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Brexit impasse ‘impacting Scottish commercial property market’

THE Brexit impasse is contributing to perceptions that the commercial property market in Scotland is in the midst of a downturn.

The latest Royal Institution of Chartered Surveyors commercial property market survey has found anecdotal evidence suggesting that the process to leave the European Union is having an increasingly detrimental impact on market activity, with inquiries from potential investors in the third quarter lower than during the previous three months.

The latest results show that half of respondents in Scotland sense the overall market is in the downturn phase.

The highest proportion of respondents in Scotland since 2016 in the investment market said that inquiries from potential investors were lower than in the previous quarter.

The net balance for overall investment inquiries in Scotland during the period was -34%, meaning that 34% more respondents said that investment inquiries fell than said they rose.

The retail sector continues to drive the overall decline, with the weakest reading since 2008, showing a net balance of -70%, which is the weakest across the UK.

Demand for office and industrial space in Scotland was reported to be broadly flat.

Interest in investing in retail was the weakest according to respondents, but investment inquiries were also reported to have fallen in the industrial, where there wasa net balance of -14%, and office, where it was a net balance of -20%, sectors.

In the occupier market, tenant demand reportedly fell at the headline level in Scotland for the fourth consecutive quarter, with the net balance slipping to -22%, from -3% previously, RICS said.

Scottish surveyors are cautious looking ahead about rents in over the next quarter. The overall net balance for three-month rental expectations is its weakest since the second quarter in 2016 at -23%.

However, this is driven by pessimism regarding retail rents, with a net balance of -65%. Expectations for office and industrial rents are broadly flat.

RICS said Scottish respondents are more positive about the value of industrial and office property, with the balance of respondents pointing to modest growth in capital values in both sectors in the near term.

Richard Smith, of Allied Surveyors in Inverness, said: “The market over the last three months has been affected by political uncertainty. Clients tell us that they will invest when the uncertainty is removed, regardless of how that is achieved.”

David Castles, of Ian Philp Glasgow, said: “Office and industrial sector capital values will improve but supply of prime office developments is restricted, and more investment is required which hopefully will improve once market uncertainty is reduced.”

Tarrant Parsons, RICS economist, said: “Although half of respondents in Scotland now perceive the market to be in a downturn, the fact that capital value expectations are still positive suggests a relatively soft landing for the commercial real estate sector is anticipated overall.”

Meanwhile, research from Grant Property has shown investors from South East Asia are cashing in on the opportunities provided by a drop in the value of the British pound and increasing yields and rents in the UK buy-to-let market, especially with student flats.

The firm reported a surge of interest from Hong Kong and Singapore as new and existing investors are purchasing more buy-to-let properties to add to their portfolios. An increase in rents as high as 15% over the last 12 months alone, combined with steady long-term capital growth on average 7% per annum, are factors which are making UK property an appealing investment prospect, it said.

Peter Grant, founder of Grant Property, said: “In the last year we have sold over £38 million worth of properties to overseas investors and we are currently dealing with 25% more enquiries than this time last year.

“Investors see the uncertainty of Brexit as an advantage and are capitalising on the opportunity to snap up traditional flats in UK cities, particularly where there is a student population.”

By Brian Donnelly

Source: Herald Scotland

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London homes take longer to sell than other UK cities

Property owners seeking to sell their homes in London could be forced two wait an extra two weeks compared to other major UK cities, as the capital suffers from weak market conditions.

Residential properties now take 14.5 weeks to sell, more than one month longer than it took to complete a sale in 2016.

Sellers in the London market are accepting offers from buyers that are on average 5.7 per cent below their asking price, up from 1.8 per cent three years ago, according to the latest Cities House Price Index by Zoopla.

The discount to asking prices is even more in inner boroughs, with agreed prices averaging 7.9 per cent below asking prices in central London compared to the 4.7 per cent gap in the suburbs.

Richard Donnell, research and insight director at Zoopla, said: “Market conditions are set to remain weak in southern cities until pricing levels adjust to what buyers are willing, or can afford to pay.

“London is three years into a re-pricing process, and we expect sales volumes to slowly improve over 2020, while house price growth remains subdued.

