Britons will get a tax break to encourage investment in the London stock market, the U.K. government said as it set out a spring budget that also cut workers’ employment taxes, as the Conservative party looked to boost its election hopes.
Chancellor of the Exchequer Jeremy Hunt told a packed Parliament on Wednesday that new British Individual Savings Accounts would allow an extra £5,000 in tax-free investment into U.K. equities. Rules currently allow investors to put £20,000 a year into the accounts, which are exempt from capital-gains tax.
The move is an attempt to revive the London stock market, which has been suffering from a lack of liquidity, low valuations and a scarcity of IPOs. A recent report from Calastone found that British investors are increasingly selling their U.K. holdings to purchase shares in the U.S., particularly tech stocks.
The FTSE 350
UK:NMX,
an index of large- and midcap U.K.-listed stocks, is down 2.9% over the past 12 months, whereas the S&P 500
SPX
on Wall Street is up 27.9%.
As part of the drive to encourage more investment in the London stock market, Hunt confirmed plans to introduce a new requirement that pension funds must disclose their allocations to the U.K. and said he would consider what “further action” could be taken to stimulate domestic investment by funds.
“We strongly welcome the chancellor’s announcement of a British ISA,” said Charles Hall, head of research at investment bank Peel Hunt. “It is an important initiative that should encourage saving, start to reverse the outflow from U.K. equity funds and support investment in our growth companies.”
Shares in ISA providers such as Hargreaves Lansdown
HL
and AJ Bell
AJB
rose 2.2% and 2.7%, respectively, on the news, although AJ Bell chief executive Michael Summersgill played down how much of a boost Hunt’s decision would provide the London bourse.
“Increasing investment into U.K. companies is a laudable aim, but this ill-conceived, politically motivated decision will simply not achieve that objective,” Summersgill said.
“Fifty percent of the money our customers currently invest through their stocks-and-shares ISAs is invested into U.K. assets, so this new allowance will have no impact whatsoever on their investment behavior,” he added.
Still, the FTSE 250 index
UK:MCX,
which is populated by domestically focused midcap stocks, was up 1.4% Wednesday afternoon in the U.K.
The spring budget came ahead of a U.K. election that must be held this year, with the incumbent Conservatives heading for a heavy defeat, according to polls. Capital Economics, the London-based research boutique, titled the occasion: “Jeremy Hunt goes shopping for votes.”
There were some crowd-pleasing fiscal tweaks. The most notable was a two-percentage-point cut in national insurance taxes, which according to Financial Times calculations would add £29.04 (the equivalent of $36.95) to the monthly take-home pay of someone on a £30,000 annual salary.
Hunt also extended the freeze on alcohol duty to 2025, a measure he said would support “the great British pub.” Shares of pub giant J.D. Wetherspoon
JDW
rose 2%, and smaller competitor Marston’s
MARS
added 1.9%.
Another popular measure supports reducing the cost of driving, so Hunt said he would maintain the 5-pence cut on fuel duty and freeze it for another 12 months, a move he said would save the average driver £50 next year.
In terms of spending, Hunt said the government would allocate £6 billion ($7.6 billion) in additional funding for the NHS, which included £2.5 billion to cut wait times for appointments, a particularly sore point for many Brits.
Hunt said that the government was in a position to help families with permanent tax cuts given that inflation has slowed. “Lower tax means higher growth. And higher growth means more opportunity, more prosperity and more funding for our precious public services,” he said.
The pound was little changed at around $1.2724 after the budget was delivered, though government bond yields were quite choppy, with the 10-year later trading down 1.8 basis points at 4.088%.
Concerns about extra gilt supply came after the U.K.’s debt-management office said Britain aims to sell £265.3 billion in government bonds in the 2024-25 fiscal year, higher than analysts’ forecasts of £258.4 billion, according to Reuters.
Hunt said that the Office for Budget Responsibility, the independent fiscal observer, estimated that inflation would likely fall back to the Bank of England’s 2% target in a few months’ time, a move in line with the central bank’s own forecasts.
