BTL landlords choosing to ‘retire’ 

Older buy-to-let (BTL) landlords are selling up in large numbers, new analysis suggests1, leaving a void when they ‘retire’ from the business. 

Ageing population 

The median age of individual landlords was 58 in 2021, according to the latest English Private Landlord Survey, significantly older than the general population. In contrast, only 15% were under the age of 45. 

Around 140,000 landlords left BTL behind last year, the analysis shows, close to three quarters of all such property sales. The figure could keep rising over the coming years, with around 96,000 landlords across the UK due to turn 65 every year. 

Selling up 

The recent surge in selling comes partly from a shifting landscape, with a flurry of unfavourable changes making life harder and profits lower for landlords. In the coming months and years, the new Renters Reform Bill, updated Energy Performance Certificate (EPC) requirements, as well as changes to landlord licensing, Making Tax Digital and Capital Gains Tax (CGT), look likely to have adverse effects on BTL landlords. 

Higher mortgage rates are also dragging down profit margins, which is especially acute for newer investors, who are more likely to need to borrow to fund their purchases. 

Here to help 

This is undoubtedly a time of change for BTL landlords but good opportunities remain for patient investors. We’re here to help you make sense of it all and ensure your portfolio is well prepared for years to come. 

1Hamptons, 2023 

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

It’s your retirement – don’t do it a disservice 

The Institute for Fiscal Studies (IFS) has warned that 90% of those currently in their 30s and 40s are saving less than they need to if they want to have a decent standard of living in retirement. Whilst the IFS researchers found that the current generation of pensioners is doing better than any before it, they also concluded that future generations are unlikely to fare as well. 

Saving enough 

IFS found that many employees are saving very little for retirement; 60% of middle-earning private sector employees who contribute to a pension are saving less than 8% of their earnings. Fewer than one-in-five self-employed workers save into a pension at all. 

Paul Johnson, IFS Director, commented, “Despite the number of self-employed people growing considerably, many fewer of them are saving in a pension. Most private sector workers are left having to manage considerable risks – not least over how long their retirement will be – which for many will be incredibly difficult to balance well.” 

When can I retire? 

Although current rules let you take money from your pension at age 55 (57 from 2028), you may not have enough in your pension pot to make this a viable option. Discussing your options with us can give you the bigger picture and help you to be realistic with your plans – even small contributions, made regularly, can help boost your pension pot and you’ll get tax relief too. 

So, whatever your circumstances, we can help you to plan for an enjoyable and fulfilling retirement. 

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

“This is good news… we are making progress”

Last Friday, newly released data from the Office for National Statistics (ONS) revealed a better-than-expected uplift in UK economic growth.

The UK’s gross domestic product (GDP) rose by 0.5% on a monthly basis in June, beating market expectations of a 0.2% rise. This higher growth rate, the fastest since October 2022, followed a 0.1% fall in May, indicating that the economy expanded by 0.2% between April and June.

The increase was partly explained by the month’s warm weather, which benefited pubs, restaurants and the construction industry, according to the report. Production was a star performer, with a rise of 1.8%, its biggest since August 2020, thanks largely to manufacturing (2.4%), which provided the biggest boost.

Darren Morgan, from ONS said, “The economy bounced back from the effects of May’s extra bank holiday to record strong growth in June. Manufacturing saw a particularly strong month with both cars and the often-erratic pharmaceutical industry seeing particularly buoyant growth. Services also had a strong month with publishing, car sales and legal services all doing well, though this was partially offset by falls in health, which was hit by further strike action.”

Although June’s growth figures showcased more resilience than expected, the UK is still the only G7 country not to see its GDP return to 2019 levels. Analysts including the Centre for Economics and Business Research (CEBR) are still predicting that the UK economy will fall into recession by the end of 2023.

Sam Miley of CEBR said, “Though GDP picked up in Q2, it should be noted that growth remains poor by historic standards. The future outlook is also weak, with the economy continuing to face several headwinds, notably the impact of tighter monetary policy.”

In response to the June GDP figures, Prime Minister Rishi Sunak commented, “This is good news. At the beginning of the year I made growing the economy one of my top priorities and we are making progress. There’s still more work to do, but today’s figures show the plan is working.”

“The new normal” – higher mortgage rates

According to analysis of the most recent mortgage cost data from the Bank of England, average monthly mortgage payments on a detached house have surpassed £2,000 for the first time. This represents a weighty increase from £1,200 recorded back in 2021 and means that borrowers nearing the end of a two-year fixed rate mortgage will have to contend with an average monthly increase on their mortgage payment of £800. For those living in the capital, the average mortgage payment on a detached property has increased to almost £5,000 a month, a huge rise from £3,200 recorded just 16 months ago.

Although several lenders have recently reduced their mortgage rates, there are expectations in the market that rates will settle at a higher level. Zoopla’s Executive Director, Richard Donnell is expecting sub-5% mortgages to return to the market later in 2023, adding that rates between 4% and 5% will be “the new normal.”

Wages grow at record rate

In Q2 2023, annual growth in regular pay (excluding bonuses) was 7.8%; this is the highest regular annual growth rate since comparable records began in 2001. In real terms, taking into account the Consumer Prices Index (CPI) measure of inflation, average regular pay fell by 0.6%.

There are signs in the ONS data that the UK employment market is easing. The jobless rate rose from 4% to 4.2%, driven by people who have been unemployed by up to six months. The economic inactivity rate decreased by 0.1 percentage points on the quarter, to 20.9% in Q2, largely driven by those inactive because they are looking after family or home.

Price of food staples drops

Research firm Kantar has found that the prices of food staples such as oil and milk are finally ‘edging down’ even though shopping bills remain high.

