Significant changes for holiday lets?

Turning homes into short-term holiday lets could soon require planning permission if new government plans come into force. 

Conversion crackdown 

The motivation behind plans is to save residents from being pushed out of their towns, the government says. Specifically, the government aims to target the practice of ‘industrialising’ online rental platforms, whereby entire apartment blocks are bought by investors to let as short-term rentals to tourists. 

Regulation could introduce a new category for holiday lets and make them subject to local planning controls, which, the government hopes, will deter such activities. 

“Affordable prices” 

Housing Secretary Michael Gove commented, “Tourism brings many benefits to our economy but in too many communities we have seen local people pushed out of cherished towns, cities and villages by huge numbers of short-term lets. 

“I’m determined that we ensure that more people have access to local homes at affordable prices, and that we prioritise families desperate to rent or buy a home of their own close to where they work.” 

Consultations will take place on the change, the government says, as well as on another proposal for a registration scheme for short-term holiday lets. 

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

Economic Review – July 2023

UK inflation rate declines

Data released by the Office for National Statistics (ONS) showed the UK inflation rate fell by more than expected in June, leading analysts to predict that interest rates are now likely to rise less sharply than previously feared.

The latest inflation statistics revealed that the Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – stood at 7.9% in June. This was significantly below the previous month’s figure of 8.7% and also lower than the 8.2% consensus forecast from a Reuters poll of economists.

Core CPI inflation, which excludes volatile elements such as energy, food, alcohol and tobacco and is used by the Bank of England (BoE) to gauge underlying price pressures, also dropped by more than expected. Economists had predicted the core measure of price growth would remain at May’s three-decade high of 7.1%, but instead it dropped to 6.9%.

ONS noted that the largest downward pressure on June’s CPI rate came from petrol and diesel prices which declined by 23% compared to year earlier levels. The price of some other goods and services, however, continued to rise sharply with sugar up by 54% and transport insurance costs up by 48%.

Although the CPI inflation rate does now stand at its lowest level in over a year, the figure is still almost four times higher than the BoE’s 2% target. Economists therefore continue to expect the Bank to sanction further monetary tightening in the months ahead.

The peak in the current interest rate cycle, though, is now likely to be lower than forecasts had suggested prior to release of June’s inflation data. According to a recent Reuters poll, economists now typically expect Bank Rate to reach a high point of 5.75% during the final quarter of this year.

IMF upgrades economic growth forecast

The International Monetary Fund (IMF) has raised its 2023 global growth forecast, but warned challenges remain and that the balance of risks continue to be ‘tilted to the downside’.

In its latest assessment of world economic prospects, the IMF said inflation was coming down and acute stress in the banking sector had receded. The international soothsayer predicts an overall global growth rate of 3.0% for 2023, lower than the 2022 figure of 3.5%, but 0.2 percentage points higher than its previous estimate produced in April.

The latest projections also included a significant UK upgrade, with the IMF now forecasting growth of 0.4% across 2023, a 0.7 percentage point increase from April’s figure. While this does mean the IMF is now predicting some growth, the UK is expected to be the second most sluggish of the G7 economies this year, with only Germany forecast a lower rate.

Meanwhile, the latest monthly growth figures released by ONS showed the UK economy shrank by 0.1% in May, partly because of the extra bank holiday for the King’s Coronation reducing the number of working days in the month. The figure, however, was ahead of analysts’ expectations, while ONS noted that anything better than a 0.1% decline in June would result in the economy avoiding a contraction for the second quarter as a whole.

Survey data released towards the end of last month, though, does still point to a relatively weak outlook, with the preliminary reading from the S&P Global/CIPS Composite Purchasing Managers’ Index dropping to a six-month low of 50.7 in July. While the figure does remain just above the 50 threshold that denotes growth in private sector output, S&P Global Market Intelligence’s Chief Business Economist Chris Williamson noted that forward-looking indicators “all point to growth weakening further in the months ahead”.  

Markets (Data compiled by TOMD)

At the end of July, stock indices across Europe finished the day in green following positive inflation readings in the bloc. London stocks ended firmer at close on Monday after news of higher-than-expected mortgage approval rates in the UK.

The FTSE 100 closed the month on 7,699.41, a gain of 2.23%, while the mid cap FTSE 250 closed up 3.95% on 19,143.76 and the FTSE AIM closed July on 764.72, a monthly gain of 1.49%.

