Residential Property Review – May 2023

Mixed market signals in May 

Recent releases from Savills presented mixed signals for the residential market, with the UK Housing Market Update pointing to recovering market activity in May, even as the English Housing Supply Update for Q1 2023 revealed a quarterly drop of 20% in new homes completed. 

The number of new sales agreed in April was just -6% below the 2017-19 average for the month, according to TwentyCI. Two further indicators that have remained robust are mortgage approvals and completed sales volumes – the former rose to 85% of the 2017-19 average in March, according to the Bank of England, and the latter to 96% of the pre-pandemic average for March, according to HM Revenue & Customs. 

In contrast, after a near-record number of new homes were built in 2022, Q1 2023 saw the number of new homes completed decline by 20% compared to Q4 2022. Only 246,700 new homes were completed in the year to March 2023, 2% below the previous annualised quarter. 

Detached homes best performer in past decade 

The average price of UK detached homes has increased by 74% in the past decade, according to new research by easyMoney, making it the house type with the largest value increase over that period. 

Semi-detached homes now sell for 71.4% more than they did in 2013, while terraced homes have increased by 67.6% and flats by 51%. 

Jason Ferrando, CEO of easyMoney commented, “This research demonstrates just how secure property investment is in this country. Flats are, in general, an outlier. While all other property types enjoyed massive price boosts during the pandemic, flats recorded only their third-highest growth of the decade. This is because the pandemic and lockdowns instigated a race for space that flats simply cannot satisfy, and also because of the external cladding issues highlighted by the Grenfell tragedy and which continue to haunt high-rise buildings to this day.” 

Strongest post-Brexit year for London’s super-prime market 

London’s £10m-plus property market recorded its strongest performance since the 2016 Brexit vote in the year to March 2023. 

The lifting of pandemic restrictions and a more stable business environment paved the way for £3.1bn to be spent on 161 super-prime properties in the year to March 2023. This was significantly higher than the £2.5bn and 144 transactions in the previous 12-month period; sales had not been so high since 2015-16. 

There were 52 sales at £8m+ outside of London in the 12 months to March 2023, a yearly increase of 16% and the highest total in 15 years. Prime property outside London remains subject to strong competition, thanks to tight supply and resilient demand. 

All details are correct at the time of writing (24 May 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 – May 2023

Spotlight on UK retail 

The recently released shopping centre and high street spotlight from Savills for Q1 has highlighted that although the UK retail investment market has faced challenges, the occupational market has remained buoyant. 

From a volume perspective, emphasising consumer cautiousness in the face of high inflation, retail sales declined 3.2% year on year in March, however a marginal 0.6% uptick was recorded in Q1, the first Q1 improvement since August 2021. 

Value retailers spearheaded the sector outperformers. Primark is one such success story, registering a 19% uplift in its half-year figures to March 2023, and Pepco, owner of Poundland recorded Q1 revenue growth of 8.5% year-on-year. Value pharmacy chain Superdrug plans to open 25 new stores this year and value clothing retailer Peacocks looks set to take over 20 recently closed M&Co stores.  

Looking forward at retail consumer and occupational trends, the report lays out a brighter outlook, as improving consumer confidence and ‘marginal deflation’ indicate ‘healthier times for retail are imminent.’  

Stabilising L&I investment volumes 

One of the key findings from Cushman Wakefield’s UK Logistics and Industrial (L&I) National Outlook for Q1 has highlighted that although investment volumes have remained subdued, with just 53 transactions recorded during the period (versus 73 transactions in Q4 2022), sentiment has stabilised during Q1 with ‘pockets of cautious optimism returning to the market amidst improvements in headline economic indicators.’  

Total investment volumes in the quarter fell to £1.2bn, the lowest quarterly value recorded since Q2 2020, a result of ‘sustained price discovery’ in the sector, as the gap between purchaser and vendor aspirations narrows.  

The repricing of UK L&I assets, following the economic turmoil of September’s mini-budget and monetary policy tightening, is beginning to see results according to the report, and ‘induce quiet optimism.’  

