Economic Review – October 2021

OBR forecasts stronger growth

The Office for Budget Responsibility (OBR) has upgraded its UK economic growth forecast and is now predicting the economy will return to its pre-pandemic level six months earlier than previously expected.

Chancellor Rishi Sunak unveiled the independent forecaster’s revised projections during his Budget statement delivered to the House of Commons on 27 October. The new forecast suggests the economy will expand by 6.5% this year, a large upgrade from March’s figure of 4.0%. The revision means the OBR now expects the economy to regain its pre-pandemic size by the turn of the year.

The OBR also scaled back its estimate of the pandemic’s longterm ‘scarring‘ effects from 3% to 2%. Despite this change, next year’s growth forecast was lowered to 6.0% (from 7.3% in March), partly as a result of the stronger performance predicted across 2021. Over the longer term, the economy is expected to revert to its pre-pandemic average growth rate of 1.5%, as the scarring effects of Brexit and the 2008 financial crash reassert their influence over the economy.

Office for National Statistics (ONS) data released after the OBR had produced its updated figures, showed the UK economy grew by 0.4% in August. While this was just under analysts’ expectations, it did signal a return to growth following July’s 0.1% economic contraction. ONS said the service sector made the largest contribution to growth, benefiting from the first full month without COVID restrictions in England.

More recent survey data suggests the economy gained further momentum last month. The flash reading of the IHS Markit/CIPS Composite Purchasing Managers’ Index (PMI) stood at 56.8 in October, up from 54.9 the previous month and significantly above the consensus forecast in a Reuters poll of economists. The PMI did, however, report divergent sectoral trends with growth looking increasingly dependent on the service sector.

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UK inflation likely to hit 5%

The Bank of England’s new Chief Economist has said he expects inflation to reach 5% by early next year and that the Monetary Policy Committee (MPC) will have a “live” decision on interest rates at its next meeting on 4 November.

In his first interview in the role, Huw Pill, told the Financial Times, “I would not be shocked – let’s put it that way – if we see an inflation print close to or above 5%, and that’s a very uncomfortable place for a central bank with an inflation target of 2% to be.” Mr Pill went on to describe the MPC’s upcoming decision as “finely balanced” and added, “I think November is live.“

The Chief Economist’s musings came hot on the heels of comments made by Bank Governor, Andrew Bailey. Speaking during an online event hosted by the G30 group of central bankers on 17 October, the Governor warned that the MPC will soon need to act in order to guard against inflationary expectations becoming entrenched.

Mr Bailey said, “Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations. And that’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act.“

Ironically, the latest official data released by ONS revealed a slowdown in the rate of inflation. Price growth, as measured by the Consumer Prices Index, fell to 3.1% in the year to September, down from August’s rate of 3.2%.

Recent survey evidence though continues to highlight growing inflationary pressures. Indeed, input price data from the latest PMI showed ‘an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices in coming months.‘

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Markets: (Data compiled by TOMD)

Although supply chain issues and inflation concerns continue to weigh on sentiment, many global indices closed October in positive territory. In the US, despite downbeat financial updates from tech heavyweights Apple and Amazon toward month end, a more positive earnings picture was recorded by some other major US large caps, who posted better-than-expected revenue growth, reflecting strong demand trends across pockets of the economy. The Dow and NASDAQ closed the month registering robust gains; 5.84% and 7.27% respectively.

On home shores, the FTSE 100 slipped back towards the 7,200 level at month end, after hitting 20-month highs earlier in the week. Strong trading updates from several UK large caps helped bolster the blue-chip index, but a weaker showing from commodity businesses, weighed down by price swings, kept the markets lower. The FTSE 100 ended the month up 2.13%, to close October on 7,237.57. The FTSE 250 index closed on 23,106.61, a small monthly gain of 0.33%. The Junior AIM index closed on 1,223.18, a loss of 1.66% in the month. The Euro Stoxx 50 gained 5.00% in the month to close the month on 4,250.56. In Japan, the Nikkei 225 recorded a loss of 1.90% in the month, to close on 28,892.69.

On the foreign exchanges, sterling closed the month at $1.36 against the US dollar. The euro closed at €1.18 against sterling and at $1.15 against the US dollar.

