Why the UK election has got homebuyers worried

The U.K.'s once-frothy property market is stuck in "wait-and-see" mode, with homebuyers jittery ahead of the most uncertain national election in decades.

The vote, slated for May 7, is one of the closest in living memory and neither of the two biggest parties is seen winning enough seats to form a government. This could result in days or weeks of political wrangling, as the current Prime Minister and Conservative Party leader, David Cameron, and Labour leader, Ed Miliband, scramble to form alliances with a disparate array of smaller parties.

British Prime Minister David Cameron waves during the filming of 'Cameron & Miliband: The Battle For Number 10'
Stefan Rousseau | WPA Pool/ Getty Images
British Prime Minister David Cameron waves during the filming of 'Cameron & Miliband: The Battle For Number 10'

Grainne Gilmore, head of real estate research at global property consultancy Knight Frank, said that elections did not typically affect the U.K. property market—but that this one was different.

"It is impossible to know what the policies will be until you have some sort of inkling of who will be running the country," Gilmore told CNBC on Thursday.

"This election is such an uncertain outcome that you can see that home transactions had a gradual rise, but in the latest data you could just see it beginning to soften a bit before this election, with people adopting a wait-and-see approach."

Realtors hit

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Real estate agent Foxtons reported falling sales on Thursday, as Britons held off on home purchases.

The U.K. real estate company posted a 3.1 percent decline in revenue in the first three months of the year to £33.1 million ($51.1 million).

"Property sales transactions in London have remained relatively flat since the end of last year, with many potential buyers and sellers apparently delaying their decisions until the outcome of the General Election is known," said Foxtons CEO Nic Budden in a trading update on Thursday.

Nationwide, which publishes a widely watched monthly housing index, said earlier this week that activity in the market remained "fairly subdued," with mortgage approvals still "well below" the long-run average and 20 percent below the levels recorded in early 2014.

"The strength of the economy and relatively subdued pace of activity in the housing market remains something of an anomaly. It is possible that heightened uncertainty ahead of the election is weighing on activity, though there is no compelling evidence from previous U.K. elections to suggest a strong impact," Nationwide Chief Economist, Robert Gardner said, in a research note on Wednesday.

It comes as the U.K. Land Registry reported on Thursday that house prices in England and Wales fell 0.8 percent in March. This took the average property value to £178,007($274,309), down from a peak of £181,049 in 2007.

'Mansion tax' fears

What If...The UK Had A Presidential System?
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At the top-end of the market, there is additional concern that a Labour government would introduce a "mansion tax," levying an extra tax on homes valued at more than £2 million.

Homes worth this amount and over constitute around 0.2 percent of the U.K. property market, according to Knight Frank's Gilmore.

"There is general uncertainty across the market, with specific concern at the top of the market. The price level for the tax has been clearly set, so people know if it will affect them."