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December 19, 2016

Broker Insights: Letter from the lending team

It’s that time of the year when reflecting on the year just gone helps to set expectations and predictions of the one that’s arriving.

Sajid Javid, Secretary of State for the Department of Communities and Local Government remarked two weeks ago that in the most recent full year, 190,000 new houses were added to the UK housing system – significantly more than the total annual figures of recent years. Such a remark triggered hopes that we are better placed than ever as a country to achieve the government’s own target of 1 million new homes by 2020.

Yet the fact remains that people in the UK are chronically underserved with homes. It has been a national epidemic that has taken successive governments and many years to get a grip on. It is estimated – and validated by Mr Javid himself – that we need 220,000 homes a year for the next decade just to keep up with population growth.

Our borrowers poised to take on housing challenge

The task is monumental but it puts the sorts of borrowers that LendInvest lends to into a positive position. In the last, most productive housing period (you have to go back to the late eighties for this), the total number of British small-scale housebuilders was five times greater than it is today. Today’s independent housebuilders are uncommonly well placed, if the conditions are clear, to prosper and contribute a long-term solution to a long-term problem.

Not everyone in the property industry was happy. Campaigns to reduce or even scrap the additional 3% stamp duty levy due on second homes and rental property continue. Their hope is that by the time of the next Budget in March, policy can help reshape the buy-to-let market without squeezing out too many landlords and investors.

Mortgage market still buoyant as house prices slow

The mortgage market continues to build momentum going into the new year. October house-purchase mortgage approvals of c. 67,000 were up on September and beat analyst estimates. Despite this, the latest house price indices are indicating a marked slowdown in house price growth. Nationwide reported that house prices slowed to their lowest rate in 10 months at 4.4% in November; Rightmove cited a drop of 2.1% for the same month, albeit in line with seasonal expectations.  

A market of increasing housing demand, low mortgage rates and slowing house price growth raise questions about what comes next. It almost seems that after this year of almost unmatched turbulence and uncertainty anything could happen. While many analysts are hedging their bets, and pollsters are staying quiet, positivity still persists. In the residential market, commentators speculate that we can expect to see more buyers taking advantage of sellers’ weakening position, maintaining liquidity and buoyancy.

Onto 2017 with optimism and energy

In what was both his first and last Autumn Statement, the Chancellor loosened his predecessor’s ambition to reach a budget surplus by 2020. Instead he prioritised investment in large strategic projects to improve productivity, innovation and long-term economic growth. This package, known as the Chancellor’s National Productivity Investment Fund is worth £23bn over the next 5 years. It will include a £400m boost for the British Business Bank, a £2.3bn housing infrastructure injection (to support 100,000 new homes) and a further £1.4bn to be spent on building 40,000 new affordable homes.

The political message was clear: this Chancellor and his Treasury are “investing today for the economy of the future”. What this means for the property industry itself will become clearer as the detail is finessed. But it is cheering to see more government emphasis on the strategy to build more affordable homes of mixed tenure.

2016 has been a year that defied every prediction – and pollster – and 2017 is something of a blank canvas. Sentiment in the property market is muted but it’s not defeatist and we go into the new year with optimism and energy.

Wishing you and yours a restful Christmas break,

Ian Thomas, LendInvest co-founder, and the LendInvest team

LendInvest’s Broker Insights is a monthly commentary by LendInvest co-founder Ian Thomas, aimed at providing insight into the economy, the wider property investment landscape and LendInvest business strategy.