Brent Crude is currently trading at around $83 per barrel, a gain of over 7% on the month, supported by expectations that the Organization of the Petroleum Exporting Countries, Russia and their allies (OPEC+) would maintain production cuts. Gold is currently trading at around $1,770 a troy ounce, a gain of over 2% over the month. A stronger dollar and rising US inflation caused the price to falter at month end.


Index Value
(29/10/21)		   % Movement
(since 30/09/21)
  FTSE 100 7,237.57 2.13%
  FTSE 250 23,106.61 0.33%
  FTSE AIM 1,223.18 1.66%
  EURO STOXX 50 4,250.56 5.00%
  NASDAQ Composite 15,498.39 7.27%
  DOW JONES 35,819.56 5.84%
  NIKKEI 225 28,892.69 1.90%

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Retail sales extend record decline

Official statistics show that retail sales fell for a record fifth month in a row, although the latest survey evidence does point to a more recent recovery in sales volumes.

According to ONS figures, retail sales unexpectedly fell in September, with volumes 0.2% lower than August. While volumes remain above pre-pandemic levels, they have fallen steadily since peaking in April and this latest decline marks the longest successive run of monthly falls since records began in 1996. ONS said non-food stores were particularly hard hit in September, with consumers buying fewer household goods and furniture.

The latest Distributive Trades Survey published by the Confederation of British Industry (CBI), however, paints a more positive recent picture with its headline net balance of retailers reporting sales growth rising to +30 in October from +11 in September. The survey, though, did highlight ongoing global supply chain problems, with retailer stocks reduced to their lowest level since records began in 1985.

Commenting on the findings, CBI Principal Economist Ben Jones said, “The UK’s economic recovery has been pretty bumpy lately and the same seems true of the retail sector. Sales performance has jumped around in recent months, while stock shortages continue to bite.“

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Workers enjoy pay rebound

Data from the ONS annual earnings survey confirms pay levels have rebounded sharply this year, particularly for those workers hardest hit during the early part of the pandemic.

The recently released figures show that median weekly pay for full-time employees was £611 in April 2021; a 4.3% rise compared to the same month of the previous year. This revival was particularly stark across certain sections of the workforce. Weekly pay for construction workers, for example, rose by 16.8% in 2021 compared with a 10.4% fall the previous year, mainly due to the impact of furlough.

ONS Head of Earnings Nicola White commented, “After virtually flatlining last year at the start of the pandemic, earnings are returning to something like their long-term trend over the last few years. Increases this year were most marked for the groups worst affected in 2020, such as younger people, men and those in lowest-paid jobs.”

Other data also paints a robust picture in relation to pay growth. A survey published last month by the Recruitment and Employment Confederation, for instance, found starting salaries rising at their fastest rate in the survey’s 24-year history, with strong demand for staff and a shortage of candidates pushing up pay rates.

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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.

Mortgage process a mystery to many young adults

It is not only prohibitive house prices and stringent affordability criteria that are making it hard for young people to get on the property ladder. A new survey has revealed that the mortgage process is poorly understood by more than half of all young adults.

In the survey1, 52% of 18 to 34-year-olds rated their understanding of the whole mortgage process as either fairly or very bad. This incomprehension was reflected across other financial products too: 53% said they had a fairly or very bad understanding of different types of insurance and when they might need them.

Lost in translation

For many young adults, the language used to explain financial products and services acts as a barrier to their understanding. More than one in three 18 to 34-year-olds said they were not very or not at all confident that they would understand the relevant terminology.

These results suggest a significant proportion lack the required knowledge and understanding to make sensible and informed decisions about the best mortgage and protection products for their circumstances.

Here to help

When making important financial decisions, it’s always a good idea to seek expert advice. We’ll guide you through the mortgage process from start to finish and explain everything you need to know in plain English. Get in touch – whatever your age!

1PaymentShield, 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.

New investment habits set to outlast lockdown

In the past 18 months, many Britons have saved more money than usual as the closure of the economy reduced spending. Many canny investors have been channelling their savings into increased investment contributions.

New research1 suggests that the majority of UK investors (76%) intend to keep up higher levels of contributions, with half saying they intend to sacrifice everyday spending to continue doing so. On average, post-lockdown investors plan to invest nearly a fifth (19%) more, increasing to 36% more for younger investors. Just 6% plan to reduce their contributions.

