This is the highest level on record in Zoopla’s dataset, which goes back to 1959, if you exclude flash points during the 2020 housing market shut down and between 2008 and 2013, just after the banking system’s near collapse.
The figures emphasise the strain fast-growing house prices has put on ordinary households. Rising values have made it both harder to be a first-time buyer and harder for existing homeowners to upgrade. The gap between the average first-time and second-step home has gotten significantly wider.
Moving costs have also increased as properties were pushed into higher stamp duty bands. In the year to April, there was a 47pc increase in stamp duty bills, an extra £1,587 per home mover, entirely down to inflated house prices.
Lower-income buyers are already struggling. The last time the gap between first and second homes was so great was during another period of economic stress, following 2008. Although this time, the British economy is not grappling with a global financial crisis – that is likely still to come. CEBR has forecast the UK will enter a recession this year.
This will bring more risks for the housing market, which has been underpinned by extremely high levels of employment.
And then there’s the cost of living crisis
It is the lower end of the market that is driving the decline of the market. Average priced and cheaper properties have seen the biggest drops in competition as the cost of living crisis erodes people’s buying power.
The largest slowdown has come in properties worth between £250,000 and £500,000. The share of properties that attracted three or more offers fell to 36pc last month, down from 41pc in May 2021. For properties worth less than £250,000, the share fell from 40pc to 36pc.
Max Armstrong, of North East Property Investment, a buy-to-let specialist, said the measures followed years of policy changes that had made buy-to-let less profitable and came alongside forthcoming minimum Energy Performance Certificate targets that could cost landlords up to £10,000 per property. “There is a worry that there will be a cumulative effect that, when you throw in the upcoming EPC requirements and the reduction in tax relief on mortgage interest, will push small landlords out of the market,” he said.
For Jess Dene*, 51, and her partner, the burden is already painful. The couple are self-employed and have built a portfolio of seven properties in the South West as their retirement fund.
“We didn’t have any money until we were in our 40s and by then it was too late to start a pension,” she said. “Our only option was property.”
But the Government’s buy-to-let crackdown and soaring house prices have already pushed back their plans. “Our aim was to have a pre-tax monthly rental profit of £5,000. We were at £3,500, but that has dropped to £3,200 following the interest rate rises. For two people, that is no longer sustainable.”
A raft of previous measures, such as new requirements for electrical checks, have already squeezed profit margins, said Ms Dene. “It used to cost £75 to renew a tenancy agreement. We just renewed one and it cost £900. The red tape costs so much money.” She is worried that a requirement for all properties to meet new minimum standards will bring additional costs in the form of paying for checks and certification.
Sarah Coles, of the investment company Hargreaves Lansdown, said: “Landlords have been cashing in and moving on as rising costs and a tougher regime persuade them there are easier and more profitable ways to make money.”
Those who sell up will get hit by inflation if they keep their savings in the bank, so former landlords could instead turn to the stock market. A stocks and shares Isa will allow them to invest £20,000 each year free of tax. Self-invested personal pensions generally have an annual contribution limit of £40,000 but allowances can be carried over for three years. Funds offer greater diversification of risk than investing in individual shares, said Ms Coles.
A Government spokesman said: “Good landlords have nothing to fear from our rental reforms, which will give tenants greater security to challenge unreasonable rent rises and poor practice. We are strengthening the grounds that landlords can use to repossess their homes where there is legitimate reason.
“We have consulted with landlords and will continue to work with them as we prepare legislation.”
OZARK, Mo. (KY3) – Rent and housing markets skyrocketed over the past year making it harder to find a place to live.
Lori Hilt is living in Ozark but is looking to be on the move.
“Someone is taking advantage, I mean, the housing markets ridiculous,” said Hilt.
Hilt said finding a place to afford is hard.
”The same house two years ago to the date, they’ve doubled in what you would pay for them now,” said Hilt.
Hilt is one of many facing the housing and renting crisis, with price hikes everywhere you turn. Hilt said her rent has gone up over the years, and she is being forced to leave, making her spend most of her day looking at listings.
” I spent about five to six hours each day,” said Hilt.
Sonya Wells, the owner of The Firm Real Estate LLC, said the current situation goes back to supply and demand.
”There’s been such a big influx of for a need of rentals that people are scrapping around trying to find places,” said Wells.
Wells said she has been in this market since 1988, and the combination of the pandemic, construction prices, supply chain issues, and more is a large storm to tackle.
