Residential Property Review – March 2022

Sales up as demand stays strong

2022 has picked up where 2021 left off, with near-record demand leading to the busiest January and February since 2016, according to Zoopla.

Sales agreed in February were 31% above the 2017-19 average for the month, according to TwentyCi, matching levels last seen at the start of 2021. Meanwhile, mortgage approvals in January were at their highest point since July 2021, 12% above the 2017-19 average for the month, according to the Bank of England.

The mismatch endures, however, between supply and demand. The number of prospective buyers is 70% higher than the five-year average, while the total number of homes for sale is 43% lower. The result of this imbalance is fierce competition for available stock; Zoopla figures show that half of all sold properties were purchased after less than three weeks on the market.

Soaring rents are here to stay

Private rents are rising nationwide at the fastest rate in five years, according to figures from the Office for National Statistics (ONS), with the average rent up by 2% in the year to January 2022.

This was a slight rise on the 1.8% growth recorded in the year to December 2021. The East Midlands was the region with the biggest increase in average rental prices (3.6%), while London had the smallest (0.1%).

With office workers and students returning to cities, the net balance of contributors noting an increase in demand rose to +55% in the Royal Institution of Chartered Surveyors’ (RICS) February survey.

Meanwhile, supply remains problematic; the RICS survey noted a decline in landlord instructions to a net balance of -21%. Respondents expect this trend to continue, anticipating that rents will increase annually by an average rate of 5% over the next five years.

Bedrooms lost as homeowners adapted to pandemic

Nine million bedrooms were ‘lost’ during the pandemic, as versatile Brits repurposed existing space to meet their work and leisure needs.

A study by Zoopla found that two in five homeowners adapted their home during the pandemic, of whom more than half completely repurposed at least one bedroom. One in five households changed multiple bedrooms. With remote and hybrid working now on the agenda for many, almost half (46%) of those who have made changes created a home office.

The result was the creation of nearly five million home offices, 1.3 million home gyms, and a combined two million home bars, cinemas and music rooms. UK households spent, on average, £3,714 making these adaptations – a national total of around £36.5bn.

However, the study suggests that homeowners who have repurposed rooms may now feel less happy with the space they have. Of those who had to repurpose rooms, more than half said this meant having to compromise on their space at home, a figure that rose to 83% of homeowners under 25.

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 – March 2022

Prime space snapped up by legal firms

More than one million sq. ft of Grade A office space was taken up by the legal sector in 2021, highlighting the importance of the ‘best’ space in the post-pandemic landscape.

London’s resilient legal sector has enjoyed strong revenue and increased headcount over the last year, which has driven demand for office space. The sector’s 2021 office take-up represents the strongest leasing activity of prime space for law firms on record.

International law firms have committed to the UK, with many choosing London as their European headquarters. Notable deals include two by American multinationals; Latham & Watkins, the second highest grossing law firm in the world, acquired 200,000 sq. ft at 1 Leadenhall EC3, while Baker McKenzie, the fourth largest by revenue, took 152,690 sq. ft at 280 Bishopsgate EC2.

Analysts expect the sector to acquire more of the prime space over the coming years. According to Savills, between 2022 and 2026, there are over 5.3m sq. ft of lease events within the legal sector in the City of London, of which 1.8m sq. ft have re-geared or committed to new office space.

Impact of Ukraine crisis on commercial property

Russia’s invasion of Ukraine has horrified people around the world and shaken markets and financial systems. What impact will it have on commercial property in the UK?

Directly, analysts think the impact will be limited. Russian investors are not major players in the UK commercial market, accounting for only 0.3% of purchases since 2015, according to Property Market Analysis LLP.

One view is that the Ukraine crisis might shift investor demand away from real estate in central Europe, which could benefit markets perceived to be safe havens, such as the UK and Switzerland.

Indirectly, however, the invasion could have a greater impact. Although Russia’s share of global gross domestic product (GDP) is only 1.7%, the country is a major energy producer. Since the start of the invasion, prices across a range of commodities, including oil and gas, have increased sharply.

Legal & General expect real estate impacts to become apparent in the longer term. They note two likely effects, both relating to energy and the green transition; a greater focus from occupiers on energy consumption in buildings and more attention paid by governments to energy security.

Yields back at pre-pandemic levels

The positive investment trend of Q4 2021 has spilled into 2022, according to the latest Savills Market in Minutes, with commercial property investment totalling £6.9bn in January and February, 35% above the same period a year earlier.

