Blog Post No. 202
London’s Housing Market Dips, Social Housing, Corporate Sustainability – 10th Oct Property Bulletin
London’s real estate landscape has seen a downturn, with house prices down by an average of £26,514 over the past year, according to the latest data from the Halifax index.
This decline, equivalent to a 4.8% reduction in prices, is attributed to the impact of rising mortgage rates, which is compelling sellers to adopt a more pragmatic approach.
As a result, the average price of a London property now stands at £525,678, reflecting a considerable drop from the previous year. Kim Kinnaird, Director of Halifax Mortgages, underscores the role of borrowing costs in this scenario, given the influence of higher interest rates on mortgage affordability. This shift in the market dynamic has transformed it into a buyer’s market, prompting homeowners to adjust their selling price expectations.
Even in London’s traditionally affluent areas, house prices have remained stagnant, partly due to the economic repercussions of Liz Truss’s recent budget announcement. Jeremy Leaf, a North London estate agent, observes that this trend is consistent with the current state of the market, which has seen business slow down to a new, lower level. This shift is driven by expectations of lower interest rates and higher rents, making the lettings market less attractive, particularly for first-time buyers.
In this new landscape, first-time buyers are emerging as the dominant players in many parts of London. The recent decision by the Bank of England to maintain the base rate at 5.25% has offered some respite to mortgage-dependent buyers. However, the rate remains substantially higher than the previous year, prompting buyers to recalibrate their expectations and stand firm during price negotiations with sellers, as noted by Iain McKenzie, CEO of the Guild of Property Professionals.
Buyers who are willing to negotiate with confidence may find themselves securing more favorable deals, as the property market now offers a greater supply of homes than in the past, providing room for negotiation. However, this increased negotiation power is also contributing to price reductions during these discussions.
Mortgage brokers are starting to offer more competitive rates with greater confidence, as the cost of funds has become less volatile in recent months. Despite these improvements, mortgage rates today remain significantly higher than the historic lows of 2021 when the Bank of England initiated its series of rate hikes.
The housing market’s downward trend may persist, with the next general election, potentially called by spring 2024, becoming a key point of interest. Experts believe that most of the UK’s house price correction will occur this year, with modest single-digit annual growth expected to return following the election.
In summary, the London housing market is facing a substantial price drop driven by rising mortgage rates, creating a favorable environment for first-time buyers but challenging homeowners’ price expectations. Mortgage rates, while improving, remain higher than in recent years, and the market’s future trajectory is closely tied to political developments in the lead-up to the next general election.
A group of experts, led by researchers from University College London (UCL), has highlighted the potential for substantial annual savings of around £1.5 billion in homelessness-related costs through increased investment in social and affordable housing throughout the UK.
The experts’ report calls for the implementation of a “transformative national housing plan” and recommends discontinuing the right-to-buy scheme for all future social housing in England. They estimate that an additional annual government investment of £4 billion over the next five years could lead to the construction of an extra 72,000 dwellings annually.
In a report published on Wednesday, UCL suggests that the additional investment could result in approximately 100,000 new homes being built each year across the UK, with the breakdown being roughly 80,000 in England, 11,000 in Scotland, 5,000 in Wales, and 4,000 in Northern Ireland.
Their proposed plan includes a mix of about half social housing for those with the lowest incomes, affordable housing for first-time buyers, and the remainder being rented or sold at market prices to help support the initiative financially.
The report also highlights that homelessness costs the UK approximately £6.5 billion each year, including associated costs such as those related to the NHS, criminal justice system, and social services. Currently, the government provides just over £1 billion annually for social and affordable housing in England, resulting in only 15,000 grant-funded homes being built each year, with too few of them being affordable for those on the lowest incomes.
By increasing this investment by £4 billion to a total of £5 billion annually, the researchers believe there could be an estimated saving of approximately £1.5 billion in homelessness-related costs. The report emphasizes the need for a comprehensive approach to housing policy to address homelessness and housing affordability effectively.
