This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.
This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Investments rise and fall in value, so investors could make a loss.
Full podcast episode transcript
Susannah Streeter: Hello and welcome to Switch Your Money On from Hargreaves Lansdown. I’m Susannah Streeter – Head of Money and Markets.
Sarah Coles: And I’m Sarah Coles – Head of Personal Finance.
Susannah Streeter: So, summer fun is firmly in the rearview mirror – although I still like to eek it out as long as possible. I’m aiming for another seaside trip to swim this weekend.
For me, autumn does not start until the equinox.
Sarah Coles: For me, it starts with the Strictly Come Dancing live shows. But both come after a key date this month – 19th September – when the Bank of England will make its next call on interest rates, which will certainly have an impact on your autumn and winter finances.
Susannah Streeter: Whatever the decision is, it does seem clear that, with inflation close to target, there are more interest rate cuts eyed on the horizon. This will come as relief to borrowers – especially people trying to find a new mortgage.
We’ve already seen interest in property pick up in the aftermath of the first rate cut, but once we get more significant movement on mortgages, it could make a real difference to buyer sentiment.
Sarah Coles: However, mortgage rates are still much higher than the deals we saw during the pandemic – and that’s not the only factor in play. In the upcoming Budget – scheduled for October 30th – there are rumours of tax-tweaking, which could affect parts of the market – particularly how a change in capital gains tax rates might have an impact on the buy-to-let sector.
Susannah Streeter: So, that is what we are focusing on in this latest edition of the Switch Your Money On podcast – which we’re calling ‘Homing in on Property.’
Sarah Coles: We’ll have an ear firmly fixed to the wall of the property market, as we have Jeremy Leaf – the Founder of an independent chain of estate agents – on the podcast.
Jeremy’s with us now. Jeremy, are you more optimistic about the months ahead, with more rate cuts eyed on the horizon?
Jeremy Leaf: Yeah – I have to say, I am a little bit more optimistic than I was a few months ago. That has made a difference as well, combined with them – inflation being a little bit lower – and also political certainty. That has helped to bring some of those reluctant buyers and sellers out – as well as renters. But nobody’s getting too excited yet. The Budget is on the horizon, and that is making people a bit more nervous.
Susannah Streeter: Thank you very much, Jeremy – we’ll hear a lot more from you coming up in the podcast. And we’ll also hear from Matt Britzman – from our Equity Team. He’s gonna take us through some shares to watch in this sector. But first, we face the question of whether the autumn will bring warm winds to the property sector.
If you look at the summer swing upwards in interest in browsing for housing, the signs bode better than they have for a while.
Sarah Coles: Rightmove said there was a jump in potential buyers contacting estate agents about homes for sale, which was up about a fifth (19%) in a year.
Although there was a slight dip in prices in August – which is usual for this time of year – it does seem that buyers are a bit more enthusiastic.
Looking at the wider picture, Zoopla says house prices are rising slowly, despite relatively high mortgage rates.
Susannah Streeter: But the property portal has also warned that the number of properties for sale is at a seven-year high. That means that sellers should be more realistic when pricing their homes – according to Zoopla. Those owners who set too high a price – and then need to reduce – take more than twice as long to shift.
It seems that buy-to-let investors might be partly behind the rise in properties on the market. Almost a fifth of homes up for sale used to be rented out – up from 8% in 2010 according to Rightmove.
Sarah Coles: It comes amid concerns about financial pressures on landlords.
Mortgage tax relief – which benefitted higher earners – was phased out and replaced by a tax credit which limits mortgage relief at 20%.
Stamp duty was increased for investment properties – and the freeze on income tax thresholds means more people paying higher rates of tax on rental income.
Susannah Streeter: Late last year, the Bank of England flagged that buy-to-let landlords were facing higher financing costs, which were being passed onto tenants.
And now, speculation is swirling that capital gains tax may be targeted by Chancellor, Rachel Reeves, in the Budget – which could prompt more buy-to-let investors to sell up.
One rumoured step the Government could take would be to equalise CGT rates with income tax.
At the moment, basic-rate taxpayers pay 18% on gains from the sale of additional residential properties. Higher and additional-rate taxpayers pay 24% on selling off second properties.
The CGT allowance means that some profits are tax-free, but this has been cut in recent years from £12,300 to £3,000.
Sarah Coles: Investors who hold stocks and shares – and are worried about potential changes to capital gains tax – have a number of different options. They can pay into an ISA, where you’re not subject to capital gains tax or dividend tax. If they have existing shares outside an ISA – and the available allowance – they can move them inside the tax wrapper using the share exchange process – otherwise known as ‘Bed and ISA.’