The UK average prime yield is now 4.84%, a level not seen since October 2019. The Savills report expects positive sentiment and yield hardening to continue in half of the sectors it monitors. Further downward pressure is expected in prime logistics, high street retail and shopping centres, with repurposing opportunities especially likely for shopping centres off the back of prime demand.

The return of larger deals, noted in Q4 2021, also continues: two assets over £100m were traded in December. In contrast, no deals over £100m were made in the whole of 2020.

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.

Spring Forecast Statement 2022

Chancellor of the Exchequer, Rishi Sunak, delivered his 2022 Spring Statement on 23 March, confirming implementation of the politically contentious 1.25 percentage-point rise in most National Insurance contributions, though with revised thresholds to mitigate the impact. He declared that his overall plan “builds a stronger, more secure economy for the United Kingdom.” The fiscal update included a number of specific measures and a new ‘Tax Plan’ which the Chancellor said would help families with the cost-of-living squeeze. Mr Sunak said, “People should know that we will stand by them, as we have throughout the last two years.”

Economic forecasts

Mr Sunak began his Statement by paying tribute to the soldiers and citizens of Ukraine, and said it was the strength of our economy that would enable the UK to help fund the Ukrainian army and impose sanctions on Putin’s regime. The Chancellor did, however, warn that actions against Russia “are not cost-free for us at home” and present a “risk to our recovery” before unveiling the latest economic projections produced by the Office for Budget Responsibility (OBR).

The Chancellor said the OBR had noted an “unusually high uncertainty around the outlook” as a result of Russia’s invasion, with its revised growth figures pointing to a more sluggish recovery; the UK economy is now predicted to grow by 3.8% this year and by 1.8% in 2023, both downgrades from last autumn’s forecasts of 6.0% and 2.1%, respectively. Growth is then expected to pick up in 2024, with OBR projections over the remaining three years of the forecast period stronger than last October’s predictions.

Mr Sunak went on to say that the most significant impact of the war in Ukraine relates to the cost of living, with the latest OBR figures suggesting inflation will average 7.4% across the remainder of this year, and peak at 8.7% in the final quarter. This followed on from the morning’s news that UK inflation had hit a 30-year high of 6.2% in the 12 months to February.

In terms of public finances, the forecasts show borrowing as a percentage of GDP falling from 83.5% in 2022/23 to 79.8% by 2026/27. However, the Chancellor said that in the next financial year the UK is forecast to spend a record £83bn on debt interest, and that the OBR has warned that the UK’s ‘fiscal headroom’ could be ‘wiped out by relatively small changes to the economic outlook.’

Living cost support measures

During his speech, Mr Sunak outlined three specific measures that he said would help households deal with the cost-of-living crisis. These were:

  • Fuel duty for petrol and diesel would be cut by 5p per litre from 6pm on 23 March with the reduction lasting until March 2023
  • Homeowners installing energy saving measures such as solar panels, heat pumps or insulation will pay no VAT on their purchases for the next five years
  • The Household Support Fund will double from £500m to £1bn from April, allowing local authorities to help vulnerable families cope with rising living costs.

The government have said they are continuing to monitor developments impacting the cost of living and will be ready to take further steps if needed to support households.

Previous steps taken to support households include:

  • Reducing the Universal Credit taper rate from 63% to 55%, and increasing Universal Credit work allowances by £500 a year to make work pay
  • Increasing the National Living Wage (NLW) for workers aged 23 and over by 6.6% to £9.50 an hour from April 2022
  • £9bn package announced in February 2022 to help households with rising energy bills.

Taxation

The Chancellor set out a three-part Tax Plan for a ‘lower tax economy’ which will cover the remainder of the Parliament. The key elements of the plan are:

  • The Spring Statement forms the first part of the plan – prioritising help for families with the cost of living – through the fuel duty cut (previously detailed) and an increase in National Insurance thresholds:

The Chancellor announced an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit from £9,880 to £12,570 from July 2022, to align with the Income Tax personal allowance. This is a tax cut of over £6bn and worth over £330 for a typical employee in the year from July

In addition, from April 2022, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will continue to build up National Insurance credits but will not pay any Class 2 NICs

  • The second part of the plan is entitled ‘Capital, People and Ideas’ and focuses on creating the right conditions for private sector led prosperity through growth and productivity. The government intends to work with industry over the remainder of 2022 and will announce its conclusions in the Autumn Budget
  • In a tax break worth over £5bn a year, the final part of the Tax Plan, entitled ‘Sharing Growth’, confirms a cut in the basic rate of Income Tax from 20% to 19% in England, Wales and Northern Ireland in 2024. The Scottish government will receive their share of this funding which can be used to cut taxes or increase spending.