Ed Cornwell, International Partner, Logistics & Industrial Cap Markets commented on the current state of investment volumes in L&I, “The sector’s rapid repricing has begun to attract investors back to the market, resulting in a cautious improvement in sentiment. Pricing models continue to be subject to wider economic factors but changes to investment strategy and risk appetite are beginning to bed in as investors adjust.”  

Grade-A office space reduces in Scotland  

Data from property services firm JLL has shown an increase in lease renewals in Glasgow and Edinburgh because of a lack of what it calls ‘flexible, sustainable office space.’  

In the capital, a combination of limited choice and economic uncertainty caused lease renewals to reach a record high of over 350,000 sq. ft last year, a trend continuing into 2023 with nearly 100,000 sq. ft of regears completing in Q1. And in Glasgow, a healthy Q1 take up of 60,000 sq. ft was accompanied by a further 35,000 sq. ft of lease renewals.  

All details are correct at the time of writing (24 May 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. 

Landlords tune in?

More than two in five landlords are not aware of the proposed Renters’ Reform Bill, a new study1 has claimed, despite the impact it will have on their portfolios. Should landlords be worried? 

What could change? 

The proposed legislation, which is set to be voted on before May 2023, includes many significant elements. If passed in full, the act will: 

  • Scrap section 21 ‘no fault’ evictions 
  • Create a register of landlords 
  • Introduce a private rented ombudsman to help enforce renters’ rights 
  • Make it illegal for landlords and agents to refuse to rent properties to people who receive benefits 
  • Give local authorities more power to enforce and protect renters’ rights. 

What do landlords think? 

The survey found that 47.55% of landlords are ‘Strongly Concerned’ or ‘Concerned’ about not being able to refuse to rent properties to people who receive benefits. 

Similarly, landlords are worried about changes to section 21 evictions (45.45%), private rented ombudsman (43.86%), property registration (42.65%) and the right to request a pet in their house (41.45%). 

Increased pressure to remain compliant will add to the pressures placed on landlords and could lead to some selling up, the study suggests. 

1Finbri, 2023 

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

Offsetting fiscal drag

The gradual reduction of disposable income due to inflation and changes in tax brackets, or frozen tax allowances, will weigh on your finances, causing ‘fiscal drag.’  

By implementing various strategies, you can potentially reduce the impact of fiscal drag on your investments and increase your chances of achieving your long-term financial goals.  

The worst thing to do is – nothing. By succumbing to inertia, you are more likely to pay increased levels of tax, whether in relation to Income Tax due to the frozen personal allowances and reduced Dividend Allowance, or other taxes including Capital Gains Tax (CGT) and Inheritance Tax (IHT).  

The good news – there are legitimate mitigation strategies and, depending on your personal circumstances, allowances and tax reliefs available. By using your Individual Savings Account (ISA) allowance or making your pension contributions early in a new tax year, you could benefit from extra potential growth, as well as receiving an element of your tax relief earlier on your pension and any pension contributions. Consider tax-efficient investments, diversify your portfolio and rebalance regularly to ensure your asset allocation remains aligned with your objectives and attitude to risk; rebalancing will help minimise the impact of fiscal drag over time.  

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

News in review

“The sky’s the limit for British and Japanese businesses and entrepreneurs”

Rishi Sunak attended the G7 Summit in Hiroshima on Thursday, stopping off in Tokyo to agree new defence and economic deals; a UK business summit for Japanese corporations in the capital has resulted in a reported £18bn investment in UK property, windfarms and other projects.

Over half the investment is earmarked for green hydrogen and offshore wind projects in Wales and Scotland, with £4bn for offshore wind projects off the Suffolk and Norfolk coastlines. According to Mr Sunak, the investment is a “massive vote of confidence in the UK’s dynamic economy… The sky’s the limit for British and Japanese businesses and entrepreneurs.” UK-Japan partnerships were also announced between semiconductor companies, armed forces and cyber-agencies.

At the summit, attention turned to relationships with China, with a communiqué stating that the G7 wanted ‘constructive and stable relations’ with Beijing. The G7 nations also reaffirmed their commitment to countering Russia’s aggression, with a visit from Ukraine’s President Zelensky stealing many of the headlines.

Adjusting Bank Rate “as necessary”

Speaking at the British Chambers of Commerce (BCC) Global Annual Conference last week, Andrew Bailey, Governor of the Bank of England (BoE), addressed the current state of the UK economy.

