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September 16, 2016

Investor Insights: September letter from the MD

Dear property investor,
This is the first in a series of monthly insights about the property market, giving you the view from inside LendInvest.
Firstly, let me introduce myself, I’m Rod Lockhart, managing director of LendInvest Capital, the investment management arm of LendInvest, responsible for looking after individuals, family offices and institutions who invest in our property funds.
As you can imagine, the property market is a daily topic of conversation at LendInvest. So every month I’ll be sharing keen insights gathered from across our team, from our co-founders Ian Thomas and Christian Faes, from me and the team at LendInvest Capital and from Roy Armitage and his underwriting team.

So what’s new this month?

Brexit of course is still a hot topic, though the initial frenzy died down last month as our government and media took their summer breaks.
With Brexit on the sidelines, a new question came to the fore:

How would the Bank of England’s base rate cut affect the property market?

Let’s take a quick look at the background:

The base rate sat at 0.5% for seven years. During this time commentators predicted the rate would move up. But following Brexit and a shift in economic outlook, the Bank of England cut the bank base rate to a new record low of 0.25% in August. I spoke about it in this video. Economists are now forecasting a further cut to the base rate to 0.10%. Quite a turnaround.

So what does this mean for the property market?

Lower mortgage rates

Most expect the base rate cut to translate into lower mortgage rates. Homeowners in particular should benefit, because it will become cheaper for larger banks to access funding for home lending.
If you’re a property investor with a mortgage you may also see benefits from lower monthly mortgage costs.

Overseas investment

The cut led to an immediate fall in value of the pound, following on from the impact of Brexit. This makes UK property even more appealing to overseas investors. So it’s possible we may see renewed interest from overseas investors into parts of the property market.
As for property prices, we are quietly confident that we’ll see the decision to leave the EU cause neither major house price falls or surges over the course of the next year or two.

Why are we quietly confident about property prices?

To look at it simply, people need homes to live in and we just don’t have enough supply to meet demand. The annual house-building target set by the House of Lords is 300,000. And the reality is we aren’t building nearly enough homes to meet it. We have our own views on how to address that. So even when you take Brexit uncertainty and the base rate cut into consideration, that imbalance between supply and demand will continue to support house prices and rental growth.

And what about our investors – will the base rate cut affect returns?

We see no reason why the base rate cuts will mean reduced interest rates for our investors.
Why? Well we don’t expect the cut to affect demand for our loans. Unlike homeowner mortgage seekers, our borrowers take into account many different factors when deciding whether to borrow from us. The price of the finance is important to them, of course, but it’s not usually the deciding factor. Instead, it’s the efficiency and speed of our lending, and our ability to turn borrowing into a great customer experience that our borrowers care about.

And so we’re optimistic as we look ahead to Autumn. Of course we’ll still be talking about Brexit, particularly as the new Prime Minister and her government start negotiating the terms of our departure.
As always we’ll be working hard to make sure our investors get the most from us, whatever crops up externally.
Kind Regards,
Rod Lockhart, Managing Director at LendInvest Capital

Read other letters in the series

Investor Insights: October letter from the MD
Investor Insights: November letter from the MD
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LendInvest’s Letter to a Property Investor is a monthly blog post, aimed at providing insight into the LendInvest business, our strategy and the wider property investment landscape.