IP Global Your Property Investment Partner Llewelyn James – Senior Consultant

Is the Help to Buy Scheme Fuelling the Next UK Property Bubble ? Background Funding for Lending July Billion GBP made available to lenders Help to Buy Phase 1 April % deposit 20% equity loan new build only Help to Buy Phase 2 Oct % deposit 15 % mortgage guarantee older properties as well as new build RBS Halifax Bank of Scotland Lloyds Santander HSBC all signed up Two thirds of UK mortgage market 12billion available 3 year life span Bank of England will review annually

Nationwide HPI: -8% in absolute terms -13% excluding London Adjusted for inflation over 20% down Hawthorns 25% below peak of 2007 Other metrics: 27,000 mortgage products in July 2007 just 2,200 two years later now 5000 Transaction volumes half the peak Mortgage approvals K per month back in 2007 now 50-60K pm Affordability : 1st time buyers spending 29% of take home pay on mortgage in line with average Excluding London talk of a housing bubble not just premature but a non starter UK Property a Tale of Two Markets

Global What about London ? Nationwide Building Society HPI : 8% above peak but still below peak adjusted for inflation Only Prime Central London is at an all time high in inflation adjusted terms Signs of possible bubble? Return of sealed bids and gazumping in some areas Definition of a bubble is where the price of an asset bears no relation to it’s intrinsic value London and particularly prime central London have good fundamentals

London – A Global Economy Ranked 5th among global cities by GDP per person – First or second in most other rankings. (Economist, 30/07/2012) “financial services to bounce back in 2014 and together with business services drive the London economy, resulting in total GVA growth between 3% - 4% for the following five years.” ( Dmitriy Gruzinov, Economist at Oxford Economics) Estimated 374,000 jobs to be created in London between 2013 and 2018 – that’s 1 in 4 jobs across the UK (Xinhua, 01/05/20 London has been voted the world’s second most important centre for the technology, media and telecommunications centre ahead of LA, Paris, Berlin and Silicon value. (Property Magazine EU, 01/02/2013) Source: Risk.net, momentum investment; DTZ, Oxford Economics; Citibank, Savills, Knight Frank, House of Commons Bulletin August 2012

Residential London Real Estate Ranked fifth among global cities by GDP per person – first or second in most other rankings (Economist, 30/07/2012) Estimated 374,000 jobs to be provided between 2013 and 2018 – that’s 1 in 4 jobs across the UK (Xinhua, 01/05/2013) Transforming from a financial services economy to a multi-industry economy. Industries such as media, technology as well as business consultancy and accountancy are fuelling this change (money-marketuk, 12/01/2013) Dmitriy Gruzinov, Economist at Oxford Economics, added: “… looking ahead we forecast financial services to bounce back in 2014 and together with business services drive the London economy, resulting in total GVA growth between 3 percent and 4 percent for the following five years." Limited Supply: Current expected new stock delivery is 13,300 units per annum over the next five years – 35% below the Mayor’s target (Savills) 35% of deals closed in cash higher than in 2007 much in Prime central London (Financial Times) Since 2007 total international cash invested into London’s residential markets has topped GBP18 billion (property week 03/05/2013) Increasing Demand: Over the past 18 months international buyers account for 34% of sales by volume and 49% by value (property week 03/05/2013) Central London prices forecast to grow 31% to 2018 (knight Frank)

London-10 Year Performance Comparison

No bubble but what about the future? Help to Buy is just getting going 2 Key factors : Supply & Demand How much uptake how many new buyers will enter the market First phase of Help to Buy linked to supply to what extend will the rise in prices motivate developers to increase supply 2 nd Phase is not, so potentially more inflationary UK housing supply inelastic and hasn’t built enough homes to satisfy demand since 1950’s On the other lenders have promised no relaxation of income multiples or a return to self certification mortgages.

In Conclusion To early to assess the full impact of Help to Buy With only 12 Billion provided for the 2nd phase if there is a big take up the funds could run out before the scheme comes to an end Help to Buy alone is unlikely to precipitate a full blown bubble Confident as a consequence of the scheme UK house prices will rise over the next few years Savills forecast of 18% price growth in the UK house market to the end of 2017 Now is as a good a time as any to gain exposure to the UK property market just as the 2nd phase of Help to Buy gets underway

Questions?

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