He spoke about the Bank’s commitment to return inflation to its 2% target, reassuring the audience that the Monetary Policy Committee (MPC) will take strides to adjust Bank Rate “as necessary”. He reiterated that further monetary policy tightening would be required “if there were to be evidence of more persistent pressures.”

Referring to the recent Monetary Policy Report (MPR) released in mid-May, which signalled a u-turn in UK growth expectations this year, Mr Bailey noted that the forecast is for modest growth. Commenting that the improved outlook is reflective of the reduction in wholesale gas prices, he elaborated, “There has also been greater resilience in the economy than we had expected. We can see that in the employment and unemployment numbers that have been stronger than expected. Fiscal policy has also given a boost to the economy and global growth has been holding up better than we thought particularly in the euro area and China.”

Referring to high food prices and their continuing impact on inflation in the UK, Mr Bailey said that expectations are for inflation to fall “sharply” as the year progresses. Data released by research firm Kantar confirmed that the rate at which food prices is rising fell for a second consecutive month in May. However, the data also revealed that there is a long way to go; prices were up by 17.2% from a year ago in the four weeks to the middle of May, only marginally below 17.3% recorded last month.

Boost to consumer confidence

Meanwhile, UK consumer confidence improved in May, according to GfK’s latest index. This is a fourth consecutive monthly rise, a climb of three points to -27, the highest since February 2022.

Commenting on the data, Joe Staton of GfK, said, “The cost-of-living crisis has been part of our daily financial reality for a long time, with double-digit inflation and record-high food prices. But despite those pressures, May sees an encouraging three-point uptick in consumer confidence. The headline score of -27 means we’re still deep in negative territory and a long way from any ‘sunny uplands’. However, the overall trajectory this year is positive and might reflect a stronger underlying financial picture across the UK than many would think.”

Borrowing at near-record highs

The UK government borrowed £25.6bn in April, a year-on-year rise of £11.9bn, according to data released by the Office for National Statistics (ONS). Although analysts were factoring in that inflation would push up interest payments on debt, the figure still beat expectations for the month. The costs of energy support schemes and increases in benefits also played a role in pushing borrowing to its second-highest April total since records began in 1993.

Reflecting on the figures, Chancellor Jeremy Hunt said, “Debt and borrowing remain too high now – which is why it’s one of our priorities to get debt falling. We’ve taken difficult but necessary decisions to balance the nation’s books, and if we stick to our plan and get our economy growing, then debt is set to fall.”

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 (24 May 2023)

News in Review

“We have to stay the course”

As widely expected, the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted to increase Bank Rate by a quarter of a percentage point to 4.5%, at its meeting last week. Seven members of the committee voted to raise the rate, while two members favoured maintaining Bank Rate at 4.25%.

The twelfth consecutive rise, borrowing costs are now at their highest level since October 2008. The Bank has been raising rates in an attempt to lower inflation, which it now expects to fall more slowly than previously hoped. By the end of 2023, inflation is predicted to sit above 5%, contrary to its February forecast which cited ‘below 4%’ by year end. A resilient labour market and high food prices continue to impact. During a press conference following release of the MPC minutes, Andrew Bailey, BoE Governor, commented, “We have to stay the course to make sure inflation falls all the way back to the 2% target,” before stressing that the BoE was not making any indications about its next move, which would be data dependent.

In welcome news, the central bank lifted its economic outlook for the UK, predicting a recession will be avoided. GDP is expected to expand by 0.25% during 2023, better than the 0.5% contraction previously forecast. Bailey defended the u-turn in the Bank’s growth forecast, saying its “biggest upgrade” ever reflected the rapidly shifting economic landscape, with energy prices falling and economic activity stronger than expected.

Chancellor of the Exchequer Jeremy Hunt said it was good that the BoE is “no longer forecasting recession,” but added, “Today’s interest rate rise will obviously be very disappointing for families with mortgages, but unless we tackle rising prices, the cost-of-living crisis will only carry on – which is why we need to be resolute in sticking to our plan to halve inflation by the end of the year.”

The next MPC meeting is scheduled to conclude on 22 June.

