October 31, 2016

Investor Insights: October letter from the MD

In the second installment of the LendInvest Letter to a Property Investor, aimed at providing insight into the wider property investment landscape, we consider the latest economic trends and policy discussions as the post-Brexit picture develops.

Current events shaping the broader economic landscape

Brexit

The Prime Minister announced that she will trigger Article 50 of the Lisbon Treaty, the formal mechanism for leaving the European Union, within the first three months of 2017.

The ‘Great Repeal Bill’ will be enforced on the first day of Brexit, effectively annulling the 1972 European Communities Act, the instrument whereby the UK was able to join the European Union, and providing UK Parliament the power to absorb or remove EU legislation as it sees fit.

UK Markets

Volatility gripped sterling markets, already suffering from low liquidity as commentators warned of a ‘hard’ Brexit. Within days a ‘flash crash’ saw the pound fall 6% against the US dollar in a matter of minutes. Whilst there has been some recovery in the price since then, the pound is still down 18% since the referendum vote.

Faced with the sinking pound, the government has been on trade missions to Wall Street, the Netherlands and other countries to reassure businesses and stem investment outflows.

As a result the internationally focused FTSE100 and domestically focused FTSE250 have been trading at record levels in recent weeks.

However, economists have been hesitant to cheer these volumes; consumer confidence is at a two year high, which supports evidence that such consumers may be propping up the UK Economy.

The positive economic forecast

Now for the good news. Economists are making positive forecasts for the year ahead, tending to agree that the UK will avoid a recession this year.

Commentators are confident that the Bank of England will, if necessary, continue to take swift and decisive monetary policy action should the situation call for it. Some predict there could be a slim chance of a further base rate cut to 0.1%.

So what does this mean for UK property finance?

Last month we considered how the falling value of the pound could spark renewed interest from overseas investors into parts of the property market. This month signs of increased investment from overseas investors show that the UK real estate remains an attractive investment opportunity, and that the underlying fundamentals in the UK property market remain sound.

UK fiscal policy in the short-to-medium term however will be pivotal, for both the general macro landscape and the UK real estate market. In the Autumn statement on 23 November, we expect a focus on the country’s new “industrial strategy”, which should shed light on how the Government plans to intervene in the UK’s industries.

Stamp duty retrenchment?

Housing was a hot topic at the Conservative Party Conference, with the new Housing Minister, Gavin Barwell MP, announcing that several buy-to-let policies, which have been linked to some cooling in the housing market, could be subject for review.

This is encouraging because it could potentially amount to a halt on some mortgage tax relief restrictions and a retrenchment of the additional 3% stamp duty levy in certain buy-to-let cases.

Government initiative to boost market liquidity

The government’s new £5 billlion housing fund is also firmly on the political agenda. Pending the fine detail, the fund is designed to provide loans to new and aspiring homebuilders, and to accelerate the development of publicly-owned ‘brownfield’ land into new homes to help address the UK shortage of housing. This has the potential to reinvigorate the liquidity of the UK property market, boosting investor confidence, which in turn will help support house prices.

As the new government finds its feet in a turbulent landscape, the UK economy is battling a storm on a global level. And it’s clear to us that the appetite for the competitive returns available from property investment hasn’t been dimmed; if anything, a lower-for-longer interest rate environment, makes the case for investing in high yielding property finance products more attractive than ever. And it’s that certainty that keeps us and our customers buoyant and busy.

Kind Regards,

Rod Lockhart, Managing Director at LendInvest Capital

Read other letters in the series

Investor Insights: September 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.