The housing market continues to improve particularly beyond London and the South East which has already seen considerable house price growth. It is important that the Government ensures the increased purchasing ability of homebuyers is matched by an increase in housing supply to avoid excessive house price inflation although we currently see no signs of this.
The residential market continued to show regional variations in 2013. However there was an underlying upward trend in house prices across the whole of the UK according to the Land Registry, Nationwide and Halifax house price indices. For the first time since 2007, Nationwide’s Q3 index showed annual house price growth in all thirteen UK regions. In London and the South East, where 60% of our assets by market value are located we saw year on year growth of 10.7% in vacant possession values (“VPV”) (2012: 6.0%).
There remains a significant mis-match between housing supply and demand in the UK, and the three major political parties in the UK recognise the need for a major increase in housing supply of all tenure types.
The UK government has supported the housing market in a number of ways. In the home ownership mortgage market the Government has introduced two financial support measures – Funding for Lending and Help to Buy – which have led to an increase in the number of housing transactions over the last year. This, in turn, has boosted confidence among house-builders and developers and, according to the Purchasing Managers’ Index (PMI), housing construction activity is at its highest point since November 2003.
Following the Montague Review, the Government has made significant strides in implementing policies to stimulate investment and growth in the sector. In particular, it has introduced a £1bn fund for the construction of Build-to-Rent developments and set aside £10bn of Housing Guarantees, whereby it will guarantee borrowers’ liabilities against new rental homes. In addition, the Government has established the PRS Taskforce, a specialist group of private sector experts within Government, including a Grainger secondee, responsible for kick-starting investment in the private rented sector. We are well placed to take advantage of these financial incentive schemes and are in regular dialogue with the Government and the Taskforce.
The general political consensus in the UK in support for growth and investment in the private rented sector, particularly focused on large scale, institutional investors, was clearly demonstrated by a recent inquiry by the Communities and Local Government Select Committee.
We have positioned the business both to take advantage of the positive changes in the owner occupied market (through our reversionary portfolio) and the private rented sector (through our market rental portfolio) including both assets on our balance sheet and in funds and joint ventures. Whilst taking this positive stance we have also further protected the group from the effect of any future cooling of the markets by reducing leverage.