As part of the Tax Plan, the Chancellor has reaffirmed plans for tax reform to make the tax system ‘simpler, fairer and more efficient.’ This will be done by continuing the review of over 1,000 tax reliefs and allowances in the tax system by 2024.

Key allowances

No changes were made to personal tax allowances for the forthcoming 2022/23 tax year, which include:

  • Inheritance Tax (IHT) nil-rate band remains at £325,000 and the residence nil-rate band at £175,000, until April 2026
  • Capital Gains Tax (CGT) annual exemption remains at £12,300 for individuals and £6,150 for most trusts
  • Lifetime Allowance for pensions remains at £1,073,100 until April 2026, the Annual Allowance remains at £40,000
  • New single-tier State Pension will increase to £185.15 per week in April 2022, the older basic State Pension will increase to £141.85 per week
  • Individual Savings Account (ISA) allowance remains at £20,000 for the 2022/23 tax year
  • Junior Individual Savings Account (JISA) allowance and Child Trust Fund (CTF) annual subscription limits remain at £9,000
  • Most National Insurance contributions (except for certain employee categories and Class 2 self-employed) and Dividend Tax rates will increase by 1.25 percentage points from April 2022.

Business support

The Chancellor announced measures to help smaller businesses with rising energy costs, recruitment and training, as well as to close what he termed the “productivity gap” between UK businesses and those in other member countries of the Organisation for Economic Cooperation and Development (OECD). To this end, he pledged:

  • A £1,000 increase to the Employment Allowance, providing smaller businesses with relief of up to £5,000 on National Insurance contributions from April 2022
  • Two new business rates discounts, brought forward by a year to April 2022, which will reduce rates to 0% for businesses investing in eligible green technology and heat networks.

He reiterated previous measures announced in the Autumn Budget 2021:

  • A 50% discount (up to £110,000) on business rates for eligible retail, hospitality and leisure businesses, coming into effect in April 2022
  • An extension of the temporary £1m Annual Investment Allowance to 31 March 2023.

Mr Sunak also re-emphasised the government’s commitment to reforming the research and development (R&D) tax system, as previously outlined in 2021. Measures include increasing the generosity of R&D reliefs and expanding the qualifying criteria to include data, cloud computing and pure mathematics. Furthermore, he announced that the government would be investigating how the tax system – including the operation of the Apprenticeship Levy – could be reformed to further encourage employers to invest in adult training.

Other key points

  • The government has announced that it will phase out the import of Russian oil by the end of 2022
  • The government will be setting out an energy security plan, including measures across hydrocarbons, nuclear and renewables, to support energy resilience and security
  • Funding of £48.8m over three years to support the creation of a new Public Sector Fraud Authority and enhance counter-fraud work across the British Business Bank and the National Intelligence Service
  • A new Efficiency and Value for Money Committee will be set up to cut £5.5bn of cross-Whitehall waste, with savings to be used to fund public services
  • Investing £12m in HMRC to help prevent error and fraud in tax credits
  • NHS efficiency commitment will double from 1.1% to 2.2% a year to free up £4.75bn to fund NHS priority areas
  • The government is launching the second round of the Levelling Up Fund, inviting bids to come forward from all eligible organisations across the UK – this Fund provides £4.8bn for local infrastructure projects.

Closing comments

Rishi Sunak signed off his announcement saying, “We can deliver for the British people today and into the future. We have a plan… A plan that reforms and improves public services, a plan to grow our economy, a plan to level up across the United Kingdom, a plan that helps families with the cost of living. And yes, a tax plan… My Tax Plan delivers the biggest net cut to personal taxes in over a quarter of a century. And I commend it to the House.”

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 of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. 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.

All details are correct at the time of writing (23 March 2022)

News in Review

‘The economy has recently been subject to a succession of very large shocks’

Last Thursday, as highly anticipated, the Bank of England (BoE) announced the third increase in Bank Rate in four months, placing more pressure on household finances. The Monetary Policy Committee (MPC) members voted by an eight to one majority in favour of the 0.25 percentage point rise from 0.5% to 0.75%, in a bid to dampen soaring inflation.

