Residential Property Review – May 2024

Housing market latest  

The property market continues to find its feet after a difficult 2023, with buyers remaining cautious due to the higher cost of borrowing.    

Mortgage rates may not be as high as they were last summer, but they are still elevated. While most experts agree that Bank Rate will be cut this year, there is uncertainty surrounding when this will happen. The Bank of England reported an increase in agreed sales resulting in mortgage approvals reaching their highest level in 18 months in March.  

Price sensitivity remains among buyers, causing a slight dip in house prices in April, according to Nationwide. However, property experts Savills still envisage growth of 2.5% in 2024, and buyer confidence is expected to pick up once interest rates fall. This should close the widening gap between supply and demand, as sellers are currently returning to the market at a faster rate than buyers.  

Annual rental growth across the UK was 6.9% according to Zoopla, with Scotland and the North East regions showing growth rates of 9.6% and 9.3% respectively.  

Dip in prime London residential market 

The prime market has been feeling the effects of higher mortgage rates, with the capital experiencing a significant slump.  

According to data from Knight Frank, annual price growth in prime central London fell to -2.6% in April – the lowest figure in three years. Prime outer London did not fare as badly, with a smaller annual decrease of -1.2%. Knight Frank speculated that the weak growth may have been exacerbated by recently announced rule changes for individuals with non-domicile tax status.   

On a positive note, supply in London has risen, with instructions rising by 10% between January and April of this year.  

   

Affordability challenges in southern England  

The divide in market activity between the south of England and the rest of the UK is becoming more evident.  

The disparity can be traced back to the 2008 global crisis; the London property market bounced back afterwards and took southern England with it. By 2014, house prices in the capital were increasing at an annual rate of 20% according to Zoopla – an exponential growth rate unmatched by the rest of the country.  

As a result, there is now significant disparity in housing affordability across the UK – data from USwitch shows that, in 2023, the average first-time buyer in Greater London had a deposit of £108,848. This is over three times more than those buying in the North East, who put down an average deposit of £29,740.  

Zoopla’s Executive Director of Research, Richard Donnell commented, “With mortgage rates unlikely to get much lower in the short term, income growth is going to have to do the hard work in resetting affordability across southern England.” 

All details are correct at the time of writing (22 May 2024) 

Commercial Property Review – May 2024

Central London office market – a Q1 update 

Data from Jones Lang LaSalle (JLL) shows that the central London office market had a slightly weaker start to the year. 

January to March saw the lowest quarterly leasing activity since Q1 2021, with 1.5m sq. ft transacted. This is nearly a third (31%) lower than the Q1 10-year average of 2.2m sq. ft. 

The banking and finance sector led most of the leasing activity, accounting for over a quarter (28%) of the occupier take-up. Transactions from Investec and Wise Payments contributed to the sector’s domination, as they secured leases at 30 Gresham Street and Worship Square.   

Although occupier demand in Central London was 33% higher than the long-term average in Q1, supply decreased for the second consecutive quarter.  

Investment volumes in the capital were also much lower than usual at a total of £1.2bn – 46% less than Q1 2023. Rental rates are stable, with prime rents in the City remaining at £79.50 per sq ft. 

UK commercial market exceeds expectations 

The UK commercial market exceeded expectations in Q1, largely driven by a strong March.  

Investment volumes saw a monthly increase of 56% in March, hitting £4.7bn according to Savills – the highest point since March last year. This brings total volumes for Q1 to £10.7bn, exceeding previous expectations, and is the second quarter in a row with rising volumes. Savills expect the second half of 2024 will see a further rise in activity, prompted by expected inward movements.  

Savills has identified London as Europe’s most resilient city in their latest Resilient Cities Index. England’s capital is ranked third in the world, placed behind New York and Tokyo, performing particularly well on its tech ecosystem and knowledge economy – two of the four core metrics that Savills used to examine 490 cities.   

  

Amazon’s new robot-powered fulfilment centre 

Amazon is set to build a £500m next-generation warehouse in Northampton. 

The new building is expected to be around 2m sq. ft, with three floors of robotics that will pick customer orders. Located on the SEGRO Logistics Park at junction 15 of the M1, Amazon said the new development will create 1,400 new jobs when it is ready for use in 2026. This figure will increase to over 2,000 over the first three years of opening.  