The OBR expects the economy to grow by 0.8% this year and 1.9% next year.
I’m struggling with the idea of selling a rental property that has both a high monthly maintenance fee and a high mortgage rate. The costs to keep this house are currently higher than the monthly income it generates.
I recently refinanced in order to pull out $100,000, so now I owe $420,000 on the property, which is worth approximately $750,000.
My recent refinancing increased my mortgage rate from 5.14% to 7.9%, essentially eating up all my cash flow.
I’m on the fence. Should I sell, or should I refinance for a better rate to free up cash flow?
Losing Money Fast
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear Losing,
The fact that you’re bleeding money from this rental is not good. You need to either bring down your interest rate or raise rents so you can turn a profit in order to make it a worthwhile investment. But keep in mind that many people are sitting on the sidelines waiting for interest rates to fall, so you might not get your desired price if you decide to sell.
Your mortgage rate is likely the biggest reason your monthly costs have jumped so much. Rates are expected to fall to around 6% or lower by the end of the year. You could refinance then, but do the math to see if it’s worth it.
You’ve already been through the wringer with refinancing, and you likely paid various application, appraisal, attorney and origination fees — in addition to closing costs — to extract that $100,000. All of that is expensive, and now you’re thinking of going through it again.
Even if you refinance again at a lower rate, would that be enough to make a profit? Were you able to turn a profit on that property when rates were at 5%? If not, would you be able to raise rents for your current tenants or perhaps find new tenants who would be able to pay more? And is the house in need of repairs or upgrades?
Unless you can make a profit on the property in the next couple of years, there’s little reason for you to hold onto it, unless you believe that it’s in an area that will experience a significant appreciation in value — you’d want to see appreciation of 20% or more, given the fees you would have to pay upon selling.
Part of your retirement plan
At the same time, a second property is nearly always a good investment. Do you think there will be considerable demand for the rental in the medium to long term? Is it in an area where you might be able to find tenants who would pay enough to cover your costs in the near term so you can at least break even? If so, it’s a good idea to try to hold onto the property, especially if it’s part of your retirement plan.
Provided that you have enough savings to help you get through this current era of 7% rates, and you have the money to refinance down the road to get your monthly costs down to a level where you can have a healthier cash flow, it may be worth keeping the home.
Selling isn’t an easy or simple decision. Because this is not your primary home, you’ll need to factor in the capital-gains taxes you would have to pay, along with 6% in real-estate commissions.
If you do decide to sell at some point in the future, you could roll that money into another like-kind property in order to qualify for a 1031 exemption, in addition to a lower rate.
The bottom line: You need to think like a real-estate investor and leave emotion out of this decision. If the property is not making money or it’s not going to at least break even at some point, you have your answer. But keep in mind that the real-estate market can surprise on the upside and that once you sell the home, you will not be able to take back that decision.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
The numbers: Home prices in the 20 biggest U.S. metros rose for the 11th month in a row and hit a record high amid a persistent shortage of resale homes for sale.
The S&P CoreLogic Case-Shiller 20-city house price index rose 0.2% in December compared to the previous month.
Home prices in the 20 major U.S. metro markets were up 6.1% in the last 12 months ending in December.
A broader measure of home prices, the national index, rose 0.2% in December and was also up 5.5% over the past year. All numbers are seasonally adjusted.
The 20-city and the national index are at an all-time high.
Key details: San Diego posted the biggest year-over-year home-price gains in December. Prices were up 8.8%.
All 20 major markets reported yearly gains for the first time in 2023, S&P said.
Home prices rose the slowest in Portland, increasing by 0.3%.
Cities | Change from last year |
Atlanta | 6.3% |
Boston | 7.2% |
Charlotte | 8% |
Chicago | 8.1% |
Cleveland | 7.4% |
Dallas | 2.1% |
Denver | 2.3% |
Detroit | 8.3% |
Las Vegas | 4.2% |
Los Angeles | 8.3% |
Miami | 7.8% |
Minneapolis | 2.9% |
New York | 7.6% |
Phoenix | 3.8% |
Portland | 0.3% |
San Diego | 8.8% |
San Francisco | 3.2% |
Seattle | 3% |
Tampa | 4.1% |
Washington | 5.1% |
Composite-20 | 6.1% |
A separate report from the Federal Housing Finance Agency also showed home prices rose 0.1% in December from the last month, and were up 6.6% in the past year.
