyers: giving younger people the first chance to buy homes in new housing developments and offering a government-backed mortgage guarantee scheme (Freedom to Buy).
- A housing recovery plan: a blitz of planning reform to quickly increase housebuilding to buy and rent. Plans to hire 300 new planning officers and enhance local voices on ‘how’ housing is built. Labour will further reform compulsory purchase compensation rules so that landowners are awarded ‘fair’ compensation rather than prices based on the prospect of planning permission. This would mark a significant deviation from the current rules which are wholly based on market rates.
- The next generation of ‘new towns’: new communities with well-designed homes, green spaces, reliable transport links and bustling high streets.
- More power for mayors: a package of devolution to mayors, with stronger powers over planning and control over housing investment.
- Deliver the biggest increase in social and affordable housebuilding in a generation.
LEASEHOLD REFORM
Conservative Policy: Although it has yet to come into effect, the Conservative Party’s changes to the leasehold system have secured Royal Assent, meaning they can be enacted over the coming years (by the next government).
The changes are:
- A removal of marriage value, where homes with leases below 80 years usually face big increases in the cost of extending their lease.
- Changing the standard lease extension length to 990 years, up from the current 90 for flats and 50 for houses. The changes also remove the two-year minimum ownership requirement before a lease extension or freehold buyout.
- Stopping new houses (not flats) being sold as leasehold (barring certain houses, such as those for retirement).
- Improve transparency of leasehold costs such as service charges and reduce the cost and ease of challenging these charges.
- No reform or cap on ground rents. However, it will become easier to buy the freehold and reduce the ground rent to zero.
In their manifesto, the Conservatives repeated their ambition to cap ground rents at £250 each year, reducing them to peppercorn over time and making it easier to take up Commonhold. Commonhold is where owners are freeholders of their respective homes but own shared areas ‘in common’.
Labour Policy: The party intends to extend the current reform bill to encompass all the Law Commission’s proposals, the main one of which is to cap ground rents. Their manifesto states an ambition to phase out leasehold, requiring all new flats to be sold as commonhold. Their plan is to make commonhold the default tenure and facilitate the transfer to it.
STAMP DUTY TAX
Conservative Policy: We are technically still in a ‘stamp duty holiday’ and the nil-rate band is set to return to the previous level of £125k in March 2025 from the current £250k. The Conservatives have promised to permanently freeze the nil-rate band for first-time buyers which currently stands at £425k.
As part of their ‘Family Home Tax Guarantee’, Jeremy Hunt outlined a commitment not to increase the rate or level of stamp duty (SDLT). However, it is unclear whether the nil-rate band for movers will fall back down to £125k or remain where it is today.
Labour Policy: Their manifesto set out plans to increase the stamp duty surcharge on overseas buyers by an additional 1%. This is on top of domestic surcharges and would mean that foreign-based buyers would pay an extra 3% in stamp duty if they’re purchasing a main residence in the UK or an additional 6% on a second home. The policy is expected to raise £40m, which will be used to fund new planning officers. They have not announced any changes to mainstream stamp duty.
CAPITAL GAINS TAX
Conservative Policy: As part of their “Family Home Tax Guarantee”, Jeremy Hunt outlined a commitment to freeze capital gains tax rates and maintain private residents’ relief so that people’s homes are protected from capital gains tax. However, in a bid to boost homeownership, they are also offering landlords 100% relief on their capital gains tax liability if they sell their buy-to-let to a tenant in the next two years.
Labour Policy: There were rumours that Labour is set to increase Capital Gains Tax, but nothing was announced in their manifesto.
THE RENTAL MARKET
Conservative Policy: The Tories are likely to follow the plans set out in the Renters Reform Bill. These include banning ‘no-fault’ evictions, abolishing fixed-term tenancies, making it easier to rent with pets, and creating a National Landlord Register and a Decent Homes Standard for private rented homes.
Labour Policy: Labour broadly supports the changes in the Renters Reform Bill but plans to extend the direction of travel. Their manifesto outlines their intention to abolish Section 21 ‘no fault’ evictions immediately and give tenants the power to challenge unreasonable rent increases. They have also suggested tighter landlord regulation, forcing landlords to investigate reported hazards within 14 days, and may pursue stricter energy performance requirements (scrapped by the Conservatives).
The Labour Party has tried to distance itself from a recently commissioned report recommending that rent controls be pegged to the lower of local wage growth or increases in the consumer price index. However, some MPs are sending mixed signals. While the official Labour line remains that rent controls are not party policy, shadow chancellor Rachel Reeves recently said she could see a case for rent controls in local areas but did not favour a ‘blanket approach’.
SECOND HOMES
Conservative Policy: Plans have already been passed to give councils the power to charge a 300% council tax premium on second homes from April 2025 and remove higher rate mortgage tax relief for holiday lets held in a personal name.
A consultation in April 2023 also proposed introducing a register of holiday and short-lets as well as requiring planning permission for an existing home to be used as a holiday let in certain areas. However, legislation has yet to be introduced, so it will be down to a new government to enact this.
Labour Policy: There was no mention in the manifesto about changing the treatment of second homes or holiday lets. However, back in 2022, Labour proposed introducing a licensing scheme for short-lets in England, similar to what already exists in Wales. They may also tighten the definition of a holiday let in England to limit the number of second homeowners who are exempt from council tax, claiming holiday let business rates relief instead.