___________________ Jonathan Allright Head of AMC Email: - PowerPoint PPT Presentation

Interest Rate Risk and Land Prices ___________________ Jonathan Allright Head of AMC Email: j.allright@amcplc.com Tel: 01264 386321 13 November 2013 AMC 1

Agenda • Interest Rates - Risk • Volatility • Base Rate (Official Bank Rate) • Fixed Rate • Land Prices - risk • Interest Rate • Poorer returns • Less investment money AMC 2

VOLATILITY AMC 3

IMPROVING SENTIMENT IN EURO AREA BOND MARKETS % spread over German Bunds 40 Greece 35 France Portugal 30 Spain 25 Ireland Italy 20 15 10 5 0 -5 2005 2006 2007 2008 2009 2010 2011 2012 2013 AMC 4 Source: Haver Analytics

UK Banks CDS 550 Bps 500 450 400 350 300 250 200 150 100 50 0 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 AMC 5 I.P Owner: Liquidity & FX Solutions

Easing in bank funding costs AMC 6

The downturn in perspective 2008 2009 2010 2011 2012 2013 2014 2015 AMC 7 Source: LBCB

BASE RATE AMC 8

Bank of England Official Bank Rate 1970 - 2013 AMC 9 Source: Bank of England Source: Bank of England

Bank of England Bank Rate Changes From 2013 Avg Rate No of changes 25 yr average 6.98% 87 20 yr average 5.06% 58 15 yr average 4.64% 42 10 yr average 3.83% 23 From 2007 Avg Rate No of changes 25 yr average 9.30% 157 20 yr average 7.66% 86 15 yr average 5.73% 53 10 yr average 5.40% 38 AMC 10 Source: Bank of England

We get used to the current ‘status quo’ too easily…. Will interest rates rise – how quickly and by how much? Today 5 years ago 24 years ago Interest cost in Interest cost in Interest cost in 2013 2008 1989 £100,000 at £100,000 at £100,000 at 2.5% + 0.5%obr 2.5% +5%obr 2.5% +15%obr £3,000 £7,500 £17,500 AMC 11

FIXED RATE AMC 12

Government 10 year nominal par yields since 1957 % AMC 13 Source: Lloyds Bank CB

Long term rates heading higher Improvement Improvements in s in US US Economic economic data data Fed tapering speculation AMC 14 Source: Lloyds Bank CB

Agenda • Interest Rates - Risk • Volatility • Base Rate (Official Bank Rate) • Fixed Rate AMC 15

LAND PRICES AMC 16

Land Prices Source: MAFF/Defra and Knight Frank Research

Diverse market - how finely balanced? Upside fundamentals Downside risks  Low supply  Interest rates  Safe asset – finite product  Debt + poor profitability  Tax benefits  Shift to resi & com property  Food & Fuel  Tax changes  Population & wealth growth  Subsidy reduction Eurozone collapse? EU exit  Demand Factors: Food, Energy, Housing, Commercial, Investor, Minerals, Leisure AMC 18 Source: Savills Research

Summary • Volatility – structure your debts correctly • Artificially low rates – stress test your business at higher margins • Land values – plan using average years • PLAN and have a good team around you… AMC 19