In a world where fortunes can rival the lifetime earnings of the average person, even ultra-high-net-worth individuals (UHNWIs) are not immune to financial challenges.
Regardless of whether you own a beat-up van or multiple yachts, financial pitfalls can erode wealth, often in the millions. This underscores the critical importance of preserving, protecting, and passing on one’s legacy. UHNWIs face unique considerations in their estate planning, trusts, and more. Here’s how a well-crafted estate plan can secure a lasting financial legacy, and why seeking the guidance of a financial advisor is essential for those with substantial estates.
Who Qualifies as an Ultra-High Net Worth Individual (UHNWI)?
An UHNWI is an individual with a net worth of at least $30 million. This wealth encompasses various assets, including stocks, bonds, businesses, and real estate. It’s important to note that the $30 million threshold accounts for any outstanding debts, meaning UHNWIs have a net worth of at least $30 million after accounting for liabilities. Consequently, UHNWIs typically possess significant liquidity and investable assets, granting them considerable financial freedom and capability.
Why Is Proper Estate Planning Vital for UHNWIs?
UHNWIs often have different financial priorities than the average individual. Rather than focusing solely on accumulating wealth, their attention shifts to preserving and passing it on to their loved ones. Consequently, estate planning is indispensable for UHNWIs, as it requires legal and financial expertise to safeguard wealth and minimize tax liabilities. In essence, estate planning serves to maximize the wealth passed on to beneficiaries.
Additionally, while wealth offers numerous advantages, it does not shield UHNWIs from potential lawsuits, tax errors, investment setbacks, or incapacitation. Any of these challenges can lead to substantial losses. Estate planning serves as a shield, mitigating the impact of these scenarios and helping families retain as much wealth as possible.
Benefits of a Well-Crafted Estate Plan
A comprehensive estate plan bestows several advantages upon Ultra high net worth individuals UHNWIs:
1. Minimizing Tax Liabilities: Estate taxes, also known as inheritance taxes or death taxes, can significantly diminish an individual’s estate if not managed properly. Since tax laws affect different asset classes (such as real estate versus a stock portfolio) differently, a complex estate plan is essential to navigate these complexities. Strategic estate planning can minimize tax liabilities through various legal mechanisms and structures.
2. Avoiding Family Disputes and Conflicts: Without clear directives, family members may disagree on asset distribution, leading to emotionally draining and costly legal battles. A well-structured estate plan that provides clear instructions reduces the likelihood of conflicts.
3. Preserving Wealth for Future Generations: Proper estate planning safeguards a significant portion of wealth from taxes, legal fees, and mismanagement. Effective planning ensures the efficient transfer of assets to heirs or beneficiaries.
4. Charitable Giving and Philanthropy: For those interested in philanthropy, estate planning can establish a legacy of charitable giving. Through vehicles like charitable trusts or foundations, UHNWIs can support causes they care about even after their passing.
5. Adapting to Changing Circumstances: An effective estate plan is dynamic and adaptable. UHNWIs can regularly review and update it to account for changes in laws, family dynamics, and financial circumstances.
Risks of Inadequate Estate Planning
Neglecting estate planning can result in costly risks that diminish the wealth designated for specific purposes. Here are some of the challenges that a comprehensive estate plan helps UHNWIs avoid:
1. Probate: Probate proceedings can expose an individual’s financial affairs to the public eye. Careful estate planning can help maintain a higher level of privacy for both the individual and their heirs.
2. Halting Business Operations: Many UHNWIs have significant business interests. A proper estate plan ensures a smooth transition of ownership or control, safeguarding the business’s continuity and value.
3. Asset Vulnerability: Estate planning can include measures to shield assets from potential creditors or lawsuits, preventing the loss of wealth accumulated over a lifetime due to unforeseen circumstances.