US inflation below 5%

Price rises in the US fell to their lowest point in two years, according to official figures released last week, with milk and new cars driving inflation down to 4.9% in the year to April. This is the tenth consecutive month that price rises have slowed, after having peaked last June at 9.1%.

Meanwhile, US Treasury Secretary Janet Yellen is urging Congress to agree to raise the country’s debt ceiling. Should an agreement to increase the ceiling, which has been raised, extended or revised 78 times since 1960, not be forthcoming, the Federal Government could run out of money by early June.

UK GDP

The UK economy grew by 0.1% between January and March, according to data released by the Office for National Statistics (ONS) on Friday. The figures revealed that the economy contracted by 0.3% in March, as car sales and the retail sector suffered a bad month; other explanations for the slow quarter include strikes, cost-of-living pressures and the wet weather. The economy is still 0.5% smaller than pre-pandemic levels, the ONS said, and performed worse in the first quarter than other major economies, except Germany.

Record number of long-term sick

On Tuesday, the ONS released data that revealed employment edged up to 75.9% in the first three months of 2023. Despite that, the number of people not working due to long-term sickness rose to a record high of 2.55 million.

The rising employment rate was attributed to an increase in part-time employees and self-employed workers, though the unemployment rate also rose slightly to 3.9%. Meanwhile, vacancies fell on the quarter for the tenth consecutive period.

Neil Carberry, Chief Executive at the Recruitment and Employment Confederation, commented, “These figures show some gentle progress on bringing people back to the labour market, but we should be concerned by the high number of people who are economically inactive because they are sick, and progress on tackling inactivity overall is too slow.”

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 (17 May 2023)

On the trail of unpaid IHT

HMRC has set up a new specialist team to target estates of wealthy deceased individuals in order to check whether a greater Inheritance Tax (IHT) liability may have been due than originally calculated by estate executors. This clampdown has seen record amounts of unpaid tax being clawed back by HMRC with levels expected to rise further in the coming years. 

Record sums recovered 

Data obtained through a Freedom of Information request has revealed that a total of £326m was collected by HMRC as a result of targeted IHT investigations in the year to March 2022. This was the largest amount ever recovered and represents a 28% increase on the amount raised by investigators in the previous 12-month period. 

Threshold freeze 

The standard IHT rate is currently 40%, paid on the value of any estate above £325,000; in addition, homeowners benefit from an extra £175,000 allowance if they pass on their primary residence to a child or grandchild. These thresholds, however, have been frozen until 2028, which inevitably means more people are likely to be dragged into the IHT net. In 2021-22, families collectively paid £6.1bn in death duties, up from £5.4bn the previous year, and monthly data up to December suggests the figure for 2022-23 will be even higher. 

Complex rules 

More than 13,000 individuals have been embroiled in IHT investigations since 2019. While some of these bereaved families may have acted deliberately, others are likely to have made innocent mistakes and simply fallen foul of IHT rule complexities. Two areas where mistakes commonly occur relate to the provision of lifetime gifts and the valuation of personal possessions. 

We’re here to help 

If you have any concerns or need advice on any aspect relating to IHT then do get in touch; we’re always happy to help. 

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

News in Review

“May has the potential to be a historic month for the hospitality sector, which is set for one of its busiest times in recent memory”

The Coronation of King Charles III was expected to bring an additional £180m to UK hospitality and leisure businesses over the long weekend, according to recent estimates from Barclays. The same report noted that almost three in five UK small and medium-sized businesses (SMEs) expect revenues to increase on a quarterly basis in Q2 2023.

James Hardiman of the British Retail Consortium commented, “Retail sales are usually boosted by large national events. Given the King’s Coronation will be such a historical event, we expect an even larger uptick.”

Alongside other major boosts for hospitality, including the May bank holidays and Eurovision Song Contest, taking place in Liverpool, the Coronation could be part of a bumper month for hospitality, analysts are predicting. Data from UKHospitality released at the start of the month estimated the total boost to the sector could be as high as £1bn.

Kate Nicholls, Chief Executive of UKHospitality, commented, “May has the potential to be a historic month for the hospitality sector, which is set for one of its busiest times in recent memory. We know the British public turn out in their droves for big events and we expect the Coronation and Eurovision to be no different.”

