Viewpoint: Getting returns from UK property

These growth drivers will generate promising investment opportunities within the UK property space.

Neil Hermon, fund manager of The Henderson Smaller Companies Investment Trust, argues the case for investing in smaller companies in the UK property sector.

Viewpoint: Getting returns from UK property

Viewpoint: Getting returns from UK property

“If you own a house the 2% rise in prices since last year and currently low mortgage rates are enough to help you sleep at night.

“If you are one of the unfortunate, mainly youthful, 17% of the population who rents from a private landlord, analogies about chasing the ends of rainbows will likely come to mind.

“Getting a foot on the ladder, it seems, is becoming an increasingly expensive business.

“Aside from foreign investment, the government is working hard to help. The Funding for Lending scheme, launched in July 2012, was originally designed to incentivise banks and building societies to boost their lending to the real economy.

“A key beneficiary of this has been the mortgage lending market, boosting supply and therefore reinvigorating the UK housing market. Enter the government once more this time with Help to Buy.

“Announced in April this year, the scheme was designed to aid first-time buyers by offering them a five year interest free equity stake of up to 20% for any new-build property worth up to £600,000. This means buyers only need a deposit of 5%. What is more, George Osborne has brought into effect phase two of the scheme which extends the offer to include any home bought by a first-time buyer.

“The effect? Property sector growth. First-time buyers account for over half of the mortgages approved in London, not too dissimilar from the rest of the country, and data by The Council of Mortgage Lenders shows they are borrowing 47% more than compared to a year ago.

“These growth drivers will generate promising investment opportunities within the UK property space.

“One company I am particularly excited about is LSL Property Services, whom I recently met following their annual results. Their business model is designed in such a way that enables them to generate revenue from a number of different avenues.

“They are the second largest operator of sstate agents in the UK running over 500 branches including brands such as Your Move and Marsh and Parsons. They are also the fourth largest broker of mortgage and non-investment insurance in the UK and finally, through e.surv, they own the UK’s largest surveying and valuations platform.

“They are also number one for asset management and property management services, executing all parts of the chain from repossession services and renovation, through to sale.

“The company is in a strong position to grow into a market leader in all lines of its business. They have around £100m of financing available and management are approaching the available merger and acquisition opportunities sensibly. Combined with the top-down government drivers of Help to Buy and Funding for Lending, their future looks prosperous.

“UK housing is again an attractive investment proposition; you certainly would not have thought so in 2009 – how things have changed.”

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
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