Alternatively, they can pay into a pension – where investments are similarly protected from tax – and you can often choose when to take a capital gain on these types of investments. So, you can do so this tax year and make £3,000 of gains, tax-free.
However, investors who hold property don’t have the same options. They can try to sell property before any potential changes kick in, but they can’t just sell up a small chunk to use their allowance. They need to sell it all and pay any tax due on gains. Alternatively, they can hold the property for life, in the hope that the rules will still mean capital gains tax is reset to zero on death by the time they get there. Otherwise, there’s far less they can do.
Susannah Streeter: There are plenty of older people who have invested in buy-to-let property as part of their longer-term planning – which has all sorts of implications, not least for the amount of decoration and emergency problem-solving they may end up doing in retirement.
Let’s bring in Helen Morrissey now – our Head of Retirement Research.
Helen – what’s your take on this?
Helen Morrissey: You’re absolutely right. The idea of getting a retirement income through a buy-to-let portfolio is tempting to many, but they do need to have a good idea of the costs involved – as well as the time they need to invest in keeping properties in a good condition.
As well as the costs of buying and selling property, you’ve also got the costs of decoration and repairs to contend with on an ongoing basis.
While many landlords are lucky in keeping their properties rented out, you also need to account for periods of time when you might not have a tenant. The bills still need to be paid during that time, so you need to have a plan in place to make sure that those costs are still covered.
Sarah Coles: There’s certainly a lot to think about there – and it’s fair to say many landlords may find the whole thing a lot more time-consuming and costly than they first thought.
Helen Morrissey: Yes – if you’re looking for a relaxing retirement, then life as a buy-to-let landlord may not be for you.
Susannah Streeter: And we do need to talk about the latest news on the State Pension – namely the wage data that was published a week or so ago. How is this affecting pensioners?
Helen Morrissey: Absolutely. So, the recent wage data plays a really important role in how the State Pension is increased every year.
Under the triple lock formula, the State Pension is increased by whichever is highest of 2.5% inflation or average wages. As we know, inflation has been on a downward trend over the past year and currently sits at 2.2%.
Wage growth has remained fairly robust – with the most recent figure for average wage growth, including bonuses, sitting at 4%. With inflation unlikely to spike over the next few months, it’s highly likely that this 4% will be the figure used to increase the State Pension next year.
Sarah Coles: So, what does that mean for pensioners pockets?
Helen Morrissey: So, if the 4% figure is used, the pensioners on the full new State Pension could see a boost of £460 next year from April. This means it will sit at just below £12,000 per year.
Those on the full basic State Pension will get an increase of around £350, taking them up to over £9,100 per year. It’s nowhere near the blockbusting increases we’ve seen in recent years, but the extra money will come in handy – though may pensioners face a difficult time in the meantime, with the heating bills on the rise. Many of them will also be without their winter fuel allowance this year after the Chancellor announced it would be restricted to those on Pension Credit. This will be a significant blow to many pensioner budgets – and we could see some having to make some really tough choices around their spending this winter to make up the gap and keep their heating on.
Susannah Streeter: What can people do in these circumstances?
Helen Morrissey: It’s really important that pensioners on a low income check to see if they qualify for Pension Credit. Pension Credit tops up your weekly income to £218.15 if you’re single and £332.95 if you have a partner.
If your income is higher, you might still be eligible for Pension Credit if you have a disability, you care for someone, if you’ve got savings, or you have housing costs. It is a hugely underclaimed benefit that acts as a gateway to other forms of support, such as help with Council Tax, NHS costs, and a free TV licence if you’re over the age of 75. If you think that you or a loved one might qualify, then put in a claim before 21st December, and then you’ll also receive the Winter Fuel Payment this winter.
Susannah Streeter: Of course, the Government has pledged to build 1.5 million new homes – and that’s targeted at the big financial squeeze renters and potential buyers find themselves in, with a lack of property in areas where there is high demand.
Sarah Coles: The five-year plans will focus on providing more affordable housing and entire new towns could be built. This could provide a welcome boost for the sector, but there are potential obstacles in the way.
The Government has pledged to cut through planning red tape, but it’s still unclear whether its targets will be met.
Susannah Streeter: We’ll hear from Matt – from our Equity Team – in a bit to see how these pledges might affect some of the listed names in the sector.
But now is a good time to bring back in Jeremy Leaf, who has run a lettings and property sales business in North London for more than 30 years.
