‘Special dividends’ boost investor income

In Q3 2021, UK dividends reached £34.9bn, an impressive 89% year-on-year rise1. Part of this rise can be attributed to large one-off special dividends, a trend expected to continue in Q4. Excluding special dividends, the underlying total in Q3 was £27.7bn, a 52.6% increase. In context, this year-on-year rebound, is comparable with a pandemic-stricken Q3 2020, in which dividends halved. 

Managing Director of Corporate Markets at Link, Ian Stokes commented on the findings, “The good news is that we have consistently seen companies deliver more in dividends than we thought likely at the beginning of the year… Companies were progressively less impacted by each lockdown and many of them took action to bolster their balance sheets during 2020… Dividend firepower is now much stronger as a result.” 

Referring to the dominance of special dividends, he added, “The boom in special dividends reflects how some companies are making catch-up payments, some are capitalising on very strong demand, and others are seizing the moment to sell assets at a time of high prices and numerous cash-rich potential buyers.” 

Although good news for income investors, dividend growth may be driven by sectors which might not perform as well in the future, which highlights the importance of diversifying across different sectors. 

1Link Group, 2021 

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

Home Finance – In the news

FTBs go mad for BoMaD 

Half of all first-time buyer (FTB) transactions in 2021 involved support from the Bank of Mum & Dad (BoMaD)1, with £9.8bn of BoMaD loans helping 169,000 FTBs onto the housing ladder. Analysts suggest the trend towards higher parental contributions could be here to stay given that Help to Buy is set to be withdrawn completely from March 2023 onwards. 

To haggle or not to haggle? 

A new survey2 has shown that six in ten UK homebuyers don’t know when to negotiate during the house buying process, even though the same percentage say they feel confident doing so. In today’s seller’s market, negotiating can be a risk: 70% admit their biggest concern is losing the property or being outbid by another buyer.  

Unlucky for some 

Almost half of homeowners have never remortgaged their home3, despite a third knowing that remortgaging would probably save them money. Not considering other mortgage options, such as swapping a variable rate for a fixed term deal, can be costly; since the average Briton has held their mortgage for over 13 years, many will be missing out on better rates. 

1Savills, 2021 

2Douglas & Gordon, 2021 

3Barclays, 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. 

Residential Property Review – January 2022

Strong end to record-breaking year – but uncertainty ahead

As Big Ben’s bongs rang out, a record-breaking year for the residential housing market gave way to an uncertain New Year.

Completed transactions to November totalled 1.36 million, which means the number of homes sold in 2021 will reach levels not seen since before the global financial crisis. Persistently high demand and constrained supply have led buyers to snap up available properties; the average number of viewings held before an offer was accepted was just 13 in November 2021, according to Knight Frank, the lowest level since December 2020.

Savills expects this heightened activity to drop off slightly in 2022. The first few months are likely to be busy given that sales agreed remained at elevated levels in November, according to TwentyCi. However, Bank of England data shows that mortgage approvals have returned to pre-pandemic levels, while the Institution for Chartered Surveyors data shows that supply has been falling since April 2021; a combination of factors which experts suggest could lead to leaner months ahead.

Government reacts to cladding crisis

The government has announced its long-awaited cladding plans in the form of a four-point plan and a three-word slogan, ‘Developers Must Pay’.

The plan includes:

  1. Starting the next phase of the Building Safety Fund to take dangerous cladding off high-rise buildings.
  2. Pursuing companies at fault to make them fix the buildings they built.
  3. Indemnifying building assessors from being sued and withdrawing old government advice on declaring buildings unsafe.
  4. Promising leaseholders living in their own flats that they will face no bills for fixing unsafe cladding.

The government has warned developers that if industry fails to take responsibility, it will ‘impose a solution in law.’

Secretary of State for Levelling Up, Michael Gove, said, “More than 4 years after the Grenfell Tower tragedy, the system is broken. Leaseholders are trapped, unable to sell their homes and facing vast bills. But the developers and cladding companies who caused the problem are dodging accountability… From today, we are bringing this scandal to an end.”

FTBs soar to 20-year high

The number of first-time buyers (FTBs) skyrocketed in 2021, with an estimated 408,379 people purchasing their first home during the year, according to Yorkshire Building Society (YBS).

