The decisive nature of the result calmed concerns about civil unrest and the possibility of a volatile reaction on financial markets, where the response was largely predictable.
In the longer-term, it doesn’t change the fact the US has a ballooning deficit or that some of Trump’s plans are inflationary, including the imposition of tariffs, reduced reliance on cheaper imported labour and lower taxes.
As a result, his victory put upwards pressure on US Treasury yields last Wednesday in the belief the Federal Reserve will need to respond with rates that stay higher for longer. Irrespective of the election result, the Fed made a long-expected cut to a range of between 4.5% and 4.75% last week. The Bank of England cut to 4.75% on the same day, although the pace of reductions is expected to slow following the Budget.
Trump’s victory will do nothing to calm nerves about the prospect of higher mortgage rates in the UK, although markets this side of the Atlantic are still focussed on digesting the Budget.
Bond markets have not given it a wholehearted thumbs-up and last week saw the weakest take-up for the sale of UK debt since December 2023.
In the longer term, more money could be invested in UK debt markets if the country starts to look attractive by comparison to the US, which would put downwards pressure on bond yields and mortgage rates, said Savvas Savouri, chief economist at Quantmetriks.
The UK “cannot fail to see a greater share coming into its financial (gilts, equities) and physical (read real estate) assets,” he said.
However, there are various forces pulling in different directions. There is uncertainty over whether the Labour plan to raise taxes in the private sector more aggressively will work, creating nervousness around how much more it may need to borrow.
The five-year interest swap rate was trading above 4.3% last Thursday compared to under 3.9% at the start of October and there are concerns it could go higher if the government’s borrowing headroom narrows.
The interest rate landscape is certainly more adverse than a fortnight ago, which will increase downwards pressure on house prices in the short-term.
For anyone deciding whether to fix their mortgage rate for two or five years, they will be weighing up whether they think the Budget will work or more rate turbulence lies ahead during this Parliament.
That said, when judging what will happen to prices and demand, it should also be remembered that the majority of UK homeowners own their home outright rather than with a mortgage, meaning there is no shortage of cash in the system, particularly in prime London postcodes.
The US election may also provide opportunities, particularly in prime UK residential markets.
In addition to having a high deficit, Trump said he wants a weaker dollar to make the US more competitive. That would mean plans may accelerate as the window of opportunity for overseas buyers looking to take advantage of the weak pound since the Brexit referendum in 2016 may start closing.
Beyond that, a number of Democrats and high-profile individuals may decide to move to the UK and live under a government more aligned with their political views. After all, the party raised more than a billion dollars during the election campaign, which was three times higher than the Republicans.
Meanwhile, tensions in the Middle East may heighten following Trump’s victory, meaning a number of buyers from the Gulf may start looking more actively at London and the surrounding areas.
