Residential Property Review – February 2023

Housing market continues slowdown

According to the latest UK Residential Survey from the Royal Institution of Chartered Surveyors (RICS) new buyer demand, sales, fresh listings and prices are all on a downward trend.

January saw the ninth successive negative monthly reading for new buyer enquiries, with contributors to the survey in all parts of the UK reporting either a fall in demand or stagnation in enquiries. Alongside this, respondents continued to see a drop in the volume of fresh listings coming onto the sales market.

RICS report that twelve-month price expectations remain firmly negative, with a headline net balance of -40%. However, this is less downbeat than readings of -61% and -57% posted in November and December respectively.

Separate figures from the Bank of England show net borrowing of mortgage debt by individuals decreased from £4.3bn in November to £3.2bn in December and mortgage approvals dropped from 46,200 to 35,600 in the same period, the lowest since May 2020.

Energy-efficient homes hold value

Home buyers are increasingly factoring in energy costs when making homebuying decisions, resulting in energy-efficient homes outperforming other properties during the current market slowdown.

Six out of 10 estate agents said homes with high energy-efficiency ratings were holding their value, according to Zoopla. Four out of 10 said they were seeing more interest in energy-efficient homes from potential buyers.

The government’s Energy Price Guarantee has kept bills lower over the winter months but the guarantee will change in April when the average annual bill for gas and electricity is expected to jump to around £3,000.

If you’re selling or renting a property, it’s a legal requirement to have an up-to-date EPC rating. A is the most efficient EPC rating and G is the least efficient. While 80% of new-build homes have an EPC rating of A or B, only 3% of older properties have a rating this high.

Cost of renting soared in 2022

Research by Zoopla has found that rent increases in 2022 were at their highest level for the last decade. In December, the UK average rent was £1,118 per month which is 11.5% or £120 higher than a year previously. 

The average monthly rent in London was £1,976 and the capital also saw the highest rent increase in the UK with annual growth of 16.1%. Rents also soared in other major cities such as Manchester (£977 per month and 14.8%), Glasgow (£844 per month and 13.1%) and Edinburgh (£1,130 per month and 12.7%).

The soaring cost of renting has caused many tenants to move to cheaper regions. In particular, London tenants have been leaving the capital in record numbers. Hamptons Lettings Index found that 40% of renters moving home in London last year chose to leave the capital, up from just 28% a decade ago.  This equated to 90,370 households, with the numbers doubling since 2012.  Hamptons expect the number of renters leaving the capital to continue rising for the foreseeable future. 

All details are correct at the time of writing (16 February 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 – February 2023

Commercial market downbeat but withstanding

Conditions in the commercial property market continued to decline in Q4 2022, according to the latest UK Commercial Property Market survey from the Royal Institution of Chartered Surveyors (RICS).

At the national level, 83% of respondents consider the market to be in downturn, a slight increase from 81% in the previous quarter. All-sector net balance for tenant demand fell to -20% (from -10% in Q3), the weakest such reading since the end of 2020. Noteworthy drops included occupier demand across offices (-29%) and retail premises (-45%).

This downbeat picture was reflected in Scotland, where overall demand dropped for both occupiers (-14%) and investors (-27%). The Scottish retail sector fared badly, with net balances of -44% for occupiers and -68% for investors. Demand for Scottish industrial space proved a rare exception, with occupiers (+41%) and investors (+12%) both recording positive net balances.

Turning point for logistics and prime office shortages

Yields in January 2023 presented ‘a very mixed story’, according to Savills’ most recent Market in Minutes: UK Commercial report.

The latest figures show downward pressure on parts of retail, stability in logistics and softening in prime office yields. In total, the average prime yield rose marginally to 5.68%, the report states, its highest level since 2008.

According to analysts, the stabilisation in prime logistics yields was regarded as the first sign of a pricing plateau. Near record low vacancy rates are expected to become a reality again through 2024 and beyond, experts say, therefore pushing rents higher and creating increased competition for the best space.

A separate report from Colliers notes that new Grade A office properties continued to dominate occupier activity in 2022. In Birmingham, Leeds, Manchester and other key regional cities, average prime rents grew last year, pushed by record levels of demand. Falling Grade A vacancy is set to increase in the years ahead, the report concludes.

