UK PROPERTY MARKET RESIDENTIAL OVERVIEW

Essential Investment InformationMARCH 2016

UK RESIDENTIAL MARKET

Headline Statistics• Average UK house prices rose by 0.3% in January and are up to

4.4% year-on-year

• Cumulative growth in UK prices is expected to total 20.3% in the five years to the end of 2020

• Activity in the market has stabilised at around 100,000 transactions a month

• Capital values will continue to be supported by ultra-low interest rates, which are playing a key role in capital markets

• The current ultra-low base rate alongside an increased appetite for lending among banks has led to record low mortgage rates & rising lending

2016 OverviewSince 2009, the value of UK housing stock has risen by £1.3 trillion (28%) with capital values heavily supported by ultra-low interest rates and increased mortgage lending. As we move into 2016, rising values are expected to continue after a positive 4.5% increase in average house price value last year and forecasts for cumulative growth sit at 20.3% for the five years to the end of 2020.

Increased competition in the mortgage lending market, stronger economic growth, demand from cash-only buyers, and a relative lack of appropriate homes for sale in the right locations, have all contributed to the rise of housing value.

At Vesper Stone, we expect prices to continue climbing throughout the year in-line with figures published in the latest House Price Sentiment Index (HPSI) from Knight Frank & Markit Economics, which have been above 50 for 35 consecutive months).

The strongest house growth remains in the more expensive markets of London and the South East, however this has helped bolster the total value of residential property overall by 6.7%. Neil Hudson, Head of Savills Research, confirms London house price growth has driven rising values across England and claims this marks the next stage of the housing market cycle where price growth spreads across the country in relation to underlying economic activity and wage growth.

In January, NatWest reported that average UK house prices rose by 0.3% taking the annual rate of growth up to 4.4%.

Private Rented Sector [PRS]According to the latest English Housing Survey, the PRS has been growing by 260,000 households per annum post the credit crunch, with the Government tasked to deliver 400,000 new ‘affordable homes for sale’ over the next 5 years to meet a growing population and overstretched rental demand.

This equates to an annual delivery of 80,000 units, however it does not meet the 220,000 new households needed per year over the period.

The total value of UK PRS stock hit a record £1.29 trillion at the start of 2016, equating to a 55% increase over the last 5 years and worth over £500 billion more than it was in 2007.

This price growth is underpinned by ongoing difficulties faced by first time buyers and second steppers, who simply cannot accumulate sufficient deposits to get on or move up the housing ladder. The average deposit for a first-time buyer rocketed to over £25,000 in 2015, with mortgage regulation restricting borrowing and homeownership among younger households increasingly becoming the domain of the wealthy - in London, average deposits rose to £75,000.

The political response to an inaccessible domestic buyer market has been a combination of first-time buyer incentives and increasing the tax burden on buy-to-let investors to reduce the competition they face. However regardless of these measures underlying PRS demand is set to continue to rise and Vesper Stone believe buy-to-let to be a strong investment option.

Political InfluencesWith the UK’s membership of the European Union under referendum vote in June 2016, investors are looking closely at the possible impacts on the UK housing market.

The mainstream UK housing market is primarily driven by domestic dynamics, therefore an exit from the EU would not affect the demand/supply imbalance which is a key feature underpinning current housing trends according to the March referendum update issued by Knight Knox.

Both transaction volumes and development starts have grown steadily since the initial Government pledge for a referendum in 2013, despite economic uncertainty due to unknown implications of the vote.

This is a positive sign for investors, as it confirms that the EU referendum announcement, so far, has not led to a slowdown in market activity.

Further security in market sentiment can be found in the take-up in the office market, reflecting confidence from employers around longer-term economic conditions in the UK.

Figure 1: Housing Starts & Completions

OPPORTUNITIES FOR INVESTORS

Cash Rich Investors -

Looking at the current PRS landscape, Vesper Stone have identified three core opportunities in the sector benefiting different types of investors; cash rich, seasoned and those requiring debt. The greatest impact however, will be in private landlords’ ability to expand their portfolios as the economics of buy-to-let evolve and lenders begin to adjust their borrowing criteria.

Seasoned Investors and Landlords -

The PRS provides ongoing opportunities for cash rich investors in 2016, particularly those caught by limits on their future pension contributions and those no longer obliged to take annuity at retirement.

Both should look to rationalise their portfolios by disposing of poor performing stock to reduce their mortgaged debt in order to maintain sustainable buy-to-let cash surplus.

Future investment should be targeted at lower-value higher-yielding stock, avoiding markets heavily reliant on welfare payments for increased security on investment.

Those Requiring Debt -

This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Vesper Stone Limited for any loss or damage resultant from any use of, reliance on or reference to the contents within.

Henrietta O’DonnellManaging Director, Vesper Stone Investments

Henrietta specialises in introducing exclusive UK property assets to the Spanish expatriate community.

Her extensive knowledge of the UK property market means that she can advise overseas investors of what, when and where to buy inline with turns in market cycles.

For our latest analysis and views on the UK property market, visit: www.vesper-stone.co.uk or our LinkedIn.

Sales Team

+44 (0) 203 488 0906henrietta@vesper-stone.com

MARKET ENQUIRIESTo discuss UK investment options please contact:

+44 (0) 203 488 0906 | contact@vesper-stone.comwww.vesper-stone.com

We nor any of our associated companies, agents, employees or partners can be held responsible for any losses incurred by any investment made by the purchaser or investor. The information contained herein is for information

purposes only and is based on the views and opinions of employees and research done by third parties. The information contained herein should not be taken as legal or financial professional advice. It is recommended that

anyone considering an investment should seek financial advice from a third party before a decision is made.

The terms of any investment made by the purchaser or investor will be defined by the sales contract and leasehold agreement agreed with each individual purchaser or investor. Where any terms may be or may seem contradictory,

the sales contract and leasehold agreement will take precedence over any terms stated in this brochure.