Buy-to-let had its day?bb

The UK has fallen ten places in the rankings of Europe’s best countries for property investment. The list is created by payments firm, WorldFirst, which ranks the average available yields on buy-to-let investments measured by rent as a percentage of property value. The recent tax changes for buy-to-let investors have seen average yields in Britain fall 19% over twelve months, and has led to the UK falling from 15th place in 2016 to 25th this year.

Buy to Let

Tougher rules introduced for landlords in the UK recently have included a 3% surcharge on stamp duty for all new property purchases since April 2016, as well as cuts to tax relief on mortgage interest for buy-to-let properties from April this year. This has led to increases to rent in order to cover higher mortgage payments. Those with four or more properties will also find it harder to secure finance from October this year.

Britain’s impending exit from the EU has also taken its toll on the country’s appeal for property investors, as the pound has taken a hit in the markets and tricky Brexit negotiations have appeared continuously in the media.

The report from WorldFirst reveals that the average yields from buy-to-let in Britain have fallen from 4.91% to 4% in the past twelve months. The lowest yields of under 2% can be found in areas with the highest property prices, including London and the South East. However, landlords have also reported that returns of around 8 to 9% are still possible in cheaper areas in the north from properties with multiple tenancy agreements in place.

With Britain slipping down the rankings, where are the best places in Europe to invest in property? Ireland retains its place at the top of WorldFirst’s rankings with an average yield of 7.08%, up from 6.54% last year, thanks to the country’s cities seeing rents rising strongly. A one bedroom apartment in urban Ireland will now cost an average of £12,000 per annum to rent – the second most expensive in the EU after Luxembourg, where the average rent exceeds £14,000 a year.

At the other end of the table below the UK are Austria, France, Croatia and Sweden, all of which offer less than 4% returns, thanks to sluggish rents and high property prices. Due to tight controls over the Swedish rental market, the country has been bottom of the rankings for three years in a row with a return of just 3.03%.

More tax transparency with offshore lettersbb

HM Revenue & Customs (HMRC) wants to remind you of its interest in your offshore investments.

Globalisation is not just about trade and investment flows. One of the significant changes to tax in recent years has been a move towards globalisation of tax. A prime example is the development of Common Report Standards (CRS) by the Organisation for Economic Cooperation and Development (OECD).

If you hold investments abroad, then this welter of abbreviations could explain some recent correspondence you have received. Under CRS, over 100 jurisdictions have agreed to automatic exchange of tax information. More than 50 early adopters, including HMRC, will start to exchange information by the end of this September. HMRC’s view is that CRS “dramatically increases international tax transparency.”

In advance of the first round of CRS information exchange, the government introduced legislation requiring certain financial institutions, financial advisers, solicitors and tax advisers to send a standard HMRC “notification letter” to any UK clients for whom they have provided overseas financial advice, services or referral. The deadline for issuing these letters is 31 August 2017.

Full declaration

The notification letter is designed to encourage errant taxpayers to bring their UK tax affairs up to date by using an online worldwide disclosure facility. Although the headline in large green letters at the top of the letter sounds daunting – “If you have money or other assets abroad, you could owe tax in the UK” – the key message (in much smaller black print) is that “If you are confident that your tax affairs are up-to-date, and you have declared all of your UK tax liabilities, then you don’t need to do anything further.”

The days of hiding money from the taxman offshore have long passed, a point the CRS reinforces. If you want to limit the tax you pay on your investments, there are plenty of legal, onshore opportunities we would be happy to explain.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Dividends keep growing for 2017bb

UK companies paid out a record amount in dividends in the second quarter of this year.

At a time when there is much heated debate about whether the Bank of England should double its base rate to 0.5%, it can be easy to forget the much higher income yield available from UK shares. While most interest rates remain at sub-inflation levels, the UK stock market has an average dividend yield of about 3.6% and, as new data recently released show, those dividends are growing strongly.

Research undertaken by Capita, the share registrars, revealed that in the second quarter of 2017:

  • UK companies paid a record £33.3bn in dividends, up 14.5% on the second quarter of 2016.

 

  • If special (one-off) dividends are excluded, the total falls to £28.6bn, still a record and a year-on-year increase of 12.6%.

Capita attributes the rise in overall pay-outs to “very healthy underlying growth, topped up with a substantial boost from the weak pound, plus a large haul of special dividends”. For the next two quarters, the impact of sterling’s weakness will not be as great because the pre-Brexit numbers will disappear from 12-month comparisons. Nevertheless, Capita expects 2017 to see a dividend increase of 7.0%, comfortably ahead of inflation.