Amazon set to shed UK warehouses

Amazon is aiming to rid itself of empty warehouses across the UK, it has been revealed, after the recording its worst annual loss on record.

During the pandemic, the tech giant is estimated to have opened hundreds of warehouses globally, to prepare itself for an expected boom in online spending. Now that demand for online orders has started to dry up, however, Amazon has lost around 30% of its value.

In response, the company is aiming to sublet warehouses acquired during the pandemic surge that it has not yet moved into, experts say. As part of a wider review of its operations, Amazon has already announced it will be closing three warehouses and seven delivery stations in the UK.

All details are correct at the time of writing (16 February 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

 “High streets continue to show the biggest improvement”

Footfall in UK retail stores bounced back in February 2023 from the levels recorded a year earlier, according to the latest data released on Friday by the British Retail Consortium (BRC). In total, footfall increased by 10.4% on an annual basis, but fell by 2.1% month-on-month.

Specifically, High Street (+17.8%) and Shopping Centre footfall (+11.7%) both rose year-on-year, while Retail Parks saw footfall decrease by 3.3% compared to February 2022.

Despite the annual rise, however, the number of shoppers remains below pre-pandemic levels, with total footfall 8.8% lower than in 2019. Similarly, High Streets (-7.7%), Shopping Centres (-23.3%) and Retail Parks (-2.7%) are all below pre-pandemic figures.

Helen Dickinson, Chief Executive of the BRC, commented, “Growth in footfall slowed this month after the rush of Christmas shopping and January sales. Some people are making fewer visits as the cost of living continues to bear down ahead of the April energy price rise. Despite this, high streets continue to show the biggest improvement compared to last year, when concerns around COVID kept people away from town and city centres.”

Energy price, guaranteed?

In the Chancellor’s Budget, due to be delivered on 15 March, the future of the Energy Price Guarantee seems likely to be a significant announcement. On Friday, it was revealed that the government is preparing to extend the Guarantee at its current levels for a further three months.

A Whitehall source said ministers are expected to keep the Guarantee at £2,500, protecting households from the scheduled rise to £3,000 per year (for a typical household) that was due to come into force from April.

Although the level of help is now expected to be maintained, energy firms have been asked to prepare for both scenarios. In contrast, the £400 winter payment, which resulted in a £66 per month reduction in monthly bills, is expected to end next month.

Inflation still a key concern

Inflation continues to be a major news story around the world. On Friday, a report from the Federal Reserve stressed that the central bank is ‘acutely aware’ of the challenges that high inflation poses to the economy; the report also reiterated that the Federal Reserve is ‘strongly committed’ to its 2% inflation target. On Tuesday, Federal Reserve Chair Jerome Powell warned of a return to big rate rises. In prepared remarks for a hearing before the Senate Banking Committee, Powell said, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. It will take time for the full effects of monetary restraint to be realised, especially on inflation.”

In Europe, latest data released last week showed that core price inflation jumped to a record 5.6% across the Eurozone in February, up from 5.3% in January. The consumer price index for the 20 countries that use the euro, eased slightly to 8.5% in February, a drop from 8.6% a month earlier.

In Japan, Prime Minister Fumio Kishida ordered the ruling coalition to draft additional measures in response to inflation. The country’s economic recovery remains fragile, as prices continue to rise. “We are aware that price hikes in food and other items are still carrying on due to existing raw material inflation and a weak yen,” Chief Cabinet Secretary Hirokazu Matsuno said on Friday.

Cost of stamps rises

Stamp prices are due to rise in the UK, with a first class stamp set to cost £1.10 from April, Royal Mail announced on Friday. The 15p leap will occur the day before the first stamps with the image of King Charles go on general sale.

Second class stamps will also rise by 7p to 75p. With letter volumes down 25% since the pandemic, Royal Mail said the increases were needed to ensure the ‘one-price-goes-anywhere Universal Service remains sustainable’.

Markets

Stock markets slumped on Tuesday after the testimony from Jerome Powell to Congress, with the FTSE 100 closing down 0.13% to end on 7,919.48, and the FTSE 250 dropping 0.54% to close on 19,956.61.  