”It’s just a strange market,” said Wells. “I mean, it’s kind of one of the strangest markets I’ve ever seen.”
Hilt said this strange market has been a burden.
”Nothing you can do,” said Hilt. “If I had kids that were young, I would be having panic attacks.”
Hilt said she does have a safety net of going and living with family but doesn’t see how young struggling families can go through this and hopes for change.
”I don’t know where people go, and I just think that’s wrong,” said Hilt. “We can do better than that. The fact that we’re allowing this to happen kind of is really aggravating.”
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Homeowners can also benefit from a residence nil-rate band of £175,000 on top of the nil-rate band, if they are passing their primary home to a direct descendant.
This threshold has increased with inflation since it was introduced in 2017, but the Chancellor last year announced that it will be frozen until 2026. This means there will be no allowance for the fact that in April, house prices climbed year-on-year by 12.4pc.
Julia Rosenbloom, of Evelyn Partners, a wealth management service, said: “Given that the nil-rate band and residence nil-rate band have been frozen until at least April 2026, many more will fall into this tax trap.”
Mr Sunak has also frozen the thresholds for income tax, capital gains tax and the pensions lifetime allowance, costing taxpayers thousands in a phenomenon known by economists as fiscal drag.
The inheritance tax is frozen until 2025-26, meaning a family paying tax on a £600,000 estate will pay £13,500 more by the end of the period than they would if it had risen with inflation.
The fresh calls for tax cuts came as HMRC data showed that the difference between the total amount of tax expected and that which is actually paid, was £32bn in 2020/21.
Failure to take reasonable care, criminal attacks, non-payment and evasion were among the main reasons for the “tax gap” in 2020/21 in terms of behaviour.
In terms of customers, small businesses were responsible for nearly half of the tax gap, at around £15.6bn, according to HMRC’s data.
Criminals accounted for £5.2bn of the gap, while medium-sized businesses made up £3.9bn and large businesses accounted for £3.6bn.
HMRC’s publication excluded estimates of error and fraud in the Covid support schemes.
The latest estimate from the Business Department is that, in total, £4.9bn of taxpayers’ money will be lost to Covid fraud.
The scale of the fraud has already led to the resignation of Lord Agnew in January. He said the management of fraud during the pandemic had been “nothing less than woeful”.
As inflation grinds higher, the search for investments that can keep up takes on greater urgency. We’ve covered some of the individual stocks that look equal to the task in other columns, but which investment trusts will preserve the real value of your money?
Savers have a number of options. Some trusts explicitly have this aim and we have tipped a few in recent columns; they include Ruffer Investment Company, Capital Gearing, BH Macro, RIT Capital Partners and Personal Assets. What these trusts have in common is the aim to preserve capital. What about investors who need income? Where can they get dividends that keep pace with inflation?
There are certain “equity income” trusts that can boast 50-year records of consecutive dividend increases. Impressive though this is, Questor wonders whether these trusts will be able to raise their divis in line with inflation when it is in double digits. They would need their holdings to increase their own dividends by that degree, which looks optimistic.
We need then to turn to other assets and the obvious choice is property. Real estate has several advantages. First, tenants have a legal obligation to pay rents, whereas dividends are discretionary. This makes rental income more resilient in troubled times, which will prove valuable if, as many fear, we have to contend not only with sky-high inflation but with a recession at the same time.
Second, many property leases stipulate that rents can only go up, not down, and often they must rise in line with inflation. However, we must be careful about our choice of property investment trusts. For a start, it’s no good having contracts that specify upwards-only, inflation-linked rent reviews if a recession or “stagflation” forces tenants into bankruptcy. So we need defensive parts of the market.
Next, inflation-linked rental contracts need careful scrutiny, as many cap the increases; 4pc is a common limit. These contracts were drafted in an era when inflation of even 5pc would have seemed a distant prospect, never mind the 9.1pc figure for May announced yesterday. Happily Questor has found a couple of property trusts whose contracts with tenants include no cap on the inflation link.
Triple Point Social Housing Reit is one. Its properties are leased to housing associations that house vulnerable adults and rents are backed by the state, so the income is secure.
While there are no caps on rent rises in its contracts, we must acknowledge, as its managers did last year, that in practice housing associations might struggle to pay the full increase at very high levels of inflation. That said, the recent 5pc rise in Triple Point’s dividend suggests that the associations are not struggling so far at least.