Fraser McKevitt, Head of Retail and Consumer Insight at Kantar said that UK grocery prices overall were “still up year on year across every supermarket shelf“, but that consumers “will have been relieved” to see the cost of some staples fall compared with earlier in the 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 (16 August 2023)

News in Review

“Inflation is falling and that’s good news”

Last Thursday, the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted to increase Bank Rate to 5.25%, a fourteenth consecutive rise that has taken Bank Rate to its highest level in 15 years.

At the MPC meeting, the nine-member committee was split three ways, with six voting for the winning quarter percentage point rise, two favouring a more aggressive 0.5% rise and one opting to hold rates at 5%.

Equally significant was the BoE’s statement that rates will stay higher until inflation is back under control, the first time that this signal has been given so strongly. The MPC’s minutes stated that it plans to ensure rates stay ‘sufficiently restrictive for sufficiently long to return inflation to the target [of 2%]’.

Speaking after the MPC meeting, Andrew Bailey, BoE Governor said, “Inflation is falling and that’s good news. We know that inflation hits the least well-off hardest and we need to make sure that it falls all the way back to the 2% target. That’s why we’ve raised rates to 5.25% today.”

Mr Bailey now expects the UK’s next inflation figures, for the year to July, to drop to about 7%. Some analysts urged caution, however, pointing out that six of the BoE’s past eight inflation forecasts have been overly optimistic. Mr Bailey also said that the Bank expects inflation to fall to around 5% in October.

The latest Bank Rate rise will result in higher mortgage and loan payments for millions of people at a time when soaring prices are already squeezing household budgets. On the other hand, higher rates should lead to better returns for savers. Overall, the economy has been “much more resilient” than some had feared, according to Mr Bailey.

US credit rating downgraded

Last Wednesday, the US government suffered a setback when Fitch downgraded the country’s credit rating from the top level of AAA to AA+.

Concerns over the state of the country’s finances and debt burden, as well as a ‘steady deterioration’ in governance over the past two decades played a role in the decision, according to Fitch, which is one of three major independent agencies that assess creditworthiness.

Responding to the downgrade, US Treasury Secretary Janet Yellen called the downgrade “arbitrary” and said that the decision had been made based on “outdated data”. The US now occupies the second highest rung of Fitch’s ratings, alongside the likes of Austria, Finland and New Zealand.

Wet weather dampens summer shopping

July’s wet weather stopped shoppers updating their summer wardrobes and stocking up on other seasonal goods, latest figures from the British Retail Consortium (BRC) suggest. BRC said rising interest rates were also squeezing shoppers’ budgets. The value of retail sales was 1.5% higher in July compared to a year ago, but volumes were lower once inflation was taken into account. Online sales also continued to slide, falling nearly 7% year-on-year.

As the UK faced its sixth wettest July since records began in 1836, a drop in footfall of 0.3% compared to July 2022 was reported by retail analysis firm Springboard. High Streets in coastal towns were hit especially hard, the analysis suggests, with footfall dropping by 4.6%.

EV demand keeps growing

In good news for UK car sales, the latest data from the Society of Motor Manufacturers and Traders (SMMT) showed that some 143,921 new vehicles were registered last month, up 28.3% on the same period last year.

Last month was the best July since 2020, with demand for electric vehicles especially gathering pace. On average, a new battery electric (BEV) car was sold every 60 seconds in the UK in July, the report noted.

Starting next year, the government’s proposed a zero-emission vehicle target would force manufacturers to ensure that 22% of their total car sales were from BEVS.

SMMT Chief Executive Mike Hawes commented, “With inflation, rising costs of living and a zero-emission vehicle mandate that will dictate the market coming next year, consumers must be given every possible incentive to buy.

“While the growth in electric vehicles hitting UK roads is significant, it must move even faster if it is to outpace the rest of the market and enable the UK to meet ambitious but necessary environmental targets.”

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 (09 August 2023)

Summer retirement lowdown

The last few years have created an increasingly complex backdrop for retirement planning. Not only has the post-pandemic era seen attitudes to work alter significantly, but macro-economic headwinds from Russia’s invasion of Ukraine and the cost-of-living crisis have created significant unhelpful market volatility. In combination, this has inevitably heightened the need for everyone to engage in retirement conversations at the earliest opportunity. Some recent research sets the backdrop for your summer retirement round-up, spotlighting key trends. 

Changing face of retirement 

A recent study1 of UK employees has shown how people are re-evaluating plans for work and later life, with evidence that partial retirement may become the new norm. In total, over half of all workers said they like the idea of continuing to work through retirement. The research also highlighted a strong sense of semi-retirement positivity, with nine out of ten saying they were ‘much happier’ after reducing their working hours. 

Low levels of confidence 

Another study2, however, has highlighted a distinct lack of confidence among 55 to 75-year-olds when it comes to financing retirement. Indeed, nearly a third said they were either not at all confident or not very confident they would enjoy a comfortable lifestyle in retirement, compared to less than one in five who felt very or extremely confident. 

Mind the gap 

The research also highlighted a sense of unpreparedness, with a notable divergence in anticipated levels of retirement income and expenditure. For instance, while average expected spending five years into retirement was predicted to be 92% of pre-retirement levels, average income was only expected to hit 78%; other evidence suggests this latter figure is an aspiration few pensioners are likely to achieve. 

Planning is essential 

These findings suggest many from the next generation of retirees will need support if their finances are to see them through retirement, and this vividly highlights the need to develop a sound strategy tailored to an individual’s unique circumstances long before retirement looms. Planning ahead can address potential income requirements and offer solutions that build resilience to ensure you enjoy the retirement you deserve. 

1Aviva, 2023 

2The Wisdom Council, 2023 

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. 

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.