Residential Property Review – June 2023

Mixed signals in mortgage and housing markets

Inflation hasn’t been falling as quickly as anticipated, resulting in the Bank of England coming under pressure to raise Bank Rate again in May. While lenders had priced in some interest rate rises in advance, the market reaction to inflation data released in May suggests that tolerance had been exceeded and mortgage rates reversed their downward trend. 

Some lenders also pulled many of their mortgage products to reprice them. According to Savills, the number of first-time buyer (FTB) products available at the start of June was 4.4% lower than a week earlier. This is significant, but a very different picture to the 50% fall in products in the week after the mini-budget last September.  

The Royal Institution of Chartered Surveyors (RICS) reported positive news that new instructions rose by a net balance of +14% of survey participants during May, breaking a run of thirteen successive negative monthly readings and representing the strongest reading for the new listings metric since March 2021.

Fewer would-be tenants fly the nest

According to new research by Hamptons, young adults are staying at home for longer to save up for their own property, with some skipping the rental market entirely and going on to buy a home instead.

The number of tenants leaving the family home has been steadily declining across the UK since 2015 when 6.1% of tenants were first-timers – equating to 71,860 newly rented households in England. However, due to rising rental costs and the cost-of living pressures, in the first five months of 2023 that figure has fallen to 4.6% – or 43,280 new rented households in England.

Interestingly, London bucks this trend. Despite double-digit rental growth, the share of renters who have left the family home to rent in the capital has risen from 2.5% in 2022 to 3.2% so far this year. This reflects how more young adults, many of whom moved home to be with their families during the pandemic are now moving back to the capital for work.

Latest news for FTBs

The average deposit paid by a UK first-time buyer for a three-bed home costing £240,000 is £34,500, assuming a 15% deposit, Zoopla has found. But the amount you need to save varies according to where you live in the UK and of course, the level of deposit you wish to pay.

Unsurprisingly, London is at the most expensive end of the market, where the average first home costs £425,000. And, according to UK Finance, the average first-time buyer will pay a 34% deposit to secure it – amounting to £144,500. 

Rightmove has revealed the cheapest cities for FTBs, which is topped by Bradford, where the average asking price for a FTB property is £104,643. Making up the top five are Carlisle, Aberdeen, Hull and Dundee.

All details are correct at the time of writing (21 June 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 Market Review – June 2023

Firms office space intentions over the next three years

A recent survey conducted by property consultant Knight Frank and Cresa, a commercial real estate firm, has highlighted that over the next three years, half of the biggest international employers (those with more than 50,000 employees) are anticipating reducing their global office space by between 10% and 20%.

This appears to be a direct result of the challenging post-COVID workplace. Of the 350 businesses surveyed, over half (56%) are choosing to adopt a hybrid approach to working, with 31% adopting an ‘office only’ or ‘office first’ approach. Only 12% of respondent firms are planning a fully flexible approach where staff would be mostly or entirely remote.

In the search for better quality office space, many organisations plan to move – leading to increased demand for higher quality and more sustainable office space. Global Head of Occupier Research at Knight Frank, Lee Elliott, commented on the future office space strategies of firms, “Now that we are in a truly post-pandemic world, corporate decision-makers are ‘removing the blinkers’ and making clear decisions around their future corporate real estate strategy based on a broader array of business issues than just the pandemic. Firms are looking to work their offices harder, but still offer some flexibility to staff.”

Interestingly though, the survey did show that of the smaller firms surveyed (up to 10,000 employees), 55% were expecting to increase their global office space.

UK Hotel transactional activity

According to the recently released ‘UK hotel market overview’ from leading hotel agency and investment property practice Avison Young Hotels, transactional activity this year has slowed, with Q1 2023 figures down 33% year-on-year. This slowdown has been attributed to ‘interest rate increases in response to high inflation and the increasing cost of debt.’

Despite the evident slowdown, strong demand for regional asset sales was a theme at the start of the year – the 232-room Queens Hotel in Leeds and the 201-room Grand Hotel in Brighton were snapped up for approximately £53m and around £60m respectively. Both locations have benefited from the increase in demand for domestic leisure following the pandemic and are key landmarks in both destinations.

