What’s Happening With Inflation, Interest Rates & Investment?

There are various ways to measure inflation but the basic idea behind them is much the same, inflation indexes track the changes in a basket of goods and services which is considered to be a good representation of how the average person spends their money.  Of course, whether or not it is a good representation of how you personally spend your money, depends on how closely you fit the model of the “average person” and this can work both ways, in other words, you might find that your personal rate of inflation is higher or lower than the official measure.

Inflation and income

There are essentially two ways inflation can influence income, one is direct and the other is indirect.

Direct – inflation as a measure for wage and pension increases

Employers can use the official rate of inflation as a convenient measure for determining annual, standard wage increases (i.e. wage increases which are unrelated to either promotion or performance).  It also forms part of the current “triple-lock guarantee” on state pensions (i.e. that they increase by the rate of standard earnings, inflation or 2.5%, whichever is the greater).

Indirect – inflation as a parallel to interest rates

When inflation is low, if a central bank wants to try to stimulate the economy, it has a choice between lowering interest rates or using quantitative easing.  If inflation rises, however, and a central bank wishes to put a gentle brake on the economy, then it really only has one tool at its disposal, which is to raise interest rates.  This is good news for savers as it increases the interest income they receive but of course it is bad news for borrowers since it increases the amount of interest they need to pay and hence reduces their effective income.

A little inflation is seen as a positive

The Monetary Policy Committee of the Bank of England is charged with keeping inflation at exactly 2%.  Of course, it’s very hard to make sure a moving target stays in exactly the same position, so the MPC is allowed 1% leeway either way before it is called to account for its actions.  A reasonable level of inflation is seen as a stimulus, encouraging people to take action now rather than waiting for prices to rise further.  By contrast stagflation (static prices) or deflation (falling prices) can both encourage people to put off purchases in expectation that waiting will either make no difference or might even be beneficial.

Incorporating the reality of inflation into your financial management strategy

In very simple terms, any investment decision you make must at least match inflation in order for you to break even and must generate returns which exceed the rate of inflation in order for you to make a profit.  For example, in the current low-interest-rate environment, cash deposits in savings accounts are highly unlikely to make the sort of returns needed to beat inflation, although there may be other, perfectly valid, reasons for keeping them, in which case looking at strategies such as putting them in an ISA wrapper may be valid.  By contrast, stocks in start-up companies may offer the prospect of massive returns – although there may be a very high level of risk involved with them.

The skill of balancing risk and reward is at the very core of successful investing and one of the key points which successful investors need to understand, is that sometimes the investments which seem the most safe can actually carry a high risk of their own, namely the risk of having capital devalued by the impact of inflation.  This is not, of course, to say that investors should see this as a sign to dive into the higher-risk end of investment vehicles, just that they may benefit from opening their minds to investments they might otherwise have rejected out of hand for being slightly too risky for their tastes.

The value of investments can fall as well as rise. You may get back less than you invested.

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Finding Balance As Markets Lurch

While it’s been questioned whether or not the saying “May you live in interesting times.” is actually an English translation of an ancient Chinese curse, it’s hard to question the suggestion that the times in which we are now living are very interesting indeed.  Barely a day seems to go by without headlines commenting on how markets are reacting to the latest piece of bad news.  Sometimes these are just storms in teacups, but there are arguably four key issues which could influence investment and investors for the foreseeable (or unforeseeable) future.

Donald Trump

Say whatever you like about Donald Trump, nobody’s ever going to accuse him of being boring.  From an investment perspective, it’s worth noting that what politicians want to do and what they can actually do in reality can be very different.  For example, Trump pledged to repeal Obamacare but so far has been unable to fulfil this pledge due to political opposition (he has only managed to roll back a small part of it).

North Korea

Similar comments apply to Kim Jong-un of North Korea.  While he may, in theory, be absolute ruler of his country, the fact is that his country is a very small one surrounded by countries which are more powerful in every meaningful way and it is highly questionable how long he or his country could survive without at least some form of support from China and/or Russia.  While neither of these countries is likely to take kindly to what they perceive as U.S./U.N. interference in their area of influence, it’s to be hoped that neither actually wants open warfare either, nuclear or otherwise.