Housing market shows recovery signs

Last Wednesday, data from Nationwide showed that UK house prices rose by 0.5% in April, an unexpected jump after seven consecutive monthly falls. As a result, the annual rate of house price growth was -2.7% in the month, a slight improvement from -3.1% in March.

Amid predictions of falling inflation, signs of an improving economic outlook and less pessimistic consumer sentiment, analysts are now discussing the possibility of ‘a modest recovery in housing market activity’.

Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said, “While annual house price growth remained negative in April at -2.7%, there were tentative signs of a recovery with prices rising by 0.5% during the month (after taking account of seasonal effects). April’s monthly increase follows seven consecutive declines and leaves prices 4% below their August 2022 peak.”

FCA stock listing rules

The Financial Conduct Authority (FCA) announced plans last week to simplify rules relating to stock market listings, a response to recent high-profile businesses opting to list in the US instead.

Hoping to attract more companies to list shares on UK stock markets, the FCA said its proposals would simplify regulations and help make the UK ‘more competitive’ with stock markets abroad. The proposals include replacing two listing categories with one and removing mandatory shareholder votes on transactions such as acquisitions.

Nikhil Rathi, Chief Executive of the FCA, said the new rules would “make it easier for companies to join the market quicker.” Others have raised concerns about the erosion of shareholders’ rights.

Retail sales flat

UK retail sales growth flatlined in April, according to the BRC-KPMG Retail Sales Monitor, which was updated on Tuesday. Total retail sales rose by 5.1%, repeating the rate of growth recorded a month earlier.

Food sales drove overall growth, with an increase of 9.8% on a total basis and 10% on a like-for-like basis over the three months to April. Non-food sales increased by 1.2% (total) and 0.8% (like-for-like), with in-store non-food sales rising by 3.9% (total) and 3.3% (like-for-like), compared to a 3.6% decline in online non-food sales.

After inflation fell by less than expected last month, supermarket chain Sainsbury’s announced separately on Tuesday that it was reducing the prices of staple items such as bread and butter.

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 (10 May 2023)

Home Finance – In the news

Buyers priced out 

Some 41% of participants in a recent survey1 agreed with the statement, ‘I cannot afford to live in the area I want or need to live in’. Many renters and homeowners alike were unhappy with their current location, with job opportunities (37%), proximity to friends and family (35%) and a better lifestyle (29%) the key reasons for wanting or needing to move elsewhere. 

Holiday lets bounce back 

In the early weeks of this year, 173 more mortgage options were on the market for holiday let borrowers than in October 20222, and a broad range of fixed and variable options remain available now. After the September ‘mini-budget’, the range plummeted to only 26 lenders, but investors’ appetites have picked up as ‘staycations’ remain a popular holiday choice. 

Hard resell for new builds 

One in eight new-build homes are being resold at a loss, figures show3, with flats making up more than four-fifths of these loss-making sales. The average new-build property lost 7.8% (£22,000) of its value, with the typical sale taking place after 8.8 years. New builds are often sold at a premium, which can mean prices fall back to market rate when resold. 

1kindroom, 2023 

2Moneyfacts, 2023 

3Hamptons, 2023 

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

Money – In the news

Digital pound likely this decade 

The Treasury and the Bank of England have started consultations on a potential digital pound, or central bank digital currency (CBDC), that could be used by households and businesses instead of cash for everyday payments in-store and online. Chancellor Jeremy Hunt said, “We want to investigate what is possible first, whilst always making sure we protect financial stability.” He added that CBDC could be a new “trusted and accessible” way to pay. No decision has been taken at this stage when to introduce CBDC and it is unlikely to be built until at least 2025. 

Are you a financial secret keeper? 

Research1 has shown that nearly two in five people in a relationship in the UK are committing ‘financial infidelity’ which includes ‘deceptions’ such as having secret credit cards or savings accounts and hiding purchases from partners. Although just over two thirds of couples (67%) have a joint current account and 51% have joint savings accounts, 38% of those surveyed have ‘money stashed away’ that their partner is unaware of. For 32% of respondents, their motivation for having a secret account is because they want to keep some control, or maintain some independence of their finances, while a quarter (25%) want to be able to treat themselves without their partner knowing. 

1Aviva, 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.