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 (8 March 2023)

News in Review

“Consumers have suddenly shown more optimism about the state of their personal finances and the general economic situation”

On Friday, the latest release of GfK’s Consumer Confidence Index revealed a month-on-month improvement in consumer sentiment. In February 2023, total confidence was -38, seven points higher on a monthly basis. All five measures that make up the overall gauge increased in comparison to January’s readings.

The index for the general economic situation of the country over the coming year performed especially well, rising by 11 points to -43, which puts it on a par with the score recorded in February 2022.

Joe Staton, Client Strategy Director at GfK commented, “Despite widely reported headwinds of inflation continuing to outstrip wage rises, and the ongoing household challenge from the cost-of-living crisis, consumers have suddenly shown more optimism about the state of their personal finances and the general economic situation, especially for the coming year.”

A “decisive breakthrough” in Brexit talks

On Monday, Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen confirmed a breakthrough deal on post-Brexit trading arrangements for Northern Ireland, which could draw a line under months of negotiation and speculation.

The deal, referred to as the ‘Windsor Framework,’ was described by Mr Sunak as a “decisive breakthrough,” while Mrs Von der Leyen spoke of a “stronger EU-UK relationship.” Crucially, the Democratic Unionist Party (DUP) acknowledged that ‘significant progress’ had been made, though it is not yet clear whether the party will support the deal in Parliament. On Tuesday, Mr Sunak visited Belfast to outline the deal to politicians and businesses, highlighting how he believes it will ease the flow of trade between Britain, Northern Ireland and Ireland.

Fruit and vegetable shortages

In the last week, UK shoppers have faced limits on fruit and vegetable sales from major supermarkets. On Friday, The Lea Valley Growers Association (LVGA), which represents producers across Britain, said that some fruit and vegetable shortages could last until May, as growers continue to delay planting due to high energy costs.

Lee Stiles, Secretary of the LVGA, said that supply issues are arising not only from Spain and Morocco, but also from the fact that the prices set by supermarkets for UK produce make it hard for growers to plant when energy costs are high. “It’s a simple fact of economics between the growers and the supermarkets,” he commented.

Tax record leads to surplus

Record self-assessed Income Tax receipts helped provide the government with a surplus of £5.4bn in January, official figures revealed last week. Government spending has played a part, with public borrowing in the financial year to date £30.6bn below the levels predicted by the Office for Budget Responsibility. In addition, the falling cost of wholesale energy has reduced the government’s spending on support for household bills.

However, economists have warned that public finances remain weaker than they were at the same time last year. Even so, the data does appear to provide the Chancellor with a little more wiggle room as he sets out the tax and spending plans due to be delivered in the Spring Budget on 15 March.

Car sales steady…

UK car production was stable in the first month of 2023, according to figures released on Friday by the Society of Motor Manufacturers and Traders (SMMT). Output dipped by -0.3%, equivalent to just 215 fewer cars, mostly as a result of structural changes at one major plant.

…but sneaker sales nosedive

In contrast, the growth of global sneaker sales fell in 2022, according to a recent Business of Fashion report. The industry experienced massive growth during the pandemic, with sales of trainers in 2021 up £16.6bn year-on-year. In 2022, however, growth declined rapidly to £9.2bn.

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 (1 March 2023)

Equity release dominates 

New equity release lending hit £1.5bn in Q3 20221, with 29% more plans taken out by the end of September than a year previously. The average amount borrowed now comes to more than £114,000, while pressing needs and cost-of-living concerns remain more prevalent than discretionary spending. 

Why release equity? 

Equity release products provide access to equity that is locked up in the value of your home. There are many reasons why you might decide to access this equity: 

  • Repaying debts (31%) and mortgages (24%) were key reasons people chose to release equity in the third quarter 
  • Supporting family members (20%) was also common, with people gifting an average amount of £53,503 to younger members to help them onto the property ladder or as an early inheritance 
  • There was a 3% year-on-year increase in people using equity release to fund home or garden improvements and a 7% increase for holidays. 

Advice is key 

Equity release is not suitable for everyone. It is vital to take financial advice to make sure equity release is the most suitable option for your individual needs. We’re happy to help – get in touch. 

1Key Later Life Finance, 2022 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Equity release may require a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. 

