Market Insights: July 2020

Welcome to our monthly Market Insights report, aimed at providing retrospective insight into the economy, the wider property market and LendInvest’s investment strategy from our Funds Management team. 

Renewed confidence from both sides of the table

The property market enjoyed an unusual spell of renewed activity and confidence from buyers and sellers in July, a period which normally suffers from softening in the summer months. Nationwide noted house prices increased 1.7% over the month and 1.5% annually while Halifax observed a monthly increase of 1.6% and an annual increase of 3.8%. 

As well as actual prices rising, asking prices rose too; Rightmove noted a +3.7% increase in asking prices and a 60% increase in agreed sales compared to this period in 2019. Rightmove also showed a staggering £37 billion of sales were agreed in July, the highest number of sales agreed in a month in the last decade and a 20% increase on the previous high.

Long term change or ‘Rishi rebound’?

Pent-up demand from the lockdown period and generally low supply of quality housing is putting upward pressure on prices, though there is no doubt that the Chancellor’s stamp duty ‘holiday’ of 0% up to the value of £500,000 until March 2021, has provided increased impetus to the property market, which is being dubbed as the ‘Rishi rebound’. 

The Prime Minister has also promised the most radical reform of the planning system since the Second World War, which will be put into law by September. These changes will make the process of repositioning commercial assets into residential more straightforward for developers.

While the activity is great news for the market in the short term, the outlook for the market, and UK economy in the medium term still looks less certain. 

The true economic impact of the pandemic is yet to be felt as the UK government unwinds the various support measures it has implemented. Unemployment will undoubtedly increase, though this is from a point of resilience at 3.8% – 4%, which will impact income levels and ultimately the affordability of buyers.

A much needed uptick in transaction volumes 

We are seeing liquidity in the built residential sector more generally, as developments reach practical completion and are sold on the open market, helped by the stamp duty changes. It is also possible to see early signs of repricing of non-residential property, creating opportunities for borrowers to acquire these and reposition to residential unlocking significant value in the process. 

While the property market is going through a period of buoyancy, we are seeing less competition in the market from other lenders, leading to lower LTVs at loan level in conjunction with a slight increase in pricing which should lead to an increase in risk-adjusted returns.