While the number of investors has surged during lockdown, many experts assumed that this would reduce as restrictions (and lockdown boredom) were lifted. This has not been the case however, especially as many savings accounts have continued to offer poor returns as interest rates remain low.

Get started now

Historically, investments have performed better than cash deposits in the long term. While returns on your investments are never guaranteed, building a diversified portfolio may be a smart move while interest rates remain so low.

1Barclays Smart Investor, 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.

Autumn Budget & Spending Review 2021

“An economy fit for a new age of optimism”

Chancellor of the Exchequer, Rishi Sunak, delivered his third Budget and the results of his Spending Review on 27 October, declaring that it begins “the work of preparing for a new economy post-COVID.” The Chancellor struck an upbeat tone during the key fiscal event, as he outlined his vision of “an economy fit for a new age of optimism, where the only limit to our potential is the effort we are prepared to put in and the sacrifices we are prepared to make.”

Economic forecasts

The Chancellor began his statement by revealing updated projections from the Office for Budget Responsibility (OBR), which predict that recovery from the depths of the pandemic will be quicker than previously thought. The revised figures suggest that the UK economy will grow by 6.5% this year, a significant upgrade from March’s 4% figure. The forecast implies the economy will regain its pre-pandemic level by the turn of the year, six months earlier than previously expected.

Medium-term GDP predictions were also upgraded as the OBR now estimates that long-term pandemic-related economic scarring will be 2% rather than the 3% assumed in March. As a result of this, along with a number of government policy changes, public sector net borrowing is now projected to be equivalent to 7.9% of economic output, down from the previous forecast of 10.3%. In addition, borrowing figures across each of the subsequent four financial years have also been lowered.

The Chancellor did, however, acknowledge that the cost of living is rising. The OBR predictions suggest the CPI measure of inflation will average 4% over the next year, peaking at 4.4% in the second quarter of 2022. Mr Sunak said, “The pressures caused by supply chains and energy prices will take months to ease” adding “it would be irresponsible for anyone to pretend that we can solve this overnight.”

Spending Review

Prior to Budget Day, the Treasury had released a series of funding announcements including statements setting out spending plans for transport, health and education. During his speech, Mr Sunak stated that his Budget “increases total departmental spending over this Parliament by £150bn, with spending growing by 3.8% a year in real terms.” He added, “As a result of this Spending Review, and contrary to speculation, there will be a real terms increase in spending for every government department.”

The specific spending pledges mentioned during the Chancellor’s speech include:

  • £21bn on roads and £46bn on railways, with a guarantee to spend £5.7bn on London-style transport systems across city regions
  • £3.8bn on skills and training over the course of this Parliament
  • £1.7bn in grants from the Treasury’s Levelling Up Fund for towns and cities including Stoke-on-Trent, Leeds, Sunderland, Doncaster and Leicester
  • £5.9bn in funding for the NHS to tackle the immediate backlog of patients awaiting treatment
  • Scottish government funding will rise by £4.6bn; Welsh government funding by £2.5bn, and £1.6bn more for the Northern Ireland Executive.

Personal taxation, wages and pensions

Following the recommendations of the independent Low Pay Commission, the government will increase the National Living Wage for individuals aged 23 and over by 6.6% from £8.91 to £9.50 an hour, effective from 1 April 2022.

The taper rate that applies in Universal Credit will be reduced from 63% to 55% by 1 December 2021 and the Work Allowance will be increased by £500 a year.

The Chancellor announced that the year-long freeze on public sector pay will be lifted as the economy recovers from the pandemic, with the government seeking recommendations from Pay Review Bodies where applicable.

The new Health and Social Care Levy, announced in September, will be introduced across the UK from April 2022. The tax will initially begin as a 1.25 percentage point increase in National Insurance contributions, paid by both workers and employers. From April 2023, it will become a separate tax on earned income, calculated in the same way as National Insurance and ring-fenced as a Health and Social Care Levy. Tax on share dividends that are outside tax-free allowances is also scheduled to increase by 1.25 percentage points from April 2022.

As previously announced and following the government’s decision to suspend its triple lock guarantee for one year, September’s CPI rate will be used to calculate the uplift in the State Pension. As a result, the value of the basic State Pension will increase in April 2022 from £137.60 to £141.85 per week, while the full new State Pension will rise from £179.60 to £185.15 per week.

The 2022/23 tax year ISA (Individual Savings Account) allowance will remain at £20,000. The JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limit will stay at £9,000.