Saving for their future 

With the current generation of graduates typically leaving university with a mountain of debt, it is perhaps unsurprising that so many parents are now looking to ease the burden by investing on their children’s behalf. 

University challenge 

Government statistics show the average debt accumulated by a university student is currently around £45,000. Thankfully, graduates only start repayments when their earnings hit a certain threshold and, at the moment, loans are written off after 30 years however much debt remains. As a result, some students will never pay back their loans in full. 

Increasing debt burden 

Many students, though, do repay all of their debt, and recent reforms to the loans system means many more will do so in the future – government forecasts suggest that, from next year, over half of students will repay their loans in full. This inevitably places an even greater burden on future graduates’ shoulders, both as they enter the world of work and, potentially, throughout their entire careers. 

Giving your children a helping hand  

Most parents are keen to help their children fund university and many do so by investing on their behalf through a stocks and shares Junior ISA (JISA). While there are risks with stock market investments, historically they have performed better than cash-based savings and consistently delivered above-inflation returns. The annual JISA allowance is currently £9,000 per child which, for anyone who starts saving early, can grow to a sizeable tax-free lump sum. Smaller amounts can mount up too, particularly when combined with contributions from other family members. 

Peace of mind 

Investing on a child’s behalf can make a huge difference to their future, whether they decide to go to university or put the money towards something else. It also provides parents with the comfort of knowing they are giving their children the best possible start to adult life. 

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. Inheritance Tax Planning is not regulated by the Financial Conduct Authority. 

Improve your wellbeing 

With financial concerns at the fore for many people, unfortunately it’s no surprise over half of adults have experienced anxiety as a direct result of rising bills, with a quarter suffering with feelings of depression as escalating costs take their toll, according to a new study1. 

Nearly half of adults are staying at home more to save money, in a form of self-imposed financial lockdown, rather than for health reasons. The survey also exposed a deep generational divide, with over three quarters of 25 to 34-year-olds experiencing anxiety over rising bills, compared to 26% of over 65s. 

Older generations lend a hand  

With financial anxieties more acute for younger people, data shows over four million retirees have provided financial support to family and friends (over a six-month period to August 2022), specifically to help with day-to-day costs and bills. On average, those helping their grandchildren gave £15,000; the average amount given overall was £8,4002. 

Lifestyle downsizing 

Under 35s have delayed major financial milestones, including moving house or starting a family, effectively putting life events on hold. Over a quarter of young adults (27%) are deferring major purchases like a car or home renovation, 17% are holding off buying a house and one in eight (12%) are even putting off starting a family3. 

“Take back control” 

President of the Personal Finance Society, Caroline Stuart commented on the findings, “British people are struggling to cope not just financially, but mentally with rising bills. More people are experiencing depression and anxiety whilst eating less healthily and going out less. There is now a risk of turning a cost-of-living crisis into a public health crisis too. At a time when anxieties are running high, professional financial planners can help people manage and organise their finances in a way which can weather the storm, ease the burden, take back control of their money and plan for the future.” 

As ever, we want to reassure you that we are on hand to support you through any challenges, by taking control and adopting a proactive approach to managing your money. Whether you need help planning your finances or you have loved ones you’re in a position to support financially, we can help you. The new year provides the perfect opportunity for us all to stop, step back and take a full review of our long-term financial wellbeing. 

1Personal Finance Society, 2022 

2LV=, 2022 

3Starling Bank, 2022 

The value of investments and income from them may go down. You may not get back the original amount invested. 

Stamp Duty update

Chancellor of the Exchequer Jeremy Hunt delivered his Autumn Statement on 17 November, with a host of announcements on personal taxation and public spending. Housing was largely absent from the key fiscal event, though a significant statement was made on Stamp Duty Land Tax (SDLT). 

In September, then-Chancellor Kwasi Kwarteng had increased the nil-rate threshold of SDLT from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland. 

Additionally, the nil-rate threshold paid by first-time buyers climbed to £425,000 from £300,000, while the maximum purchase price for which First Time Buyers’ Relief can be claimed rose to £625,000 from £500,000. 

In his Autumn Statement, Mr Hunt confirmed that the SDLT relaxations would remain in place until March 2025, though most of his further fiscal announcements increased the tax take. 