The current unrest in Catalonia should surprise nobody who has any knowledge of European history or current affairs on the continent.  Catalonia has its own identity including its own language and at this point in time it is arguably the powerhouse of Spain’s economy (although some would point to the fact that this was not always the case and highlight the fact that the 1992 Olympics received a lot of funding from the Spanish central government).  In theory, it is impossible for Catalonia to secede from Spain.  In practice, if calls for independence grow loud enough, it will be very hard for them to continue to be ignored by the EU.


At this point in time it’s anyone’s guess what form Brexit will take.  Some people still believe there is a possibility, however slim, that it will never actually happen.  Others believe that the UK is on course for a hard Brexit.  Either could be right or we could end up with a “transitional deal” or similar which puts the UK somewhere in the middle.  Given the lack of clarity around what is going to happen, attempting to make predictions about the eventual outcome of the Brexit at the present time is arguably an exercise in futility at best and potentially dangerous to investment at worst.

Riding the winds of change to positive returns

From an investment perspective, when it comes to dealing with the winds of change, it can be worthwhile remembering that there are certain elements which remain constant in people’s lives regardless of what happens in the world around them.  For example, the need for basic necessities such as shelter, food and water will always be in demand regardless of the prevailing political winds.  This means that investments which relate to them tend to be reliable performers over the long term.  Of course, each investment still has to be analysed on its own terms for its quality and its suitability to your situation, but even in “interesting times” there is still the potential to earn good returns.

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4 Things About Interest Rates

Although it may not seem like it at first, interest rates really are interesting. High rates are great news for savers but bad news for borrowers and vice versa. Regardless of whether you’re a saver or a borrower, it’s important to understand 4 key points about interest rates.

For savers interest rates are in a race against inflation

Life is often a balancing act between conflicting goals and possibilities. In financial terms, this generally boils down to risk versus reward and/or cost versus benefit. Higher-risk investments can offer the possibility of great returns but, pretty much by definition, there is also the possibility of losing your initial investment. Cash savings can be viewed as safe in the sense that there is a relatively low risk of the saver losing their deposit, but if inflation (the cost of living) outpaces interest rates (the return on investment), savers can find their nest egg losing its value in real terms. This can be particularly challenging for older people on fixed incomes (pensioners) who do not necessarily have the long-term investment horizon of the younger generation but who do have a need for a reliable source of income to maintain themselves.

The interest rates available to consumers may be completely different to central-bank rates

About once a month, the press reports on the activities of the Monetary Policy Committee of the Bank of England, which sets the Bank of England’s interest rates. These are the rates charged (or paid) to banks which borrow from or deposit with the Bank of England. These rates may then feed through into consumer products such as savings accounts, mortgages and credit cards, some of which track this base rate. Some products, however, are fixed-rate and hence are unaffected any changes to the interest rates set by the Bank of England for the life of the fixed-rate deal. The key point to understand is that the interest rates offered to consumers are influenced by a number of factors as well as the base rate. Some of these are generic, such as what the banks think of the economy in general. Some, however, are specific to each individual, such as their credit history. Then, of course, there is the simple fact that banks need to pay their own bills and make a profit for their shareholders.

How do interest rates affect the market?

It’s usually considered that rising interest rates are bad news for stock markets. Reduced spending on goods as businesses and consumers borrow can cause stocks to drop. This is only a part of it though as different types of investments see rate rises differently. For instance gold may appears less shiny when interest rates are high as it doesn’t pay interest and can be less attractive to store.

The impact on property investment is found when combined with mortgages and higher interest rates. Mortgages become more expensive making buy to let less profitable. Savvy developers however will watch the economy and know when to hold back on new build. This can then increase a demand for property in that area meaning that the returns in development can still be high.

As with all investments, there is no hard and fast rule and you can lose as well as win.