The FHA also noted that the housing market has experienced annual home price growth every quarter since the start of 2012.
The median price of a resale home was $382,600 in December 2023, and a newly built home was $413,200.
Big picture: Even though rates went to 8% in 2023 and dried up demand, that did not push down home prices significantly, per the Case-Shiller index. However early analysis of the data indicates that some markets are seeing home price declines.
But with the 30-year dropping below 7% in December, home prices may see a boost as demand picks up. And with a persistent and severe shortage of homes for sale, home prices could be pressured upwards again.
What S&P said: “Looking back at the year, 2023 appears to have exceeded average annual home price gains over the past 35 years,” Brian D. Luke, head of commodities, real & digital assets at S&P Dow Jones Indices, said in a statement.
“While we are not experiencing the double-digit gains seen in the previous two years, above-trend growth should be well received considering the rising costs of financing home mortgages,” he added.
And the company said it was able to see the early impact of higher rates on home prices. “Increased financing costs appeared to precipitate home price declines in the fourth quarter, as 15 markets saw lower values compared to September,” Luke noted.
An Australian Home With a Historic Racecourse
This Victoria, Australia, home is the perfect fit for any equestrian. Located in the town of Lancefield, the 89-acre property features a full-sized, 1,600-meter racetrack that hosted horse races until the 1930s. In addition to the track, there’s also a stable complex, multiple paddocks and yards. The residence, built in 2000, has five bedrooms and two bathrooms, and its style mixes elements of Victorian architecture with modern details. The property has a guide price of A$4 million (US$2.62 million). Domain
Home Prices Are Still Climbing in the U.S.
January marked the 10th consecutive month of home prices rising across the U.S., according to the latest Home Price Index from First American. House prices increased 0.3% from December to January and jumped 7.2% year over year, which is a slight decline from December’s 7.7% annual increase. December’s peak was driven by buyers taking advantage of decreased mortgage rates, said First American’s chief economist Mark Fleming, and the rate of appreciation is likely to slow in the coming months. MPA Mag
Scottish Homes Are Selling Well Above Asking
Homes across much of Scotland have been selling for more than their asking price, according to analysis of Zoopla data. This trend is most prominent in East Renfrewshire, where properties are selling for £272,187 (US$343,468) on average, which is £36,708 more than the typical listing price of £235,479. Additionally, the typical sold price is exceeding asking by £31,662 in East Dunbartonshire, £30,627 in Edinburgh and £29,456 in East Lothian. PropertyWire
Podcaster Tim Dillon Lists His Hollywood Hills Home for $5 million
Comedian and podcaster Tim Dillon is selling his Los Angeles home, asking just under $5 million. Dillion bought the Hollywood Hills home less than two years ago from actor Thomas Middleditch for $4.6 million. Built in the early ’70s, the 3,000-square-foot Spanish-style estate has been renovated over the years. It has three bedrooms, two bathrooms and an attached two-car garage. There’s also a separate guest cottage with a bedroom and a bathroom. The home sits on a little more than a third of a clifftop acre above Mulholland Drive. Robb Report
The numbers: Home prices in the 20 biggest U.S. metros rose for the tenth month in a row and hit a record high due to a low number of listed homes.
The S&P CoreLogic Case-Shiller 20-city house price index rose 0.1% in November compared to the previous month.
Home prices in the 20 major U.S. metro markets were up 5.4% in the last 12 months ending in November.
A broader measure of home prices, the national index, rose 0.2% in November and was also up 5.1% over the past year. All numbers are seasonally adjusted.
The 20-city and the national index are at an all-time high.
