As we draw towards the end of 2016 and start to prepare for the year ahead…setting objectives, developing new strategies and determining where we want to be this time next year, we do so in a very different political environment to the one that we started the year in. This time last year, who would have thought that we would vote to leave the European Union and that Donald Trump would be voted in as next President of the USA?
These two ‘revolutionary’ changes have dominated the press column inches throughout the year, with alleged experts across the spectrum of finance and economics airing their opinion and views regarding what the future may bring and what impact these two significant shifts will deliver. However, do we really know what outcomes both of these political overhauls will have? Have any clear conclusions been drawn? Does anyone really have a clear enough insight, knowledge and intuition to second guess the future? Probably not, other than the fact that entering the final quarter of 2016, there is clearly a global air of caution and indecision. As far as we are impacted in the Property Finance world, is there likely to be a material impact on the UK Property Finance sector? The answer in short is probably not.
Whilst we cannot be certain what lies ahead and moreover, what impact Article 50 being triggered will have on the UK in terms of political, social and economic changes, there are a number of factors that remain constant, that both drive and support activity within the property finance sector that cannot be ignored.
Demand for UK residential property remains at a staggering level in both the rental and owner occupied purchase arenas. In fact, as a result of the material housing shortage in the UK, there is now a requirement for circa 250,000 new homes to be built annually in order to alleviate the demand/supply gap. This volume of demand, coupled with the fact that homeownership levels are currently at their lowest in 30 years, demonstrates the wealth of investment opportunity currently available to property entrepreneurs in the UK market.
Whilst Philip Hammond has in his Autumn Statement committed to providing financial support to facilitate the development of new houses, this funding will only enable a fraction of the number of property developments currently required. Property Developers, who have the appetite to invest in the development of new property and redevelopment of existing property for both the rental and sale markets, are currently in a strong position to achieve significant returns on investment from either market, particularly as house prices across the UK continue to grow.
Interest Rates remain at a record low rate, and term mortgage funding also remains affordable. The mortgage market shows no signs of liquidity tightening up, and investors should face little to no challenge in securing the funding required to invest in property opportunities.
This fact is further demonstrated, as mortgage lending activity continues to increase, with Q3 2016 lending reported at £63.6 billion; 11% higher than Q2 and a 4% increase year on year.
Is there cause for optimism in the New Year?
As the dust settles from the political ‘changes’ of 2016, it is clear that the long term impact on the economy is still unknown. Whilst this is the case, based on the facts outlined above, there appears to be no reason for property investors and developers not to be actively involved in property opportunities and transactions.
The pre-Brexit predictions that an ‘exit’ vote would be the demise of the property sector, appear to be unfounded, with demonstrable factors at play that support the on-going demand and subsequent success of the property investment sector.
At Bridgebank Capital, whilst we saw a sense of caution being adopted by some borrowers in relation to property projects in the wake of Brexit, this appears to be diminishing as we entered Q4. We are therefore confident that the sense of optimism and confidence amongst borrowers will remain as we move into 2017.
What we must be mindful of however, is a ‘mood’ of caution that has developed amongst decision makers in the Property market, generally. Whilst property transactions are still taking place, this appears to be at a much slower pace, with property sales taking around six to nine months longer than in 2015/16.
Whether 2016 has been the year of the revolution is certainly up for debate. The votes that have been made and the changes that are yet to come will certainly impact the country socially, economically and politically. What we do know and can be certain of however, is that there is a highly active property market, with substantial demand in place throughout the UK. – This demonstrates that as we move forward, it should be with confidence and optimism for building on the success and growth of the UK property finance market.