Interest can be simple or compound

With simple interest, the interest payments are calculated purely on the basis of the initial sum deposited or lent. So, for example, if you deposit £100 then the interest you receive will always be based on that initial £100. With compound interest, however, interest is calculated on a rolling basis. Hence for example, if, after the first year you had received a total of £10 in interest payments, your next year’s interest payment would be calculated on the whole £110 rather than just the £100 you initially deposited. This is great news for savers but, of course, terrible news for borrowers and is part of the reason why those who take out high-interest credit can wind up paying more in interest than they borrowed to begin with.

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Risk & Reward – The Fundamentals of Investment

The ability to weigh up risk and reward is a crucial skill for successful investors. Even though investors may be presented with exactly the same information, they may come to completely different conclusions about whether or not it’s a good idea to make the investment. The reason for this is that each investment has to be viewed in the light of an individual’s personal situation and goals and hence an investment which is perfect for one person may be a really bad choice for another. Here are some key questions to ask when deciding whether or not an investment is right for you?

What is my investing horizon? – This is really a better question to ask than the traditional “What is my age?”. You may be a young person who, for whatever reason, can only tie up their money for a short period, or an older person working on the assumption that you may still have decades left to live and even if you don’t, you would like to leave a legacy for your heirs.

How easy would it be to monetise this investment? – Some investments can be monetised fairly quickly and easily, many shares for example, although you do have to accept that you may do so at a loss, particularly if exiting the investment early triggers a penalty and/or a tax liability (such as capital gains tax). Some investments, however, such as property, have much slower transaction times.

How much risk is appropriate for me right now? – In addition to looking at the balance of risk and reward for the particular investment, you need to look at where you stand in general. For example, if the investment is fairly high risk but high reward and all your other investments are very low risk and low reward, then you may feel that you would benefit from taking a bit of a gamble, at least with a small portion of your investment funds, to try to improve your overall return. If, however, you already have a number of high-risk/high-reward investments in your portfolio, then you may be better to stand pat.

How diversified is my portfolio? – Generally, you want to achieve enough diversification so that your portfolio always performs well overall, regardless of the specific economic climate, although some investments may do better than others, depending on market conditions. At the same time, over-diversification can make a portfolio overly complex and challenging to manage.

Does this investment have tax-benefits? – For example, can you put it in an ISA or does it qualify for business relief to help with your estate planning? Tax benefits in and of themselves are unlikely to turn an inappropriate investment into an appropriate one (or vice versa), but when you have the choice between two appropriate investments, remember to take tax into account when calculating which one could offer the better returns.

What is my field of knowledge? – You need to be able to understand potential investments to be able to judge if they are right for you, since, ultimately, control of your financial destiny lies with you and you alone. At the same time, however, the best decision-makers generally know when to get advice, choose their advisers carefully and pay close attention to what they say. With this in mind, it can be worth giving strong consideration to getting professional help from a financial adviser, who can look at your specific situation, make suggestions as to what investments could be right for you personally and explain to you what they mean in actual, practical terms, thus empowering you to make the right decisions for your particular circumstances.

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Business & The General Election

Business owners were probably as surprised as everyone else when Theresa May called a general election three years ahead of schedule. With such a short timetable, there’s a relatively short window of opportunity for businesses to set out their “wish list” for what they would like from an incoming government. It is, however, possible to speculate what the general election may mean for businesses large and small and, of course, the self-employed.

The Right to Remain Question

This is arguably the pre-Brexit question in that it is a matter which the EU has stated must be settled before Brexit negotiations proper can proceed. In very simple terms, assuming the EU means what it says, giving permanent right to remain to EU citizens who have been resident in the UK for five years or more is a necessary condition for any further negotiations to take place. Given that this only impacts a relatively small number of people (albeit to a great degree), and would presumably be reciprocal (in that the EU would grant the same rights to UK nationals resident abroad), this is likely to be a fairly easy agreement to make and would give the people concerned (and their employers and employees) reassurance about their future.