This is a 35% year-on-year rise and the first time since before the global financial crisis that the number of FTBs has surpassed 400,000. Falling unemployment, low interest rates and low deposit mortgage deals have all helped to boost demand.

FTBs in high value areas also benefited from the government’s Stamp Duty holiday, receiving additional relief on properties up to £500,000. Another pandemic bonus for FTBs was the larger deposits that many were able to save due to reduced expenditures during lockdowns.

Nitesh Patel, Strategic Economist at YBS, called the FTB market in 2021 “extraordinary” and added, “Low borrowing costs is an important factor and the increased availability of more low deposit mortgages has also been an enabler mostly for first-time buyers.”

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 – January 2022

Upbeat tone in new year forecasts

2022 could be a year of recovery for the commercial property market, two leading forecasts have suggested, with Colliers’ ‘Forecasts for 2022’ predicting investment volumes will reach £65bn and  CBRE’s ‘UK Real Estate Outlook’ also foreseeing strong growth despite lingering risks.

According to CBRE, the office market is predicted to return to historical levels in 2022; Colliers expect an office occupancy of 75% to be the norm. On the industrial side, Colliers anticipates take-up topping 40m sq. ft for a third successive year. Demand for retail space is expected to be strong too, notably in prime commuter high streets.

Both reports expect the Environmental, Social and Governance (ESG) agenda to dominate in 2022, with Colliers anticipating the ‘corporate stampede to net zero’ proceeding to ‘change all markets fundamentally.’ Likewise, the CBRE believes tightening regulation will be the main strategic driver of change.

Jen Siebrits, Head of UK Research at CBRE commented, “Whilst the challenges of the last year are not quite yet behind us… the property industry can still go into 2022 with a renewed sense of optimism. Buoyed by a growing economy, real estate has real impetus for growth in 2022.”

Less office space as flexible working dominates

New data from the Valuation Office Agency shows that the amount of office space in England declined by 2% in the year to 31 March 2021, with experts predicting further falls since.

Over the last two years, demand for office space has diminished, as many employees worked from home and others had large portions of their wages paid through the Job Retention Scheme. Average occupancy levels hovered around 10% in England in the week before Christmas.

The fall in office space was especially pronounced in smaller cities, with Central London more resilient. This is largely thanks to the tech and media sector, which accounted for 23% of Central London take-up in 2021, as well as 20% of active demand, according to Savills Research.

Experts doubt office space will rebound sharply after the pandemic, pointing to a survey from workplace expert, Acas, that reveals over half of employers expect more staff to work remotely for at least part of the week.

ESG key for hotels

After COP26 in Glasgow, ESG issues have been pushed firmly into the spotlight. Hotels, one of the least energy-efficient property sectors, may be a top target for change.

The built environment contributes 40% of UK carbon emissions; hotels are especially polluting, emitting more CO2 per sq. ft than the retail and office sectors. To combat this, the sector has focused on making new development projects align with environmental goals.

Focusing on the existing hotel stock, however, might be more impactful, according to Savills. They note that only 4% of UK hotels have been built within the last five years, while 46% of existing branded hotels in England and Wales do not have an Energy Performance Certificate (EPC).

Google invests in office return

Google is purchasing its office building at Central St Giles, near London’s Tottenham Court Road, at a cost of $1bn, in a show of confidence that its employees will be coming back to the workplace, despite uncertainty over the willingness of workers to return to offices.

The purchase will be in addition to a further $1bn spend for a huge new headquarters in nearby King’s Cross, which, together with other UK offices, will give Google capacity for 10,000 workers. Google currently employs around 6,400 people in the UK but has added around 700 positions in the last year.

Google’s Chief Financial Officer, Ruth Porat said, “Our focus remains on creating flexible workspaces that foster innovation, creativity and inclusivity. We have been privileged to operate in the UK for nearly 20 years, and our purchase of the Central Saint Giles development reflects our continued commitment to the country’s growth and success.”

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



“It’s amazing to see the size of the economy back to pre-pandemic levels”

A raft of economic news landed in the last week or so, one of the most prominent being the latest UK gross domestic product (GDP) statistics from the Office for National Statistics (ONS), which highlighted that the UK economy surpassed pre-COVID levels for the first time in November – a significant milestone.

