October 29, 2018

Welcome to our third quarter newsletter

A housing cycle is underway across the UK, but depending on where you are in the UK, it could either be coming to an end or it is just getting going. While growth is powering ahead in cities such as Manchester and Liverpool, it is flagging or going into reverse in places like Aberdeen and parts of London. This is also the reason why the fund started to diversify away from being London-centric, as there are other parts of the UK that are still to see the ripple effects of formerly stratospheric growth in London and the Southeast. The number of housing transactions has been stuck at the same level for four years — around 1.2m per year — but in London, where the market slowdown has been particularly marked in central or “prime” areas, turnover is down by 20 percent over four years. 

Uncertainty is bringing opportunity as the Capital’s property market is at its lowest, with Brexit there’s been a fall in the share of the Capital’s homes being bought by overseas purchasers — a trend that is likely to accelerate until the uncertainty over Britain’s future status begins to dissipate. There is still plenty of appetite for well-priced property and following the exit of several thousand amateur buy-to-let investors, there are bargains to be found – particularly for those looking to expand larger portfolios held within limited companies and who are prepared to do some refurbishment work before letting. 

The crucial thing people need to consider is having a diversified portfolio that ensures they have a blend of safer assets and riskier plays that can drive up returns, and with demand for mid-priced housing set to continue – largely thanks to Help to Buy and cheap mortgage finance – demand for housing is likely to outpace supply, no matter what happens in Brussels. 

The fund has now finished its first full year of trading with a net return to investors of 10.35% (returning 1.44% in the 3rd quarter). We are very pleased with this performance and are among the top-performing funds in its sector over the last 12 months based on statistics from Bloomberg. 

Furthermore, the successful relationships we have established both with brokers and developers are providing a constant source of new loans and we now have a healthy pipeline going into Q4. We are also pleased to let you know that our credit facility is now 95% ready and we hope to be able to deploy first funds with (moderate) leverage during Q4. This should help in increasing returns from the current 8% to 12% to a range of between 10% to 14% net return to investors