Key details: Detroit posted the biggest year-over-year home-price gains in November. Prices were up 8.2%. The city was the best performing real-estate market for the third month in a row.
Portland was the only city which saw home prices fall in November.
Cities | Change from last year |
Atlanta | 5.9% |
Boston | 7.1% |
Charlotte | 7% |
Chicago | 7% |
Cleveland | 7.4% |
Dallas | 1.7% |
Denver | 1.5% |
Detroit | 8.2% |
Las Vegas | 2.1% |
Los Angeles | 7.2% |
Miami | 7.2% |
Minneapolis | 2.7% |
New York | 7.4% |
Phoenix | 2.5% |
Portland | -0.7% |
San Diego | 8% |
San Francisco | 2% |
Seattle | 1.6% |
Tampa | 3.4% |
Washington | 4.7% |
Composite-20 | 5.4% |
A separate report from the Federal Housing Finance Agency also showed home prices rose 0.3% in November from the last month, and were up 6.6% in the past year.
Big picture: Even though mortgage rates were elevated between October and November — which sapped home-buying demand — the persistent and severe lack of supply of homes for sale has resulted in prices rising yet again.
With an imbalance between demand from home buyers and a reluctance among homeowners to sell and give up their ultra-low rate, the dynamic is likely to persist.
Particularly since rates have fallen since November and demand has ticked up, home prices will likely continue to march upwards into the new year.
What S&P said: “November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with our National Composite rising 5.1%,” Brian D. Luke, head of commodities, real and digital assets at S&P DJI, said in a statement.
Most markets are seeing home prices grow, he added. “The days of markets in the South rising double digits with markets in the Midwest remaining flat are over,” Luke said.
And with mortgage rates falling since November, that could “support further annual gains in home prices,” he added.
Looking ahead: “With mortgage rates now lower and spring home buying demand already lurking, home prices will continue to rise,” Selma Hepp, chief economist at CoreLogic, said in a statement.
That’s “especially considering the outsized pent-up demand for homes coming from young buyers, those who have been waiting for lower rates, and huge influx of immigrants over the last couple of years,” she added.
Market reaction: Stocks
DJIA
SPX
were up in early trading on Tuesday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was over 4%.
Investing in nature to address climate change, support biodiversity, and protect ocean health—and more—is expected to reach record levels this year in response to more regulation and market demand, according to Cambridge Associates, a global investment firm.
Still, the amount of private capital invested to support natural systems will fall far short of what’s needed, according to the annual “State of Finance for Nature” report published in December from the United Nations Environment Programme.
A big reason is that nearly US$7 trillion in public and private finance was directed to companies and economic activities in 2022 that caused direct harm to nature, while only US$200 billion was directed to so-called nature-based solutions, or NbS—investments that protect, conserve, restore, or engage in the sustainable management of land and water ecosystems, as defined by the United National Environment Assembly 5, or UNEA5, the report said.
“Without a big turnaround on nature-negative finance flows, increased finance for NbS will have limited impact,” it said.
But the report also said that the misalignment “represents a massive opportunity to turn around private and public finance flows” to meet targets set by the United Nations Rio Conventions on climate change, desertification, and biodiversity loss.
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The conventions aim to limit climate change to 1.5 degree Celsius above pre-industrial levels, protect 30% of the earth’s land and seas by 2030, and to reach “land degradation neutrality” by 2030. Reaching those goals will require more than double the amount of current levels of nature-based investing by 2025, to US$436 billion, and nearly triple today’s levels to US$542 billion by 2030, the report said.
Most of the US$200 billion invested in NbS today is by governments, but private investors contributed US$35 billion—including US$4.6 billion via impact investing funds and US$3.9 billion via philanthropy. The largest source of private finance was in the form of biodiversity offsets and credits. [An offset is designed to compensate for biodiversity loss, while a credit is the asset created to restore it].
Many wealthy individuals and families concerned about climate change and the environment so far have focused their investment dollars on climate solutions and innovations in technology and infrastructure, or in technologies supporting food and water efficiency, says Liqian Ma, head of sustainable investment at Cambridge Associates.