“There are large parts of the country where housing affordability remains attractive, fuelled by continued economic growth that supports demand for homes, resulting in reasonable sales periods and only modest gaps between sales and asking prices.”

The strongest market conditions were in Scotland, where homes in Glasgow and Edinburgh sell within five to six weeks as a different system is used for sales transactions and more information is provided to buyers up front.

Glasgow and Edinburgh were also the only UK cities not to register a discount.

Donnell added: “There is a continued polarisation in housing market conditions across the country set by underlying market fundamentals, albeit Brexit uncertainty has been a compounding factor for lower market activity.”

By Jessica Clark

Source: City AM

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Brexit and mortgages: what next for interest rates and repayments?

What’s next for Brexit and mortgages? Will mortgages become more expensive, and should you remortgage now?

What’s going to happen now with Brexit and mortgages, since the EU has agreed to grant Britain a three-month extension? How does this decision affect potential and current home owners, up to January and beyond? Will we see much of a fluctuation in the Bank of England’s base interest rate, and with it, cheaper or more expensive mortgages?

Martijn Van Der Heijden, Chief Strategy Officer at online mortgage brokerage Habito, comments on the implications of the Bank of England’s decision last month not to raise interest rates:

‘Interest rates remain relatively low which will be welcome news for those looking to get a good deal on their mortgage. This “wait and see” approach from the MPC (Monetary Policy Committee) is something we also see reflected in our own data with a surge in buyers choosing fixed deals for five years or more as they try to “Brexit-proof” their mortgage and lock in the same rate until 2024 and beyond.’

Basically, whether you are first-time buyer or remortgaging, now is the time to lock in a good fixed rate mortgage deal – if you don’t mind losing out somewhat in case the interest rates fall even lower than the current level. Why might that happen? It all depends on how the final Brexit deal is negotiated, and how smoothly it is executed. In the still possible event of Britain not securing a deal, the pound is likely to fall, and inflation will rise, which could lead the Bank to slash the interest rates even further. If this happens, and you are on a variable rate mortgage, you could see your repayments fall.

On the other hand, in the event of an orderly Brexit and a strengthening economy, interest rates could rise, which would be good news for your savings and wages, but not so good news for your variable rate mortgage repayments. A fixed rate deal would protect you from any significant interest rate spike, at least for a few years.

Which scenario is more likely? The truth is, nobody knows. We would say, though, that taking out a variable rate mortgage might not be worth the gamble under current uncertain circumstances – you could win a little, or lose big, so a good fixed rate deal will at least allow you to relax a little, for a while.

BY ANNA COTTRELL

Source: Real Homes

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UK’s new Brexit deal worse than continued uncertainty – NIESR

Prime Minister Boris Johnson’s Brexit deal would hurt Britain’s economy more than further delays and continued uncertainty about leaving the European Union, a think tank said on Wednesday.

Late on Tuesday, Johnson won parliament’s support for an election in early December that he hopes will break the Brexit deadlock and lead to the approval of the deal he clinched with Brussels earlier this month.

Johnson has said his deal is the only solution to the uncertainty that has weighed on the economy since the 2016 referendum.

By contrast, the opposition Labour Party wants to negotiate a new deal and put it to a second referendum, which could overturn 2016’s result.

Johnson’s Brexit plan opens the door to much looser economic ties between Britain and the EU.

The National Institute of Economic and Social Research (NIESR) said that the economic cost of a more distant relationship would outweigh the gains from ending Brexit uncertainty.

“We don’t expect there to be a ‘deal dividend’ at all,” NIESR economist Arno Hantzsche said. “A deal would reduce the risk of a disorderly Brexit outcome but eliminate the possibility of a closer economic relationship.”

Unlike his predecessor Theresa May’s deal, Johnson’s does not require England, Scotland and Wales to stay in a customs union with the EU in the future, making tariffs and other barriers likely after a transition period.

NIESR estimated that in 10 years’ time, Britain’s economy would be 3.5% smaller under Johnson’s plan than if it stayed in the EU – roughly equivalent to losing the economic output of Wales.

In a scenario of ongoing uncertainty similar to now – where Britain keeps the economic benefit of unrestricted access to EU markets but without any long-term guarantees – the economy would be 2% smaller, it forecast.