London remains a core driving sub-market, exemplified by the recent acquisition of the Covent Garden Hotel for £55m, the highest per key (£948,000) for the property to date, reinforcing ‘the strength of the luxury boutique hotel sector.’ Other significant London sales this year include a 192-room hotel in Finsbury Park (£44.3m) and a 75-unit Native Bankside aparthotel (£41m).

Bank Rate increases are expected to prompt property owners to retain assets until the economy stabilises. It is anticipated that due to increasing financial and operating costs, some owners will have to sell or consolidate their portfolios and that ‘opportunistic cash buyers are circling in the hope that they may at last be able to secure distressed or underperforming assets at a discount.’

All details are correct at the time of writing (21 June 2023)

Wealth – Financial wellbeing – engage your mind

Couple looking at their financial wellbeing

Financial wellbeing – engage your mind

Having your finances in order brings tremendous peace of mind. Financial wellbeing varies from person to person but fundamentally encompasses having security around money, now and in the future, plus knowing what makes us happy, and having money goals in place to achieve this happiness¹.

The combination of money and mindset is crucial, findings show that even if an individual feels confident about their money ‘building blocks’ (income, long-term savings, safety net, debt awareness, assets), they won’t achieve optimal levels of financial wellbeing without a well-considered and focused mindset too; think ‘happiness, future self, written plans, long-term perspective’.

Aegon’s Wellbeing Index also shows that being a high earner doesn’t necessarily equate to being a long-term saver. If a saver has a connection to their future self and understands what gives them joy and purpose, they find long-term perspective. Being one of the highest earners doesn’t necessarily mean that they have long-term perspective. ‘The wealth accumulator’ persona for example has a high level of wealth now and probably in the future, but when it comes to creating a healthy financial mindset, they might not have spent the time thinking, ‘what’s it all for?’ and truly connecting with the mindset element of financial wellbeing.

¹Aegon, 2022

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

“We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system”

New gross domestic product (GDP) figures released last week show the UK economy is estimated to have grown by 0.2% in April, following a fall of 0.3% the previous month, according to the Office for National Statistics (ONS). The latest data also revealed that GDP rose by 0.1% in the three months to April.

The service sector was the main contributor to the uptick in growth, expanding 0.3% in the month, with consumer-facing services experiencing an especially large boost, growing 1.0% in April, following a fall of 0.8% in March. Robust trade in bars and pubs helped support growth in the sector. Meanwhile, growth in the construction sector faltered, falling 0.6% in April (following 0.2% growth in March) as rising interest rates and mortgage costs weigh on sentiment. Production output registered a 0.3% fall in growth during the month, following growth of 0.7% the previous month.

According to Chancellor Jeremy Hunt, the overall GDP figures demonstrate an “underlying resilience”, although he did caution that inflation remains a “big issue,” for the country, before adding, “We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system, and that is our primary focus.”

Fed and ECB take their next steps

As widely expected, the Federal Reserve kept US rates unchanged at their meeting last week, the first time since March 2022 that the Fed concluded a meeting without raising rates. However, there are clear signals of potential increases ahead, with the majority of Fed officials anticipating a climb in rates from their current level of 5.00% – 5.25%, with expectations of two more hikes by year end. The central bank released a statement following the meeting concluding, ‘Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.’

The news came just after US inflation data showed that the rate fell to 4% over the 12 months to the end of May, down from 4.9% in April. The 11th consecutive month that price increases have eased, price reductions to eggs, petrol and furniture helped cut inflation to less than half of its peak a year ago.

On the continent, the Governing Council decided to raise the three key European Central Bank (ECB) interest rates by 25 basis points on Thursday, in an effort to return inflation to its 2% medium-term target in a ‘timely manner.’ Headline inflation is expected to average 5.4% this year, before tempering to 3.0% next year. The move was in-line with expectations. With the main rate now sitting at 3.5%, the ECB has hiked rates at eight consecutive meetings since July last year. The benchmark rate is at its highest in 22 years. Christine Lagarde, ECB President indicated that a further rate hike next month was “very likely,” before adding, “We are not thinking about pausing,” which aligns with earlier comments saying the central bank still had “ground to cover” in its efforts to sufficiently restrict interest rates.