Amazon’s regional director, Neil Travis, commented, “The East Midlands is an important region for Amazon, with more than 6,000 small and medium-sized enterprise selling partners”. Since 2010, the conglomerate has invested over £4bn in the East Midlands and more than £56bn in the UK. Louise Wall, CEO of Northamptonshire Chamber of Commerce, welcomed the plans, saying, “This is a significant endorsement of the strategic location of the SEGRO Logistics Park Northampton and the importance of our region’s role in the UK logistics industry.” 

 

All details are correct at the time of writing (22 May 2024) 

News in Review

“The sheer scale of this near three-year inflation shock has reshaped the economy” 

New research from the Resolution Foundation has shone a light on the impact of inflation on the UK economy. The prolonged spike in inflation has ‘left British households spending less and saving more’ as elevated prices have affected spending behaviour, living standards and public finances. 

Interestingly, contrary to expectations that households would look to borrow or dip into their savings to deal with rising prices, the research highlights that people have focused on saving rather than spending, cutting their consumption by more than their incomes have reduced. 

The economic think tank attributes this ‘surprise savings boost’ is due to households reducing the amount they spend on energy, food and luxury items, in particular.  

When compared to the final quarter of 2019, real household disposable incomes have fallen by 1.1%, or £280 per year, with real spending falling much further, reducing by 4.7% or £1,200 annually. The Resolution Foundation says the difference between the two has been ploughed into savings, adding that during Q4 last year, families saved 6% of their disposable incomes, representing the highest rate (excluding the pandemic) in over 30 years.  

The report did note that as prices have gradually eased over the last year from their peak (in October 2022), ‘almost all of the financial windfall from falling energy prices’ has been allocated to funds for going on holiday or going out, ‘while spending on goods has not recovered.’ People are therefore choosing to prioritise spending on experiences and travel over buying goods or items.  

James Smith, Research Director at the Resolution Foundation, commented on the findings, “The sheer scale of this near three-year inflation shock has reshaped the economy and public finances, and changed what people do with their money… The crisis has made us poorer, with the sharp rise in the cost of essentials hitting lower-income families hardest. It has also turned us from a nation of spenders to a nation of savers, with credit card spending falling by 13% and families saving around £54bn a year more than we might have expected. While this high inflation phase maybe largely behind us, its legacy will be felt well into the future.” 

The next set of inflation data from the Office for National Statistics (ONS) is due to be released on 22 May. It will be interesting to see how close it is to the Bank of England’s 2% target. 

Pace of price increases slows in the US 

Last week the US Bureau of Labor Statistics reported that inflation, as measured by the change in the Consumer Price Index (CPI), was 3.4% on a yearly basis in April, down from 3.5% in March. In line with market expectations, the mild fall in CPI is unlikely to resolve debate about the Federal Reserve’s next steps regarding interest rates. The majority of the increase can be attributed to petrol costs and higher rents.  

Eurozone registers growth in Q1 

During Q1 2024, the eurozone experienced economic growth of just 0.3%, according to new data from Eurostat. Following two quarters of contraction, placing the euro area in a technical recession, this latest data shows the recession has been exited. Despite gross domestic product expanding in Q1, it was half the pace of the UK’s 0.6% expansion in the same period. From a regional perspective, Germany and France both grew by 0.2% in Q1, with Italy experiencing growth of 0.3% and Spain 0.7%. 

More data from Eurostat last week showed annual inflation in the eurozone reached 2.4% in April, matching the level recorded in March, in line with expectations.  

The European Commission believes that the European Central Bank’s (ECB’s) 2% target will be met in the latter half of next year. Paolo Gentiloni, the EU’s Economy Commissioner concurs, “We believe we have turned a corner… We expect an uptick in growth this year and further acceleration in 2025. Meanwhile inflation is set to fall further and reach the ECB target next year.” 

Here to help 

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

All details are correct at time of writing (22 May 2024) 

Buy-to-let landlords expanding portfolios?

New research1 indicates that more than half (52%) of buy-to-let (BTL) landlords have been actively expanding their property portfolios over the past year, with 25% acquiring one property and an additional 27% acquiring multiple properties. 

