Jay Patel, lending director at Wellesley, explains why the property platform is ready for anything that the market throws at it…
THE PROPERTY MARKET is changing. There have been rumours of a new recession on the horizon, and Rightmove recently reported that UK property prices fell in September for the first time since 2010. Meanwhile, economic volatility has had a cooling effect on the property investment market, while overseas investors have been taking advantage of the weakened pound to buy up residential flats and houses.
But Wellesley is unaffected by these short-term market movements. “We take a long-term view of our portfolio,” says Jay Patel, lending director at Wellesley. “Our exposure to the market’s volatility over the next quarter is limited as we have successfully over the last 12-18 months underwritten projects that have performed well in pre-sales – and that goes for the UK investor market as well as owner-occupiers – so we’re relatively protected from valuation drops over the next 12-18 months or so.
“Wellesley takes a cautious view of the market to make sure that we aren’t overstretching ourselves and our book. But, at the same time, we are certainly keen to invest and provide our support to the UK property market and I think we are handling that balance quite well.”
According to Wellesley’s own in-house research, a geographical shift is also taking place, with northern cities becoming more attractive for the development of houses and flats.
“We currently see a relatively stronger market for property investors and owner-occupiers in and around Birmingham and heading towards the North with a strong owner-occupier market in the Home Counties and further west,” says Patel.
“From an investment basis, properties in the North tend to represent better value than properties in the South,” Patel explains. “If you look at average yield; in the North it is five to 10 per cent plus, whereas in the South East, the average yield for investment is 3.5 per cent.”
Wellesley’s team has had many years’ experience managing property market risks on behalf of its investors, so it is no surprise that the platform is able to react nimbly to the changing risk profile of the UK property sector.
Wellesley began expanding into the North of England several years ago, anticipating the rising yields in the region long before its competitors. By taking long-term investment horizons and launching its own investment platform for listed bonds, Wellesley has also been able to reassure investors who are worried about macro-economic issues and Brexit-related risk.
The platform further protects its investors from unnecessary risk by setting a maximum of 70 per cent loan-to-value (LTV) on any property.
“A standard residential mortgage is leveraged at around 95 per cent of its value,” says Patel. “We don’t get anywhere near that quite frankly. We have a maximum of 70 per cent LTV which means that the property would have to fall in value by 30 per cent before we start taking a loss ourselves. This is the fundamental nature of how we structure our property transactions and it is supported by the experience of the developer, the quality of project and location, to name a few other areas we pay close attention to.”
By prioritising risk management, Wellesley has shown its investors that it is capable of withstanding market movements, from property devaluation, to geographical shifts. As economic uncertainty continues, Wellesley’s investors will be grateful for any stability they can get.