NI deadline extended to 2025

Last week the government announced a further extension for people to fill in gaps in their National Insurance (NI) record, which may increase their State Pension entitlement. Already extended to 31 July 2023, the further extension to 5 April 2025 has been applied to give people more time ‘to properly consider whether paying voluntary contributions is right for them and ensures no-one need miss out on the possibility of boosting their State Pension entitlements.’ Financial Secretary to the Treasury, Victoria Atkins, commented on the announcement, “With the deadline extended, there is no immediate rush for people to complete gaps in their record and they will have more time to spread the cost.”

Homeowners risk raiding savings to cover mortgage costs

The Institute for Fiscal Studies (IFS) released analysis last week that indicates the surge in mortgage costs will result in almost three million homeowners wiping out their savings to meet unexpected expenses of around £2,000. In addition to dipping into savings, the think tank expects people to resort to borrowing on credit cards, taking out personal loans, or asking friends and family to provide financial support.

Here to help

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

All details are correct at time of writing (21 June 2023)

News in Review

“The Atlantic Declaration sets a new standard for economic cooperation”

Rishi Sunak made his first trip to the White House as Prime Minister last week. His whirlwind two-day visit was meeting-filled, with US President Joe Biden saying that “important and positive discussions” had taken place “to deepen our bilateral economic relationship and expand our cooperation to shape the challenges and future for the remainder of this century.”

On Thursday an ‘Atlantic Declaration’ was signed, pledging agreements on a series of mini deals covering areas such as data protection, Artificial Intelligence (AI), critical minerals for electric car batteries, clean energy, easing trade barriers and closely aligning defence strategies. The UK government hailed it a ‘Declaration for a Twenty-First Century US-UK Economic Partnership,’ with the objective to ensure that ‘our unique alliance is adapted, reinforced and reimagined for the challenges of this moment.’

The agreement outlines the purposeful and coordinated action to deepen the transatlantic partnership across five pillars:

Building the clean energy economy of the future

Partnering on an inclusive and responsible digital transformation

Advancing cooperation on economic security and technology protection toolkits and supply chains

Ensuring US-UK leadership in critical and emerging technologies

Strengthening the alliance across defence, space and health security.

Mr Sunak highlighted that $17.5bn of new US investment had been committed to the UK during the trip and commented, “The Atlantic Declaration sets a new standard for economic cooperation, propelling our economies into the future so we can protect our people, create jobs and grow our economies together.”

The Prime Minister followed this in his keynote speech opening London Tech Week, stating his goal for the UK “is to retain our position as one of the world’s tech capitals… and make this the best country in the world to start, grow, and invest in tech businesses.”

Eurozone enters recession

Official data released last week showed that the eurozone slipped into recession early in 2023. In Q1, economic output in the 20-country zone reduced by 0.1%, following a 0.1% contraction in Q4. A technical recession is typically defined as two consecutive quarters of negative economic growth in real GDP. The combination of high inflation, monetary tightening, energy shocks and the war in Ukraine, tipped the eurozone into a shallow recession, according to revised data from the EU’s statistics office. The report highlighted mixed country performances across the region, with southern European economies such as Portugal, Italy and Spain registering strong growth rates, while the Netherlands and Germany shrank. France posted mild growth.

The European Central Bank’s (ECBs) next monetary policy meeting is due to take place on Thursday 15 June.

House prices register first annual fall in 11 years

According to the Halifax House Price Index of May, although house prices were largely unchanged in the month, the annual growth rate reduced to -1.0%, marking the first time since 2012 that house prices have fallen year-on-year. According to the Index, the average UK property now costs £286,532, compared to £286,662 in April. From a regional perspective, the figures show that house prices in the south of England remain under the greatest pressure, while Wales is the only region of the UK where house price growth didn’t weaken. Annual growth for Northern Ireland was 1.5%, down from 2.7% the previous month and in Scotland, annual growth was 1.3% (down from 2.2% in April).

Kim Kinnaird, Director at Halifax Mortgages, commented on the most recent dataset, “As expected the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding through to household budgets, and in particular those with fixed rate mortgage deals coming to an end.”

Looking ahead, with inflation remaining high, Ms Kinnaird added, “Markets are pricing in several more rate rises that would take Base Rate above 5% for the first time since the start of 2008. Those expectations have led fixed mortgage rates to start rising again across the market. This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations, and latest industry figures for both mortgage approvals and completed transactions show demand is cooling. Therefore, further downward pressure on house prices is still expected.”

