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The post-Brexit economy remains resilient but a bright future is uncertain – ASTL

by: Benson Hersch, CEO, ASTL
  • 16/02/2017
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The post-Brexit economy remains resilient but a bright future is uncertain – ASTL
The post-Brexit economic good news continued in quarter four 2016, chief executive of the Association of Short Term Lenders Benson Hersch takes a look at the property market behind the statistics.

Industrial production rose by 1.1% month-on-month in December, manufacturing was up by 2.1% with an annual growth rate of 4.4%. Even the trade deficit narrowed in Q4 to £8.6bn, after a record high in Q3. Clearly, the fall in the exchange rate of sterling has helped exporters.

Good news too for the construction sector, recording a month-on-month growth of 1.8% in December. New house building rose 2.9%.

The bridging sector has also enjoyed record growth, with the latest figures released by the ASTL showing a total of £2.85bn of loans written in 2016, compared to £2.43bn in 2015, an increase of 17%. At this stage, although there are worries about the long-term effects of the PRA’s latest affordability requirements for buy-to-let mortgages on bridging as well as the mainstream market, low interest rates and the growing number of lenders offering interest-only loans still make refinancing achievable for most borrowers.

But (and there’s always a but), what happens if the authorities decide to intervene in the market. Already, there are mutterings that “something must be done” about spiralling rents. In addition, interest rates must rise at some stage. The choices are difficult and there are always unintended consequences of government actions.

When interest rates do go up this will increase the value of sterling, possibly stifling export growth and making imports less expensive. On the other hand, this may dampen reckless consumer borrowing and help to control inflation. It may also strengthen banks but, if it does, will that mean that they will be more willing to lend? I have my doubts. Interest rates, however, are only one component of a complex mix of measures which are available. Most of all, market sentiment is the main issue, and this is a function of how optimistic or pessimistic people feel.

The attempt to dampen property prices by adopting the European Mortgage Directive’s definition of “consumer landlord” and by changing Stamp Duty rates and the tax treatment of interest costs, has led to greater use of Special Purpose Vehicles and consequently a lower proportion of new loans are subject to FCA authorisation. Yes, property prices have come down in certain sectors, particular in London, but these are mainly higher-value properties. These have done little to increase the availability of affordable housing.

Possibly, if meaningful incentives are offered to downsizers, this may help, but again who knows what the consequences may be?

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