Bank Rate is now at its highest level since March 2020, at the start of the pandemic. The policymakers felt that the rate rise was justified ‘given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures will persist.’

The Committee said that depending on how medium-term prospects evolve, including the economic implications of geopolitical events, ‘some further modest tightening in monetary policy may be appropriate in the coming months.’ The next MPC meeting will take place in early May.

The Bank cautioned that the annual inflation rate may rise to around 8% in Q2 and potentially even higher later in the year, possibly reaching double digits if energy prices push up the energy price cap when it’s reset in October. Prices have already increased by 6.2% in the year to February, a new 30- year high and well above the BoE’s 2% inflation target. The Bank outlined that the Ukraine invasion has exacerbated supply chain disruption, placed upward pressure on energy, commodity and food prices, and has significantly increased uncertainty around the economic outlook, commenting, ‘The economy has recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine is another such shock… should recent movements prove persistent, the very elevated levels of global energy and tradable goods prices, of which the United Kingdom is a net importer, will necessarily weigh further on UK real aggregate income and spending. This is something monetary policy is unable to prevent.’

The cost of doing business

Set against a backdrop of growing domestic and global headwinds, Head of Economics at the British Chambers of Commerce (BCC) Suren Thiru, said that although expected, the decision to raise interest rates was mistimed, arguing that higher rates will do little to curb some of the global causes behind the surge in prices and risk intensifying the financial squeeze on consumers and businesses, “While interest rates remain low by historic standards, the latest rise will be viewed by many as a further step in a prolonged period of aggressive monetary tightening at a time when consumers and businesses are struggling under a myriad of rising cost pressures… intensifying the headwinds facing the UK economy by damaging confidence and deepening the financial squeeze on consumers and businesses.” He urged the Chancellor to take the opportunity to use the Spring Forecast Statement on 23 March to address the “escalating cost of doing business crisis” and suggested that a delay in the National Insurance rise and introducing a temporary energy price cap for small businesses, would be enough to provide firms with the “headroom to keep a lid on prices, protect jobs and make investment that is so vital to sustaining our economic prospects.”

The Chancellor has pledged to help “where we can make a difference” as he faces pressure to assist struggling households. There have been reports that this could include a temporary cut in fuel duty.

Markets

Toward the end of last week, both US and European markets continued their recovery, delivering solid weekly advances, as investors positively regarded the certainty of the Federal Reserve’s monetary policy announcement on Wednesday. The Fed adopted a measured approach, raising interest rates 25 basis points and plotted out a route toward six additional rate hikes during 2022. This is the first time the US central bank has raised the interest rates since 2018.

On Tuesday, the price of Brent Crude reached over $118 a barrel as concerns persist over potential shortfalls in supplies. London stocks finished in positive territory following news from the Office for National Statistics (ONS) that government borrowing in February was £13.1bn, a drop of £2.4bn from February 2021.

Here to help

It is essential that investors focus on longer-term timescales instead of focusing too intently on short-term volatility. Rest assured we will continue to monitor events closely. 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.

News in Review

“At the Spring Statement, Rishi Sunak has to make a huge judgment call”

With a week to go until the next fiscal event in the government’s calendar – the Spring Forecast Statement on 23 March – new research from the Institute for Fiscal Studies (IFS) has highlighted its belief that the Chancellor has some big decisions to make in the face of soaring living costs and new economic challenges presented by the war in Ukraine.

Interestingly, a Spring Statement is usually regarded as a lesser fiscal event than a Budget; providing a set of new economic forecasts and updates, rather than the government’s planned spending and revenue gathering proposals which appear in the Budget. However, on this occasion, with inflation continuing its ascent, wages unable to keep pace, and the costs of energy, fuel and other commodities being driven even higher due to the invasion of Ukraine, the IFS is speculating whether the government will consider extra protection for households struggling to keep up with their bills, potentially making this a crucial event for many households.

The IFS analysis emphasises ‘the far-reaching economic challenges associated with this shifting outlook. Households and public services will be squeezed by higher inflation, the economy rocked by heightened uncertainty, and the public finances buffeted by the fallout from Ukraine.’ Paul Johnson IFS Director added, “At the Spring Statement, Rishi Sunak has to make a huge judgment call. Will he do more to protect households from the effects of energy prices, which have risen even further in the last two weeks? If he doesn’t, then many on moderate incomes will face the biggest hit to their living standards since at least the financial crisis. If he does, then there will be another big hit to the public finances.”