So, Jeremy, can I start by talking to you about some of the biggest concerns you think landlords have at the moment? We mentioned all these changes in the buy-to-let sector – what are you hearing?
Jeremy Leaf: The biggest issue for landlords is the age of landlords – and the fact that we’re not seeing new landlords. Every business needs new business – and we’re not seeing the new landlords and enough of the existing landlords extending or expanding their portfolios.
They’re so disappointed with what they’re hearing – and what they’ve seen over the last few years and months – and now there’s even more issues with the Renters’ Rights Bill announced last week – and why would they contemplate taking on more issues just to face more problems?
So, when we get properties on the market which are ideal for them – small houses or one and two-bedroom flats – it’s mainly first-time buyers – which is also good for the market because they trade-up. And, unlike landlords – from the sales point of view, they tend to buy at the bottom and stay there. We’re not seeing any landlords – or very few landlords – because they’re so nervous about what’s coming down the track.
Sarah Coles: So, you’ve got the lack of new landlords. Are you finding that landlords are keen to sell up as well – or you’re finding that those who are there are staying?
Jeremy Leaf: It’s a bit of both – and it does vary. In lots of respects, outside London is quite different from inside London – but those landlords are selling up. I wouldn’t say there’s selling-up in droves – a lot have been waiting to see what the nitty-gritty is of this Renters’ Rights Bill – and it doesn’t make great reading, particularly in terms of getting possession of their properties from disruptive tenants.
If you’ve got a difficult tenant – and they’re not paying rent or they are upsetting others in the same building – and it’s been going on for some time – a landlord would want to get possession of the property – or may want to. In fact, it very rarely happens – it’s usually in the absolute worst case scenarios – that’s the reality of it. But, when you hear, anecdotally – and we see in real time – 12, 18 months is not unusual – and you’re not receiving rent for that period. I mean, would you really want to take on more properties when you’re facing that – and you’ve gone through all the referencing checks – and they’ve moved somebody else in, who’s perhaps a bit disruptive? They want the opportunity to make a change, if possible.
Susannah Streeter: And d’you believe the new law will mean that’s not so easy?
Jeremy Leaf: It’s not so easy. But the other point – which is often missed... it’s as much tenants who want that change – or they want to get rid of that disruptive tenant – other tenant – as much as the landlord. Because, if it’s in a house of multiple occupation – or it’s shared accommodation – or maybe it’s a block of flats – then that tenant is probably being difficult, not just with the landlord, but with the other tenants – in terms of intrusive behaviour – it might be noise – and they’re driving us mad. And we say, ‘Well, hold on – we’ve gotta wait nearly a year to get a bailiff to come round – and we’re really sorry, but it’s the process.’
Sarah Coles: One of the things that seems to happen is there’s always a new thing to throw at landlords – and a ‘Higher standards’ all the time. D’you think there’s a risk that bringing in so much change for landlords will eventually put more people off?
Jeremy Leaf: We all want to see good quality properties, good landlords, and good tenants – but, unfortunately, landlords get not a great PR. It’s fashionable to kick landlords – and there’s some bad landlords, but there’s some just as bad tenants as well – and they don’t always get the publicity!
Of course, it’s right to get rid of Section 21 – where tenants can just be asked to leave for no reason. But there needs to be an equal and opposite reaction on the other side to keep that balance. It’s so hard to find that balance because markets change so quickly – and, if you don’t even get close to that balance, what’s going to happen? It’s gonna get quickly out of kilter yet again – rents are gonna go up – standards are gonna go down – and it’s not good for anyone.
Susannah Streeter: You mentioned earlier that you are seeing more first-time buyers come onto the market because there are fewer wannabe landlords coming in. That is good news in terms of the number of properties that are for sale – for those first-time buyers – but what d’you think this is going to mean for tenants? D’you think it’s gonna mean that their rents are gonna go even higher?
Jeremy Leaf: You hit the nail on the head there because fewer landlords means less choice, lower quality, and rents going up – even if a bit more slowly, as we’ve seen in the last few months.
But the other reality is – that we see on the street... If a landlord – as Rightmove say in their latest report, ‘There’s 21 tenants chasing each property’ – we say to landlords, ‘Listen, mate – your kitchen, your bathroom needs touching up. It’s not great – the tenants have gone now’ – some of the landlords are turning round to us and saying, ‘Well, do I really need to? I’ve got 21 tenants chasing my property – why should I?’ So, that’s not exactly gonna drive up quality if there’s too many people chasing very few properties.
We need a closer balance – and that’s something that the Government need to address as part of these measures.