In the US, earnings remain a key driver of markets. Wall Street’s main market gauges ended the day slightly higher to cap off a fifth consecutive month of gains. The Dow Jones Index closed the month up 3.35% on 35,559.53, while the NASDAQ closed the month up 4.05% on 14,346.02.

On the continent, the Euro Stoxx 50 closed July on 4,471.31, a gain of 1.64%. In Japan, the Nikkei 225 closed the month down 0.05% on 33,172.22.

On the foreign exchanges, the euro closed the month at €1.16 against sterling. The US dollar closed at $1.28 against sterling and at $1.10 against the euro.

Gold closed the month trading at $1,970.65 a troy ounce. Brent crude closed the month trading at around $85, a three-month high and its steepest monthly gain since January 2022, supported by signs of tightening global supply and rising demand through the rest of this year.

Budget deficit declines in June

Chancellor Jeremy Hunt has again ruled out a rush to cut taxes despite the latest public sector finance statistics showing government borrowing for the first three months of the fiscal year was lower than expected.

ONS data released last month showed government borrowing in June totalled £18.5bn. While this represents the third-highest June ever recorded, it was £400m below the same month last year and lower than analysts’ expectations. It also left the fiscal year-to-date deficit £7.5bn below the most recent forecast from the Office for Budget Responsibility (OBR), with this downside surprise reflecting stronger than predicted tax receipts.

Analysts, however, still typically believe there remains little scope for potential tax cuts before next year’s general election. Reacting to the figures on the day the data was released, the Chancellor appeared to concur, saying, “Now more than ever we need to maintain discipline with the public finances.”

A separate report on fiscal risks published last month by the OBR also warned that the country’s public finances are currently in a ‘vulnerable position’. The report also stressed that, in the coming decades, government finances will come under growing pressure as an ageing society inevitably increases costs and reduces tax receipts.

Hot weather sparks retail sales rise

The latest official set of retail sales statistics revealed stronger than expected growth in sales volumes as the hottest June on record provided a boost to the retail sector.

According to ONS data published last month, total retail sales volumes rose by 0.7% in June. This growth in the quantity of goods bought by consumers was higher than May’s downwardly revised 0.1% monthly increase and also stronger than the 0.2% consensus forecast predicted in a Reuters poll of economists.

ONS said supermarkets were a key driver of June’s rise, with food sales benefitting from rising temperatures and a rebound after the coronation had disrupted spending patterns in May. The hotter weather also encouraged more people on to the high street, leading to both department stores and furniture shops enjoying a strong month.

Responding to the figures, British Retail Consortium Chief Executive Helen Dickinson said, “June’s sunshine gave retail sales growth a boost as customers readied themselves for the summer season. Nonetheless, consumer confidence remains fragile, and with households feeling the pinch from high inflation and rising interest rates they held back on making big ticket purchases. Retailers are hopeful that consumer confidence will improve over the coming months as inflation eases.”

News in review

‘A resilient financial sector’

Interest rates in the UK will need to stay higher for longer than previously forecast to tackle inflation, the International Monetary Fund (IMF) warned last week, despite improvements in the country’s economic outlook since the start of 2023.

With cheaper energy, better relations with the European Union and calmer financial markets, the IMF expects UK gross domestic product (GDP) to grow by 0.4% this year and 1.0% in 2024. These figures are in line with previous forecasts released by the IMF in May and significantly better than April’s forecast that the economy would shrink by 0.3% this year.  The IMF report stated that the upward revision was due to ‘stronger-than-expected consumption and investment from the confidence effects of falling energy prices, lower post-Brexit uncertainty (following the Windsor Framework agreement), and a resilient financial sector as the March global banking stress dissipates.’

Globally, the IMF improved its outlook on growth to 3%. Increased post-pandemic travel, as well as a strong jobs market and services sector, helped cause the 0.2% improvement from April’s forecast, though the IMF warned that rampant consumer prices and higher interest rates remained risks in developed nations.

Sunak backs new oil and gas

On Monday, Prime Minister Rishi Sunak defended his government’s decision to grant 100 new North Sea oil and gas licences, claiming that these were “entirely consistent” with the UK’s net zero commitments.

On a trip to a carbon capture project in Aberdeenshire, Mr Sunak said, “Even when we reach net zero in 2050, a quarter of our energy needs will still come from oil and gas, and domestic gas production has about a quarter or a third of the carbon footprint of imported gas.” Mr Sunak also lauded the highly skilled jobs that carbon capture projects could provide.