May’s deal would have limited the damage to 3.0%, while a no-deal Brexit would make the economy 5.6% smaller than if it stayed in the bloc, NIESR said.

Earlier this month another academic think tank, UK in a Changing Europe, estimated Johnson’s deal would make Britain more than 6% poorer per head.

In the nearer term, NIESR said the Bank of England should cut interest rates to 0.5% from 0.75% at a meeting next week, but said it did not expect the BoE to act until March, when Governor Mark Carney’s successor is due to be in place.

The BoE has been an outlier among major central banks in not loosening policy as the global economy slows.

NIESR said inflation was likely to undershoot the BoE’s target, especially if sterling rallied on the basis of a reduced risk of no-deal Brexit.

The think-tank forecast Britain’s economy would grow 1.4% this year and next, assuming no major short-term change to Britain’s relationship with the EU, down from 1.6% in 2018 and well below its long-run average.

By David Milliken

Source: Yahoo Finance UK

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UK house prices: Growth ‘subdued’ in wake of Brexit slowdown

House price growth remained below one per cent for the 11th consecutive month in October, as hopeful homeowners sat tight amid Brexit uncertainty.

House prices in the 12 months to October rose 0.4 per cent to £215,368, according to the new figures from Nationwide.

On a monthly basis, house prices climbed 0.2 per cent.

Robert Gardner, Nationwide’s chief economist, said: “Indicators of UK economic activity have been fairly volatile in recent quarters, but the underlying pace of growth appears to have slowed as a result of weaker global growth and an intensifying of Brexit uncertainty.

Gardner added: “To date, the slowdown has centred on business investment, while household spending has been more resilient.”

According to Nationwide, solid labour market conditions and low borrowing costs
seem to be offsetting the drag from the uncertain economic outlook.

“The question is whether this pattern will continue,” said Gardner.

No immediate recovery in sight

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that there was “no immediate recovery in sight”.

A slowdown in hiring by companies, which has been primarily driven by uncertainty over Britain’s imminent departure from the EU, will “also likely ensure that demand remains week”, Tombs forecasted.

The latest modest rises underline concerns over a slowdown in activity in the UK’s housing market, particularly in London and the South, despite a recent improvement in earnings and employment.

“It’s hard to see the market emerging from this sub-one per cent annual growth rut until there is clarity on Brexit,” said David Westgate, chief executive of Andrews Property group.

“The sheer level of political uncertainty has left the property market in a protracted limbo.”

Data released by Rightmove earlier this month found that the price of property coming to market has endured its weakest month-on-month rise at this time of year in over a decade.

Prospective home buyers have been undeterred by the approaching Brexit deadline, while sellers have been put off by ongoing uncertainty over UK house prices, according to to the real estate platform.

North London estate agent and former Rics residential chairman Jeremy Leaf said that the data confirms “that we are not seeing or expecting to see any fireworks in the market over the next few months or at least until the smoke from the political situation begins to clear.”

Guy Harrington, chief executive of property lender Glenhawk, said that the recent news of a potential general election has added to market jitters, creating “a near perform storm of unsupportive conditions for growth”.

By Sebastian McCarthy

Source: City AM

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Revealed! The best buy-to-let locations for 2020

Thinking of buy-to-let investing but unsure where to look? Handily, SevenCapital has revealed what it says are the 10 most attractive places for investors in 2020. It comes as no surprise that the North of England dominates the list.

Top 10 Best Buy-To-Let Locations (alphabetical order)

TownAverage Property PricePrice Growth Since 2014Average Rental Yield
Birmingham£190,09119.40%4.92%
Cardiff£193,30014%4.89%
Leeds£169,24717.04%5.07%
Leicester£166,08323.92%5.16%
Liverpool£134,96312.45%5.82%
London£717,73113.61%4.85%
Manchester£229,12922.09%4.77%
Nottingham£160,52219%5.44%
Oxford£348,34511%4.25%
Sheffield£142,21019.50%5.87%

The property investment firm says “if you’re looking to achieve high rental yields in the UK, typically the further north you go, the higher the yield,” led by Liverpool and Sheffield, where average yields sit above 5.8%. SevenCapital even notes that yields in some parts of these cities can rise to between 7% and 8%.

