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What does Labour mean for Mortgages and Housing?

Last night’s landslide victory for Labour now marks a new era in the economy for Britain which has been heralded by Labour’s campaign for ‘Change’. This could represent a much-needed evolution in the housing market and the mortgage market, which are both stagnating with the risk of collapse.

The past several years have seen sky rocketing mortgage interest rates which have caused many households to be close to breaking point. We’ve also witnessed the housing market grind almost to a halt with speculation of house prices crashing.

Labour is to enter Number 10 at a time where the housing market is in need of a major boost, and mortgage rates are at a 15 year high. We look at the Labour Party plans to improve housing supply with 1.5m new homes and how it might influence reducing mortgage interest rates.

A table showing the results of the 2024 UK general election.

This guide will explain how the new Labour government intends to breathe new life in to a failing housing market. We’ll also look at the current state of the mortgage market under the current Tory government, and how this is expected to change under Labour.

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1 Minute Mortgage – How is Labour going to improve the housing and mortgage markets?

The UK housing market has been in drastic need of some serious attention following several years of disappointment. Labour promises to bring investment and growth to house building in the UK as well as opportunities for more jobs.

Mortgages and interest rates have also been a significant focus for households over the past several years as costs have sky rocketed.

  • Labour’s main plans for housing is to increase the supply of new homes in the UK to 300,000 per year for the next 5 years, with a total of 1.5m properties to be built.
  • House prices have increased by only 65% in the current Tory reign of the past 14 years, whereas the previous Labour party government increased house prices by as much as 176% in its 13 years between 1997 and 2010.
  • Mortgage interest rates are currently at a 15 year high with a Bank of England base rate (BBR) of 5.25% which has consistently increased monthly since 2020 which has caused many households to struggle.
  • Conservatives have failed to deliver on its promises to reduce inflation to the target of 2% until the month before the General Election, which has been seen by many as too little too late.

As you probably know, the government does not control the mortgage interest rate directly in the UK. The Monetary Policy Committee (MPC) meets every 6 weeks to review the Bank of England base rate, which has held firm at 5.25% for nearly 12 months despite pressure from the Conservatives to reduce it.

Mortgage interest rates are still a significant contributing factor towards the difficult housing market, which is certainly putting buyers off. While we would still expect interest rates to remain high for at least the rest of 2024, we may see movement sooner under the Labour government rule.

Now that the Labour government is officially in charge, the question is whether Sir Keir Starmer will utilise his significant power to influence interest rates.

There is no doubt that the future of interest rates will play a major role in the future of the housing market, even more than the Labour policies. This will mean that the Labour government will have to keep itself very close to the Bank of England over the coming months and years.

We expect to see an instant reaction from the Monetary Policy Committee later this month with its first of several predicted drops. The next rate reduction is expected to happen in July with a drop of 0.25% to 5.0%.

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In the past several weeks, mortgage interest rates have already started to drop for the vast majority of mortgage lenders. The new trend of mortgage interest rate reductions started last week with an announcement from NatWest that it would reduce rates across its whole range of residential mortgages.

Following this announcement from NatWest, several other major mortgage lenders have followed suit, including:

We have also seen reports that the average 5 year fixed rate mortgage has now officially dropped below 5% this week.

Apart from increasing the supply of new homes to 300,00 per year, Labour has proposed a number of new schemes to support First Time Buyers. Its campaign raised the issue of the average age of first time buyers being 37 which is too high.

It proposed to completely revamp the current mortgage guarantee scheme and to help first time buyers to raise a deposit to get a foot on the property ladder.

House prices have stagnated over the past 12 months which has clearly been a direct result of the high mortgage interest rates and economic uncertainty. Over the past 14 years of the Conservatives reign, house prices rose by only 64.7% which was from £171,000 in 2010 to £281,000 in 2024.

You may also recall the coalition between the Conservatives and Liberal Democrats from 2010 to 2015. This period was one of the worst recorded for house price growth due to the financial crisis in 2007, with a disappointed increase of just 14.3% from £171,000 to £195,000.

The previous Labour government between 1997 and 2010 saw a rise in house prices that was 2.75 times higher than this. The 13 years of Labours reign in this period was 176% from £62,000 to £171,000.

There are hundreds of moving parts that contribute towards the housing market in the UK and lots of influencing factors, including:

Historically there is usually a small change in the housing market following an election, similar to that of 2019 which is now known as the ‘Boris Boost’. It is normal for consumer confidence to grow following an election and for there to be a boost in housing market.