The announcement sparked concern, however, amongst climate campaigners. Oxfam Climate Change Policy Adviser Lyndsay Walsh commented, “Extracting more fossil fuels from the North Sea will send a wrecking ball through the UK’s climate commitments at a time when we should be investing in a just transition to a low carbon economy and our own abundant renewables.”

Car production up in June

UK car production rose 11.7% in the first half of the year, according to figures published last week by the Society of Motor Manufacturers and Traders (SMMT). This represents the best first half year since 2021.

With a 16.2% rise in June, this was the fifth consecutive month of growth for production, thanks in part to an improving global supply chain. Electric vehicle (EV) production roared into life, with a 71.6% increase to 170,231 units – a H1 record.

Mike Hawes, SMMT Chief Executive, said, “UK car manufacturing is growing again, with production – especially of electrified models – increasing and major investment announcements making headlines. This is testament to the resilience of the sector and its undoubted strengths – a skilled and productive workforce, world-class R&D, and efficient, productive plants.”

House prices at lowest in 14 years

UK house prices fell annually by 3.8% in July, according to Nationwide’s House Price Index, which was released on Tuesday, the biggest decline since July 2009.

Amid higher interest rates and cost-of-living pressures, the average price of a home in the UK is now £260,828, 4.5% below a peak in August last year. Affordability remains a key challenge for buyers, according to Nationwide, after mortgage costs reached their highest level for 15 years.

Robert Gardner, Chief Economist at Nationwide, said, “A prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20% deposit, would see monthly mortgage payments account for 43% of their take home pay – assuming a 6% mortgage rate. This is up from 32% a year ago and well above the long-run average of 29%.”

Change to alcohol duties

Changes to alcohol duties, originally scheduled for February, have now come into effect after having been postponed by Chancellor Jeremy Hunt during the cost-of-living crisis. There will be a 10.1% rise in alcohol duties as well as an overhaul of the system. Drinks with alcohol by volume (ABV) below 3.5% will be taxed at a lower rate, but tax on drinks with ABV over 8.5% will stay the same, whether it is wine, spirit or beer.

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 (02 August 2023)

Home Finance – In the news

Apartment sales drive recovery  

Agreed residential sales have returned to pre-pandemic levels for the first time since September 20221. The number of sales in March 2023 was only 1% behind March 2019, with the recovery largely driven by sales of apartments, which are now 10% above 2019 levels. In total, agreed sales remain 18% below the exceptionally busy market of this time last year.  

Mortgage repayments rise  

Buyers are paying up to 60% more on their monthly mortgage repayments compared to December 2021, according to new research2. The average two-year fixed rate on a 95% LTV mortgage, the analysis showed, has monthly repayments of £1,793, which is £615 per month higher than 15 months ago.  

Homeowners underestimate ‘rebuilding’ costs  

Roughly nine in 10 homes have underestimated the amount of cover they need to account for ‘rebuilding’ costs on their property insurance, estimates show3. This is largely because costs have shot up by 18% in a year, resulting in the average three-bed semi-detached home now costing £53,000 more to rebuild than it would have in February 2022.  

1Rightmove, 2023 

2House Buyer Bureau, 2023 

3Building Cost Information Service, 2023  

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

Residential Property Review – July 2023 

RICS survey shows demand falling   

Activity in the residential sales market deteriorated in June, according to the latest UK Residential Survey by the Royal Institution of Chartered Surveyors (RICS), with negative net balance readings returned across many indicators. 

New buyer enquiries fell to a net balance of -45%, compared to -20% recorded in May, the lowest such reading since October 2022. Similarly, newly agreed sales dropped from -8% in May to a net balance of -34% in June, making it the most downbeat figure since December 2022. 

On the supply side, new sales instructions held steady in June, with respondents recording a net balance of -1%, compared to +14% in May. Despite this, the average number of homes available for purchase remains very low on a longer-term historical comparison, the report notes. 

Simon Rubinsohn, RICS Chief Economist, commented, “The latest increase in interest rates and the impact this has already had on mortgage rates is clearly visible in the key RICS metrics regarding buyer enquiries [and] sales.” 

Rising mortgage costs make defaults more likely 

Banks and building societies expect the level of mortgage defaults to increase over the next quarter, according to a report from the Bank of England (BoE), but lenders are strong enough to withstand the rise in customer defaults. 

Since successive rate rises have taken Bank Rate from 0.1% in December 2021 to 5% last month, households have been under increasing pressure to keep pace with their mortgage costs. An estimated 4.5 million homes have already seen repayments increase. 