Slick cities
So what makes them brilliant investment destinations? According to SevenCapital…

  • Regeneration is the story for Liverpool, with £14bn worth of projects in progress, or in the pipeline, creating a place packed with “exciting developments, exceptional career opportunities and rising tenant demand.”
  • Nottingham’s central location in the UK, terrific infrastructure and good social and shopping scene makes it a hit with professionals and students.
  • Cardiff is expected to be the fastest-growing British city over the next 20 years, helped by massive regeneration that has brought industries, such as the financial, creative, life science and manufacturing sectors, to life.
  • Brexit might be hampering the London market right now, but it’s expected to expand again once a deal is reached. Apparently “as one of the major financial destinations in the world, it’s nigh-on impossible for London to experience prolonged declines.”
  • Oxford is one of the strongest economies in the country, underpinned by its “exceptional employment opportunities and a world-famous education sector.”
  • One of the fastest-growing population in the UK — expanding at seven times the pace of London — makes Leeds an attractive place for buy-to-let investment.
  • Property prices in Sheffield are among the lowest in major British cities, allowing investors to ‘lock in’ stronger yields should forecasted growth transpire.
  • “Chronic supply and demand issues” makes Leicester a top place for buy-to-let investors with plenty of regeneration projects coming to life.
  • Manchester is “one of the most exciting places to live and work in the UK” and is experiencing the same ripple effect as London has over the past decade, with growth spreading out from the city centre to areas such as Salford, Stockport and Bolton.
  • An exploding population means Birmingham should need 100,000+ homes over the next 10 years, and for 2020, rampant development ahead of the 2022 Commonwealth Games is expected.

Careful now

There’s plenty for both prospective and existing landlords to chew over for the year ahead then. But before taking the plunge, investors need to remember that a combination of soaring costs and rising tax liabilities have smashed returns for buy-to-let participants in recent years.

I still believe that those wanting to grab a slice of the property sector would be much better served, therefore, by buying stock in one of the country’s listed housebuilders. Why? A combination of booming dividend yields and some ultra-low earnings multiples at current share prices. It’s why I own shares in Taylor Wimpey and Barratt Developments.

There’s an abundance of other ways to play bricks-and-mortar investment, however. Owners of big logistics centres like Clipper Logistics and Warehouse REIT, firms that are great plays on e-commerce. Alternatively, firms like Empiric Student Property are great ways to play the booming student accommodation market. What’s great about these stocks is that they also offer up dividend yields north of 5%.

By Royston Wild

Source: Yahoo Finance UK

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House prices in the UK are still gently falling in real terms

Nationwide has just released its latest house price figures. In October, house prices were 0.4% higher than they were a year ago.

Your average UK home will now set you back £215,368 exactly.

Prices are rising more slowly than wages or wider inflation. That means they’re falling in “real” terms.

That’s great news…

Slowly falling house prices are a good thing

This morning’s figures from Nationwide show that UK house prices are still pretty much flat, and falling after inflation.

The economy is OK. Interest rates are low. Employment is high. Those things are likely to prevent an all-out crash.

On the other hand, rates probably can’t go much lower, while the impact of the effective removal of landlords from the housing market is still rippling through the market.

And while the resolution of Brexit might boost sentiment or activity at one level, it is also likely to lead to slightly higher interest rates, which I suspect would help to prevent a massive rebound in prices.

This is all good. As the Nationwide chart below shows, this means that affordability is gently improving.

I hope this continues. You’ve heard me say that dozens of times by now, but I like to keep reiterating it, for a couple of reasons.

One reason is that, here in the UK, we are rather attached to the idea of ever-rising house prices. I think it would be helpful for us to shed this attachment and instead recognise that hoping for a house to provide both shelter and a retirement income is a recipe for a high-stress existence.

This is unfortunately, as yet, a minority view. My colleague Merryn keeps a track via Twitter of the “how celebrities invest their money”-type interviews in the Sunday papers.

She’s always very excited to spot the occasional sensible celeb who not only has a pension, but also understands that said pension holds equities. However, mostly celebs say something along the lines of “I own property. The stockmarket’s just a casino. You can’t go wrong with bricks’n’mortar.”