“Significant economic uncertainty”

Although the UK economy rebounded strongly in January, analysts’ expectations indicate more subdued growth moving through 2022 as the cost-of-living crisis intensifies. Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC) believes the Ukraine invasion “has increased the risk of a recession in the UK” by exacerbating the inflationary squeeze and “derailing the supply of critical commodities to many sectors of the economy.” Chancellor Rishi Sunak said that Russia’s invasion “is creating significant economic uncertainty.” He added that the government’s “unprecedented support” provided during the pandemic “has put our economy in a strong position to deal with current cost of living challenges.”

Further emergency funding

In addition to funding provided by the World Bank, the International Monetary Fund (IMF) last week approved $1.4bn of emergency funding for Ukraine, to meet the country’s urgent spending needs and help alleviate the devastating economic impact of the war. Kristalina Georgieva, Managing Director of the IMF said, “The Russian military invasion of Ukraine has been responsible for a massive humanitarian and economic crisis… The tragic loss of life, huge refugee flows, and immense destruction of infrastructure and productive capacity is causing severe human suffering and will lead to a deep recession this year. Financing needs are large, urgent, and could rise significantly as the war continues.”

G7 Leaders showed support for the people of Ukraine and condemnation of Putin’s war by issuing a joint statement, ‘We are united in our determination to hold President Putin and his regime accountable for this unjustified and unprovoked war that has already isolated Russia in the world. The world should join together in calling on President Putin and his regime to immediately stop its ongoing assault against Ukraine and withdraw its military forces. We stand in solidarity with those who are bravely opposing the invasion of Ukraine.’

Markets

At the end of last week, many European markets responded positively on tentative hopes that discussions between Ukraine and Russia were progressing, however US indices were more subdued, following the release of February’s inflation figure which reached a 40-year high of 7.9%.

London stocks dropped into the red on Tuesday as Office for National Statistics (ONS) data revealed that real wages in the UK, taking inflation into account, had dropped by 1% in the three months to January, the biggest fall since 2014.

Here to help

It is essential that investors focus on longer-term timescales instead of focusing too intently on short-term volatility. Rest assured we will continue to monitor events closely. 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.

Preserving your retirement from the risk of mental decline

Many of us can now look forward to a longer retirement, due to increased life expectancy, however this unfortunately comes at a cost. The prevalence of age-related cognitive decline is on the rise, which could leave us vulnerable to costly financial errors.

There are nearly 885,000 people living with dementia in the UK1, with estimates suggesting that between 5% and 20% of over-65s suffer from mild cognitive impairment (MCI). This is a condition in which someone has minor problems with cognition, such as thought process and memory.

Planning for every eventuality

An essential element of preparing for your retirement should involve planning for the possibility of cognitive decline. Despite many people still having the capacity to make decisions and live independently, MCI has been linked in studies to poorer financial capacity and a greater susceptibility to scams.

It’s all about timing

In a recent survey2, over 80% of investors felt the ideal time to transfer financial control would be ‘sometime after they had begun to experience some cognitive decline but before they became completely incapable.’ Respondents thought there was a higher than one-in-three chance of a mistimed transfer, partly attributable to a reluctance to relinquish control, which highlights the need to plan sooner rather than later, so that any future transfer takes place on your terms.

Make time to talk

Preparing for the possibility of cognitive decline requires careful planning, not only having legal documents in place but also starting conversations with your family and those you trust about your finances and objectives, in advance of its possible onset. This fosters transparency and, with everything out in the open, close connections are more likely to notice if you begin making decisions about your money that don’t align with your objectives.

We can assist you with planning and in starting these conversations well in advance, enabling you to better plan for the future, giving you a greater sense of control and ownership of your plans.

1Alzheimers Society, 2019

2Vanguard, 2021

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.

News in Review

‘The situation remains highly fluid and the outlook is subject to extraordinary uncertainty’

Last week, as the invasion of Ukraine entered a second week, the President of the World Bank declared the situation “a catastrophe” for the world. Although David Malpass stressed his biggest concern is “about the pure human loss of lives” he also highlighted the economic impact of the war, which, although devastating for Ukraine, also stretches beyond the invaded country’s borders. The Bank has approved $723m in grants and loans for Ukraine.

On Saturday, the International Monetary Fund (IMF) issued a statement on the economic impact of the war, which highlighted that the already ‘serious’ global economic impacts would be ‘all the more devastating’ should the conflict escalate.

