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. 

News in Review

“Our plan will work, but we must stick to it”

Official figures released last week by the Office for National Statistics (ONS) showed that UK gross domestic product (GDP) contracted by 0.1% in May. Analysts pointed to the additional bank holiday for the coronation as a key factor in this decline.

By falling into reverse, the GDP figures came in below City forecasters’ expectations; they were also notably worse than the 0.2% expansion recorded in April. The decline raises the possibility of the UK slipping into a technical recession (two consecutive quarters of negative growth) later this year.

Darren Morgan of ONS commented, “Despite the Coronation Bank Holiday, pubs and bars saw sales fall after a strong April. Employment agencies also saw another poor month.”

Chancellor Jeremy Hunt noted that inflation was a key driver of the current slump. He stated, “The best way to get growth going again and ease the pressure on families is to bring inflation down as quickly as possible. Our plan will work, but we must stick to it.”

Five-day strike for junior doctors

Last Thursday, junior doctors began a five-day strike in England over pay. After 15 years of below-inflation pay rises, junior doctors are demanding a 35% boost to wages. These strikes are the fourth walkout by junior doctors in England since the dispute began.

As a result of the strike action, thousands of planned appointments were postponed. Senior doctors filled in to provide emergency care ahead of a separate strike by NHS consultants that is due to take place later this week. The strikes add pressure to the NHS at a time of record waiting lists. At the end of May, 7.47 million people were waiting to start routine hospital treatment, according to official figures.

“No more talks on pay” after new offer

With rising discontent and the threat of industrial action across the public sector, the government last week announced new pay offers for teachers, police officers and junior doctors.

In the new offer, police and prison officers would receive a 7% pay rise, while teachers and junior doctors would be awarded 6.5% and 6% rises respectively. The British Medical Association (BMA) called the offer ‘derisory’, but four teaching unions recommended that members accept the offer and end strike action.

Prime Minister Rishi Sunak stressed that the rises would not be funded by borrowing more or increasing taxes. He commented, “There will be no more talks on pay. We will not negotiate again on this year’s settlements and no amount of strikes will change our decision.”

Mortgage costs to rise for millions

Close to one million households will experience a rise in their mortgage payments of at least £500 a month by the end of 2026, according to the Bank of England (BoE). In a recent report, the BoE admitted that mortgage holders ‘may struggle with repayments’ on loans. It noted though that lenders are strong enough to withstand an increase in customers defaulting on repayments.

US inflation drops sharply

Last Wednesday, it was announced that US inflation in June had fallen to its slowest pace in more than two years, though analysts are still predicting that the Federal Reserve will raise rates again at its next meeting towards the end of July.

Cheaper used cars helped bring inflation down to 3% in the year to June, official data revealed a sizeable drop from 4% recorded a month earlier. Most significantly, energy prices fell 16.7% over the last year, with gas prices down 26.5%.

The latest inflation reading is significantly lower than a peak of more than 9% recorded in June 2022 and represents the slowest rise in prices since March 2021. Core US inflation, meanwhile, fell to 4.8%, the lowest since October 2021.

Speaking to Congress, Federal Reserve Chair Jerome Powell said, “Over the past year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do.”

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 (19 July 2023)

Are you a new tax year front runner?

The longer days of summer are the ideal time to think about what you want for yourself and your family in the future, to set specific financial goals and to benefit from getting plans organised early in the tax year. 

Setting your goals 

Considering your individual financial goals and developing a financial plan that aligns with those goals can help you to identify what is important to you, to stay disciplined and focused on your long-term objectives, avoiding short-term market fluctuations or investment fads. 

The early bird 

Investing early in the tax year can offer several benefits: 

  • It gives your investments more time to grow tax-free or tax-deferred, benefiting from compounded returns 
  • It can help you avoid a last-minute rush to make contributions before the end of the tax year, which can lead to mistakes or missed opportunities 
  • There is time to spread your contributions over the year, making budgeting easier. 

Work with us 

We can work with you to identify your financial goals and set up plans so that you can get ahead early in the tax year, giving you powerful strategies for building wealth and achieving financial security. 

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. 

Global economy – Signs of optimism

Although the global economy continues to face significant headwinds, statistics released during the first few months of this year have revealed unexpected signs of resilience. This has led economists to begin upgrading growth forecasts, while the World Economic Forum’s latest Chief Economists Outlook reported signs of ‘nascent optimism.’  

Growth stronger than expected 

Uncertainty undoubtedly continues to be a key feature of the world economy with pressure being exerted from a number of issues. First quarter data, though, has shown that the global economy performed better than most economists had previously feared, with growth recorded across all regions amid signs of the green shoots of recovery. 

Inflationary pressures set to fall  

Persistent inflationary pressures and tighter financial conditions, however, do remain key challenges for policymakers around the globe. Inflation has so far stayed stubbornly high and, while economists do expect it to continue falling over the rest of the year, this decline is predicted to be at a slower pace than previously thought. 

Resilient economic growth  

A key theme at the World Economic Forum’s recent Growth Summit was ‘enabling resilient economic growth’ with discussions focusing on inclusive and sustainable growth, and equitable globalisation. The organisation’s updated forecast showed a notable strengthening in growth expectations, although it also highlighted sharp variations by region. The most buoyant activity is predicted to be in Asia, with China’s reopening expected to drive a significant rebound, while growth prospects are thought to be noticeably weaker in Europe. 