Sarah Coles: And one of the areas that you’ve talked about is Construction. D’you think that there’s a way of building out of this problem – that building specifically for letting is an answer?
Jeremy Leaf: Very much so – because building is what’s behind most of the problems and why the imbalance has started. Let’s face it – a lot of landlords are doing the local authorities’ or the Central Government’s job anyway. The last statistic I saw a few months ago is about 25% of private tenants are on Housing Benefit. So, the private sector is doing that job. So, if you’re marginalising more and more private landlords – or they’re leaving the sector – what happens? It’s more responsibility on local authorities to provide that accommodation. So, that can’t be good news for any of us.
Susannah Streeter: If you could talk to the Government right now, one big change that they could make to improve the situation – what would it be?
Jeremy Leaf: I think there’s got to be something for landlords. We need to encourage more landlords – and the Government are in a fantastic position now. They have a great majority in parliament – they can turn round to tenants’ groups. Trust me – tenant groups say to us... they want to make sure that landlords stay in the market, so they would welcome it. But something for landlords to encourage more landlords into the market – particularly younger landlords – those who are going to be there for a long period. That’s what we really want to see.
Every business needs new business – and the buy-to-let sector is no exception.
Susannah Streeter: Thank you, Jeremy – it’s been fascinating to get your perspective, having been in the industry for so many years.
As Jeremy’s been highlighting, there’s clearly an awful lot affecting property owners and investors, but the impact of market changes doesn’t stop here. It also affects a number of different types of listed companies.
Let’s bring Matt in to take us through it – staring with Taylor Wimpey, which is one of the biggest names in the game.
Matt – Taylor Wimpey’s first-half results were out at the end of July – how did they look?
Matt Britzman: There are some positives to take from first-half results. Now, their operating profits were down, year-on-year. They actually came in around 12% higher than the market was expecting, and that’s a decent performance in a challenging environment.
Sarah Coles: What’s bringing homebuyers back to Taylor Wimpey?
Matt Britzman: One of the key drivers has been affordability. We’ve seen house prices come down a bit – and, with mortgage rates dipping too, buyers have had a bit more purchasing power.
Susannah Streeter: So, there is some relief for buyers – but what about the overall performance of the company?
Matt Britzman: It’s on track to hit the upper end of its target this year, with 4,728 new homes already completed in the first half. Management also feels confident in meeting market expectations for four-year operating profit – which is forecast to come in around £416m. Now, that’s still a 10% drop compared to last year – but, looking ahead to 2025, there’s potential for a stronger market recovery, with profits expected to rebound beyond 2023 levels.
Sarah Coles: There’s always talk about housing supply in the UK. How is Taylor Wimpey positioned?
Matt Britzman: Taylor Wimpey’s landbank is a major strength. They’ve got a solid pipeline of potential projects, so they’re in a good position to bring more plots online when conditions improve.
Susannah Streeter: Of course, the housing sector is not without its challenges – right?
Matt Britzman: Absolutely. Labour shortages, supply chain issues, and planning permission delays are ongoing hurdles for the sector. There’s hope that new National Planning Framework will help with that, but it’ll take some time for builders like Taylor Wimpey start to feel the impact. On the positive side, Taylor Wimpey’s balance sheet is one of the strongest in the sector.
Sarah Coles: Thanks, Matt. So, moving into the rental space, Tritax Big Bos is known for its large warehouses, but I understand their strategy is shifting a bit. What’s going on there?
Matt Britzman: That’s right. At its core, Tritax Big Box generates income by renting out massive warehouses that are central to e-commerce and logistics. That said, the company is gradually moving towards smaller, urban logistics centres that offer better yields. For us, it’s a smart move, given the growing need for quick, last-mile delivery hubs in urban areas.
Susannah Streeter: And there was that recent acquisition of the UK Commercial Property, REIT – Real Estate Investment Trust. How does that fit into the picture for Tritax?
Matt Britzman: The acquisition complements Tritax’s portfolio nicely – and adds both large and smaller assets to the mix. There’s also good progress on the assets that don’t quite align with Tritax’s long-term vision – those will likely be sold off in the second half of the year. The capital raised from those sales will go into development projects.
Sarah Coles: How did the first half of the year shape up for Tritax?
Matt Britzman: First-half trading was steady, with no major surprises. Tritax benefitted from new developments coming online – and rent reviews, which helped push rental income higher. Once a tenant is in, they tend to stay long-term because relocating is costly and disruptive. In fact, some tenants are extending leases well beyond they expire, just to secure the space.
Susannah Streeter: So, the long-term nature of these leases provides some stability, doesn’t it?
