Most asset classes have experienced a volatile first quarter. The FTSE 100 was down 7.7%, the DAX was down 6.02% and the S&P was down 2.04%. For some bonds, performance has been even worse. There are many reasons for this; a rising interest rate environment, G7 economies that are all at or close to full capacity, record low unemployment, and last but not least the geopolitical situation.
This confirms the fact that as an asset class overall it is difficult to beat the risk-reward profile of bridge finance. Despite not being fully invested (and we’ll come back later to the reason for this) the fund returned a solid 2.1% for the quarter.
2017 was a great year for bridging, with the market growing to £5bn for the full year, and this in spite of a comparatively flat wider housing market and the first interest rate rise in ten years. There is no doubt that British households have been hit by a squeeze in their spending power after the Brexit vote pushed up inflation.
The latest RICS results point to housing transactions remaining relatively subdued over the coming months despite some more positive comments from contributors to the survey. House prices edged upwards at a national level according to the survey, but sellers of top-end homes, in particular, were struggling to achieve asking prices, the Rics said. Of the estate agents surveyed, 67% said the sales price achieved on homes priced at £1m or more had come at a below-asking price. The figure dropped to 56% of agents for properties listed between £500,000 and £1m.
Property markets outside London and the South East are offering property investors better rental yields and even opportunities for capital growth at the time when the capital is offering none. For the wider market house price growth remains likely and that is a simple function of demand and supply.
The reason we were not fully invested over the quarter was that for a couple of weeks we were working on a large and particularly profitable loan for the fund, at the end it turned out we could not get comfortable enough with the valuation that we received. Our first priority is always to make sure we are certain that should things go wrong we will always recoup our capital and interest.
Lastly, we are pleased to announce that Edoardo Conti, a senior analyst previously working for the Safra Group, will be joining us on the 1st of May to further strengthen the team and we wish him the best of luck.
The Whitehall Capital Team