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Pre-Election Effect on Housing Market Exaggerated

Global investment banking firm Jefferies has upgraded the residential property sector in the UK in advance of the general election after early signs that the housing market is rapidly improving despite pre-election uncertainty.

The UK offices of the prominent US investment bank has changed its view of the property sector, which includes listed estate agents and the FTSE 100 housebuilders, after it effectively wiped out all purchase recommendations at the beginning of the year and warned that falling house prices were imminent in London and the South East.

Jefferies property analyst Anthony Codling said that the most recent data points to a more solid and sustainable pre-election housing market than the bank had anticipated. With the election less than a month away, the expected activity slowdown and taking of profits has yet to be witnessed.

Mr Codling said that the fears associated with the election have not materialised yet. Jefferies had been concerned that the housing market in the UK would at the very least pause for breath and at worst decline considerably ahead of the general election in May, and that profit-taking after Q4 2014’s solid share price performance would manifest itself in Q1 2015.

“We were wrong,” he said.

Jefferies believes that the UK government’s Help to Buy scheme has assisted the new-build sector, enabling it to perform better than anticipated.

In the meantime, strong growth in the lettings sector has more than made up for the fact that fewer homes are changing hands, which helps to sustain estate agents.

There also appears to be an increase in the supply of credit. The Bank of England recently released data revealing that risky mortgages are back on the upswing. While mortgages are now more difficult to secure for borrowers who make deposits of 25 percent or more, those worth more than 90 percent of the property price had gone up for the first time in over nine months.


Specialists in Construction Insurance

The latest house price index from the Halifax, which was released earlier in April, indicated that the dormant housing market, which ground to a halt at the end of last year, has finally started to move.

House prices went up by 2.6 percent during the first quarter of this year compared to the last three months of 2014. But overall the annual growth rate continues to slow down.

Mr Codling said that Jefferies is not suggesting that the country’s residential sector is free of risk, but in the bank’s view, some of the important danger points have been safely passed. The outcome of the election remains unknown, but historically activity in the housing market picks up after an election regardless of the outcome.

Last March Nationwide warned that the pace of activity in the housing market had remained subdued for the seventh month in a row, with the number of mortgages approved in January being around 20 percent below the previous year’s level.


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