Diversification is key 

An improving outlook should clearly create opportunities for shrewd investors. However, the relatively uncertain backdrop, along with divergent regional dynamics, inevitably means diversification will remain a vital component in any investor’s armoury. Spreading money in a globally diversified portfolio across a range of sectors and different size businesses should, as ever, prove an effective way to mitigate risk in the quest to build wealth. 

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

“British pensioners should benefit from British business success” 

Chancellor Jeremy Hunt announced a package of reforms designed to boost pensions and increase investment in British businesses, in his first Mansion House speech which took place on Monday evening. He stated that the Mansion House Reforms aim to secure the best possible outcome for pension savers, whilst prioritising a strong, diversified gilt market and strengthening the UK’s position as a leading financial centre.  

The Chancellor revealed an agreement with pension providers to put 5% of their investments into early-stage businesses in the biotech, fintech, life sciences and clean technology sectors by 2030.  

Mr Hunt estimates that the plans could provide a £1,000 a year boost in retirement to the typical earner who starts saving at 18.  

Commenting on the reforms, Mr Hunt stated, “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for a typical earner over the course of their career. This also means more investment in our most promising companies, driving growth in the UK.” 

At the same Mansion House event, Bank of England Governor Andrew Bailey said reducing inflation to 2% is “so important” as people “should trust that their hard-earned money maintains its value.” 

House prices fall at fastest rate in 12 years 

The latest Halifax House Price Index shows an annual fall in prices of 2.6%, which the lender says is equal to around £7,500 being wiped off the average UK house price, the biggest drop since 2011. House prices fell for the third month in a row, dipping by 0.1%. The average cost of a UK property is now £285,932, compared to a peak of £293,992 last August. 

At the same time, mortgage rates continue to rise. Moneyfacts released data on Tuesday showing the average two-year fixed rate mortgage had climbed to 6.66%. 

“Rock solid” relations 

Ahead of a key NATO meeting in Vilnius, Lithuania, US President Joe Biden described relations with the UK as “rock solid” in his talks with Prime Minister Rishi Sunak, adding that he “couldn’t be meeting a closer friend and a greater ally.”  

The President also held separate talks on Monday with King Charles at Windsor Castle in their first meeting since the King’s coronation in May. 

Record wage growth  

Figures released on Tuesday by the Office for National Statistics (ONS) indicate that UK wages have risen at a record annual pace, fuelling fears that inflation will remain higher for longer. Growth in total pay (including bonuses) was 6.9%, whilst regular pay (excluding bonuses) grew by 7.3% in the March to May period, when compared to the same period a year earlier.  

However, when adjusted for inflation, growth in total and regular pay fell on the year in March to May 2023, by 1.2% and 0.8% respectively.   

Retired over 50s poorer 

A study by the Institute for Fiscal Studies (IFS) of people aged over 50 who left work during the pandemic has found that 48% of those who retired in 2020-21 are now living in relative poverty, are less likely to receive a pension and have lower levels of wellbeing than other retirees. IFS defines relative poverty as a couple on an income of less than £15,000 a year.  

The research concluded that disruption from the pandemic and perceived health risks may have forced many to leave work earlier than they had originally planned. 

Parents may miss out on State Pension 

Due to errors in National Insurance (NI) records, some parents may have been underpaid their State Pension. It’s estimated that around £1bn is owed, to about 210,000 people, of whom 43,000 have died. That would equate to an average shortfall of about £5,000 each. 

Parents who took time out of employment to bring up children should have had their NI records credited with home responsibilities protection (HRP), but it has come to light that the credit is missing from some NI records.   

A government spokesperson commented, “Most people’s records will be unaffected, and we will shortly be launching a new online tool to help people check whether they need to claim. HM Revenue & Customs will also begin writing to those likely to be affected from the autumn.” 

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 (12 July 2023) 

Summer 2023 – what next for the housing and mortgage markets?

Activity in the housing and mortgage markets is hotting up – and cooling down. According to the latest Residential Market Survey from the Royal Institution of Chartered Surveyors, a run of thirteen successive negative monthly readings for new instructions ended in May, marking the strongest reading for new listings since March 20211. Yet house prices are still predicted to fall in the second half of the year. 

What next for house prices? 

House price growth dipped in May and notably the annual rate of growth fell to -1.0%, marking the first time since 2012 that house prices have fallen year-on-year2. It remains to be seen which way the market will veer in the second half of 2023. 

If, as many are predicting, a flurry of mortgaged homeowners are forced to sell up when their current fixed-term deals end, the market could see a boost to supply that might reinforce the downward price movement. Analysts suggest too that first-time buyers (FTBs) could be delaying their homebuying plans in the hope that mortgage rates or house prices are about to fall sharply. 

Bank Rate 

Meanwhile, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) increased Bank Rate in June, taking it to 5%. Borrowing costs are now at their highest level since 2008. Those with tracker or variable rates have seen immediate higher repayments. 

Return of the 100% LTV mortgage 

The mortgage market is kicking back into action too, with one especially noteworthy development, the launch of a new mortgage product that allows FTBs to take out a loan on the full value of their home. The 100% loan-to-value (LTV) mortgage is exclusively for current renters and depends on their being able to prove a track record of timely rent payments. 

Don’t second guess 

Whatever happens in the months ahead, we’re here to help you make the right decisions for your unique circumstances. 

1RICS, 2023 

2Halifax, 2023 

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