The rich get richer: Wealthy debt holders will support property prices
Invest & Fund has predicted that the growing wealth of debt holders amid rising interest rates will support the property market and sustain asset pricing going forward.
The peer-to-peer residential development lender cited Savills data which found that 38.5 per cent of home sales are going to cash buyers, “which may suggest more investors are stepping in to take advantage of the retracement in price.”
The super prime market has been even more buoyant, Invest & Fund said, with Knight Frank data showing that more than 160 properties worth £10m or more were sold in London in the last financial year – the most since 2016 when Brexit spooked the market.
Read more: Invest & Fund forecasts higher house prices despite mortgage rate hikes
“The rising levels of debt in the economy mean that the debt holders are getting exponentially wealthier, which doesn’t make excellent copy when looking at problematic conditions in residential housing,” Invest & Fund said. “Still, it does mean that under these conditions, there is always a bid in any falling market. We saw this in the aftermath of the 2008 financial crisis; by late 2009, the unwind in housing had more or less been wholly restored, back then it was because the market was flooded with cheap debt to regain confidence, now we believe it will be the amassed wealth from the same sector that will provide the bid in the market and sustain asset pricing.”
One of the most important aspects of a P2P development loan is the level of downside protection on offer in relation to gross development values (GDV), Invest & Fund said.
Read more: Invest and Fund predicts P2P ‘rebirth’ as real estate investment evolves
The platform said it typically structures its finance at 64 per cent loan-to-GDV, in order to “extract as much value as possible from our client’s projects for them and offer an attractive downside protection metric for our investor clients.”
Ultimately, a shortage of housing in the UK will continue to support pricing, according to Invest & Fund.
Read more: More lenders turn to higher-yielding real estate investments
“Housing, sadly, has become a scarce asset that isn’t optional, so it’s a basic assumption that it will always be profitable to make, sell, and own unless everything we understand about supply and demand economics is incorrect,” it added.