Looking at the next twelve months, 26% intend to acquire a single property, while another 26% plan to expand their portfolios further by acquiring multiple properties. This optimistic outlook may be fuelled by confidence in the residential property market, with 74% expressing positivity for the next 12 months. 

The research also delved into the motivations driving portfolio expansion. The leading factor was increased tenant demand, cited by 31% of respondents, followed by having available capital (25%). Diversification across property types and regions was also a priority for many landlords, with 21% aiming to achieve this. Additionally, 20% sought properties with better Energy Performance Certificate (EPC) ratings. 

While growth is prevalent, a notable portion of landlords have been selling properties. In the past year, 31% have sold one or more properties, with 33% planning to do so in the coming year. Concerns regarding remortgaging due to rising interest rates topped the list of reasons for selling (35%), followed by worries about declining house prices (28%). Additionally, 23% sold properties to reinvest in better opportunities. 

1The Mortgage Lender, 2024 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

Record levels of IHT receipts 

Figures released by HM Revenue & Customs (HMRC) show that IHT receipts have hit record levels while new data shows the taxman is hunting down thousands of families that have not paid the correct liability on inherited estates. 

Record sums 

In the first ten months of the 2023/24 financial year, HMRC collected £6.3bn in death duty receipts, £0.4bn more than during the same period of the previous fiscal year. This represents a 7% rise and suggests this year’s annual figure will comfortably surpass last year’s record-breaking total of £7.1bn. 

Frozen thresholds 

The increase continues an upward trajectory that has been evident in recent years, largely as a result of the nil-rate threshold being frozen at £325,000 for over a decade. This, combined with growth in property prices, has effectively dragged more households into the IHT net. 

Investigations rising 

Recent years have also seen record amounts of underpaid tax clawed back by HMRC through a specialist team targeting the estates of wealthy deceased individuals. Data obtained via a Freedom of 

Information request shows a total of 2,029 IHT investigations were opened between April and November 2023, with £172m recovered over that period as a result of targeted investigations. 

IHT concerns 

New research1 also suggests IHT is the number one financial concern among wealthy individuals. In total, the survey found that more than a third of wealthy Brits are worried about IHT, with notable increases in levels of concern reported across both the 25 to 34 and 55 to 65-year-old categories over the past year.  

Complex rules 

The rules surrounding IHT are notoriously complex and people therefore often require professional advice in order to find the most efficient solution for their personal circumstances. If you have any concerns or need advice in this area do get in touch; we’re always here to help. 

1RBC, 2024 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning. 

News in Review

‘A change in Bank Rate in June is neither ruled out nor a fait accompli” 

Last week, during their third meeting of the year, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted to retain Bank Rate at 5.25% by a majority of seven to two. Two members of the committee preferred to reduce the rate by 0.25 percentage points, to 5%.  

The decision to retain Bank Rate was widely expected. Marking its sixth pause in a row, Bank Rate has been held at its current level since August 2023. 

In its latest forecast, the Bank was positive on the prospects for the UK economy, predicting inflation will fall to its target level of 2% in the coming months and then to 1.9% in 2026, with economic growth expectations of 0.4% for Q1 2024 and 0.2% for Q2. 

The MPC minutes reiterate that monetary policy will need to remain restrictive for ‘sufficiently long’ to return inflation to target sustainably in the medium term in line with their remit. 

Looking ahead, with the next MPC meeting concluding on 20 June, BoE Governor Andrew Bailey commented, “Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgement afresh. But, let me be clear, a change in Bank Rate in June is neither ruled out nor a fait accompli.” 

Economists are now divided on how far rates will fall in the second half of this year, and when the first rate cut may take place. 

Head of Economics at the Institute of Chartered Accountants in England and Wales (ICAEW), Suren Thiru, commented that the vote to keep Bank Rate unchanged was a missed opportunity to provide relief for “people struggling with their mortgage bills and businesses facing numerous cost pressures… Given the Bank is now forecasting inflation to fall more quickly, an interest rate cut by the end of the summer remains very much on the table.” 

Stronger growth than expected 

Official data released on Friday confirmed the UK rebounded out of recession with faster-than-expected growth in Q1. According to the Office for National Statistics (ONS), UK gross domestic product (GDP) is estimated to have risen by 0.6% in Q1, following two consecutive quarters of decline, and is the strongest growth rate for two years, since the fourth quarter of 2021, when it rose by 1.5%, as the country emerged from the pandemic. 