The statement outlined, ‘The war in Ukraine is resulting in tragic loss of life and human suffering, as well as causing massive damage to Ukraine’s physical infrastructure… Unprecedented sanctions have been announced on Russia. While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious. Energy and commodity prices – including wheat and other grains – have surged, adding to inflationary pressures from supply chain disruptions and the rebound from the COVID‑19 pandemic. Price shocks will have an impact worldwide, especially on poor households for whom food and fuel are a higher proportion of expenses. Should the conflict escalate, the economic damage would be all the more devastating. The sanctions on Russia will also have a substantial impact on the global economy and financial markets, with significant spill overs to other countries.’

Boris Johnson met with Canadian Prime Minister Trudeau and Dutch Prime Minister Mark Rutte on Monday, kicking off a week of engagements with global leaders, to ‘mobilise the outcry at the atrocities of Russian aggression into support for Ukraine.’

On Tuesday, the House of Commons was packed for an unprecedented address to MPs by President Zelensky. He referenced Winston Churchill’s famous speech, saying “We will not give up and we will not lose … we will fight in the forests, in the fields, on the shores, in the streets.”

Also on Tuesday, Business Secretary Kwasi Kwarteng announced that the UK will phase out the import of Russian oil over the course of the year. This followed President Biden’s announcement of a ban on Russian oil and gas imports after “close consultation with our allies, especially in Europe.”

UK growth estimates moderate

Last week, the British Chambers of Commerce (BCC) downgraded its expectations for GDP growth in the UK this year from a previous estimate of 4.2% to 3.6%. This downgrade is reflective of a weaker rebound in business investment and a deteriorating outlook for consumer spending. It is projected that inflation will outpace wage growth until Q2 2024. 

Head of Economics at the BCC Suren Thiru commented on the forecast, “Our latest forecast signals a significant deterioration in UK’s economic outlook. The UK economy is forecast to run out of steam in the coming months as the suffocating effect of rising inflation, supply chain disruption and higher taxes weaken key drivers of UK output, including consumer spending and business investment.”

Growing list of firms withdraw from Russia

More global anti-war protests took place on Saturday in solidarity with the Ukrainian people, in cities including London, Hamburg and Paris. Following previous announcements from global giants including BP, which hived off its stake in Russian energy giant Rosneft, plus pledges from Shell, ExxonMobil and Equinor to cut their Russian investments, the flood of announcements from firms stepping back from Russia continues. The most recent firms pausing activities in Russia include Apple, Jaguar Land Rover, H&M, PayPal, Prada, Mastercard, Visa, McDonalds and Coca-Cola.

Markets

Global markets have continued to count losses in the wake of the invasion. Many stocks entered the red at the end of last week following reports of a Russian attack on a nuclear power station in Ukraine, heightening investor fears about the escalating conflict and sending oil prices higher. Oil prices spiked to their highest levels in over a decade, with the price of Brent crude reaching $139 per barrel, while the price of gold broke through $2,000 an ounce on Monday as London’s market suspended the sale of Russian bars.

Here to help

It is essential that investors focus on longer-term timescales instead of focusing too intently on short-term volatility. Rest assured we will continue to monitor events closely. 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.

Long-term renters miss out

In today’s market, getting a foot on the housing ladder is no easy task, but new research highlights just how rewarding home ownership can be.

Research from the Equity Release Council (ERC)1 has found that someone buying a house today could save £326,214 in the next 30 years compared with people who rent throughout the same period – before house price growth is even factored into the equation!

Financial security

Working to build up the funds for a deposit, although difficult, is well worth the effort. Over two-thirds of homeowners say they feel confident about their financial future, higher than the 45% of renters who feel the same. Yet, more than half of people who are not yet homeowners believe it is “unrealistic” to think they ever will be.

Confidence and flexibility

Homeownership, the research concludes, is becoming ever more critical to financial wellbeing and being able to achieve one’s long-term financial goals.

Chair of the ERC, David Burrowes, said, “People today are living and working longer with responsibility to fund their later years and will need to think differently about their financial decisions at different life stages. For people who manage to buy their own home during their working lives, the extra confidence and flexibility this provides will be even more critical to their financial wellbeing than it is today.”

A foot on the ladder

When you’re looking to get onto the property ladder, sound advice improves your chances of success. To make your first steps towards homeownership, get in touch.

1Equity Release Council, 2021

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.