Many tax allowances remain unchanged, as previously announced in the March Budget:

  • The Income Tax Personal Allowance and higher rate threshold are to remain at current levels – £12,570 and £50,270 respectively – until April 2026 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
  • Inheritance Tax nil-rate bands continue to remain at existing levels until April 2026 – £325,000 nil-rate band, £175,000 residence nil-rate band with taper starting at £2m
  • The Capital Gains Tax annual exemption remains frozen at £12,300 for individuals, personal representatives and some types of trusts, and £6,150 for most trusts
  • The Dividend Allowance remains at £2,000
  • The Lifetime Allowance for pensions will remain at its current level of £1,073,100 until April 2026.

Business taxes

Business rates will be reduced by a total of over £7bn over the next five years:

  • Up to 400,000 eligible retail, hospitality and leisure properties can claim a new 50% business rates discount (max £110,000) for one year – worth £1.7bn of business rates relief (2022/23 tax year)
  • The business rates multiplier will be frozen in 2022/23, a tax cut worth £4.6bn over the next five years
  • From 2023, a new business rates relief will support investment in property improvements so that no business will face extra business rates for 12 months after making qualifying improvements to a property they occupy
  • Also from 2023, exemptions will be introduced for eligible plant and machinery used in onsite renewable energy generation and storage as well as a new 100% relief for eligible heat networks.

The government also intends to support UK businesses by extending the temporary £1m limit of the Annual Investment Allowance to 31 March 2023, providing businesses with upfront support, encouraging them to bring forward investment and simplifying tax for businesses investing between £200,000 and £1m.

Children and education

“The evidence is compelling that the first 1,001 days of a child’s life are the most important,” the Chancellor said as he moved onto the government’s spending plans for childcare and education. Mr Sunak therefore announced additional funding to support young families, help schools recover from the pandemic and improve education across the UK, including: 

  • £300m for the ‘Start for Life’ scheme to fund Family Hubs, perinatal mental health support, breastfeeding services and parenting programmes
  • An extra £200m for the Supporting Families Programme
  • An additional £170m for childcare providers by 2024-25
  • £150m to support training and development for early years workers
  • £200m per year to continue the holiday activities and food programme for disadvantaged children
  • An extra £4.7bn for schools by 2024-25, restoring real-terms investment in schools to 2010 levels
  • A £1.8bn package across the Spending Review period to help schools and colleges recover from the effects of the pandemic
  • £2.6bn provision for children with Special Educational Needs and Disabilities (SEND), to help fund 30,000 new places, improve existing buildings and add new facilities
  • £560m for the new Multiply programme to improve basic maths skills among UK adults.

Housing

In his speech, Mr Sunak commented, “We are investing more in housing and homeownership with a multi-year settlement totalling nearly £24bn.” This includes £1.8bn of funding announced in this Budget (helping meet the government’s commitment to £10bn for new housing) to be spent on housing developments on brownfield land. The Chancellor also reconfirmed the government’s £11.5bn investment in the Affordable Homes Programme (2021-26) to deliver 180,000 units.

He pledged £5bn for the removal of unsafe cladding from high-risk buildings, to be partly funded by the Residential Property Developer Tax, which will be levied at a rate of 4% on profits in excess of a £25m threshold.

Other key points

  • Green measures include – £3.9bn to decarbonise buildings, including £1.8bn to support low-income households to make the transition to net zero while reducing their energy bills
  • Community – 20,000 new police officers, an extra £2.2bn for courts and rehabilitation facilities and £3.8bn for prison-building
  • R&D investment – £20bn by 2024-25
  • Alcohol duty reform – the planned increase in alcohol duty that was due to take effect from midnight on Budget Day will be cancelled. A new five-point plan, which takes effect in 2023, will restructure duty to tax drinks in direct proportion to their alcohol content (including a new ‘Draught Relief’ policy set to cut duty on beer and cider sold in pubs). Consultation will close on 30 January 2022
  • Tobacco duties – duty rates on all tobacco products increased by RPI+2% from 6pm on Budget Day
  • Fuel duty rates – frozen UK-wide for the 2022/23 tax year
  • Company vehicles – from 6 April 2022, the van benefit charge and the car and van fuel benefit charges will increase in line with CPI
  • Tonnage Tax reform –  a package of measures to reform the UK’s Tonnage Tax regime will be introduced from April 2022
  • Aviation tax reform – from 1 April 2023 a new domestic band for Air Passenger Duty (APD) will be introduced. For 2023-24, the economy rate for the domestic band will be set at £6.50 and rates for the short and long-haul bands will increase in line with RPI. A new ultra-long-haul rate will be introduced
  • Capital Gains Tax (CGT) property payment window – from Budget Day the deadline for residents to report and pay CGT (where applicable) after selling UK residential property increases from 30 days after the completion date to 60 days.