Recording stronger-than-expected growth between October and November, UK GDP expanded by 0.9%, ahead of economists’ expectations of 0.4% growth, buoyed by services, production and construction output, which all increased over the month. Rishi Sunak commented on the data, “It’s amazing to see the size of the economy back to pre-pandemic levels in November – a testament to the grit and determination of the British people.” Expectations signal lower subsequent growth following the spread of the Omicron variant and introduction of Plan B measures in England in December. Provided the December estimate does not fall by over 0.2%, and there are no data revisions made, Q4 2021 GDP will either reach or surpass its pre-COVID level.

ONS labour statistics released this week showed that the unemployment rate fell to 4.1% between September and November, close to pre-pandemic levels, while UK job vacancies reached a record high of 1.24 million between October and December. As inflation continues to bite, average pay rises are not keeping pace with the rise in the cost of living, the data revels.

‘The global economy is set to decelerate’

From a global growth perspective, World Bank expectations released last week warn of slowing growth into 2023 as financial support is wound down and pent-up consumer demand disperses. Following anticipated GDP of 4.1% in 2022, the Bank expects it to slow to 3.2% the following year. The outlook highlights that the main threats to growth this year will be virus variants, including Omicron, supply bottlenecks and declining fiscal support. One of the key points emphasises the need for strengthening global cooperation to attain equitable vaccine distribution, address climate change and improve debt sustainability. The report goes on to summarise, ‘The outlook is clouded by various downside risks, including new virus variants, unanchored inflation expectations, and financial stress. If some countries eventually require debt restructuring, the recovery will be more difficult to achieve than in the past… Social tensions may heighten as a result of the increase in inequality caused by the pandemic. These challenges underscore the need to foster widespread vaccination, enhance debt sustainability, tackle climate change and inequality, and diversify economic activity.’

UK and India trade talks commence

Trade talks kicked off last week between India and Britain, with UK Trade Minister Anne-Marie Trevelyan and her Indian counterpart Piyush Goyal meeting in New Delhi. It is intended that a free trade agreement will be signed by the end of the year, but a limited agreement could be finalised in the next few months. With India set to become the third largest global economy by 2050, Trevelyan has called the prospect of a free trade deal with India “an opportunity that we must seize to steer our partnership along the track of mutual prosperity for the decades to come.” Although the UK has made a post-Brexit deal with India, a free trade deal could almost double British exports to India and boost total trade between the countries by £28bn per year by 2035, it is estimated.

Markets

The strong November GDP growth supported the FTSE last week, with sterling also climbing on the news. As the week progressed, some indices including those in the US, edged lower following remarks from Federal Reserve officials who signalled expectations that US interest rates could rise around March time, leaving markets considering tighter monetary conditions.

Building on the previous week’s gains, the FTSE 100 reached a two-year high on Monday, primarily driven by banking, energy and basic resource stocks. GlaxoSmithKline also led UK stocks higher following the rejection of a third offer for its consumer healthcare division from Unilever.

On Tuesday, oil prices climbed to their highest since 2014 amid supply fears caused by global political tensions involving major producers such as Russia and the United Arab Emirates. Brent Crude closed the day trading at around $87 a barrel.

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.

In the news – Money

Scam victims suffer a £9.3bn wellbeing impact

Unfortunately, scams continue to be rife. As well as having devasting financial impacts, a study1 has found that scams affect personal wellbeing. By using a model that allows researchers to value changes in wellbeing in monetary terms, the impact of scams on victim wellbeing has been calculated at over £9bn a year – a personal cost of £2,509 for each victim, although the estimated impact for someone hit by online fraud is higher at £3,684. The research suggested scam victims faced a decline in life satisfaction, lower levels of happiness, considerably higher levels of anxiety and in some cases, ill-health.

Is a savings slump looming?

The cost of living is rising, with many savers saying they are rapidly eating into the additional savings they built up during lockdown. Nearly three-quarters (74%) of UK adults say they are worried about rising living costs, with 35% saying they feel more anxious about the future than before the pandemic2. This percentage increases to 42% for 45 to 54-year-olds.

A significant proportion of adults are eating into their lockdown savings fast. In fact, one-fifth say they have already spent their lockdown savings, while a further quarter predict their savings will be gone before the year is out.

As normal life returns, the balancing act between spending and saving, particularly for those approaching retirement, is becoming ever more delicate. Although you’re unlikely to save the same amounts now as you were in lockdown, don’t despair as small amounts of savings each month can soon add up.