4. Inadequate Dependent Care: Estate planning is crucial to ensuring that dependents, such as minor children or elderly relatives, are provided for in the event of the individual’s passing. An estate plan can name guardians, establish trusts, and set up financial provisions.
Estate Planning Steps for UHNWIs
1. Choose a Dependable Trustee: Selecting a trustee is a critical decision in estate planning. The trustee is responsible for managing and distributing assets according to the terms of the trust. Therefore, integrity, organization, and financial acumen are essential traits for a trustee. UHNWIs can choose from family members, trusted friends, financial institutions, or professional trustees. It’s vital to assess their ability to impartially manage assets in the best interests of beneficiaries.
2. Minimize Estate Taxes: Estate taxes can significantly impact the value of assets passed down to heirs. Work with a qualified estate planning attorney or financial advisor to employ strategies such as gifting, establishing trusts, and utilizing tax exemptions to minimize estate tax liabilities.
3. Set up an Incapacitation Plan: Plan for the possibility of incapacitation to ensure that your trustee manages your affairs according to your wishes if you become unable to do so. Designate a durable power of attorney to make legal and financial decisions on your behalf, along with a healthcare power of attorney for medical consent.
4. Create a Living Trust: A living trust allows you to transfer ownership of assets upon your death while retaining control during your lifetime. It helps avoid probate and provides flexibility to adapt to changing circumstances.
In conclusion, comprehensive estate planning is imperative for UHNWIs. A well-structured estate plan offers numerous advantages while mitigating risks associated with inadequate planning. By taking proactive steps and seeking professional guidance, UHNWIs can secure their financial legacies and ensure their wealth serves their intended purposes.
Numerous U.S. companies, including those within the commercial real estate (CRE) sector, have expressed a growing commitment to sustainable practices.
These companies are eager to reduce their carbon emissions, minimize waste, and use water resources more efficiently. However, a recent study conducted by Veolia North America has highlighted a significant issue: many of these firms have yet to outline specific steps to achieve their medium- and long-term sustainability goals.
The study gathered data from 245 companies spanning various industries, such as CRE, technology, manufacturing, healthcare, and data centers. The findings revealed the following key points:
1. 40% of the surveyed companies considered reducing operational costs as “a very important driver” for pursuing sustainability objectives.
2. 60% of the companies had established concrete initiatives and projects to attain short-term sustainability goals, while 37% had not taken such steps.
3. The primary motivators behind companies’ sustainability commitments were reporting requirements, regulatory mandates, and the desire to bolster their brand reputation.
4. Many respondents were placing a renewed emphasis on sustainability initiatives to capitalize on incentives offered through the U.S. Inflation Reduction Act of 2022.
However, despite these incentives, many companies are grappling with insufficient resources and funding to take the necessary actions to achieve their sustainability targets. Furthermore, they face challenges in accessing the data needed to identify their current environmental impact and track their progress.
Patrick Schultz, President and CEO of Veolia’s Sustainable Industries and Buildings division, emphasized the importance of gathering baseline data before companies can make informed decisions about reducing their environmental impact. He stated, “This will enable them to choose measures that can be immediately and easily implemented and ones that may require a strategy to mitigate over time.”
Additional insights from the report include:
– Companies prioritizing greenhouse gas emissions reduction often place waste reduction as their second priority and reducing water usage as a distant third.
– Many companies express a need for better waste data before they can effectively focus on waste reduction efforts.
– While water-reduction goals are relatively uncommon, the strain on water resources in some regions is beginning to bring this issue to the forefront.
Fred Van Heems, President and CEO of Veolia North America, expressed optimism about companies’ genuine commitment to sustainability but acknowledged their uncertainty about where to begin. He suggested that solutions are available to help companies get on track and maintain their sustainability momentum.
In conclusion, while corporate support for sustainability is evident, the lack of concrete plans and challenges in obtaining essential data pose obstacles to the realization of long-term environmental goals. Companies must address these issues to make meaningful progress toward sustainability.