There’s this weird notion that investing in stocks is faintly immoral gambling, whereas taking a punt with borrowed money on the housing market (competing with people who just want a roof over their heads in the process) is honest in some way.

Anyway, once people stop making fast money from property, that will hopefully start to change.

House prices are not about physical supply and demand

The second reason stems from the other end of the spectrum. I’ve noticed that the tenor of columnists getting annoyed about the “housing crisis” is becoming increasingly hysterical, probably because we’re coming up for an election (at some point) and housing is a political hot button.

The answer for these writers is always to “build more houses”, because it’s all about supply and demand. The problem is that it’s not that simple.

It’s interesting that we’ve become obsessed with the idea of building more homes at a time when – in many parts of the UK outside London – double-digit house price growth hasn’t been seen for over a decade.

You can certainly argue that the planning system is flawed (it is) and you can certainly argue that there are not enough houses in certain areas and too many in others, and that the quality overall is poor.

And you can certainly argue that there’s really no need for British homes to be the smallest in Europe. Yes we have a relatively big population but we’re not jammed in that tightly.

But a blanket policy of just “building more” won’t help. House prices are high because the cost of borrowing is low.

Put very simply, here’s how it works. At interest rates of 10%, a £900 monthly payment will pay for a 25-year repayment mortgage of £100,000. At interest rates of 2%, £900 a month will buy you a 25-year repayment mortgage of just over £210,000.

That’s why house prices go up when interest rates go down (assuming credit conditions slacken at roughly the same pace). Because the amount you can borrow to pay for the same house goes up.

It’s that straightforward. Physical supply and demand does have an effect – of course it does – but it’s marginal relative to the effect of the supply of credit.

So here’s the good news. Interest rates can barely go much lower, and rules around mortgage lending are tighter than they once were (there are still signs of lenders getting more excitable again but we’re not back in Northern Rock territory yet).

Meanwhile, wages are rising. So overall, rising wages should improve affordability while stable interest rates keep a lid on house price growth.

So we make some headway into the frustration caused by unaffordable homes, while buying ourselves time to take a more considered view and put in place deeper reforms that might put an end to the perpetual cycle of boom and bust.

OK, if I’m honest, I’m not optimistic about that last point – it would require too much long-term thinking. But having a bit of a breather at least from house price woes would be healthy for us all.

By: John Stepek

Source: Money Week

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Pound climbs on General Election news but traders foresee rocky ride

The pound jumped today after it became clear the Labour party would back a December General Election, but it has since settled back down as traders steeled themselves for a volatile six weeks.

Sterling has had an extremely rocky few months. It hit a 45-year low against the dollar in August as Prime Minister Boris Johnson’s government looked intent on taking Britain out of the European Union without a deal.

It has since risen significantly, however, thanks to a no-deal exit being taken off the table – for now – and Johnson striking a new deal with the EU. By 9pm today it stood at $2.863.

An election campaign brings a new set of uncertainties for sterling traders. “Sterling will be buffeted by the latest polls,” said Chris Towner, director at financial risk adviser JCRA.

“In case Labour is doing well, it is expected to put pressure on sterling and if the Conservatives are doing well in the polls, we expect support for the currency.” This is because a Conservative majority would likely cause Britain to leave the EU with a deal.

Edward Park, deputy chief investment officer at investment firm Brooks Macdonald, agreed. “Should parliament return in December with a mandate for Johnson’s deal, sterling will value the reduced no deal threat and continue the rally seen in recent weeks,” he said.

Other factors will also affect sterling in the meantime. If the European Central Bank (ECB) cut interest rates more deeply than expected, the pound is likely to rise against the euro.

Should economic data in the UK improve, the Bank of England could signal that rates are likely to rise once there is more Brexit uncertainty. This would also push sterling higher.

Nomura foreign exchange strategist Jordan Rochester said: “Polling is likely to be volatile during that six-week election campaign and investor inflows into GBP are likely to suffer from the uncertainty.”

Sterling traders should take “lessons from history,” he said. “When the 2017 election was announced in April it led to a 1.3 per cent rally in GBP on the day. But he said this was the “peak of the optimism” and sterling then fell around six per cent against the euro.