Closing comments

Rishi Sunak signed off his announcement saying, “This Budget helps with the cost of living. This Budget levels up to a higher-wage, higher-skill, higher-productivity economy. This Budget builds a stronger economy for the British people. 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 believed correct at the time of writing (27 October 2021)

News in Review

 “Growth is being accompanied by an unprecedented rise in inflationary pressures”

A closely monitored survey, released last week, suggests the UK economy unexpectedly regained momentum during October. The preliminary reading of the IHS Markit/CIPS Composite Purchasing Managers’ Index (PMI) rose to 56.8, up from 54.9 in September. This represents the largest monthly increase since May and beat the consensus forecast in a Reuters poll of economists which had predicted a decline to 54.0.

Commenting on the findings, IHS Markit Chief Business Economist Chris Williamson said the economy “picked up speed again in October”, although he did strike a note of caution adding, “the expansion is looking increasingly dependent on the service sector, which in turn looks prone to a slowdown amid the recent rise in COVID-19 cases.”

Mr Williamson also noted that the Index reported the fastest rate of input price inflation since its inception in 1998, fuelled by higher wages and supply shortages. He concluded, “Growth is being accompanied by an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices.”

Inflation likely to hit 5%

The latest PMI data has added to speculation that the Bank of England (BoE) will soon need to raise interest rates to guard against inflationary expectations becoming entrenched. In comments published in last Thursday’s Financial Times, the BoE’s new Chief Economist Huw Pill, warned inflation is likely to hit 5% in the coming months and said the question of whether to raise rates would be a “live” one when the Monetary Policy Committee (MPC) next convenes on 4 November.

Mr Pill said, “I would not be shocked — let’s put it that way — if we see an inflation print close to or above 5%. And that’s a very uncomfortable place for a central bank with an inflation target of 2% to be.” However, the Chief Economist described November’s MPC decision as “finely balanced” and was at pains not to suggest any need to move rates much higher than their pre-pandemic level of 0.75%.

State Pension rise

Last Wednesday’s announcement that inflation, as measured by the Consumer Prices Index (CPI), had risen by 3.1% in the year to September, means retirees now know by how much the State Pension will increase from next April. Following the government’s decision to suspend its triple lock guarantee for one year, September’s CPI rate will be used to calculate the uplift. As a result, the value of the basic State Pension will increase in April 2022 from £137.60 to £141.85 per week, while the full new State Pension will rise from £179.60 to £185.15 per week.

Retail sales down again

Official data released last Friday showed retail sales unexpectedly fell for the fifth successive month, with volumes down 0.2% in September. Although sales volumes remain above pre-pandemic levels, this latest fall marks the longest consecutive run of monthly declines since records began in 1996.

Responding to the data, British Retail Consortium Chief Executive, Helen Dickinson said, “Retailers will be concerned by the slump in sales, just as they begin their preparations for the all-important Christmas period. Fuel shortages, wet weather, and low consumer confidence all contributed to lower consumer demand, with household goods, furniture and books all hit particularly hard.”

Public borrowing lower than expected

The latest public sector finance statistics, released last Thursday, showed that government borrowing remains on a downward trajectory. Total borrowing across the first six months of the current financial year fell to £108.1bn, over £100bn less than the figure recorded during April-September 2020. While this is still more than triple the pre-pandemic level, borrowing this year has fallen more quickly than economists expected, which will give the Chancellor some room for manoeuvre when he delivers his Budget and Spending Review in the Commons this afternoon.

Pre-Budget announcements

Perhaps unsurprisingly, the news agenda for the last seven days also featured intense speculation about the Budget’s likely content. In addition, much to the Commons Speaker’s annoyance, there were also several pre-Budget briefings, including Treasury statements setting out spending plans for transport, health and education, details of an increase in the National Living Wage to £9.50 per hour and a lifting of the year-long public sector pay freeze.

