How inflation has affected the property market

Tell me about your history in real estate I have led the origination, assessment and management of investments at Ingenious within the real estate sector since 2016. I am the lead contact as part of Ingenious’ membership of the UK Green Building Council, highlighting the team’s commitment to supporting a sustainable built environment. Prior to joining Ingenious, I spent 27 years at The Royal Bank of Scotland working extensively within the real estate finance sector, supporting developers and investors. More recently, I was a key member of the bank’s Capital Resolution Division, negotiating the divestment of a portfolio of the bank’s non-core real estate lending. Assets included residential, commercial and hotel-backed loans in locations across England and Scotland. I began my career at NatWest in 1988 in North West London, working in various retail banking roles, before joining the bank’s corporate banking division as a team head in 1998. Since 2000 I have worked almost exclusively in the real estate lending and restructuring sectors. Tell me about Ingenious Real Estate Formed in 2013, Ingenious Real Estate focuses on providing senior development and bridging finance to well-positioned schemes in locations across the UK with proven demand. Typical loan terms are 18-24 months, and the team is approaching more than £500m worth of completed transactions. The current portfolio balance is weighted towards residential with price points for units typically aimed at a location’s owner occupiers and investors. What do you think about the forecast borrowing base rate increasing above 3%? There are a number of factors at play here including the escalating cost of living crisis, but there will certainly be some unwelcome additional mortgage costs for owner occupiers and investors throughout 2023 and beyond. Nationally there continues to be a significant shortage of housing stock across many locations and markets. And as such we would expect any related weaker demand from owner occupiers to be balanced by higher demand from renters. The cost of living crisis is causing spikes in the cost of basic necessities for many households and this may ultimately limit the MPC’s capacity for significantly higher borrowing rates in the longer term. How will this affect mortgages? Very simply it will increase the cost of all types of borrowing most notably mortgages which have been at historic lows since the onset of the pandemic. Mortgage availability however should remain relatively robust on account of the Bank of England’s recent relaxation of rules for lenders to assess affordability at rates materially higher than at the levels at which they are charging. Will it increase rental properties? Why? People are always going to need somewhere to live and UK housing provision is still well below the level of demand. If people feel uncertain about committing to buying for whatever reason then renting is a good flexible option, however the availability of quality rental stock remains too low across much of the UK and rents have recently increased so it’s reasonable to expect that some developers may choose to hold and rent completed stock as we head into more economically difficult times. How do you think The Bank of England’s recent decision to relax mortgage lending will benefit property consumers? It seems like a well-timed intervention in the market and should provide continued access to credit for homeowners. But that credit will inevitably be more expensive for the foreseeable future. Whilst some potential buyers may be tempted to defer buying property, the increasing costs of renting and the acute lack of available rental units in much of the country means this option is unlikely to provide short term cost relief. How can those in the industry take advantage /cope with this? There is no simple answer, but the best lenders will continue to support their borrowers and projects through more challenging times and where possible come up with innovative and practical solutions to issues as they arise. Most lenders are now having to pay more for the capital they are lending so it’s inevitable those costs are passed on to borrowers. Leverage for new projects may be lower than has been the case previously which will be a further consideration for many borrowers. What do the long term effects of high interest rates have on the property market? Historically most sectors of the property market have performed strongly over the longer term through various interest rate environments, this is especially true for residential markets where a growing population and changes to the way people live as well as tight planning controls are particularly relevant. We tend to be of the view that higher borrowing rates will reduce over time once inflation is brought back under control. But this may take some time to be achieved, the inflation we are seeing in the UK is principally from spikes to input prices and a weak currency rather than increased domestic consumer demand. How do you see the market developing over the next year or so? Whilst interest rates and inflation present an ongoing threat to the wider economy, we see UK residential property markets remaining robust, resilient and performing well. The picture is not uniform across the country and all price points however, requiring expertise to interpret the headline numbers. When analysing residential opportunities, it is key to understand the subsectors and regions in which they are located as it can be quite misleading to look at the market too broadly. At Ingenious, we blend this market expertise with the ability to provide flexible, cost effective financing solutions for our clients by sourcing residential opportunities from across the UK based solely on individual merit.

How inflation has affected the property market

Tom Brown, managing director of Real Estate at Ingenious, discusses how inflation will affect the property market in the coming years and how those in the industry can cope with the current crisis.

Tell me about your history in real estate

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