The Brexit Question

There can be little doubt that the result of this election will have a significant impact on the course of Brexit. If pollsters are correct and Theresa May returns to power with an increased majority, then it could be a strong sign that Brexit could be as soft as the city would like. May herself was a Remainer, but up until now she has had to deal with the reality of a small majority and some hardline Brexit-supporting backbenchers. If local party branches are encouraged to field pro-European candidates and enough of them are elected, then Theresa May could find her hand substantially strengthened in navigating her way through the Brexit negotiations which are sure to define this parliament and her leadership.

The Currency Question

The Pound Sterling has been on something of a wild ride over recent times. While it’s a fact of life that some businesses benefit from a weak pound just as some businesses benefit from a strong pound, pretty much all businesses benefit from at least a reasonable degree of stability so that they and their customers can plan ahead to a reasonable degree. If the general election achieves nothing more than to bring stability to the Pound, then it’s probably fair to assume that most businesses will could that as a positive, even if they would have preferred the Pound to be stronger or weaker.

The National Insurance Question

In all the sound bites and fury about Brexit, it’s easy to forget the NI debacle in which Philip Hammond’s (widely-anticipated) readjustment of the NI system to make it “fairer”, was swiftly reversed after a (presumably unanticipated) backlash. Unsurprisingly, questions about what was in store for NI in the next parliament were high on the agenda for political journalists. It was widely noticed that Theresa May failed to rule out raising NI if she were to win the election. In fairness, there’s a difference between refusing to rule out something and saying that you will do it, but it also has to be remembered that the stated reason why the increase was reversed was because it was against the spirit of the manifesto commitment, rather than because the government thought it was a bad idea in and of itself. May also refused to rule out raising income tax or capital gains tax. She did, however, commit to keeping the maximum VAT rate at 20%.

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Will The General Election Bring Joy To Buy To Let?

From a political perspective, UK-based buy-to-let landlords have had little celebrate over recent times. New affordability criteria for (re)mortgaging, the controversial “right-to-rent” scheme, and the tax “triple whammy” have hardly left buy-to-let-investors in the UK filled with good cheer. Nevertheless, the buy-to-let market continues to hold strong, there’s a very simple reason for this. In the UK there is a chronic shortage of housing in general, coupled with a significant percentage of people for whom renting is clearly the best choice for their life stage. The fact that international investors are making the most of the weak pound to buy up UK-based assets is merely a reflection of this, rather than a key driving force for behind the strength of the market. Now we have a forthcoming General Election, could this provide a welcome boost to buy to let? Answering this question requires looking at three others.

What is the impact of having an election?

Elections, fundamentally, are a choice between the status quo (the current government or their direct successors) and change and any time there is the potential for change there is an element of uncertainty. This means that the period just before an election can, in many ways, be the equivalent of a person holding their breath while they wait to see what is going to happen, hopefully followed by a sigh of relief. It’s also worth noting that even when an election result is as widely expected, it can take a little while for people to absorb the fact and decide what, if anything, they need or want to do about it. In the short term, that may mean that the buy-to-let market is “on hold” in many respects, until everyone concerned has a clearer idea where they stand.

Who will win the election?

People may feel cynical about opinion polls these days, but it’s a hard fact that Theresa May had to ask parliament’s permission to call an election about three years earlier than scheduled and therefore it’s a reasonable assumption that she thinks she can win it, or, perhaps it would be better to say, she thinks her opponents can’t. For their part, her opponents, theoretically, have a lot to gain, in that they have at least some sort of chance of taking power, and very little to lose in that the election will only extend the Conservatives’ mandated by another two years, assuming they win. A quick scan of newspaper headlines reveals that this seems to be a widespread assumption even former Labour leader Tony Blair saying that he expected Theresa May to win it.

What is the Conservatives’ attitude to buy-to-let?