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.

Humble mortgage overpayments add up

A boost in UK savings as a result of reduced expenditure on travel and leisure during lockdown could be the key to cutting thousands in interest and months from the terms of mortgages, according to research1.

With Bank of England figures suggesting Brits saved an extra £200bn during lockdown, overpaying on your mortgage could prove more fruitful than squirrelling away this cash into low interest savings accounts.

Overpayment benefits

It is estimated that fewer than half of people take advantage of overpayments, despite most mortgages allowing borrowers to overpay on either a regular or ad hoc basis without penalty. Yet paying an extra £90 a month towards a £200,000 mortgage from the first payment onwards would reduce the loan’s total cost by more than £16,800 and the term by more than three years, says the data.

Overpayments don’t have to start early in the mortgage to make a noticeable impact either. Paying an extra £90 each month from the mortgage’s 10th anniversary could still save £5,300 in interest and shave 18 months off the term.

Mortgage overpayments won’t be suitable for everyone, however, and you should consider your personal and financial circumstances first.

1Halifax, 2021

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

Working together to tackle the climate crisis

Due to be held this November in Glasgow, the United Nations 26th Conference of the Parties – COP26 – is recognised as the most important climate change event since the 2015 Paris Agreement. The summit will bring together world leaders to build on the work left unfinished by COP25.

Countries are being asked to co-operate to reduce emissions, with the aim of achieving global net zero by mid-century, as well as mobilising finance, and protecting natural habitats and communities.

The investment industry has stated its intention to play a vital role in the global climate transition. Launched in December, the Net Zero Asset Managers Initiative has grown to over 120 investors, managing $43trn – all committed to supporting the goal to reach net zero and investments aligned with net zero emissions. COP provides an opportunity for investors to consider how they can innovate in developing solutions to solve climate issues and in financing sector transition.

Institutional Investors Group on Climate Change CEO, Stephanie Pfeifer, commented on the popularity of the initiative, “In just six months nearly half of the global asset management sector has committed to achieving net zero emissions with their clients across the funds they manage. This marks a fundamental tipping point across the investment sector and a significant boost in efforts to tackle climate change and decarbonise the global economy. There’s a lot more to achieve, but the sector is increasingly on a path to a net-zero future.”

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

Rising interest in equity release

More than half of homeowners are interested in releasing equity from their property in later life1, with the majority aiming to boost pension income and savings or pay for care. The amount of equity available for release in British homes has also reached a record high of £730bn2, with the South East having the largest available equity by region at £140bn.

Biggest homebuyer turnoffs

Subsidence, Japanese knotweed, overgrown gardens and visible power lines are some of the biggest homebuyer red flags which could knock up to 20% off the value of your home3. Subsidence is the biggest cause for concern, with the potential to reduce the value of a home by £51,000 for the average UK property. Japanese knotweed can knock 15% (£38,000) off the value, unkempt gardens 14% (£36,000) and new power lines 13% (£33,000).

Continued demand for specialist mortgages

Mortgage options suitable for irregular incomes and repayment blemishes continue to be sought after4, with demand for lenders willing to consider satisfied repayment defaults remaining in the top three most desired criteria points. Searches for unsecured arrears and unsatisfied defaults appeared in the top 15 most searched-for terms, while searches for borrowers with bankruptcy jumped 24%.

1Equity Release Council, 2021

2Canada Life, 2021

3Yes Homebuyers, 2021

4Legal & General, 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 – October 2021

Supply still lagging demand

Steady buyer demand and a sixth successive month of net negative new instructions, were the stand-out trends in the September UK Residential Market Survey published by the Royal Institution of Chartered Surveyors (RICS).

At the national level, new buyer enquiries had a net balance of zero in September, up from -13% in August. Meanwhile, the recent decline in new listings persisted, with new instructions registering a net balance of -35%.

Simon Rubinsohn, RICS Chief Economist, commented, “The imbalance between demand and supply remains the most striking theme… And feedback from members provides little reason to believe this issue will be resolved anytime soon.”

Following a slight dip caused by the tapering of the Stamp Duty holiday, steadier buyer demand is now causing sales expectations to gain momentum, with 11% more respondents anticipating an increase in sales in the coming three months, up from +6% in August.