Here to help

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

All details are correct at time of writing (14 June 2023)

We speak your language

Financial jargon can be confusing and overwhelming. A new study¹ has revealed that seven in ten UK adults are puzzled by financial jargon.

Age gap

The research also found that those aged under 25 are least likely to feel puzzled by financial jargon, with around half (52%) of those aged 18 to 24 stating this, compared to 69% across all age groups. However, there may be an explanation as to why this age group are less confused by financial jargon – they simply might not have heard of certain financial products or terms. For example, less than two thirds of UK adults (61%) in this age group report hearing the term ‘pension’ compared to 97% of those aged 55 and above. In contrast, 18 to 24-year-olds are the group most likely to be aware of the term ‘ESG fund’ (Environmental, Social and Governance).

But even if you have heard a term, it doesn’t necessarily show that you understand its meaning. Just 61% of people who are aware of an ‘ESG fund’ feel confident of its meaning.

Lost in translation

One of the biggest challenges when it comes to financial jargon is that it often feels like a language unto itself. Even if you’re a skilled communicator in other areas, financial terminology may use specialist jargon that can leave you feeling lost.

Ultimately, it’s important to remember that financial jargon is a tool for communicating complex concepts and ideas. We can explain everything you need to know in plain English. Get in touch – whatever your age!

¹Aviva, 2022

Don’t risk living without home contents insurance

One in five 18 to 24-year-olds plan to cancel their home contents insurance at renewal to save money, according to new research¹.

Risky game

As well as highlighting current cost-of-living concerns, the statistic reveals a worrying picture for young people who plan to abandon protection.

Home contents insurance can be a shrewd financial investment because it protects you from the worst-case scenario of having to replace costly contents, maybe all at once.

Cost effective

With policies starting from just over £1 a week, the expense is low in proportion to the peace of mind that home contents insurance provides.

Indeed, the average price paid for home insurance has fallen to its lowest levels in at least a decade, according to the Association of British Insurers (ABI)².

Get advice

Before you ‘opt out’ of your home contents insurance, it is helpful to think of the bigger picture and develop a plan to balance all your financial commitments.

¹GoCompare, 2023, ²ABI, 2023

Transferring wealth in the way you want

With the coming years set to see record flows of assets pass down the generations, the thorny issue of wealth transfer has inevitably become an increasingly important financial topic. Seeking professional advice is a crucial step that can ease any inheritance planning anxieties and facilitate the transfer of assets in the way that you want.

‘Great wealth transfer’

The next three decades are set to witness the largest ever intergenerational transfer of wealth as baby boomers pass on assets to their heirs. Analysts have dubbed it the ‘great wealth transfer,’ with trillions set to cascade down the generations.

Intergenerational mismatch

A new survey¹, however, highlights baby boomer concerns about how their money may ultimately be spent. According to the research, a third of baby boomers are reluctant to pass wealth to someone whose attitude to money differs from their own; additionally, Gen Z were found to be much more likely to adopt a short-term financial outlook than their forebears. Researchers fear this disparity in attitudes could therefore impact older generations’ wealth transfer decisions.

Bridging the divide

While such differences could create intergenerational conflict, we can help alleviate any issues by building cross-generational connections and ensuring any asset transfer is conducted in a way that meets your specific needs. Developing relationships with your beneficiaries to ensure younger generations will receive financial decision-making support can create invaluable peace of mind for both you and your heirs.

Inheritance options

A range of options are available for people looking to transfer wealth, with lifetime gifting amongst the popular methods of passing on money. Complexities with Inheritance Tax and rules in establishing trusts, though, mean sound advice is critical in order to adopt the most efficient approach.

Here to support you

All the evidence suggests developing strong relationships is key to the success of intergenerational financial planning. So get in touch and, with our support, you and your family can work towards determining and achieving your inheritance planning objectives.

¹abrdn, 2023

News in review

“America can breathe a sigh of relief”

Last Thursday, the US Congress approved a deal to lift the country’s borrowing limit, thereby averting a crisis mere days before the country was due to default on $31.4tn of debt.

The bipartisan deal passed through the Senate by 63-36, after navigating the Republican-controlled House of Representatives by 314-117 a day earlier. The deal gained support from both sides, though some hardliners tried to vote it down in the hope of forcing deeper spending cuts and more stringent reforms. President Joe Biden signed the deal into law on Saturday.