The data shows that growth in Q1 was driven by service industries, such as arts, hospitality and entertainment, as well as strength in other sectors including retail, public transport, haulage, health, and car manufacturing. An earlier Easter is likely to have supported growth in the quarter. 

Looking at the monthly data, Friday’s figures showed that GDP in March was 0.7% higher than a year earlier, far exceeding expectations of a 0.3% rise. Services output grew by 0.5% in March 2024, and was the largest contributor to the growth in GDP on both the month and the quarter. 

Construction output weighed on growth over both the quarter and the month, falling by 0.4% in March, and by 0.9% in the first quarter of the year. A decrease in new work contributed toward the decline. 

Unemployment rate rises 

The latest labour statistics from ONS show that the UK’s unemployment rate has risen to its highest level for almost a year, increasing to 4.3% between January and March, the highest since May to July last year. 

Jobs on offer in the UK dropped by 26,000 to 898,000 vacancies between February and April, meaning that more people are competing for the same jobs. Liz McKeown, ONS Director of Economic statistics said, “We continue to see tentative signs that the jobs market is cooling.” 

ONS data also shows that wage growth remained at 6%, whereas it had been expected to slow to 5.9% in the first three months of this year. This figure will be closely watched by the BoE when deciding if and when Bank Rate can be cut. 

Here to help 

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

All details are correct at time of writing (15 May 2024) 

In the news

Equity release trends 

According to the Equity Release Council1, total annual lending reached £2.6bn in 2023, compared to a record-breaking £6.2bn in 2022, returning the market to the level of activity last seen between 2016 to 2017 (£2.1bn to £3.1bn). The total number of plans agreed last year was 26,119, a drop of 47% from 49,285 in 2022. The majority preference (53%) opted for drawdown lifetime mortgages, reversing the trend in 2022 when lump sum lifetime mortgages made up 52% of new product sales. 

Average property gain of over £100k 

An overwhelming majority of households (93%) sold their homes for more than their initial purchase price, according to recent research2. People who bought properties within the last two decades saw an average increase of £102,650 when selling up in 2023, marking the second-highest recorded figure. 

In total, sellers in 2023 collectively gained £103bn in value compared to their purchase prices. However, the average gross profit dropped by £10,300 or 9% compared to 2022, partly due to marginal house price decreases. 

According to estate agents Hamptons, the decrease in average gains is partly due to small house-price falls last year, alongside households opting to move sooner. Aneisha Beveridge, Head of Research at Hamptons, said, “Households rarely move when they’re faced with the prospect of selling their home for less than they paid. Generally, the chances of selling at a loss peak within the first few years of ownership. But for some Londoners, that stretches back to when parts of the market peaked in 2016.” 

1ERC, 2024 

2Hamptons, 2024 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Think carefully before securing other debts against your home. Equity released from your home will be secured against it. 

Get planning children’s financial futures

We all want a good start in life for the children in our family. After providing for the immediate needs of younger children, thoughts turn towards the future and consideration of longer-term goals. You may want to consider investing for your child’s future to potentially build something significant which they can call on in later life. 

It sounds simple, but such thoughts also bring with them a number of questions: 

  • What are you saving for? 
  • How much flexibility do you need? 
  • Which investments are appropriate? 
  • How much control do you want over when they can access the money? 
  • How can any tax be minimised? 

The first step is to decide the investment goal or goals and the timeframe. Do you want to help a child or grandchild onto the property ladder, support them through higher education, help with a major expense, such as a wedding, or even start a pension pot for them? Perhaps a Junior ISA (JISA) may be a suitable option. 

To make plans to secure the financial security of the children in your family, please get in touch, we can explore the specific options for your circumstances. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

News in Review

“Businesses are feeling increasingly confident about the economy” 

The recently released Lloyds Bank’s Business Barometer has revealed that during April overall business confidence was consistent at 42%. The confidence recording remains considerably higher than the Barometer’s long-term average of 28%. In the last year, only the reading in January 2024 has seen businesses reporting higher levels of confidence (44%).  

In April, the economic optimism reading reached its highest level in over two years (39%), and the majority of businesses continued to be positive about their own trading prospects, with over half (55%) of firms surveyed expecting robust output over the forthcoming year. 

