Gap between property prices and key influences grows
The Lendy Property Pulse (LPP), the new property market index, shows that residential property prices have moved ahead faster than their fundamental drivers in some areas of the market, says Lendy, Europe’s leading peer to peer secured lending platform, and new title sponsor of Lendy Cowes Week.
Lendy says that residential property prices have gone up by 20% since the beginning of 2014, whereas the LPP has only risen by 17% in the same time period, with the gap between them continuing to grow.
Lendy says that the gap has mainly been caused by rising property prices beginning to outstrip real wage growth – one of the key indicators in the LPP.
The LPP is a new index designed to track the key factors that influence the UK residential property market. The index tracks the following indicators:
- Average weekly earnings
- Number of individuals in employment
- The gap between the Government’s housing targets and the number of houses that have been built
- Net mortgage lending for residential properties
- The average interest rate on a variable rate mortgage
The rapid growth of house prices compared to the fundamental drivers of those prices has meant that those looking to lend against property may benefit from choosing properties with lower LTVs.
Lending against property without taking on equity risk of buying the property can be a better option for investors, as it is more secure than direct investment. Additionally, if there are any issues with the property, the lender will be paid back before equity owners as they hold a first charge against the property.
Lendy says that lower LTVs play a big role in ensuring that risk is reduced for their investors Lendy offers LTVs of 70% or below on all its properties – which means that risk can be managed for those lending through its platform.
Lendy says that investors can also lower the risk involved in the property market by diversifying their exposure. Peer-to-peer platforms like Lendy allow individuals to access different types of property and risk/return profiles, resulting in a broader mix of relatively higher yields and medium yields.
Liam Brooke, pictured, co-founder at Lendy says:
“As residential property prices have continued to rise in some areas, they have begun to outpace the fundamentals that drive the market.
“That rise means that those considering investing in the residential market need to make sure they take steps to manage their risk. The property market still offers very attractive returns, but rising valuations of this kind make avoiding equity risk an option all property investors should consider.
“Peer-to-peer lending may be a good option for investors keen to access the returns the market offers without risking too much. Limited LTVs and holding a first charge over a property provide insulation from risk that direct property investment cannot offer.”
Lendy – The Property Platform also believes that P2P lending provides an opportunity for individuals to diversify their property investments, and access a wider range of property types and yields. Concentration risk can be a big issue for buy-to-let investors, and lending to ten different property investments can be much lower risk than investing in just one buy-to-let property.
The LPP will continue to track the key factors on a quarterly basis from today through to when the UK finally leaves the European Union.
The gap between UK residential property prices and key drivers widens, as prices outstrip real wage growth