If we assume that the Conservatives win the election, then it also seems reasonable to assume that, at least in the beginning, they will carry on along much the same path as they have been on so far. This includes a promise to “fix the broken housing market”. That’s a pretty broad statement, but the last couple of budgets give an indication of what the Conservatives currently see as their preferred approach. There has been money to build more new homes and higher taxation on buy to let. At current time, the government is also discussing a ban on letting agents’ fees to tenants. In short, the government seems to be trying to make it more of a buyers’/renters’ market. The problem is that the main reason housing in the UK has long been a sellers’/landlords’ market is because of the lack of supply and this is highly unlikely to change overnight or even in the next five years. What may well disappear are “amateur” landlords, possibly to be replaced by “buy-to-let” housing funds, which would allow people to invest in the buy-to-let market without actually becoming direct landlords. This would allow for a consolidation and, indeed, professionalisation of the market and perhaps create a more effective industry force to allow landlords to get their point of view across to decision makers. So, in short, although the election may cause some short-term pain in the buy-to-let market, it has the potential to bring a lot of longer-term benefits.

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Why Brexit Might Not Be That Bad

It’s official (almost), the wheels have been set in motion to trigger Article 50 and start the process of taking the UK out of the EU. Understandably, there has been a great deal of media coverage about what this will all mean and while, on the one hand, the future is anybody’s guess, on the other, when trying to determine what will happen, it’s often helpful to look at the fundamentals.

Fundamental 1 – London is a property market apart

London is home to the city, which has been quite open about its concerns regarding leaving the EU. Other European cities have also been quite open about their desire to lure businesses away from their London bases. There are, however, a number of reason to refrain from panicking about a property crash in London, for example:

1 – While it would probably be painful for the city to lose access to the European market, it has global reach so it is highly doubtful that the blow would be terminal.

2 – Even though London and the city are often spoken of as though they were one and the same, in actual fact there is far more to London than the city. The creative industries are one obvious example of this, as is the fact that many digital technology and other “disruptive” companies, have chosen to make London their base. These cover a broad scale from industry giants such as Apple, to niche start-ups. In principle, these companies could be lured away by other cities with equivalent infrastructure and continued access to the single market, however in practice there are a number of reasons why they should stay put.

3 – The UK has a very flexible labour market including a thriving freelance economy, which is great news for companies who need to get work completed but want to avoid the commitment of taking on employees (at least until they have a clearer idea of where they stand). It also tends to be at least relatively accommodating of disruptive business models. Paris, by contrast, has been locked in a battle with tech giant Amazon, which is unlikely to have passed unnoticed by any technology companies who may have been approached about moving there.

Fundamental 2 – The UK is an attractive export market for other countries

While some pundits have speculated that certain EU members may be prepared to sacrifice their own export potential in order to make an example of the UK and deter other countries from leaving the bloc, it’s a wide open question as to whether this would be a feasible ploy in real-world conditions. In simple terms, such an approach carries the risk of causing job losses and this may go down badly with the (voting) public. Even if such a scenario did occur, it is highly likely that other countries would look to fill the gap, which would create reciprocal export opportunities for the UK. This is important for the post-Brexit outlook of regional economies which are based on agriculture and/or manufacturing.

Fundamental 3 – Long-term value will always attract investors

While the weakening of the pound makes it more expensive to import raw materials, it also means that anything priced in sterling becomes more affordable in real terms to international buyers. This includes finished goods (for export), shares in UK-based companies and, of course, property. The fall in the value of sterling could, therefore, help to provide a short-term boost to the UK economy during and after the Brexit process. Over the long term, it is a reasonable expectation that as the UK economy stabilises, the value of sterling will rise again until it is, eventually, back to its pre-Brexit levels.

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It’s Not Grim Up North

Data from peer-to-peer lender Kuflink shows that rental yields in the North of England and Scotland have been comfortably beating rental yields in London at 4.3% and 3.2% respectively. While this is, of course, interesting news for (potential) buy-to-let investors, it’s still useful market intelligence for those who prefer to avoid the politics of buy-to-let and invest in the property market through other channels, for example property development.