As fixed-rate mortgage deals expire and people renew their loans, many more will be affected. Indeed, monthly payments are expected to increase by at least £500 a month for nearly one million households by the end of 2026, the BoE has warned, potentially leading to a significant rise in customers defaulting on repayments. 

Rental market surge in demand 

Tenant demand is still soaring, newly released data shows, while the number of landlords advertising new properties has fallen sharply. 

Private rental prices paid by tenants in the UK rose by 5.1% annually in June, according to figures released by the Office for National Statistics. This is slightly higher than the 5.0% recorded in the year to May 2023. 

Rental prices increased by 5.1% annually in England, 5.8% in Wales and 5.5% in Scotland. In England, the West Midlands led the way (+5.4%), while the North East recorded the lowest rise (4.4%). London’s annual percentage change of 5.3% was the highest annual rate since September 2012. 

Separately, respondents to the latest RICS survey returned a net balance for landlord instructions of -36%, the most negative reading for this metric since May 2020. 

All details are correct at the time of writing (20 July 2023) 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. 

Commercial Property Review – July 2023

Hotel investment  

The latest Knight Frank analysis of the UK hotel sector shows that transaction volumes were around £860m in H1 2023, 60% below investment volumes for the same period one year earlier. 

There is a challenging environment in the UK, reflective of the macro-economic environment, with sluggish GDP growth. Some deals have completed, as experienced hotel investors both domestic and from overseas, as well as HNWIs and family-offices, account for 70% of transaction volumes. Market strength remains for quality hotels in prime locations, as well as for hotels with repositioning and value-add potential. During H1, overseas investors accounted for 41% of the transaction volume, originating from Asia, Europe and the Middle East. 

Looking forward, the report concludes, ‘The next six months should see more robust levels of investment activity, with several hotel deals known to be under offer. The level of activity though will depend on how much further tightening of monetary policy is required in the short-term. Interest rates will remain high over the medium term, as such, with no quick solutions to servicing the debt, lenders will be exerting greater pressure on their borrowers to calibrate debt covenants.’ 

Warehouse demand takes a tumble  

New research from commercial property agent the CoStar Group has highlighted that for the first time, the number of firms choosing to withdraw from warehouse space has exceeded those occupying them.  

Demand for UK warehouse space has fallen to its lowest point in 11 years, Director of Market Analytics at CoStar Group, Grant Lonsdale has deduced, “With cost-of-living pressures weighing on consumers, many online and bricks-and-mortar retailers, as well as the third-party logistics providers that service them, are re-evaluating their storage and distribution space requirements in a bid to optimise overheads.”  

At the same time, the availability of larger warehouses has been increasing at pace and is currently at a seven-year high. Amongst those reducing their space are ASOS and Boohoo Group, with the former announcing the closure of three smaller warehouses earlier this year.  

All details are correct at the time of writing (20 July 2023) 

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission. 

News in Review

“Inflation is falling and stands at its lowest level since last March”

Last week, official data released by the Office for National Statistics (ONS) revealed that inflation in the UK fell further than expected in June to settle at 7.9%, down from 8.7% a month earlier and its lowest point since March 2022.

The ONS acknowledged lower petrol prices were a key reason for the inflation slowdown, which fell more sharply than the 8.2% forecast by City analysts. Despite the positive news, UK inflation remains the highest in the G7 – and a long way above the Bank of England’s (BoE) 2% target.

In response, financial markets shifted their expectations on the extent of the BoE’s upcoming rate rises, predicting that Bank Rate will no longer soar above 6% early next year, as had been previously forecasted. After the announcement, shares on the London stock market staged a rally and the pound fell by more than a cent against the dollar.

One group that might have breathed a small sigh of relief is mortgage holders. Following the announcement of the better-than-expected inflation figures, mortgage rates fell for the first time in two months. The average two-year fixed rate mortgage eased to 6.79% last Thursday, according to Moneyfacts, while the average five-year deal slipped to 6.31%.

Commenting on the inflation figures, Chancellor Jeremy Hunt said, “Inflation is falling and stands at its lowest level since last March; but we aren’t complacent and know that high prices are still a huge worry for families and businesses. The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”

Savers missing out on better rates

With interest rates having spiralled to their highest levels since 2008, many savers are seeing higher returns on their balances. However, this isn’t the case for everyone: a third of savings held in easy-access accounts are still earning 1% or less, according to figures compiled by CACI.