Indeed, with over one million homes sold by the end of August – a threshold not usually passed until October – analysts are suggesting 2021 could see more transactions completed than in any year since the global financial crisis.

Rents surge nationwide

The rental market is springing back to life, with the return of renters to cities forcing rents higher, and the number of rental homes struggling to keep pace with the surge in tenant demand.

In London, the bounce back gathered pace in September, with quarterly average rental values rising by the largest amount in a decade in both prime central (+2.8%) and prime outer London (+2.6%). Prices are being driven by an imbalance between tenant demand and new available rental properties, as offices re-open and more overseas tenants start to arrive.

Meanwhile, rents outside London are rising at their fastest rate since 2008. The average price of renting a home outside the capital is now £790 a month, a 5% increase year-on-year. Two cities topped the rankings – Sheffield (7.6%) and Bristol (6.9%).

Transport links key for house hunters

The return of workers to the office after more than a year of home working has sparked a significant increase in interest for homes near commuter train stations.

Buyer searches have surged in commuter areas, according to Rightmove. Indeed, data from its website show eight of the top 10 stations that have seen heightened interest from potential homebuyers are all within one hour’s train commute from a major city.

Top of the list is Chelmsford station, which saw a 107% increase from June to August. In the same period, Crewe, just under an hour from Birmingham, saw a rise of 32%.

Rightmove’s Tim Bannister commented, “While the demand to relocate or search for more space has by no means gone away, the numbers suggest that this will need to be balanced with easy transport access on office days, which has understandably been lower on the agenda for many over the last eighteen months.“

“At the national level, new buyer enquiries had a net balance of zero in September, up from -13% in August“

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House Prices Headline statistics

House Price Index (August 2021)* 138.6*

Average House Price £264,244

Monthly Change 2.9%

Annual Change 10.6%

*(Jan 2015 = 100)

  • Average house prices in the UK increased by 10.6% in the year to August 2021
  • On a non-seasonally adjusted basis, average house prices in the UK increased by 2.9% between July and August 2021
  • House price growth was strongest in Scotland where prices increased by 16.9% in the year to August 2021.

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House Prices Price change by region

Region   Monthly Change (%) Annual Change (%) Average Price (£)
England   3.2 9.8 £280,921
Northern Ireland
(Quarter 2 – 2021)		 2.9 9.0 £153,449
Scotland 1.7 16.9 £180,832
Wales   2.8 12.5 £194,575
East Midlands 2.7 10.3 £221,693
East of England 2.9 9.6 £324,510
London 5.6 7.5 £525,893
North East 2.4 13.3 £149,042
North West 4.5 12.4 £194,821
South East 1.9 8.7 £358,070
South West 4.2 8.9 £288,658
West Midlands Region 2.9 11.0 £228,593
Yorkshire & The Humber 1.5 8.8 £185,968

Source: The Land Registry
Release date: 20/10/21 Next data release: 17/11/21

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Average monthly price by property type – August 2021

Property Type Annual Increase
Detached
£411,649		 13.1%
Semi-detached
£254,115		 11.0%
Terraced
£214,083		 9.9%
Flat / maisonette
£220,756		 7.3%

Source: The Land Registry
Release date: 20/10/21

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Housing market outlook


“We expect the market to remain busy compared to historical norms, and for price growth to remain in firmly positive territory at the end of the year, although lower than current levels of +6.1%. Stock levels will start to rebuild in early 2022 as market activity returns to more normal levels.“

Gráinne Gilmore, Head of Research at Zoopla
Source: Zoopla October 2021

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Contains HM Land Registry data © Crown copyright and database right 2017. This data is licensed under the Open Government Licence v3.0.

All details are correct at the time of writing (21 October 2021)

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 – October 2021

Strong recovery for UK flex market

According to Workthere research, the flexible office sector regained momentum in H1 2021 following its pandemic-induced slump, with renewed appetite for flex space in both enquires (+30% on pre-pandemic levels) and transactions (+36%).

Flexible workplaces – a catchall term encompassing anything from serviced offices to fitted plug and play space – make up a significant part of the office landscape, with 12% of UK office workers expected to be using flexible workplaces at least some of the time after the pandemic subsides.

