Despite some initially pessimistic views regarding overall property values post-Brexit, the market is holding up well, other than some weakness at the high end and particularly in London. In December the OBR forecast that house prices in the UK would rise by an average of 3% in 2017. Looking longer term, the government is targeting the construction of 1m new homes over the 5 year to April 2020. As the number of homes built in the UK consistently falls short of government targets we expect to see continued opportunity for Wellesley to succeed and contribute to the UK economy.
In anticipation of the possible outcomes from the EU referendum in June, we completed a full review of our existing lending portfolio and lending strategy in the first half of the year. That exercise did not lead to the identification of any need to make significant change to our approach to development finance. However, we took the opportunity add further clarification on our existing policy which constrains lending to less than 70% of the value of the development and takes first charge security, supported by borrower guarantees. We remain particularly focused on the developer’s exit plan, targeting house values that are at or below average for the local area and strong evidence of a continuing healthy market for the properties constructed.
Our strategy remains to support mid-tier developers with typical loan sizes between £2m and £20m. As a result of this strategy, we grew our loan book by 8% in 2016. As expected, the increased focus on lending to experienced mid-sized developers has resulted in a significant increase in the average loan size in our book.
Given our core market is supporting the development of mid-market housing with average unit and square footage values, we do not expect to see the demand for lending to be unduly impacted by any fall-out from the eventual triggering of “Article 50”. We therefore have positive outlook for the lending that we plan to do this year.
We have continued to build our risk and lending management capabilities in line with the growth of our organisation. We recognise that we are only as good as our lending and we feel we have a strong team in place to manage a growing high quality book.
Stephen Bell, CRO
This post is issued by Wellesley Group Investors Limited solely for information purposes and does not constitute an advertisement. This document is not and must not be construed as a solicitation of a financial instrument in any jurisdiction.
Wellesley is the trading name of Wellesley Group Investors Limited (Company No. 08478238). Wellesley Group Investors Limited is not authorised or regulated by the Financial Conduct Authority and your capital is at risk and is not covered by the Financial Services Compensation Scheme. Wellesley Group Investors Limited is registered in England and Wales and its registered office is at St Albans House, 57-59 Haymarket, London, SW1Y 4QX.