The UK general election is unlikely to blow up the capital markets next week, so many are dismissive of its impact. Uncertainty is what the market doesn’t like — and with some bookies putting a Labour majority at 1/25, there isn’t much of that.
But in the longer term, the results could still be consequential.
Take housing — and the markets that finance it, such as securitization.
If you think such fundamental financial plumbing is safe from politicians, look at the once thriving Dutch buy-to-let mortgage market.
This week a long-awaited regulation to control rents cleared its final legislative hurdle in the Senate, so it will come into force on July 1.
It is the latest in a string of national and regional legislation hampering landlords. As a result, Dutch buy-to-let mortgage securitization has dwindled from more than €1.6bn issued in 2021 to less than €1bn last year — and it will probably shrink again this year.
It would be naïve to think a similar outcome is off the table in the UK. The affordability of housing has been a hot issue in the general election debate so far. It is hard to tell what Labour leader Sir Keir Starmer thinks, considering that his record so far suggests he is willing to say or support what it takes to get closer to power.
Labour’s manifesto promises to build 300,000 new homes a year. That will be difficult to deliver, since that figure has not been hit since the 1970s, according to data from the Office for National Statistics.
Long-overdue law change on letting in England is still up for grabs, because time ran out on the Renters’ Reform Bill in the last Parliament.
If a Labour government does not hit its optimistic housebuilding targets, it might use rent controls to try to improve housing affordability.
There are more possibilities. A land value tax might help, as could a shift to long-term fixed rate mortgages.
Each would have profound implications for the UK banking and capital markets, particularly securitization. Sometimes the threat is not a shock upset, but something hiding in plain sight.