Nationally and globally, the provision of flex space remains weighted towards private offices (50%), with co-working desks (34%) and communal areas (13%) the next most popular uses. In recent years, the sectors choosing flex space have evolved. Tech has traditionally been the most active, but insurance and financial, business and consumer, and professional services collectively accounted for almost half of desks this year.

This sectorial shift has also impacted the average size of occupier requirements. From 11 desks pre-pandemic, the average size per transaction is now 17 desks. Likewise, the number of companies taking licences of one year or more is 44% higher than before the pandemic.

Strongest capital growth for a decade

The latest UK Monthly Index Snapshot from commercial real estate services and investment firm CBRE showed capital growth in Q3 2021 was the strongest since Q1 2010.

Capital values increased by 1.6% across all UK commercial property in September, the highest capital growth figure since June 2014. The industrial sector reported record-breaking month-on-month growth of 3.1%, which pushed its Q3 figure to the strongest on record (7.5%). Monthly retail capital growth (1.7%) and office capital growth (0.5%) also increased.

Rental values for all sectors posted 0.3% growth in September, led by industrial rental values which rose by 0.8%. Total returns for the month were 2.0%, with readings of 3.4%, 2.2% and 0.8% for the industrials, retail and office sectors respectively.

New investment in world-leading science park

Magdalen College Oxford and GIC, a Singapore-based global investor, have entered into a strategic partnership to accelerate development of The Oxford Science Park (TOSP), a key location for science and technology firms.

The partnership aims to accommodate strong demand and future growth of its world-leading companies. Current occupiers include Exscientia, inventors of the world’s first AI-designed drugs to enter clinical trial, and Vaccitech, the company behind the Oxford AstraZeneca vaccine.

Planned state-of-the-art facilities include Plot16, a 15,600 sq.m eco-friendly development that will deliver office and lab space in two buildings divided by a raised central plaza. Construction is set to get underway by the end of the year, with strong interest already recorded in subsequent buildings.

Rory Maw, Chief Executive of TOSP, commented, “As well as being an enormous demonstration of confidence in the UK as a leading location for international life science and technology, this is a transformational investment… It enables us to meet unprecedented demand for high-quality laboratory and office space and to support the ambitious growth of new and existing occupiers.“

Nationally and globally, the provision of flex space remains weighted towards private offices (50%), with co-working desks (34%) and communal areas (13%) the next most popular uses

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Commercial property currently for sale in the UK

  • Regions with the highest number of commercial properties for sale currently are the South West and North West England
  • Northern Ireland currently has the lowest number of commercial properties for sale (27 properties)
  • There are currently 1,396 commercial properties for sale in London, the average asking price is £1,603,443.

Region No. properties AVG. asking price
London 1,396 £1,603,443
South East England 1,222 £2,038,093
East Midlands 742 £969,844
East of England 763 £639,422
North East England 770 £325,875
North West England 1,399 £399,062
South West England 1,560 £604,450
West Midlands 1,099 £485,440
Yorkshire and The Humber 1,126 £299,789
Isle of Man 53 £484,118
Scotland 1,134 £325,907
Wales 781 £407,393
Northern Ireland 27 £678,133

Source: Zoopla, data extracted 21 October 2021

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Leisure market recovery in the offing

The most recent UK Leisure Spotlight report from Savills has highlighted that during August, total UK leisure spend increased 6.4% above 2019 levels. Sector growth can be attributed to the volume of staycations and day trips. With total leisure and hospitality spend returning to positive territory, commercial property closures across the sector have reduced considerably when compared with last year.

Key points from the report:

  • The food and beverage sector is experiencing strong growth, with drive-thru and takeaway sub-sectors growing at pace
  • The number of out-of-town gyms has risen, as operators expand their presence across retail parks
  • Cinema admissions have increased, August admissions were 67% higher than August 2019
  • Pubs, bars and clubs saw a return to sales growth in August
  • UK leisure sector vacancy rates are expected to remain far below that of the retail market (11.8% versus 16.5%), this indicates ‘comparatively robust levels of demand.‘

Head of UK Retail at Savills, Alan Spencer, commented on the findings, “It’s no secret that the leisure sector has faced a series of challenges that we couldn’t have comprehended only two years ago. However, the market turned a corner over the summer and we’re now seeing requirements from operators across the entire sector, from traditional operators such as bars and restaurants to new competitive socialising concepts and immersive, interactive experiences.“

All details are correct at the time of writing (21 October 2021)

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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.