Homeowners typically have a gross annual income that is 29pc higher than that of private renters. Those on higher incomes also hold the bulk of the £180bn in additional savings British households accumulated over the pandemic.
The new dominance of fixed-rate mortgages will insulate the market from much of the immediate pain of interest rate rises, Mr Arnold added. In 2021, a fifth of mortgages were on variable rates, down from 70pc a decade earlier.
A rise in both outright homeownership and renting also means fewer households are exposed to the mortgage market at all. In 2005, 40pc of households had a mortgage, compared to 30pc in 2019-20.
Martin Beck, of the EY Item Club, said: “Interest rates have become a much smaller risk factor to house prices than unemployment.”
Unemployment is a key lead indicator for the housing market because it filters directly into forced sales. If people lose their jobs, they can no longer afford their mortgages and they have to sell up quickly. This is a looming risk as the prospect of a recession grows.
The Centre for Economics and Business Research, a consultancy, has already forecast a technical recession, anticipating two consecutive quarters of GDP this spring and summer. It expects a corresponding rise in unemployment from the 3.8pc recorded in the three months to April, to 4.3pc by the end of 2022.
Mr Arnold said: “If a slowdown in the economy brings a rise in unemployment, that could trigger a decline in house prices.”
The cost of living crisis could also feed to the wider housing market in other ways. If tenants cannot pay their rent, landlords could be forced to sell, which in turn could depress house prices, the report said.
David Fell, of Hamptons, said: “As a crude rule of thumb, a rate rise of one percentage point today exerts about twice the pressure on mortgaged household finances as the same rate rise would a decade ago.
“The sale of house price growth and mortgage debt taken on by households means that fairly limited base rate rises by historical standards have the ability to add significant pressure onto household finances.”
Bank Rate rises today will also have a higher impact because buyers have become accustomed to ultra-low rates. For the last 13 years, the Bank Rate has been below 1pc. The move into a higher interest rate environment is likely to have a much bigger impact on market sentiment, particularly in the context of the cost of living crisis, when buyers are seeing bills for food, energy and fuel soar.
The Bank Rate would need to rise to 7pc to have the same impact on household finances as the 17pc Bank Rate recorded in November 1979, Hamptons found.
With a 7pc Bank Rate, the average first-time buyer would have to spend 66pc of their monthly salary to cover a mortgage on an average home. At the peak of the Bank Rate in 1979, the share was only 63pc.
Lewis Shaw, of Shaw Financial Services, a mortgage broker, said: “We have a generation of homeowners that have never seen a typical base rate or the mortgage rates that flow from them. This means their frame of reference will now need to adjust and we all know that can be difficult.”
Electric vehicle infrastructure is relatively well-developed in central London, but in the suburbs the shortfall is acute. While in Westminster there are 2.5 electric vehicles for every public charging point, in Dacorum in Hertfordshire, the ratio is 57. Similarly in Elmbridge, Waverley and Mole Valley in Surrey, the respective ratios are 51, 46 and 45.
Lucian Cook, of Savills, said places where electric vehicle ownership greatly outnumbered charging points would see the biggest impact on home values.
He said: “As the gap between demand for electric cars and public charging points grows, we can expect to see homes that offer private charging provisions to come at a premium.”
Charles Davenport, of Knight Frank estate agents’ in Elmbridge, said off-street parking was becoming a deal-breaker for buyers with electric cars.
He said: “We had a house in Cobham and the couple looking at it had an electric car and they said sorry we can’t because there is no off-street parking and it is absolutely essential for us.” The biggest charger shortfalls are all in the extended London commuter belt in the South of England. Other hotspots include Tandridge and Woking in Surrey, as well as Reigate and Banstead, St Albans and Sevenoaks.
In two years, the combined number of electric cars has surged by 176pc, while the number of charging points has increased by only 72pc.
At the end of 2021, there were 14.75 electric vehicles for every charging point across the UK, compared to 6.35 at the end of 2019.
With stock markets continuing to fall in recent days, many investment experts have reverted to using the ‘V’ word. That’s not V for victory, but V for ‘volatility’ – a term that seems to change its meaning when share price are in freefall.
The FTSE 100 Index of leading shares has been 22 per cent more volatile than average in the past week – while since the start of the year it has been 17 per cent more volatile than the long-term average, according to Jason Hollands, managing director of wealth platform Bestinvest. But the market still remains less of a rollercoaster ride than the 26 per cent volatility score recorded when the coronavirus pandemic first hit UK markets in 2020.
