UK Property Market Update: Things are cooling! 

Friends,

Rate rises are here but we don’t feel the current hiking regime is likely to get hold of inflation for some time, following credit expansion the delay of 12-18 months for inflation to begin to be truly felt is likely to persist through a period of 12-18 further months. 

Where might rates get to and what should we do about it? 

The markets are pricing in central bank rate rises to 3-3.5% reached during summer 2023. This is still a long way short of the stress tested 6%, but the increase in rates coupled with the potential of increasing voids as the cost of living crunch continues to gather momentum could pose a more significant risk to Portfolios. 

To protect against rate rises a number of clients are looking for early exit products with lenders like Kent reliance as opposed to waiting the full 6 months when refinancing away from Bridges/acquisition finance with slightly competitive lenders like TMW. It’s widely advised to fix for 5 years in the current climate with the spread for fixing at 2 vs 5 years being 0.1% differential and in some instances, even cheaper.

Last week we discussed methods of hedging the risk of our portfolios across tenant type, ideally those funded through government grants with 3-5 year leases. Though there is a case to be made for other tenants, specifically anchor tenants in commercial spaces. 

The Perfect Portfolio:

I’ve been considering the perfect mix for our portfolio and what this years acquisitions could look like, with a pre-agreed student let purchase within the portfolio utilising Precise (one savings bank) we are unable to move toward a social tenant under their mortgage conditions, so we will be taking a second look at our portfolio’s debt maturity with a view to refinance a couple of properties toward Social housing appropriate mortgages. 

We have put in place the target of 40% of our income to be derived from Government backed tenants, be it single family DSS tenants, or multi-let HMO’s with a provider like Serco, and will be working toward achieving this through new purchases, and repurposing existing units over the next 18 months. 

As ever I remain interested in debating the ideas above, to test them against the scrutiny of others in the hope we can improve and develop them. If you have any further ideas to add I would love to hear from you!

Kindest regards,

Dan & the Team