January 27, 2017

Investor insights: January letter from the MD

LendInvest’s Investor insights is a monthly commentary by LendInvest Capital Managing Director Rod Lockhart, aimed at providing insight into the economy, the wider property investment landscape and LendInvest business strategy.

International change kicks off the new year

It’s seldom the case that a new year begins slowly, and 2017 shows no signs of deferring from that standard. Europe gets to grips with a debt and constitutional crisis in Italy, a rise of populism in France and the strongest signal yet that the UK is heading for a “hard” Brexit that involves an exit from the single market and a probable departure from the customs union. Added to that, January 2017 will forever be remembered as the month that Donald Trump became the most unlikely President of the United States.

Sterling continues to fluctuate

The impact of these events in the UK has been most keenly felt by the price of sterling which has wavered at its lowest point in decades, fuelling a surging performance by the FTSE 100, which notched up 14 days of consecutive record gains at the start of the month. When the Prime Minister Theresa May set out the first steps of her plan to leave the EU on Tuesday 17 Jan, the markets showed relief amid signs of certainty at last about the government’s course of action. The pound rose 3% against the dollar, having dipped below $1.20 the previous week, and maintained a higher level of trading for the rest of the week that ended with the American president’s inauguration.

Brexit uncertainty triggers further revisions of GDP growth forecasts

Also this month, the Governor Mark Carney signalled to the Treasury Select Committee that the Bank of England is likely to revise UK GDP figures upwards yet again, a consequence of Brexit risks not having yet fully crystallised in the aftermath of the referendum vote. He has argued that the monetary stimulus package that was unleashed in August, that included a decrease in the base interest rate to 0.25%, played a pivotal role in that risk mitigation.

It was only as recently as November 2016 that the Bank upgraded GDP forecasts for 2016 and 2017 from 1.8% to 2% and 1% to 1.2% respectively. Should 2016 growth come in as expected, this would be within a whisker of the UK’s long term trend rate (approximately 2.5%). This would indicate broader economic strength as the UK gets to grips with a year wrought by market and political uncertainty.

Housing market remains stable

Comparatively, the housing market is not, and according to market specialists will not, suffer the same decline as sterling. According to a Halifax House Price Index release in January, house prices grew 1.7% in December, the largest month-on-month reading since the referendum vote, equating to annualised house price growth of 6.5%, well ahead of analyst expectations.

The most recent Bank of England credit conditions survey, showed that mortgage activity slightly increased in Q4 as well. The Council of Mortgage Lenders reported gross advances of c. £20bn in November which should point to annual gross advances of c. £250bn for 2017.

We believe this to be further evidence that the market has remained relatively unperturbed in the wake of Brexit, consolidating its position as a diligent investment opportunity, albeit with some concerns in the commercial and super-prime segments.

Government’s Housing White Paper delayed

The housing market continues to await the government’s much-talked-about Housing White Paper. Since December, the anticipated publication date was Monday 16 January, but when Number 10 confirmed the prime minister would make a statement about our Brexit plans the following day, the white paper was pushed aside to make way. Rumours in Whitehall say it will be published by month-end, but the same voices predict little in the way of truly substantive reform and policy change when it is eventually revealed.

Look out for our response to Theresa May’s Industrial Strategy

More certain is the content of the government’s hotly-anticipated Industrial Strategy out this week. Promised by the reformed Department for Business, Energy & Industrial Strategy very shortly after Theresa May took her seat at Number 10, the Industrial Strategy promises to be a long-term plan that tackles fairness and opportunity for small and medium sized businesses, a cohort that the Secretary of State calls the “lynch pins of local economies”.  As champions for a healthy market for property entrepreneurs and SMEs, we are working hard to ensure that the playing field is level for all small and medium sized businesses that contribute crucial property to the underserved housing system in the UK, much like their counterparts in other sectors are supported and nurtured. Like the Housing White Paper, we look forward to submitting responses on behalf of our customers and stakeholders on the publication of the Industrial Strategy in due course.

We are excited and energised by what the new year promises: opportunities to grow, to serve and to bring better products to our customers in a supportive and proactive market.

Kind regards,

Rod Lockhart  

 

Read other letters in the series

Investor Insights: September letter from the MD

Investor Insights: October letter from the MD

Investor Insights: November letter from the MD

Investor Insights: December letter from the MD