Takeaway point 1 – There’s a difference between price and value

London and the South East is an expensive place and hence landlords are likely to be able to charge higher rents than they would for equivalent properties in other parts of the country. The flip side of this, however, is that buying the rental property is likely to have cost them more than an equivalent property in another part of the country. There are still plenty of reasons why the Thames Valley area could be a good place to invest in property in some way, but it’s worth remembering that there is strong demand for property in other parts of the UK as well and hence opportunities for investors.

Takeaway point 2 – It’s always worth looking out for up-and-coming areas

According to Kuflink, Manchester and Salford provided rental yields of 6.7% and 6.6% respectively whereas Cambridge was a mere 2.7%. The data did not analyse why this was so, but one very feasible explanation is that Manchester and its neighbour Salford have both been in a process of regeneration over recent years, with the BBC making news itself by moving some of its production to Salford back in 2012. The availability of work attracts people to an area, particularly young adults, for whom renting is likely to be the most appropriate option, even if they have the funds to buy. The combination of relatively low house prices (compared to London) and increased demand for rental properties makes for good rental yield. It also offers good opportunities for other forms of property investment since many of the people who arrive as renters will ultimately settle down and buy property in the area. Cambridge, by contrast, is a mature market. As a University town, it has a pretty much guaranteed market for rental properties and as a research centre it also has a demand for property to buy, but there is nothing new about any of this and so the opportunity to invest at the start of an upward trend is really long gone. The North of England and Scotland have both been benefitting from improved infrastructure (particularly transport links and broadband internet) and as they are outside the “city” zone, they have less reason to be concerned about the prospect of some financial service roles being moved out of the UK due to Brexit.

Takeaway point 3 – Quality matters

The fact that in the UK there is always a strong demand for housing is hardly a secret and a quick scan of a newspaper website will probably reveal plenty of articles about landlords and home builders taking advantage of desperate renters or buyers. While there is certainly an element of truth in this, the simple fact is that the fundamentals of business also apply to the property market, even though it generally moves at a slower pace. Companies (or individuals) who supply shoddy goods and/or poor customer service may make a quick short-term profit, but over the long term they tend to get found out and weeded out. Because of this, anyone looking to make meaningful, long-term returns from property, whether that’s as a landlord or as an investor in property development, is well advised to be very selective about their purchases and only put money into high-quality builds.

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5 Ways to Invest £50,000

It’s been a long time since savings offered any sort of meaningful return, which means that those who wish to grow their cash need to look at alternatives. With that in mind, here’s a look at where you could put a £50K investment.

The Stock Market

The stock market is a big place and the companies in it perform very differently, which is understandable given that the term “the stock market” includes everything from high-tech start ups to established blue-chip companies with little in the way of growth in their share prices but great dividends. This is why there is generally at least one stock-market investment to suit anyone of any age, appetite for risk or preference for capital growth versus income yield. The stock market can provide good returns, investors just have to place their money with care and accept the fact that both individual companies and the market in general can go down as well as up.

The Property Market

The property market has long been popular with investors seeking good returns on their money with minimal risk. There are some places where £50K could buy you a feasible buy-to-let property although you might need to budget a little extra on top for sales costs, e.g. surveys, but realistically in most parts of the country and for most properties, £50K is a deposit, albeit a very substantial one in some locations. On the other hand, buy to let has become something of a contentious topic over recent years and landlords have become an easy target for government revenue collecting, with changes to stamp duty and mortgage tax relief both benefiting the exchequer at the expense of landlords. Little wonder, then, that even though BTL remains popular, some investors are looking at alternative options.

For example that same £50K could be invested in a property development thereby benefiting from property without the hassle of managing tenants and properties within the law. Obviously this is an area in which we may seem to be biased but the ROI specks for itself and with a UK investment you can literally see your investment developing..