The squandered interest payments are substantial, the researchers claim, with an estimated £205bn currently held among the 34 leading providers studied. The average easy-access rate now pays 2.61%, according to Moneyfacts, while the best deal on the market currently pays 4.51%.

House price growth slows

Annual house price growth slowed for a fifth consecutive month in May, according to ONS data released last week. House prices edged up by 1.9% annually in May 2023 to reach an average of £285,861, a smaller rise than the 3.2% recorded in the 12 months to April 2023.

Regionally, annual house price inflation was highest in the North East where prices increased by 4.0% in the 12 months to May 2023. In contrast, prices barely changed in the East of England, the region with the lowest annual growth.

In the rental market, surging figures continued unabated, with ONS data showing that private rental payments paid by tenants rose by 5.1% in the year to June. This represented the largest annual percentage change since the data series began in January 2016.

Consumer confidence moderates

Rising borrowing costs and high prices caused UK consumer confidence to fall in July, according to data released by research group GfK on Friday.

The Consumer Confidence Index fell six points to minus 30 compared with the previous month, the largest drop in sentiment since April 2022. Until this month, confidence had managed to stay resilient throughout 2023 despite double-digit inflation and rising mortgage and rent costs.

Client Strategy Director at GfK, Joe Staton commented on the findings, “For the first six months of 2023, UK consumer confidence improved despite the headwinds of the cost-of-living crisis, with double-digit inflation outpacing income growth and rising interest rates impacting both homeowners and renters alike. Suddenly, this resilience has collapsed, resulting in a six-point fall this month in the headline score. There are clear concerns for the coming year for our personal finances and for the wider UK economy.”

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 (26 July 2023)

Money – In the News

National Insurance (NI) gap 

If you want to boost your State Pension and plug a gap in your NI record, the government has just extended the deadline for doing so from 31 July 2023 to 5 April 2025. The government has been allowing eligible people to retrospectively build up their April 2006 to April 2016 NI record through voluntary contributions, as part of transitional arrangements introduced alongside the new State Pension. You can check your NI record here www.gov.uk/check-national-insurance-record. 

Locked Child Trust Funds 

Around 80,000 young people who lack the capacity to make financial decisions have been unable to access money in their Child Trust Fund1. Instead of being able to withdraw the money when they turned 18, families are having to pay to go through the Court of Protection, a long-winded and costly process. Ministry of Justice figures show only 15 accounts were accessed through this process in 2021. 

Using property wealth to support grandchildren 

Research2 has found that 79% of grandparents are providing financial support for their grandchildren, with one in 12 (8%) using their property wealth to do this. Grandparents aged 50 to 64 are twice as likely to use property wealth to gift to grandchildren compared with 65 to 74-year-olds, indicating that the next generation of grandparents are likely to use equity in their property for financial planning. 

1Renaissance Legal, 2023 

2L&G, 2023 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

HNWIs cutting pension contributions

Research has highlighted that in an effort to alleviate daily financial pressures, including rising mortgage rates, one third of high-net-worth individuals (HNWIs) have reduced their pension contributions or intend to do so in the next six months1. Those with assets of £250,000 plus are more likely to have reduced their pension contributions in the last six months (14%), versus 9% across the UK population as a whole. 

Those HNWIs who have already taken steps to reduce their pension payments have done so by an average of £1,246 a month, nearly £15,000 over the course of a year. Over eighty percent (84%) of HNWIs are already experiencing or expecting an increase in their mortgage rates to put a strain on their cashflow, prompting many to reduce their pension contributions. 

Interestingly, the research has also shown that the majority of HNWIs are underestimating the requirements for a comfortable retirement, believing on average that a pension pot around £580,000 will do the job, but in reality a pot of nearly £700,000 plus the full State Pension will suffice, according to the research. 

1Saltus, 2023 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

Housing stock soars

The number of houses for sale has soared, new figures show1, further strengthening the position of buyers. 

Supply surge? 

Ever since the pandemic days of frenetic buying, demand outstripping supply has been a familiar picture in the UK housing market. As interest rates have risen sharply in the past year, moreover, some potential sellers have put their moving plans on ice. 

It was surprising, therefore, when estate agents reported having an average of 34 homes for sale per branch in April. This is a significant rise from around a year ago when there were typically 20 properties on sale per branch. 

Get moving 

Figures for sales agreed are now almost back in line with pre-pandemic averages, estate agents noted. Although challenges remain, this is a strong sign that activity seems to be recovering. 

With more choices available, if you’ve been thinking about moving, this could be a great time to find your dream property! 

1Propertymark, 2023 

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