“Some of the drag is simply the uncertainty, whoever wins. A long, messy contest in a divided party keeps a bit of risk in the price until it settles.”
Mendes added that the choice of chancellor could prove particularly important in shaping market confidence.
He also highlighted political uncertainty as a factor, suggesting that a prolonged leadership contest could keep some degree of risk priced into financial markets until the situation becomes clearer.
On the housing market, Mendes said the impact would be less immediate. While higher borrowing costs could weigh on demand and transaction activity, he noted that some of Burnham’s housing proposals, including replacing stamp duty and council tax with an annual proportional property tax, would take years to implement if pursued.
He added that proposals around rent controls and council housebuilding were likely to have a greater impact on landlords and the buy-to-let sector than owner-occupiers.
However, Mendes argued that broader economic developments currently have greater significance for borrowers than domestic political developments.
He pointed to falling oil prices following a framework agreement between the US and Iran aimed at reducing tensions and reopening the Strait of Hormuz, saying the move had eased some of the inflation concerns that had persisted through the spring.
Mendes said a softer inflation outlook could provide the Bank of England with greater scope to reduce interest rates, although he noted that oil prices remain above pre-conflict levels and some geopolitical risk remains.
For borrowers approaching the end of a fixed-rate deal, Mendes advised against waiting for political uncertainty to be resolved before taking action.
He said many lenders allow borrowers to secure a rate in advance and switch to a lower-priced product if rates improve before completion, providing protection against future market movements while retaining flexibility.
Mendes said: “It’s worth keeping all of this in proportion, though. The leadership question is only one input into mortgage rates, and the bigger near-term driver has just moved in borrowers’ favour.
“With the US and Iran signing a framework to wind the conflict down and reopen the Strait of Hormuz, oil has dropped back to three-month lows.
“That takes some of the heat out of the imported inflation worry that had been hanging over the spring, and if it carries through to a softer inflation outlook the Bank gets more room to cut.
“Oil is still above where it sat pre-war and this is an interim deal rather than a settled peace, so some risk premium stays in, but the direction has clearly improved.”