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But “increasingly there is growing awareness that nature provides a lot of gifts and solutions if we prudently and responsibly manage nature-based assets,” Ma says.
Investments can be made, for instance, in sustainable forestry and sustainable agriculture—which can help sequester carbon—in addition to wetland mitigation, conservation, and ecosystem services.
“Those areas are not in the mainstream, but they are additional tools for investors,” Ma says.
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Finance Earth, a London-based social enterprise, is among the organizations working to make these tools more mainstream by creating a wider array of nature-based solutions in addition to related investment vehicles.
Finance Earth groups nature-based solutions into six themes: agriculture, forestry, freshwater, marine/coastal, peatland, and species protection. Supporting many of these areas are an array of so-called ecosystem services, or benefits that nature provides such as absorbing carbon dioxide, boosting biodiversity, and providing nutrients, says Rich Fitton, director of Finance Earth.
Each of these ecosystem services are behind existing and emerging markets. Carbon-related disclosure requirements (at various stages of approval in the U.S. and elsewhere) have long spurred demand for carbon markets, the most mature of these markets.
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Cambridge Associates, for instance, works with dedicated asset managers who have been approved by the California Air Resources Board to buy carbon credits, Ma says.
In its annual investment outlook, the firm said California’s carbon credits should outperform global stocks this year as the board is expected to reduce the supply of available credits to meet the state’s emission reduction targets. The value of these credits is expected to rise as the supply drops.
In September, the G20 Task Force on Nature-Related Financial Disclosures released recommendations (similar to those put forward several years ago by the Task Force for Carbon-related Financial Disclosure) that provide guidance for how companies can look across their supply chains to assess their impact on nature, water, and biodiversity “and then start to understand what the nature-related risks are for their business,” Fitton says.
The recommendations will continue to spur already thriving biodiversity markets, which exist in more than 100 countries including the U.S. In the U.K., a new rule called “Biodiversity Net Gain” went into effect this month requiring developers to produce a 10% net gain in biodiversity for every project they create.
Though developers can plant trees on land they’ve developed for housing, for example, they also will likely need to buy biodiversity credits from an environmental nonprofit or wildlife trust to replace and add to the biodiversity that was lost, Fitton says.
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This new compliance market for biodiversity offsets could reach about £300 million (US$382 million) in size, he says.
Finance Earth and
are currently raising funds for a U.K. Nature Impact Fund that is likely to invest in those offsets in addition to other nature-based solutions, including voluntary offset markets for biodiverse woodlands and for peatlands restoration.
The fund was seeded with £30 million from the U.K. Department for Environment, Food and Rural Affairs—money that is designed to absorb first losses, should that be needed. The government investment gives mainstream investors more security to step into a relatively new sector, Fitton says.
“We need the public sector and philanthropy to take a bit more downside risk,” he says. That way Finance Earth can tell mainstream investors “look, I know you haven’t invested in nature directly before, but we are pretty confident we’ve got commercial-level returns we can generate, and we’ve got this public sector [entity] who’s endorsing the fund and taking more risk,” Fitton says.
Since December 2022, when 188 government representatives attending the UN Biodiversity Conference in Montreal agreed to address biodiversity loss, restore ecosystems, and protect indigenous rights, several asset managers began “creating new strategies or refining strategies to be more nature or biodiversity focused,” Ma says.
He cautioned, however, that some asset managers are more authentic about it than others.
“Some have taken it seriously to hire scientists to do this properly and make sure that it’s not just a greenwashing or impact-washing exercise,” Ma says. “We’re starting to see some of those strategies come to market and, in terms of actual decisions and deployments, that’s why we think this year we’ll see a boost.”
Fitton has noticed, too, that institutional investors are hiring experts in natural capital, recognizing that it’s a separate asset class that requires expertise.
“When that starts happening across the board then meaningful amounts of money will move,” he says. “There’s lots of projects there, there’s lots of things to invest in and there’ll be more and more projects to invest in as more of these markets become more and more mature.”