According to the Oxford English Dictionary, volatile means being ‘lively’ or ‘changeable’. But in the investment world, it has become code for markets ‘getting much worse very quickly’.
Hold tight: The market still remains less of a rollercoaster ride than the 26 per cent volatility score recorded when the coronavirus pandemic first hit UK markets in 2020
Neil Bage is a financial psychology expert at consultancy firm Shaping Wealth. He says that nowadays, the word volatility in the context of investing is ‘a fancy way of saying share prices are going down’.
He adds: ‘When markets are volatile, we easily become emotionally triggered,’ stating that many investors feel the same fight or flight response when their portfolios are losing value as our ancestors did when spotting a predator. A lion in the wild, red lines on a screen indicating share price falls. Both can cause fear.’
But fear responses honed on the savannah aren’t always suitable when it comes to investing. These evolutionary traits may cause many investors to lose money by selling when they should be continuing to hold their investments. ‘Stock markets can produce unnerving shocks,’ admits Andrew Bell, chief executive of investment trust Witan. But he says that rewards accrue to patient investors and that ‘nobody rings a fire alarm at the top of the market or a dinner gong at the bottom’. So, it is extremely difficult to know when to buy shares – and when to sell.
Yet, as Bell says, all the analysis on the long-term performance of assets such as equities and bonds points to the fact that investing in equities outperforms cash savings and bonds, especially when dividends are taken into account.
So how can you stay calm during the market shocks? Financial experts say it’s a matter of holding your nerve and picking the right investment funds and stocks.
Start with history…but don’t be complacent
Hindsight is a wonderful thing, and though we do not know exactly where the stock market is going, we do know where it has been.
Darius McDermott, managing director of investment platform Chelsea Financial Services, takes comfort in what the past tells us about investing. He says: ‘As we saw during the pandemic and lockdowns, the global financial crisis of 2008 and the tech bubble and subsequent market crash of 2000, markets do recover over time.’
Looking at a five to ten-year graph of stock market performance can help investors gain perspective when markets are falling.
Myron Jobson, senior personal finance analyst at wealth platform Interactive Investor, agrees but has one important caveat.
He says: ‘History shows investments over time have a knack of producing returns that far outstrip inflation and interest on cash deposits. But that’s as long as you have a balanced investment portfolio.’
This means it is not enough to assume all portfolios will recover equally from market volatility. Jobson adds: ‘Think global, think well diversified investment funds and investment trusts as a starting point. These help to spread investment risk across sectors, markets and countries.’
Don’t meddle while markets are falling
When markets are in freefall, it is often best to sit on your hands and do nothing. ‘When stock markets are volatile, nine times out of ten, the best thing to do is nothing,’ says McDermott. ‘If you sell your investments, you are just locking in losses. If you don’t need to sell, just leave your investment portfolio alone.’ Once the dust settles, checking that your investments are still aligned with your long-term financial goals is wise, but don’t do this when in a state of panic.
‘If you are brave, you could consider buying on market dips – topping up holdings in investment funds you hope to hold for the long term.’ Witan’s Bell says that in the short term, the share price of any company may be ahead of – or behind – its true value. But over the long term, the true value and the share price should converge.
Monthly savings can help soften the blow
When the stock market is in rollercoaster mode, it can be hard to know exactly when to get on and off.
Setting up a monthly direct debit into the investment funds you like takes the emotion out of the equation. It helps to ensure you don’t have to look too carefully at fund performance day by day.
Annabel Brodie-Smith, communications director of the Association of Investment Companies, says that this strategy means that you average out the highs and lows along the way. She says: ‘The attraction of regular saving is that investors buy more shares when markets are low. It puts them in a good position when equity prices do start to rise again.’
Consider cautious investments
If you are find the ups and downs difficult to stomach, you could consider some investment funds that are cautiously managed – investing in assets other than equities.
Matthew Read, senior analyst at data group QuotedData, suggests exposure to funds that invest in bonds, whether issued by governments or companies.
Although bond prices do fall and rise, he says a good manager can ‘diversify a lot of the risk away’, thereby generating a steady mix of income and capital return. He recommends investment trust CQS New City High Yield – a fund that currently provides an income equivalent to more than eight per cent a year.
