Will Donald Trump’s Election Harm The UK Housing Market?

With Donald Trump winning re-election to the White House and promising an increase in tariffs, there are concerns this may negatively impact the UK housing market.

Despite the Bank of England setting the base rate, which determines the mortgage rates lenders offer, the UK is still exposed to events across the Atlantic.

The re-election of Trump and his America First agenda raises interesting questions for allies around the globe, especially the UK. Given our vaunted ‘special relationship‘ with the United States, we might expect a fair deal from Trump.

But this might not be the case, especially given the Labour government contains figures such as Foreign Secretary David Lammy, who has referred to Trump as a ‘tyrant.‘

Given that Trump and Labour are at opposite ends of the political spectrum, it looks unlikely that the incoming Trump administration will give the UK special treatment.

Trump’s initial plan upon taking office was to raise tariffs, lower taxes, and reduce America’s reliance on imported goods and labour. This could have knock-on effects on the UK and the housing market in particular.

Will Trump’s return have an impact?

The initial reaction from the markets to Trump’s victory was a marginal increase in the strength of the dollar against the pound and an increase in the yield from UK gilts.

Neither is conclusive proof of what the next four years will bring. While the markets might initially have viewed a Trump victory favourably, the long-term view might be different.

If Trump follows through on his campaign promises, primarily to increase tariffs and reduce reliance on cheap imported goods and labour, the effects will likely be inflationary.

Trump’s team suggested imposing tariffs of at least 10% on European imports, with those rising to 60% for Chinese imports.

Tariffs of this nature could lead to an increase in inflation and leave the Federal Reserve in a tricky spot. On the one hand, they have a president who wants lower interest rates, and on the other, they have increasing inflation, with the increase of interest rates the common tool to tame it.

The saying goes that ‘when America sneezes, the world catches a cold,’ and this could be the result of Trump’s policies.

If so, this could increase inflation in the UK as we suffer from the crosswinds of American economic policy. It may also lead to the Bank of England increasing interest rates rather than lowering them as is currently forecast.

This will mean that mortgage rates will go up, affecting everyone in the housing market, from first-time buyers looking to get on the property ladder to those remortgaging onto a new deal.

This means mortgage repayments and the initial cost of borrowing will increase, which is bad news for the housing market, especially as rates were forecast to drop over the next few years.

One area where Trump’s return might be positive is the potential for overseas investment in the UK market.

Depending on how the Trump administration approaches the multiple issues in the Middle East, there could be an influx of investment from the region into the UK.

The UK may be seen as a more attractive proposition for wealthy investors looking to escape conflicts in the region. Trump’s purported domestic policies may put these investors off moving to America, with the UK, and London, particularly, seen as an attractive alternative.

It’s important to remember that all of the above is hypothetical. Trump won the election in 2016, promising an end to Obamacare, and after his plans were defeated in the Senate, the issue didn’t resurface during the rest of his presidency.

Some of the rhetoric he used on the campaign trail was likely just that, rhetoric. However, we should look at events across the pond with slight concern, as the housing market could suffer should Trump follow through on some of his more radical plans.

Only time will tell what happens, but until Trump takes office, we’re very much in the calm before the storm.