Matt Britzman: Exactly. As a REIT, Tritax is required to pay out the majority of its rental profits to investors, so stability in that income is critical.
Sarah Coles: What’s the company’s focus for the future?
Matt Britzman: Development’s at its core. The rise in e-commerce and driving demand for new logistics hubs – and Tritax is capitalising on that. But there’s a balance to be had – developing those hubs is expensive and, if they’re not fully occupied, they could become a financial burden.
To fund that expansion, Tritax is recycling its portfolio – selling some of those lower-yielding assets and reinvesting in higher-yielding development opportunities. They’re also looking to invest in energy and data centres, which could be interesting growth areas, with transitions in those areas now in full flow.
Susannah Streeter: Interesting you talk there about data centres – we’ve heard so much about the development of those in recent weeks. That is certainly one to watch.
Sarah Coles: So, the final name you’ve got is quite literally looking at the bricks and mortar. So, who is it?
Matt Britzman: The final name is brickmaker, Ibstock – and it’s been a tough start to the year. Both revenue and profits were down significantly compared to last year – and they fell short of market expectations. Housebuilders are still holding off on new projects – which has hit demand for Ibstock’s products.
Susannah Streeter: And high fixed costs can be a problem for companies like Ibstock when demand falls?
Matt Britzman: Exactly. Brickmaking is an energy-intensive process, with those high fixed costs – kilns need a lot of energy to keep running. When demand falls, it’s tough for Ibstock to cover those costs. The company is trying to manage this by pulling back production and matching supply with demand, which helps avoid an inventory build-up.
They’re also continuing with cost-cutting measures – and, so far, that’s helped keep margins relatively stable.
Susannah Streeter: I understand they’ve also made some changes to their dividend policy. What’s happening there?
Matt Britzman: They’ve reduced their interim dividend. We think that’s a sensible move – helps preserve cash during this period, giving them a cushion if any further challenges come in the future.
Sarah Coles: What about Ibstock’s long-term prospects?
Matt Britzman: Ibstock is well-positioned for the future. It has the largest brick-making capacity in the UK – and ongoing upgrades to sites should help lower those production costs. This means that, when demand eventually picks back up, Ibstock will be ready to ramp up output.
On top of that, the ‘Ibstock Futures’ division is focused on sustainable building solutions, which could open up new growth opportunities.
We’re expecting demand to stay subdued into 2025, so likely be a rocky road while we go through this transition.
Susannah Streeter: Thanks, Matt – it’s always interesting to appreciate the breadth of companies affected in this market.
Talking about building foundations of confidence in the housing market, we’re also on an ongoing construction project – to ensure this podcast – brick-by-brick, episode-by-episode – is meeting all your needs. However, they’re changing. So, we’ve put together a survey in the Show Notes. Please take a couple of minutes to complete it – it would be much appreciated.
You’re listening to Switch Your Money On from Hargreaves Lansdown. Before we go, there’s time for a quick fact of the week – and, for this, we’re going to turn to the rental property market again.
Rightmove has recently published details of ‘The’ most expensive street for rental property in the UK. It turns out that Albion Street in Bayswater in London took the title – which is a relatively short road leading down to Hyde Park, just to the west of Marble Arch.
It’s not home to lots of shiny penthouses, but to a row of terraced houses. Given that it is the most expensive street for property, what do think the average monthly rental there is?
I’ll give you the points if you’re within £5,000.
Sarah Coles: Round where I live, you get a family house for less than £2,000 a month, but I’m guessing it’s a bit more. I’m gonna guess it’s about 10 times the cost near me – so £20,000 a month?
Susannah Streeter: You are surprisingly close – it is actually £20,857 – which is an astonishing amount of money to have to find each month!
Sarah Coles: It almost makes me feel grateful for what I thought was a ridiculous cost of renting where I live – in this small seaside town – but not entirely. It’s a lot of money to spend living with someone else’s questionable décor choices!
Susannah Streeter: That’s all from us for this time. Before we go, we do need to remind you that this was recorded on 16th September 2024, and all information was correct at the time of recording.
Sarah Coles: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you. Investments and any income they produce can rise and fall in value, so you could get back less than you invest – and past performance is not a guide to the future.
Susannah Streeter: Yes – this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
Sarah Coles: And this hasn’t been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research. However, HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.
Sarah Coles: You can see our full non-independent research disclosure on our website for more information.
So, all that’s left is for us to thank our guests: Jeremy, Helen, Matt, and our Producer, Elizabeth Hotson.
Susannah Streeter: Thank you very much for listening. We’ll be back again soon – goodbye!