Commentators throughout the media are predicting a new housing bubble as a result of the Government’s stimulus measures, a position challenged by research from the Item Club as we report today. Outwith the chatter of a housing bubble, Neil Hermon, the manager of Henderson Smaller Companies investment trust (LON:HSL) looks at the opportunities it’s throwing up.
For Neil Hermon, it is all about finding stocks that will generate good growth for shareholders from the UK’s smaller and mid-cap companies. Recently, one area that Neil has become excited about is UK housing – a topic that divides the masses. If you own a house, the 2% rise in prices since last year and the currently low mortgage rates (with two year fixed deals as low as 1.5% for those with 40% deposit) is enough to help you sleep at night and dream of how you will redo the bathroom. If you are one of the unfortunate, mainly youthful, 17% of the population who rent off 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.
Neil explains: “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 £600k. This means buyers only need a deposit of 5%. What is more, George Osborne, at the time of writing, 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 (CML) shows they are borrowing 47% more than compared to a year ago.”
Neil believes these growth drivers will generate promising investment opportunities within the UK property space. One company Neil is particularly excited about is LSL Property Services, who he 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 Estate 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. Neil believes 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 & acquisition (M&A) opportunities sensibly. Combined with the top-down government drivers of Help to Buy and Funding for Lending, their future looks prosperous.
He comments: “UK housing – an attractive investment proposition; you certainly would not have thought so in 2009 – how things have changed.”
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