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Building Products July 2017

FINAL WORD SUPPORT FOR INVESTORS As a consequence of strong investor demand both abroad and at home, the average UK property price has grown by 14.34% per annum over the last 20 years. This is an impressive feat, reflecting an asset class with the potential to offer investors secure capital growth, particularly in times of market volatility. Paresh Raja looks at what the future might hold. Following the UK’s decision to leave the European Union (EU), initial forecasts anticipated a significant period of economic stagnation. There were claims that investors would be much more reluctant to invest in new asset classes, and that the UK property market would also be adversely affected. Despite this, the UK economy has proved resilient, with demand for property remaining consistently strong. The Office for National Statistics recently revealed that UK house prices increased by an average of 5.6% between April 2016 and April 2017. While these are positive figures, it is important not to overlook some of the systematic challenges currently facing the UK property market. Central to this is the housing crisis – at the moment buyer demand for real estate significantly outweighs the available housing stock. To address this issue, the Government has pledge to build an additional 1 million dwellings over the next five years. This is an important step forward, but it is important for the Government to also consider the positive role investors can play in contributing to the country’s housing supply. Recent Government reforms to the tax system have increased the costs placed on individuals seeking to consolidate and expand their existing real estate portfolio. This is particularly true for buy-to-let investors who now have to pay an additional 3% surcharge on second property purchases. While these measures have been put into place to ensure that property is readily accessible to all segments of British society, they will not provide the long-term relief required for housing to become an affordable option for the next generation of buyers. Furthermore, many would-be property investors, landlords and homeowners face difficulties in accessing finance from traditional lending institutions, inhibiting their investment strategies. According to the latest Bank of England data, a total of 66,837 mortgages were approved for house purchases in March, down 1.6% on the previous month. The number of loans approved for those re-mortgaging also fell for the first time this year to 42,814; meanwhile, the UK’s bridging lending sector grew to £2.83 billion in 2016. Recent research by MFS unveiled significant appetite for property investment nationwide, with buyers resorting to costly and high-risk measures to finance their property investments. At a time when average UK house prices exceed six times the average salary, MFS’ survey of 1,200 prospective property investors in the UK found that 35% of buyers will be unable to find the finance to invest in real estate over the next five years. This is a concerning finding, with a significant proportion of investors not in a position to act on their financial intentions at this time of opportunity. The research also revealed that 25% of potential property buyers – 7.68 million people – have or will consider refinancing their current properties up to three times to support new property investments. Furthermore, 21% have relied on consumer loans and expensive mortgages to finance their fledgling property portfolios. Faced with a stringent lending system, investors are being forced to look to more risky options to ensure they can consolidate and expand their property portfolio. In the face of seismic political events this year, the robust strength of the UK property market has certainly proved its resilience. For the sector to continue this impressive growth trajectory, support must be channelled to aspirational investors seeking to act as a catalyst for further movement within the market. There is tremendous value locked in a variety of properties across the nation; without the finance options in place to access them, this part of the property market will remain dormant. It was recently report that more than 200,000 homes in England with a total value of £43 billion had been left vacant for at least six months in 2016. Over the coming years, the newly-formed Government must recognise the role of UK investors in contributing to the UK housing supply. Property investors have a positive role to play in this regard – not only do they galvanise the market, they contribute to housing supply through short-term refurbishment projects. To ensure investors are able to act on their intentions, the Government must ensure real estate opportunities are readily accessible by investors, who are not hindered by undue financial costs. Doing so will ensure the UK remains in a position of strength. Paresh Raja is CEO of MFS 74 BUILDING PRODUCTS | JULY 2017


Building Products July 2017
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