In total, he announced around £55bn in tax rises and spending cuts, in what he called “a balanced plan for stability, a plan for growth and a plan for public services.” 

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

Retirement reboot? 

Nowadays there are more choices open to you than ever before. This means there are more things you need to consider and have a plan for, like how to manage your finances to provide the income you’ll need to live on, how you’ll transition into full retirement and what lifestyle you want to enjoy in your later years. 

We’re all leading busy lives and with cost-of-living financial pressures intensifying, it’s understandable if retirement plans have been placed on the back burner. If you are keen to revisit your plans and get them back on track so you can relax and fully enjoy your retirement years, the new year is the perfect time to act, so please do get in touch. 

The value of investments and income from them may go down. You may not get back the original amount invested. 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. Inheritance Tax Planning is not regulated by the Financial Conduct Authority. 

News in Review

“The peak may have started to pass but prices have settled at a much higher level than two years ago”

Last Wednesday, the Office for National Statistics (ONS) released its latest UK inflation figures, which revealed the Consumer Prices Index (CPI) rose by 10.1% in the year to January.

This increase is below the figure of 10.5% recorded in December 2022 and also represents a monthly fall of 0.6% (compared with a fall of 0.1% in January 2022). Although slowing, therefore, CPI remains significantly above the Bank of England’s target of 2%. Before 2022, the last time inflation rose above 10% was in February 1982.

Food inflation is at a 45-year high, up 16.7% on the year to January. Specifically, olive oil, sugar and low-fat milk prices have all soared by more than 40%.

Commenting on the figures, David Bharier, Head of Research at British Chambers of Commerce said, “A further easing in the rate of inflation to 10.1% continues a very slow move out of the peak. The stubbornly high rate means that we are now seeing a compounding effect on what was already a spiking inflation rate this time last year. The peak may have started to pass but prices have settled at a much higher level than two years ago.”

UK shop sales rise

UK retail sales volumes rose by 0.5% in January, according to figures released on Friday by ONS, providing an unexpected boost for the sector.

Despite ongoing inflationary and cost-of-living pressures, shoppers spent more than expected in January, with many taking advantage of post-Christmas discounts. Online shops were also boosted by sales promotions, the figures show.

In the same release, however, it was revealed that December’s retail sales were even weaker than previously estimated. Darren Morgan Director of Economic Statistics at ONS said, “After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline”.

Nicola Sturgeon resigns

The Scottish National Party leader has resigned as Scotland’s first minister after more than eight years in the role, saying that she knew “in my head and in my heart” this was the right time to step down “for me, for my party and for the country”. Ms Sturgeon is the longest serving first minister and the first woman to hold the position. She intends to remain in office until her successor is elected.

Contactless payments take off in 2022

The total value of contactless payments jumped by almost 50% in 2022, with the average user making 220 ‘touch and go’ transactions throughout the year, according to newly released data compiled from billions of Barclays debit and credit card transactions.

The average annual contactless spend was £3,327 per person, with 91.2% of all eligible transactions made using the technology. Contactless payments were given a boost in the past year thanks to the transaction limit rising to £100 and the easing of all coronavirus restrictions.

Northern Ireland and Scotland are the fastest growing regions for contactless usage, Barclays noted, while the hotels, resorts & accommodation category (+101.4%), electronics (+97.5%) and bars, pubs & clubs (+91.9%) were the biggest growth sectors.

UK housing market stays steady

The latest government UK House Price Index for December shows that average UK house prices rose by 9.8% in the year to December 2022, compared to 10.6% in the 12 months to November 2022.

The average house price was £294,329, only slightly below November’s record. In England, average prices increased to £315,000 (+10.3%); in Wales, they reached £222,000 (+10.3%); in Scotland £187,000 (+5.7%) and in Northern Ireland £175,000 (+10.2%).

Markets

After hitting the 8,000 milestone for the first time last week, the FTSE 100 closed lower on Tuesday to finish on 7,977.75. This was despite an announcement from HM Treasury of an unexpected budget surplus of £5.4bn in January, boosted by the highest self-assessment tax receipts since records began in 1999. This was against consensus expectations of a £7.8bn deficit.

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 (22 February 2023)