UK Election 2024: Impact on Mortgage Rate Changes

On Friday 5th June, 2024, Sir Keir Starmer became Prime Minister after Labour achieved a landslide in the election. His rise to power put to an end 14 years of Conservative rule, ousting Rishi Sunak from the top seat. 

Read on to discover what impact the election had on mortgage rates, the housing market, and more.

What economic impact did the election have?

To assess what impact the election has had on mortgage rates and the housing market, let’s look at five key indicators.

Inflation 

From around 2014 up to the end of restrictions related to the pandemic, inflation was low. Then, between October 2021 to October 2022, inflation shot up from 3.1% to 11.1%. It remained stubbornly high for six months before gradually falling to 2% in June 2024.

There were two main reasons behind the rise. There were strains in the global supply chain caused by the disruption of COVID-19. Energy prices soared following Russia's invasion of Ukraine in February 2022.

In the first inflation numbers published since the election, inflation rose to 2.2%. Despite that, the Office of Budget Responsibility has stated that they believe inflation will fall in the long run after Labour's win.

They forecast that inflation will bottom out at 1.1% in the first three months of 2025. They then expect it to rise gradually to 2.0% in the third quarter of 2027 and remain there until the first three months of 2029.

Mortgage rates

There is a close relationship between UK inflation and interest rates. When prices rise too quickly, this worries the financial markets and central banks like the Bank of England (BoE). One way they combat inflation is with an interest rate rise.

That’s how the rate of inflation affects the mortgage rates you pay. Let's look at how this works in more detail.

When banks and building societies approve a mortgage, they borrow money to fund it at the BoE interest rate (or base rate). If the base rate goes up, your mortgage rate will too unless you're on a fixed deal. If there's a base rate cut, then your mortgage rates are likely to go down.

The BoE is also responsible for setting interest rates, not the Government. It doesn't matter who's in Downing Street because they have no say over the issue. It may be a surprise to find out that an election does not directly affect the mortgage rates you pay.

However, there is a connection between the result of a general election and mortgage rates. That's because government policy can affect the BoE's decisions. 

For example, after the UK voted to leave the EU in July 2016, the BoE cut rates from 0.5% to 0.25% to prevent a recession that, in the end, didn't happen. Although not linked to mortgage rates, the BoE spent £65bn to stop a financial crash after the 2022 Liz Truss budget.

In August 2024, the BoE cut the interest rate to 5% at their first meeting after the election. If lenders follow suit and cut their rates, that means mortgage rates will go down in 2024.

BoE overnight swap rates state that interest rate cuts are due for 12 months from August 2024. This means that in the long term, interest rates could reduce to 3.23% in January 2029, which would reduce mortgage costs.

House prices

UK house prices hit their all-time nominal high of £273,751 in August 2022. That’s when interest rates were at 1.75% and inflation was soaring, reaching 9.9% that month. Prices bottomed out at £257,122 in March 2023 before climbing to £266,064 in the month of the election. 

Between mid-2024 and 2028, Savills expects a 21.6% increase in house prices. They predict that interest rates will be at 2.0% in 2028 which will have a significant knock-on effect on UK mortgage rates. Savills also expects the mortgage rates to drop significantly next year and the year after.

Prices in Northern parts of the country are forecast to rise faster in percentage terms than the South, continuing a recent trend. Savills predicts that, as a result, affordability issues could spread nationwide from 2025 onwards.

Housebuying rates

Housing transaction volumes in June 2023, the month before the election, were 8% higher than in June 2022. This increase suggests voters didn't expect major changes to housing policies after the election. 

At the time of writing, 2024 housing transaction volumes haven't been published. In the 2010 election year, there were 876,150 sales of properties, much down on the 1,444,100 in 2005. This was during the credit crunch and the financial crisis. In 2015, the number was 1,325,620, 2016 (EU referendum), 2017 1,152,300, and 2019 1,170,260. 

Zoopla reported 392,000 properties on their books, a 3% increase over 2023. Due to this, they expected a few buyers to pull out, suggesting a buoyant and confident property market. 

Mortgage deals

Three weeks after the election, three lenders reduced their mortgage rates including HSBC and NatWest. They did this partly in anticipation of an August rate cut which they correctly predicted.

That said, interest rates will have to fall much lower for mortgages to cost what they used to cost in 2020 when the base rate was 0.10%. 

How does this compare to previous elections?

History shows that general elections don’t affect house prices, interest rates, or market activity. 

For example, on pricing, there was a 6% jump in the cost of housing in 2005. However, that was in the middle of a prolonged housing boom. Following the 2010 and 2017 elections, there were slight falls in the prices of houses. All other elections posted a slight increase.

According to analysis carried out by Nationwide, house price movements in the six months before an election repeat in the six months after. If that's the case this time, house prices will remain static between mid-2024 and the end of 2024.

The stability of a large election victory boosts the number of property enquiries. This occurred after the 2015 and 2019 elections and it will be interesting to see if this happens after Starmer's victory.

What does the result mean for mortgages?

Ultimately, the result of the general election doesn’t appear to have a direct bearing on house prices, interest rates, or market activity. In that sense, it's no different to any other recent UK election. It's the actions of the Government itself that will help determine the economic outlook for the country.