“One thing is for sure,” Towner said, “a hard Brexit is now an unlikely outcome and certainty surrounding Brexit will give sterling a very welcome boost.”

By Harry Robertson

Source: City AM

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Government ‘should overhaul’ stamp duty to boost housing market

The government should slash stamp duty to help boost housebuilding and encourage people to buy their own homes, a new report has stated.

Stamp duty is the second most unpopular UK levy behind inheritance tax, and a gradual rise in rates has meant the average buyer in England pays £2,300 when they buy a property.

Think tank the Centre for Policy Studies (CPS) branded stamp duty a “tax on mobility and aspiration” and urged the government to raise the threshold from £125,000 to £500,000.

The report, drawn up by former No 10 housing adviser Alex Morton, proposed that a four per cent levy be charged on properties between £500,000 and £1m, and five per cent on anything higher.

Prime Minister Boris Johnson has supported the idea of stamp duty reform. However, uncertainty over the cost of the move, coupled with chancellor Sajid Javid’s decision to cancel his planned Budget on 6 November, has cast doubts on the tax cuts.

Stamp duty currently raises £5.1bn for the government. However, the CPS argued a reform to the tax would cost only £1.6bn due to the positive impact of increased transactions.

The report estimated that a one per cent cut in stamp duty rates would increase housing transactions by roughly 20 per cent, which in turn would lead to more homes being built.

Moreover, it stated that the cost of reforming the tax could be further offset by a new three per cent levy charged to foreign buyers snapping up property in the UK. The CPS also argued that stamp duty should be kept on commercial and buy-to-let properties.

“While the Treasury are right to be fiscally focused, they need to take into account the fact that stamp duty on homes has an impact on transactions, which means cutting this tax is cheaper than expected,” said Alex Morton, CPS head of policy.

“We propose mean a far more appropriate rate for the most valuable homes – and taking nine out of 10 people who just want to buy a decent home for themselves and their family out of the tax altogether.”

By James Warrington

Source: City AM

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Build-to-rent sector up 20% in Q3

The build-to-rent sector grew by 20% year-on-year to 148,000 homes in Q3, research from the British Property Federation (BPF) has revealed.

This includes all build-to-rent homes completed, under construction or in planning across the UK.

The number of units in planning has increased by 23% alone to 77,446.

The average size of build-to-rent developments is also growing.

In Q3 2019, the average size of each completed build-to-rent scheme was 133 units, this increases to 245 units for the schemes under construction, while the average size of schemes in the planning system is higher still at 325 units.

Geographically, growth of the sector is spread evenly between London and the regions, with both areas seeing total growth of 20%.

The number of build-to-rent units inside the capital and in the regions is also similar at 63,200 and 60,337 respectively.

However, in terms of units completed the regions saw the biggest increase, with a significant rise of 41% over the year to Q3 2019.

Ian Fletcher, director of real estate policy at the British Property Federation, said: “The build-to-rent sector continues to attract investment and deliver much needed homes.

“Not only do we have an impressive 31% growth in completions between Q3 2018 and Q3 2019, but the pipeline of new projects is also strengthening.

“Right across the country we are seeing growth in the sector, allowing people to access high quality, institutionally-managed rental properties.

“With both Labour and the Conservatives prioritising house building during their recent party conferences, our data shows build-to-rent is making an important contribution to housing delivery and often on difficult to develop and large urban sites.”

Jacqui Daly, director of Savills Residential Research who conducted the research for the BPF, added: “As individual households increasingly cannot afford to access the housing market, particularly once help to buy is withdrawn, so demand for the quality rented homes the sector provides will rise.

“Built-to-rent already makes a significant contribution to housing delivery, and we project this will increase to one in five new homes as more and more people rely on renting.

“This will change the housebuilder model, with bulk sales to investors growing their share of housing delivery.

“In our opinion, in 10 years, the customer lists of housebuilders will see pension funds and life insurers alongside first-time buyers and second steppers.

“Rather than shouldering the full burden of risk, housebuilders will act as master contractors, forging long-term partnerships with landowners and investors.”

By Ryan Fowler

Source: Mortgage Introducer