Getting Technical

In this week's blog, we have a whole assembly of fascinating housing and lending-related glad tidings to choose from that have been lost in all this technical recession talk, so without further ado, let's extract those from the myriad of digital conjecture and have a closer look.

At the time of writing, the ONS released its latest UK house price data report showing average UK house prices decreased by 1.4% in the 12 months to December 2023, up from 2.3% in the 12 months to November 2023. The average UK house price was £285,000 in December 2023, which was £4,000 lower than 12 months previous.

One of the exciting components of our asset class is that it is built on the bedrock of the housing market, so monitoring its robustness is par for the course; ergo, the most compelling graph on the report is always the Annual house price rates of change for all dwellings, UK, January 2006 to December 2023 which you can check out for yourselves on the ONS website.

Following the macro events, you can see house prices fell twice, once in the immediacy of the 2008 financial crisis sucking the liquidity out of the credit markets, and once when demand fell in 2010, caused by a multitude of factors, fast-rising unemployment post the crisis, the reduction in units being built, and the reduction of mortgage market products. In 2020, if you continue to follow percentage change contrasted with the macro events, you will see the influence of the transference of wealth during the pandemic, which led to asset prices rocketing up to Jun 22 highs before returning to touch the same low point the market touched on in Jun 2011 and Sep 2019. Now, there is an element of assumption to this, and this isn't pseudo-technical analysis; it's just an unnecessarily wordy blog after all, but one would assume that there must be a confluence of factors at that level around overall supply and demand, that’s resulted in only one instance of breaking below it in the modern era of mass housing commodification.

The Financial Times has looked at the other side of the data regarding retail inflows via the retail mortgage market rate reductions; at the time of print, the average five-year fixed-term deal fell to 5.23%, which is a significant slide to where we were, has that created the 1.3% asset price uptick in January? The news may be dominated by technical recession talk, but according to Reuters last week, British retail sales have jumped by the most in almost three years, so that could be extremely short-lived; it is a lagging indicator from the previous year after all, hence the word technical for two periods of negative growth. Technical is a word that varies in importance; that person has excellent technical skills, that person got off on a technicality, very different scenarios, and we are very much in the realms here of zooming in on a "technicality".

As always, we are jumping around here to touch on as many important issues as possible. Another announcement relevant to our sector came from the government this week regarding building homes on brownfield land. As part of the government's long-term plan for housing, it's been decided that every council in England will be told that they will need to prioritise brownfield development and remove the bureaucratic elements slowing this process down. With pre-development and former industrial sites, there are a whole host of considerations to take into account that we have touched upon previously; however, any push towards removing the red tape around planning and the broader mechanics of homebuilding can only be good for our sector, if for no other reason than it is setting a precedent that things can be simplified with enough willpower.

Finally, we reference a fascinating article in the excellent industry publication The Intermediary, focusing on a report by Downing LLP on how institutional investors are changing how they engage with development finance firms across the board to recalibrate risk and concentrate on stability of return. The report mentions that from those surveyed, the majority of "private sector and public sector pension funds, family offices and insurance asset managers said economic concerns were driving institutions to cut the number of property development finance firms they work with and concentrate on specialists with a strong track record."

One thing we have inferred for several years now is the coming flood of institutional wealth into property development. As specialists in our asset class, the very specialists that are the bridge between the people on the ground building homes and the capital, we believe we are the vehicle to deliver those stable returns.

Invest & Fund has returned over £200 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.

To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com or contact Shaheel at shaheel@investandfund.com.

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