1

Market OverviewLucian Cook 30thJanuary 2019

Source: RICS, Nationwide 3

Sentiment & Brexit

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

-80

-60

-40

-20

0

20

40

60

80

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Dec

-16

Jun-

17

Dec

-17

Jun-

18

Dec

-18

New

buy

er e

nqui

ries:

bal

ance

of o

pini

on

Annual House Price Growth New Buyer Enquiries

Source: Oxford Economics, Savills 4

Affordability

2019 2020 2021 2022 2023

Incomes

+2.0% +2.9% +3.4% +3.5% +3.5%

Source: Oxford Economics, Savills 5

Affordability

2019 2020 2021 2022 2023

Incomes

+2.0% +2.9% +3.4% +3.5% +3.5%

Bank base rate

1.0% 1.5% 1.8% 2.3% 2.8%

Source: Oxford Economics, Savills 6

Affordability

2019 2020 2021 2022 2023

Incomes

+2.0% +2.9% +3.4% +3.5% +3.5%

Bank base rate

1.0% 1.5% 1.8% 2.3% 2.8%

House prices

+1.5% +4.0% +3.0% +2.5% +3.0%

Five year forecasts

16.3%14.8% Income growth

House price growth

7

Stretched affordability

0%

5%

10%

15%

20%

25%

30%

Q4

88

Q4

90

Q4

92

Q4

94

Q4

96

Q4

98

Q4

00

Q4

02

Q4

04

Q4

06

Q4

08

Q4

10

Q4

12

Q4

14

Q4

16

Q4

18

Q4

20

Q4

22

Mor

tgag

e pa

ymen

ts a

s %

of i

ncom

e

Interest Interest & Capital Stress tested

Alleviating the pressure

Interest rates and affordability

Source: Savills Research, UK Finance, Oxford Economics 8

Stress tests are relaxed as rates rise

Buyer rise up the income

scaleThe profile of

buyers is more

weighted to lower value

markets

100kg

9

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Q4

78Q

4 80

Q4

82Q

4 84

Q4

86Q

4 88

Q4

90Q

4 92

Q4

94Q

4 96

Q4

98Q

4 00

Q4

02Q

4 04

Q4

06Q

4 08

Q4

10Q

4 12

Q4

14Q

4 16

Q4

18

Hou

se P

rice

Rat

io

London v UK Outer Met v UK

Past the point of inflexion

Source: Savills Research, Nationwide, Land Registry

Five year forecasts

Source: Savills Research 10

21.6

%

20.5

%

19.3

%

19.3

%

19.3

%

18.2

%

17.6

%

12.6

%

9.3%

9.3%

4.5%

0%

5%

10%

15%

20%

25%

0%

5%

10%

15%

20%

25%

NorthWest

Y & H Wales East Mids WestMids

Scotland NorthEast

SouthWest

East ofEngland

SouthEast

London

Last year (2018 - 2022) This Year (2019 - 2023)

Transactions

Source: HMRC, UK Finance (to November 2018) 11

1,287,620in the year to June 2016

1,197,880in the year to November 2018

First Time Buyers370,100+12%+40,900

Buy to Let66,400-48%-62,500

Home Movers368,400-3%

-12,300

Cash Buyer392,980-12%-55,800

since the referendum

-7.0%since the referendum

0

50,000

100,000

150,000

200,000

250,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3

2010 2011 2012 2013 2014 2015 2016 2017 2018

New

hom

e EP

C re

gist

ratio

ns

Res

iden

tial t

rans

actio

ns

HMRC transactions New home EPC registrations

Housing delivery breaking the link with transactions

12Source: Savills using MHCLG, HMRC

Q2 2013Help to Buy introduced

16%

Q3 2018Help to BuyEntrenched

23%

49,262Help to Buy loans

year to June 2018(England only)

82% to first time buyers

Average equity loan(England only)

£53,356 excl London

£163,236 in London

Source: HMT 13

The future of Help to Buy

HTB extended

to 2023

From

£600kin London

Regional value caps

Restricted to

FTBs

To

£186kin the North

East

No scheme

after 2023

14

The effect of the restriction

18

Diversity on large sites

Help to Buy will be more targeted & only guaranteed to 20234

... & has formed 15 strategic partnerships with HAs to deliver 27,775 affordable new homes3b

Homes England has a focus on empowering small & medium sized house builders3a

Letwin pinpoints a need for more types and tenures with lower associated land values2

NPPF recognises it isn’t just a numbers games1

Momentum gathering in the BTR pipeline

19Source: Savills using BPF, Molior

240average size of scheme

under construction

27% of units being constructed by national

house builders

34%annual

increase in units

complete or u/c

8 investors

with >3,000 pipeline

56%units u/c are

outside London

22,7

62

31,2

50

29,4

16

43,3

74

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Completed Uncer Construction

Build to Rent UnitsDec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

66,700 units also in

planning

24%of housing associations

in 2018

71%of housing associations

in 2017

Source: The Savills Housing Sector Surveys 2017 & 2018 20

Government policy as a development constraint for HAs

21

So, what is the problem?

Source: The Savills Housing Sector Survey 2018

2%Latent

liabilities4%

Brexit

20%Access to finance

27%Risk of market

downturn

30%Organisational

capacity

30%Construction

industry capacity

54%Grant

86%Availability

of land