Read also recommends infrastructure investment funds, especially those focused on renewable energy. For example, Downing Renewables and Infrastructure has generated a one-year return of 20 per cent. Its portfolio comprises investments in 17 hydropower plants in Sweden, wind farms and solar energy farms.
Chelsea’s McDermott believes fund Jupiter Merlin Balanced Portfolio is a good portfolio diversifier. He says: ‘This is a £1.9billion multi-asset fund, so it gives you diversification as well as a decent exposure to equities to make the most of any recovery in stock markets.’
The fund has generated a three-year return of 13 per cent. Currently, it has nearly 85 per cent of its assets in equities, with the rest in a mix of bonds, commercial property, gold and cash.
There is an abundance of multi-asset funds, run by an array of investment houses. Via investment data website trustnet.com, an investor can look at funds according to how much exposure they have to equities. For example, there are more than 50 funds with fiveyear track records that restrict their exposure to equities to less than 35 per cent. There are another 140 that invest between 40 and 85 per cent of their assets in equities.
Read suggests £1.2billion Capital Gearing investment trust. He says: ‘Over the past ten years, it has provided annual returns in the region of six per cent, which is very respectable.’ Over the past three years, it has generated a total return of 21 per cent.
It is more diverse than Jupiter Merlin Balanced Portfolio, with bigger exposure to bonds. Dzmitry Lipski, of investment platform Interactive Investor, also likes this trust because of its holding in inflation-linked US government bonds. He adds: ‘Such bonds offer protection when stock markets fall, as well as providing a shield against inflation.’ Other trusts set up in a similar conservative style to Capital Gearing include Personal Assets (run by Troy Asset Management), Ruffer and RIT Capital Partners.
Lipski also likes gold as a hedge against stock market volatility. He says: ‘In the past gold has performed well relative to equities and other risk assets during periods of extreme economic turbulence, market volatility and high inflation.’
He suggests investors get exposure to gold through stock market-listed fund iShares Physical Gold. Over the past three years, it has generated returns of 40 per cent.
Finally…learn to live with volatility
Stock market volatility is uncomfortable, but learning to live with it should pay off in the long run.
‘While investors like consistent returns, low volatility does not always equal good returns,’ says Read. ‘It could mean that you just haven’t made or lost any money.’
Being able to tolerate a bumpy stock market ride can pay dividends in the long term.
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Buy-to-let reforms don’t bother me, it’s the war on landlords that does
Tenants with pets have been some of my best lets, and because many other landlords do not accept them, it means some have stayed longer than usual. The new proposals allow for landlords to demand mandatory pet insurance. What that will cover remains to be seen, but it’s doubtful any animal will ever cause the damage to a property any human can inflict.
If I sound sanguine, don’t be fooled. Despite the fact that rent controls are off the agenda, it’s the talk of the ombudsman which worries me more. An ombudsman, as I understood the concept, is to be impartial. However, my reading of the proposed role is that it is worryingly one-sided in favour of the tenant.
The proposals state: “The new ombudsman will allow tenants to seek redress for free, where they have a complaint about their tenancy. This could include complaints about the behaviour of the landlord, the standards of the property or where repairs have not been completed within a reasonable timeframe. We will make membership of the ombudsman mandatory and local councils will be able to take enforcement action against landlords that fail to join the ombudsman.”
It added: “The ombudsman will have powers to put things right for tenants, including compelling landlords to issue an apology, provide information, take remedial action, and/or pay compensation of up to £25,000.”
The words punitive and risky spring to mind. Buried in the small print is the belief that landlords should provide properties where the kitchen and bathroom are “not too old”. There is no reference to if the services are satisfactory – just the age. In an era of high inflation, and when materials and labour costs have already increased by 25pc in the last two years, replacing such items when not strictly necessary will be costly and time-consuming.
The threat of an ombudsman who would “be able to require landlords to reimburse rent to tenants where the service or standard of property they provide falls short of the mark” is alarming. This is before we even mention those tenants who don’t look after properties, and who would be to blame?
What makes me most uncomfortable is the tone of these proposals, rather than the contents. By its own admission, the Government is aware that the vast majority of tenants are happy in their accommodation. So it is unclear why underlying much of the points (many of which I agree with) is a thinly-veiled argument that landlords must comply… or else.
It is this attitude towards landlords that I take exception to. It feels as if the battle lines have been drawn, and that we should expect a lot more layers of bureaucracy and tax crackdowns if we want to remain landlords for the long run.
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