Senior Economist at Lloyds Bank Commercial Banking, Hann-Ju Ho, commented on the findings, “We are beginning to see a consistent trend emerge from our Barometer results in recent months. Businesses are feeling increasingly confident about the economy, coinciding with falling inflation and hopes that interest rates will start to fall this year.” 

Slowdown in annual house price growth  

The newly released Nationwide House Price Index has highlighted a slowing in annual house price growth. UK house prices dropped by 0.4% in April, falling for the second consecutive month and against market expectations of a 0.2% rise. The average house price in the UK was £261,962 in April. 

The annual rate showed a slowing from 1.6% in March to 0.6% in April. Although tempering, the April year-on-year growth was the third consecutive monthly increase, despite being the softest pace in the three-month sequence. This softening in growth can be attributed to a range of factors including ongoing affordability challenges, compounded by a recent rise in longer-term interest rates. 

Robert Gardner, Nationwide’s Chief Economist, commented on the data set, saying the slowing in the annual rate, “reflects ongoing affordability pressures, with longer-term interest rates rising in recent months, reversing the steep fall seen around the turn of the year. House prices are now around 4% below the all-time highs recorded in the summer of 2022, after taking account of seasonal effects.” 

An unfolding recovery 

The latest Economic Outlook from The Organization for Economic Cooperation and Development (OECD), entitled ‘An unfolding recovery,’ has highlighted global growth expectations of 3.1% this year, and 3.2% in 2025. This follows growth of 3.1% last year. Although, as the report deduces, this growth rate remains ‘modest,’ it also suggests that the global outlook has started to ‘brighten’ as global activity proves ‘relatively resilient.’ 

With inflation falling faster than initially projected in many regions due to a combination of restrictive monetary policy, lower energy prices, an easing in supply chain pressures and a sharp reduction in food prices, pressure has still come from service price inflation, which has been more stubborn to recede, and has remained ‘well above pre-pandemic averages in most countries.’ 

There is an uptick in private sector confidence and with unemployment at or very close to record lows in many regions, household incomes have started to look more positive as inflation moderates and trade growth progresses.  

From a country perspective, divergence remains a theme, as advanced economies experience softer outcomes, particularly in the Euro Area; this is ‘offset by strong growth’ in several emerging market economies and in North America. 

But the UK trails… 

OECD data for the UK shows expectations of ‘sluggish’ 0.4% economic growth this year, downgraded from their previous prediction of 0.7%, this is followed by growth of 1% in 2025. Next year’s predicted growth comes in below all other G7 nations, comprising Japan, Germany, France, Canada, Italy and the US. This lacklustre growth level has been attributed to the after-effects of a number of Bank Rate rises, cautioning that people may be put off from investing due to uncertainty surrounding the next interest rate move. 

MPC decision 

Concluding on Thursday, we await the outcome of the next Monetary Policy Committee (MPC) meeting. With data showing the economy is emerging from a recession and the Federal Reserve pushing back on when it might cut rates this year, Reuters recently reported that, ‘financial markets are now only fully pricing in a first Bank of England (BoE) rate cut in September and the chances of a second move by the end of the year are seen as little more than 50-50. That is a far cry from the six reductions in 2024 that investors were pricing in at the start of this year.’ 

Here to help 

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

All details are correct at time of writing (8 May 2024) 

In the news

Find lost money! 

Up to £800m of pension and insurance assets and an even higher amount of savings could be lying dormant, according to new data1. Bank and savings accounts may be declared dormant if you don’t touch the account for several years and any letters from the bank or building society may fail to reach you if you’ve changed address. 

You can check for free if you have any forgotten savings or current accounts at the government-backed website www.mylostaccount.org.uk, making sure to check that the service is suitable for you. 

Future generations prioritised 

According to research2, parents and guardians have been prioritising their children’s savings rather than investing for themselves. Between October and December 2023, the number of JISAs opened soared by 101% compared to 2019 when data was first tracked. There was a corresponding drop in ISA investments in the same period. Mothers led the way – since the start of 2019, the number of new JISAs opened was up by 115%, compared to fathers, which was up by 87%. It’s important to find the balance between your own financial stability and that of your children. 

1Commission on Dormant Assets, 2024 

2Scottish Friendly, 2024