The ‘Late Financial Bloomer’ faces a complex retirement journey

A new group of consumers, dubbed the ‘Late Financial Bloomers’ are set to change the face of retirement1. An array of socioeconomic factors, such as later home ownership, are the primary drivers behind this shift.

Divorce and marriage trends are also key contributors, as is later childbirth. First marriages now take place four years later than they did 20 years ago; similarly, divorce rates peak 20 years later than they did two decades previously. With more women over 40 now giving birth each year than those under 20, a growing proportion of the population will be supporting children through education later in life, diverting attention from retirement planning.

Currently, accounting for just 6% of retirees, the number of Late Financial Bloomers is set to rise considerably over the next 15 years or so. The trend towards later financial security means an increasing number of people will face complex retirement journeys, highlighting the requirement to plan ahead.

1Canada Life, 2021

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.

News in Review

“The UK is announcing the largest and most severe package of economic sanctions that Russia has ever seen” ‘Freedom Day’ in England was overshadowed last Thursday as Russian President Vladimir Putin ordered the invasion of Ukraine, with troops attacking the country from the north, south and east. The European Union hailed the invasion as one of the darkest hours for Europe since World War II, warning Russia will be hit with ‘massive sanctions.’ Major Western nations have reacted with outrage, with many world leaders condemning Russian actions. Ukrainian forces and civilians continue to vehemently defend their country. Defiant Ukrainian President Volodymyr Zelensky has vowed to stay in Kyiv as his troops battle Russian military, citing, “We are all here. We are defending our independence, our country.” According to the United Nations, more than 600,000 civilians have now fled Ukraine. As the tragic humanitarian cost unfolds, the invasion will clearly have significant global economic, geopolitical and investment implications. On 24 February, Boris Johnson gave a statement to the House of Commons, declaring, “Now we have a clear mission: diplomatically, politically, economically – and eventually, militarily – this hideous and barbaric venture of Vladimir Putin must end in failure. At the G7 meeting this afternoon, we agreed to work in unity to maximise the economic price that Putin will pay for his aggression, and this must include ending Europe’s collective dependence on Russian oil and gas that has served to empower Putin for too long… For our part, today the UK is announcing the largest and most severe package of economic sanctions that Russia has ever seen.” UK sanctions announced by the Prime Minister include:
  • All major Russian banks will have their assets frozen and be excluded from the UK financial system, inhibiting them from accessing sterling and clearing payments through the UK
  • Russian companies and the state will be prevented from borrowing money or raising finance on UK markets
  • A suspension of dual-use export licences to cover components which can be used for military purposes and ceasing exports of high-tech items and oil refinery equipment.
In a move designed to cut off Moscow’s major financial institutions from Western markets, the UK government has joined with the US and the EU to announce sanctions against Russia’s central bank, banning British people and businesses from making transactions with the Russian central bank, its finance ministry and its wealth fund. Rishi Sunak said the sanctions “demonstrate our steadfast resolve in imposing the highest costs on Russia and to cut her off from the international financial system so long as this conflict persists.” Unprecedented measures In addition to sanctions imposed by other nations, the EU intends to purchase and ship arms to Ukraine, the first time it has taken such a step. European Commission President Ursula von der Leyen announced a raft of sanctions on Sunday, including banning all Russian aircraft from using European airspace, including the private jets of Russian oligarchs. In a significant step, selected Russian banks have been removed from the Swift messaging system, to cut them off from the international financial system and harm their ability to operate globally. Other developments On Sunday, Vladimir Putin moved Russia’s nuclear deterrent to special alert, a move the US have condemned as “unacceptable.” A Ukrainian delegation met with Russians on the Belarus border for ceasefire talks on Monday; although no breakthrough was reached, further negotiations are expected. Speaking during a visit to Poland on Tuesday, Boris Johnson said he was “increasingly confident” that Russia’s invasion would not succeed, adding that Mr Putin “must fail” in Ukraine. Later in the day, Foreign Secretary Liz Truss launched a first tranche of sanctions on Belarus for its role in the invasion. Markets Global markets have reacted predictably with many stocks moving into the red and the oil price pushing beyond the $100 milestone. Investors are pensively monitoring Russian attacks on Ukraine and the impact of sanctions imposed by the West. Here to help It is essential that investors focus on longer-term timescales instead of focusing too intently on short-term volatility. Rest assured we will continue to monitor events and their impacts closely. 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.