1Which?, 2021

2Aviva, 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.

In the news – Wealth

Your 2022 playlist

Research studies over the years have reinforced the idea that equity prices are not solely driven by analysis of a company’s prospects but also by outside factors which can impact investor mood. Correlation has been found between improved stock market performance on sunny days or poor performance after a country loses a vital football match, for example.

A novel measure of investor sentiment has been discovered by a recent study, which apparently captures actual sentiment rather than shocks to sentiment1. A significant correlation has been determined across 40 national stock markets between weekly equity returns and the emotional content of that week’s top 200 songs on Spotify. The findings suggest that stock markets perform better when a country is listening to happier songs – ‘In our main findings, we document a positive and significant relation between music sentiment and contemporaneous market returns, controlling for world market returns, seasonalities and macroeconomic variables. Music sentiment also predicts increases in net mutual fund flows and absolute sentiment precedes a rise in stock market volatility. Our study provides evidence that the actual sentiment of a country’s citizens significantly affects asset prices.’

Whatever’s on your playlist this year, you can rely on us to take the emotion out of your investment decisions.

Risk-on, risk-off

New research2 has shown that affluent to ultra-high-net-worth UK investors are more conservative when compared with their international counterparts, as 54% of UK respondents rate themselves as conservative in their approach to risk, with the lowest percentage of any nation surveyed (10%) saying they adopt an aggressive approach. In contrast, nearly half of respondents from China rated themselves aggressive in their approach to risk, with just 19% conservative. Potentially underpinning the lower risk, long-term mindset, the primary reason for 66% of UK respondents for saving and investing is for their retirement, with 35% citing future healthcare costs and 17% entrepreneurial activities.

£810m tax relief unclaimed

Recently released data3 has highlighted that during the 2018/19 tax year, an estimated £810m in tax relief was unclaimed by over 1.5 million of the UK’s highest earners. Higher rate taxpayers benefit from 40% tax relief, but eight in ten failed to use their Self-Assessment tax return to claim it. Similarly, 53% of additional rate taxpayers failed to claim the 45% tax relief for which they are eligible.

1The London Business School, 2021

2Avaloq, 2021

3Pension Bee, 2021

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

What trends will dominate the housing market in 2022?

Last year house prices rose to new heights and the sales market was at its most active since 2007. Last year’s property boom was fuelled by a desire for more space, a mismatch in supply and demand, and the temporary Stamp Duty holiday. Looking ahead, what trends will dominate the housing market in 2022?

Strong finale

More than 1.5 million homes were set to change hands in 2021, while the average UK house price hit a record high of over £270,000 in November1. According to the latest figures, the annual growth rate is at 8.1%. Will this growth be sustained into 2022?

Uncertain outlook

One prominent estate agent2 has predicted that house prices will increase by 7% in 2022 in a ‘best case’ scenario, though it also made a ‘downside’ prediction of 2% growth. It remains to be seen how much impact an expected rise in the Bank of England’s base rate will have on the market.

Robert Gardner, Nationwide’s Chief Economist, thinks any increase will have minimal effect given that most mortgages are now on fixed rates, “Even a 0.4% increase in rates (to 0.5%) is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, an interest rate increase of 0.4% would raise monthly payments by £28 to £625.”

Regional differences

Another pattern to watch out for is how regional discrepancies change. Variation is currently high across different regions. For example, the North West of England was the strongest performing region in 2021 with annual growth of 10.4% (to October) compared to London’s rise of just 2.8%. Yet, the average property price in the North West (£205,881) remains far below the average in the capital (£514,907).

House prices also saw strong growth in Scotland, with the average property now costing £190,023 following year-on-year growth of 8.6%.

Here to advise

Finding a suitable mortgage and the right protection cover can be tough, especially in a rapidly moving property market. We can assess a wide range of mortgages and protection policies and advise on which ones are best suited to your circumstances.

1Halifax, 2021

2Strutt & Parker, 2021

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

Prepare with confidence

If you are in the dark about how to prepare for retirement, then join the club. Nearly half (47%) of working age people are a bit lost when it comes to getting their retirement planning in the right place1.