Invest in Companies Which Qualify for Business Property Relief

This is an option which may have particular appeal to older investors, since these investments are excluded from inheritance tax calculations after two years of ownership, whereas gifts need to be given at least 7 years prior to the individual’s death to qualify for full IHT exemption. In addition to this, the holder can continue to benefit from their interest in the company up to the point of their death, whereas they must give up any and all beneficial interest in any gift they give for it to be exempt from IHT. At the same time, however, it is usually best if the investment in question actually makes sense as an investment rather than simply, or even, primarily being a means to reduce IHT liability.

Given that companies which qualify for BPR are, by definition, small and are particularly likely to be family-run firms or start-ups, finding the right vehicle for your money can be complex. You also have to remember that as firms grow, they can stop qualifying for BPR although in this case, you may seal in a profit by selling your investment (or indeed choose to hold on to it anyway).

The State Pension Top Up Scheme

If you have already reached state pension age, you have until 5th April 2017 to make a lump-sum contribution to get as much state pension as you possibly can for the rest of your life. How much this will costs depends on various factors, particularly your age and the amount of extra pension you want to receive. The clock is now ticking on this one, so you’ll need to make a quick decision as to whether this option is for you.

As with all investments it’s best to seek financial advice and always bear in mind the caveat that investments can go down as well as up!

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New Home Manifesto – What Does It Mean?

Annual budgets serve many purposes, one of which being to show that governments are making good on election (or other commitments). Affordable housing (or the lack thereof) has long been a political hot potato in the UK and therefore it was only to be expected that the government would take some form of action to address this in the budget.

The promises in brief

There were two key points which directly relate to housing throughout the UK. The first was the promise of a £2.5bn housing infrastructure fund, which should lead to the building of 100,000 new homes in areas of high demand. The second was the promise of £1.4bn which was specifically for the provision of 40,000 affordable homes. With regards to this second point, it’s worth noting that this pledge actually goes even further than simply providing the funds. The government has relaxed the rules around bidding for the funds, meaning that companies have more options open to them than previously. In addition to this, there was a £3.15bn funding pot provided to London for the provision of affordable homes.

The budget also contained a number of promises relating to infrastructure, which could feasibly have an impact on the property market, for example increasing transport options may make it viable for people to travel to work from places they would otherwise have been forced to overlook and similarly rolling out superfast broadband may increase the options for home/remote working, which again could have a knock-on effect on the property market.

A stick for buy-to-let, a carrot for new homes

In 2015 the government delivered two sucker punches to BTL landlords. It made changes to stamp duty so that those owning more than one property paid an increased fee and it reduced the amount of mortgage tax relief which landlords could claim. The 2016 statement left BTL landlords alone, although plans were announced to clamp down on fees charged to tenants by letting agencies, but contained the announcement that the government would be supporting house building in general and the provision of affordable homes in particular.

However with new taxes and stricter lending controls coming into force in a few months the buy to let market is not looking as promising as it once did.

The outlook for 2017 and beyond

At the moment it’s rather hard to say what effect all these changes will have in practice. First of all, the autumn statement was only a few months ago and happened right before the Christmas period which has its own set of rules (some economic sectors being frantically busy, while other go into seasonal limbo). Secondly some of the changes are yet to be enacted and in some cases, it’s unclear at what point they will be implemented. For example Philip Hammond’s promise to put the brakes on agency fees is to be implemented “as soon as possible”. Thirdly, and possibly most importantly, there is very little clarity on how these pledges are going to be implemented in practice. For example, the government has relaxed rules around bidding for funds to develop affordable housing so that, in principle, bidders could develop homes for affordable rent instead of having to offer some sort of ownership option, be it shared ownership or rent to buy. These new rules, however, have yet to be tested. In other words, at this point it’s entirely unknown whether or not bidders will consider it worth their while developing property intended purely for rent or whether their applications will be accepted if they do. It’s also unclear where the priority will be in the “high demand areas”. London would be an obvious example of a place where housing is desperately needed, but it has already been designated its own pot of affordable housing funds. Presumably the answer to these questions will be revealed in time, but the government acknowledging the importance of home building in the UK is, at least, a positive sign.


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