The deal allows the Federal government to borrow money until after the next presidential election in November 2024. This money is needed for paying for Federal employees, the military, Social Security and Medicare, as well as interest on the national debt and tax refunds.

The final agreement also includes deals on defence, COVID funds and taxes, some of which proved more controversial. Non-defence spending will flatline next year, with a 1% rise in 2025; unspent COVID funds will be returned to the Federal government and an $80bn budget has been agreed for the next decade to help the Internal Revenue Service (IRS) enforce last year’s Inflation Reduction Act.

If the deal had fallen through, the government’s inability to borrow more money would have had a severe effect on the US economy, with far-reaching ramifications for the global economy. Senate Majority Leader Chuck Schumer said, “America can breathe a sigh of relief. For all the ups and downs and twists and turns it took to get here, it is so good for this country that both parties have come together at last to avoid default.”

UK retail spending

Retail sales in the UK rose 3.7% on a like-for-like basis in May 2023 from a year ago, according to data released by the British Retail Consortium (BRC) on Tuesday. This is slower than the 5.2% growth recorded in April despite three public holidays. Analysts suggest soaring food prices prompted shoppers to rein in spending on non-essential items.

BRC Chief Executive Helen Dickinson said, “With consumer confidence still recovering from record depths, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months.”

Strong car sales

New car registrations rose by 16.7% year-on-year to reach 145,204 in May 2023, according to the Society of Motor Manufacturers and Traders (SMMT). This was the tenth successive month of growth, though sales remain 21% below pre-pandemic levels.

The figures are evidence of easing supply chain issues, according to Mike Hawes, Chief Executive of the SMMT. He commented, “After the difficult, COVID-constrained supply issues of the last few years, it’s good to see the new car market maintain its upward trend.”

Transactions take a tumble

The UK is experiencing a marked fall in housing transactions, figures released last week by HM Revenue & Customs seem to suggest. The provisional non-seasonally adjusted estimate of the number of UK residential transactions in April 2023 was 67,220, 32% below the total recorded a year earlier and 29% lower than in March 2023.

Amid this slowdown and fears of a further Bank Rate rise in June, hundreds more mortgage deals have been withdrawn by lenders. Compared to 5,385 residential mortgage deals available on 22 May (two days before the inflation data was released), there were 4,686 available on Monday.

Also on Monday, the average rate on a new two-year fixed mortgage was 5.72%, according to Moneyfacts, half a percentage point higher than at the start of May. In response to rising rates, record numbers of mortgage applicants are now opting for loans of over 30 years in an attempt to make their monthly payments more affordable.

Here to help

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

All details are correct at time of writing (7 June 2023)

Crystal clear decision-making

In today’s increasingly complex and challenging world, financial advice to help people navigate through life’s journey is more important than ever; a point vividly highlighted by a new study from the Financial Services Compensation Scheme (FSCS)¹ which raises fears over the consequences of a worrying financial ‘advice gap’.

Scammers’ paradise

FSCS research shows that almost two-thirds of UK adults with savings, investments or a mortgage have not sought regulated financial advice in the last five years. Caroline Rainbird, Chief Executive of FSCS, warned that this financial ‘advice gap’ is a concern, as it puts people “at greater risk of making poor decisions about their money” by leaving them open to scammers who “prey on people’s fears and exploit any gaps in their financial knowledge.”

We can support you

This warning highlights the key role we can play in helping people like you take control of your finances. Expert advice provides clarity to financial decision-making and thereby works towards ensuring people avoid taking any undue risks or make costly mistakes with their hard-earned cash.

Advice is for all

Another worrying finding from the FSCS survey was that over half of all adults who hold a financial product believe professional advice is just for the wealthy. This is clearly a commonly held misconception, but the reality is that everyone can benefit from expert help, not just wealthy individuals holding a complicated array of assets.

Building a relationship

Taking the time to construct a clear and tailored plan that meets each client’s unique set of needs and circumstances is the key to making sound financial decisions. In addition, developing a strong and enduring relationship by holding regular reviews builds in the flexibility for plans to be adapted when life events inevitably dictate change.

Time for a review

We’re always here to help bring clarity to your financial decision-making as you progress on life’s exciting journey. So please do get in touch – it would be great to talk with you.

¹FSCS, 2023