The research also shows that just 28% feel secure in their understanding of how to manage their pension as they approach retirement, while fewer still (27%) have an idea of what a ‘good’ amount of pension savings is for someone of their age.

‘On the back foot’

The gender pension gap once again rears its ugly head in the research, with women almost twice as likely (21%) to say they feel completely ‘on the back foot’ than men (12%). Women are also more than twice as likely to lack understanding of how to manage their pension in the runup to retirement (34% of women vs 14% of men).

A confident approach to retirement

Managing Director at Aviva, Mary Harper, commented, “It’s very easy to put thoughts about later life to the back of your mind but investing time in thinking and planning ahead can make a world of difference to your options… evidence suggests that people who access financial advice are, on average, tens of thousands of pounds better off in the long-term.”

We can offer expert guidance and advice to help you manage your retirement planning with confidence.

1Aviva, 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

“Although supply chains remain severely stretched, there are at least signs that the situation is stabilising”

As the new year takes root, the latest IHS Markit/CIPS Purchasing Managers’ Index has highlighted an elevated level of optimism amongst UK manufacturing firms. Although supply issues and staff shortages continue to hamper growth in the sector, production rose at the end of last year and output ticked up across the consumer, intermediate and investment goods sectors.

Despite inflationary pressures and higher prices being passed onto customers, many participating companies kicked off the year on a positive footing, with the majority of firms (63%) expecting production to increase in 2022, a favourable comparison to the 6% of respondents predicting contraction. This largely positive outlook reflects expectations of renewed global economic growth, planned investment activity and hopes for less disruption from the pandemic, Brexit and supply chain issues.

Rob Dobson, Director at IHS Markit, commented on the findings, “UK manufacturing production rose at the quickest pace in four months in December, supported by increased intakes of new work, efforts to reduce backlogs of work and higher employment. While the uptick in growth is a positive step, the upturn remains subdued compared to the middle of the year.”

He continued, “Although supply chains remain severely stretched, there are at least signs that the situation is stabilising, with vendor delivery times lengthening to the weakest extent for a year in December. This helped take some of the heat out of input price increases, but cost inflation remained sufficiently steep to necessitate the sharpest rise in factory gate selling prices on record. With restrictions and Omicron cases both rising, the growth and inflation backdrops could change again in the early part of 2022.”

Oil on a roll

After the brutal impact of the pandemic on oil demand and pricing, a positive stance was expressed by the Organization of the Petroleum Exporting Countries and allies (OPEC+) last week, when it signalled an expectation that the Omicron variant will only have only a ‘mild and short-lived’ limited impact on oil demand. This viewpoint prompted them to continue with the planned 400,000 barrels-per-day production increase due to commence next month. Brent crude rose above $80 a barrel last week for the first time since November following the announcement. As OPEC maintains a firm grip on supply, it seems that many oil producers are planning to carefully control capital spending this year despite the price rebound.

Markets update

In the UK, travel companies were lifted on last week’s news that pre-departure travel tests will end for fully vaccinated travellers and day two PCRs will be replaced by lateral flow tests. The overhaul of the system came after travel firms said the measures were ineffective due to the worldwide spread of Omicron. After a lacklustre start to the week on Monday, the FTSE 100 closed Tuesday on 7,488.09, led by fashion retailers, Next and JD Sports, as well as mining companies and gambling firms.

US indices closed out the first trading week of the year in the red as investors considered the latest labour report, and the economic impact staff shortages is having. The December Federal Reserve minutes, also released last week, indicated that some officials were inclined to speed their asset-purchase tapering and bring forward an initial interest rate hike. Wall Street’s main indices advanced on Tuesday, after Federal Reserve Chairman Jerome Powell told congress, “If we see inflation persisting at high levels, longer than expected, if we have to raise interest rates more over time, then we will.”

House prices see fastest growth for 17 years

According to the latest data from the Halifax, UK house prices rose at a faster rate in 2021 than in any calendar year since 2004, with prices increasing by 9.8%, taking the average UK property price to £276,091, which is an increase in cash terms of more than £24,500 compared to December 2020.

Russell Galley, Halifax’s Managing Director said, “The housing market defied expectations in 2021, with quarterly growth reaching 3.5% in December, a level not seen since November 2006. In 2021 we saw the average house price reach new record highs on eight occasions, despite the UK being subject to a lockdown for much of the first six months of the year.“

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.