Pre-UK election: What might the results mean for British demand?

spanish property market

With the UK going to the polls tomorrow to choose a new Government, I take a stab at what the different outcomes might mean for the British demand for property in Spain.

As regular readers will know, the British are by the far the biggest group of foreign buyers of property in Spain (see pie above), so the election result could have a material impact on demand in areas where the British dominate, mainly the Costa del Sol and the Costa Blanca.

In general terms what are the possible outcomes?

  1. Conservative landslide of 100 seat majority or more.
  2. Increased Conservative majority, enough to make May feel secure from backbench rebellions.
  3. Small Conservative majority, but not enough to give May a strong hand.
  4. Hung parliament, no party with working majority, most likely a Labour-led coalition
  5. Labour overall majority

Personally, I expect outcomes 1 or 2 because I don’t think Labour under Corbyn will gain enough traction with the electorate. But I never expected Brexit, and I never expected Trump, so I no longer trust my instincts when it comes to elections.

1 and 2 would comfort the currency markets, leading to an appreciation of the pound. That would be good for British demand, which I believe is mainly driven by purchasing power, with concerns about the status of British citizens within the EU after Brexit a secondary concern.

3 would lead to increased uncertainty, and worries about the negotiating power of the British side, with a greater chance of no-deal or a bad deal, which I think would weaken the pound. That would reduce British demand for property in Spain.

4 would be bad news in the form of even greater uncertainty and a bigger hit to the pound, with a corresponding impact on British demand. The pound has already declined by 4% against the euro in the course of this election campaign, which has seen Labour do better than expected, and the Conservatives much worse. Outcome 4 might even be worse in the long run than 5…

5 would send the pound reeling immediately in expectation of Corbyn’s economic policies, including re-nationalisation of the parts of the economy, a huge expansion of spending, borrowing, and taxation. I expect 5 would pummel British demand through a big decline in the pound, say -20%.

All pure guess work of course. Let’s see what tomorrow brings, and what happens to the pound.

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