Figures from the previous seven elections have shown that house prices increased by a modest 6% in the year up to the election. Compare this to the year following the elections, house prices rose by an average of more than 7.5%.

A significant part of the Labour manifesto over the campaigns has been its commitment to build 300,000 new homes per year for the next 5 years. Labour has suggested that it will build a whopping 1.5m new homes before 2030 and that it would boost the housing economy.

The previous government has consistently failed to reach its commitments for building of new homes with disappointing numbers. The past several years average has been 152,000 new homes built, which is a long way from its targets.

This report from CNBC explains more about how the Labour party plans to address the recent shortfall in house building targets.

Key housing focus for UK’s Labour Party will be on supply side: Investec analyst

Labour has committed to increase new home construction to 300,000 a year which is the highest rate since the 1960’s. It suggests that the reason for the previous shortfall in housing supply has been complex planning rules and overpriced land.

Everyone’s circumstances are very different and so it’s very difficult to say whether you should get a new mortgage now, or wait. There are certainly several reasons why you should review you mortgage deal and you can definitely save money on your monthly mortgage repayments.

Here are some of the top reasons for reviewing your mortgage:

If you need to speak to a qualified mortgage expert to review your mortgage then you can call 0800 009 6559 or CLICK HERE for more information.

FAQ’s

What is the mortgage interest rate?

As at 5th July 2024, the current Bank of England base rate is 5.25% which has been held at this rate since August 2023. The next review by the Monetary Policy Committee is due to be on Thursday 1st August 2024.


Does building more new homes impact house prices?

The Labour government has already committed to significantly increase house building rates in the UK to 300,000 per year. The previous Tory government has reported to have built 235,000 homes in 2023, which is an increase of 65,000 in the housing supply.

One of the possible impacts of increasing housing supply by as much as this, is that house prices could continue to stagnate, or even drop. High demand in houses naturally drives up prices and oversupply causes the exact opposite.


How will Labour help first time buyers?

Labour has also proposed to reinvent and revitalise the current ‘Mortgage Guarantee Scheme’ which is aimed at helping first time buyers to raise a deposit. The new government has also been extremely outspoken about its plans to increase the supply of new homes in the UK.


Will Labour make it easier to get a new mortgage?

Arguably, the new Labour government will have a very difficult job in helping mortgage borrowers to get a new mortgage. It is likely that the proposed boost in the economy will generate more confidence in mortgage lending, but will this really affect mortgage borrowing.

Most mortgage lenders are still extremely strict about how they lend to people and they will need some convincing to change this. Previous governments have placed an emphasis on the financial markets to increase lending, so will the Labour government do the same.

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How do mortgages work?

A mortgage is a financial agreement between a mortgage borrower and a mortgage lender, commonly a Bank or a Building Society. When you take out a mortgage, you are borrowing money which you have agreed to pay back within a set number of years (your mortgage term).

The way that you repay your mortgage will depend on the type of mortgage that you choose:

  • Repayment mortgage: You will repay your outstanding mortgage balance plus any interest in regular instalments (usually monthly).
  • Interest-only mortgage: You will only repay the interest for your mortgage during your mortgage term, and you will repay the full loan amount at the end of your mortgage.
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What is the UK mortgage rate today?

Currently, the Bank of England Base Rate (BBR) is 5.25% and it has been since August 2023. Most mortgage lenders will base their Standard Variable Rates on the UK’s base rate of interest, and these rates will usually be around 2% to 4% higher than the Bank of England rate.

Will mortgage rates go down in 2024 in the UK?

Mortgage rates in the UK are based on the Bank of England Base Rate (BBR), as well as other factors like inflation and any major economic events. Inflation has dropped to 2.3% in April 2024, and the Bank of England Base Rate has held steady at 5.25%.

This is promising news which could indicate the potential for lenders to reduce mortgage rates towards the end of 2024. While mortgage rates could drop, it is unlikely that they would fall anywhere below 4% until at least 2025/26. This is due to economic predictions that the Bank of England Base rate will remain at 3.5% or higher until mid-2025.

Should I fix for 2 or 5 years?

When applying for a fixed rate mortgage, you have the option of ‘fixing’ your interest rate for a set number of years. Common options for fixed rate mortgage terms include 2 years, 3 years, 5 years, and 10 years. The ‘right’ number of years to fix your mortgage for will be based on your situation and the level of flexibility that you need from your mortgage.

2-year fixed rate mortgages can provide more flexibility, allowing you to easily switch to a new deal if a better rate becomes available within the next 2 years. 5-year fixed-rate mortgages can provide more financial security, especially if average interest rates in the UK increase dramatically.

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