These dividend numbers are a reminder that it is still possible to invest in a way that gives scope for growing income and does not rely on the whims of a central bank. For more information on the wide choice of UK equity income funds, please talk to us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Investment round up – 2017 half-year reportbb

The first six months of 2017 have presented investors with an interesting half year. 

Index 2017 Change to 30 June
FTSE 100 +2.4%
FTSE All-Share +3.3%
Dow Jones Industrial +8.0%
Standard & Poor’s 500  +8.2%
Nikkei 225 -1.1%
Euro Stoxx 50 (€) + 4.6%
Shanghai Composite +2.9%
MSCI Emerging Markets (£) +11.5%

 

Think about the first six months of 2017 in the UK. There were several serious terrorist attacks, Article 50 was triggered to start the formal Brexit process, the Budget less than perfectly executed and, to round matters off, a snap election was called which delivered no overall majority to the winners. A challenging half year, to put it mildly. So, what happened to the UK stock market over the period?

As the table shows, the answer in terms of the Footsie index, was a rise of just under 2½%. That number hides a rollercoaster ride with three distinct cycles. For all the movement, by the end of June the index was at much the same level as it was in mid-January. It is a reminder that at times short term “noise” in investment markets can be so deafening that what has happened over the longer term gets drowned out.

There is another lesson from the table worth noting. Although the two US indices, the Dow Jones and S&P 500, both show returns of around 8%, you would have been better off with European shares, as represented by the Euro Stoxx 50 index. The reason is simple: in the first half of 2017 the dollar fell by about 5% against the pound, while the euro rose nearly 3% against the pound. When looking at indices, never forget the currency.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as long-term investment and should fit in with your overall attitude to risk and financial circumstances.

China becomes an emerging market as MSCI finally opens upbb

China-listed shares are finally to be included in the leading emerging markets index.

As we as highlighted in May, China has the world’s second largest equity market, but at present shares listed on the Chinese stock exchanges don’t figure in the MSCI Emerging Markets Index. The MSCI index is the most important equity index for emerging markets, with an estimated $1,600 billion of funds using it as a benchmark. While the index already has a 28% China weighting, this relates to Chinese companies listed on stock exchanges outside China, notably Hong Kong and in the United States.

For each of the last three years, MSCI has reviewed whether conditions in the Chinese stock markets were appropriate to warrant including shares listed on them in the emerging markets index. In 2014, 2015 and 2016 the answer was no. Various technical reasons were given and each time the Chinese authorities made adjustments in the hope that next year MSCI would change its mind. Last month, the answer finally switched to yes.

Look out for May 2018

The change will not happen overnight: adding such a large market to an index in a single move would be too disruptive. Instead, MSCI has set out a gradual approach. In May next year, MSCI will add shares in the largest 222 listed Chinese companies to its index, with an initial 5% weighting. The weighting is expected to rise over time until it reaches the full 100%, at which point Chinese-listed shares will represent about 15% of the MSCI Emerging Markets Index and total Chinese content, including the existing non-China listings, will approach 45%. Other smaller Chinese listed companies may also be added in the future, further raising the Chinese exposure of the index.

MSCI’s decision has been widely seen as a coming of age for investment in China and, on some estimates, could produce $500 billion of inflows over the next five to ten years. If you want to increase your exposure to China ahead of that predicted rush, there are a variety of options available which we would be happy to discuss.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. 

Getting our hopes up for an interest rate rise?bb

Last month saw the first suggestions that interest rates could increase soon.

 

Interest Rates: Atlantic Crossing

 

Source: The Federal Reserve

 

 

 

 

 

 

 

 

In June, the US central bank, the Federal Reserve, increased short term interest rates for the second time this year and the fourth time since December 2015. The 0.25% increase to 1.00% − 1.25% had been well signalled by Fed officials, so there was no surprise. As seems to be the case these days, the focus was more on whether the next rate rise was still three months away or might be deferred.

The day after the US interest rate decision it was the turn for the UK central bank, the Bank of England, to make its annoucement. This was universally expected to be another “no change”, leaving base rate at the 0.25% fixed amidst post-referendum concerns last August. The rate did remain unmoved, but there was nevertheless a major surprise: three out of the eight people charged with setting the rate voted for an increase. According to Reuters, this was the nearest the Bank has come to raising interest rates since 2007.

Not so fast

Does that mean the Bank’s next meeting might see the first rise in interest rates in a decade? The answer is probably no. One of the trio of rate risers will have left the Monetary Policy Committee by the time of the next meeting. Her replacement is thought to be less anxious to raise rates. A new deputy governor is also due to be appointed, bringing the Committee up to its normal quota of nine. The balance of the Committee is thus set to change.

Despite some apparent differences between the Bank’s governor, Mark Carney, and its chief economist, Andy Haldane, most experts still do not see the first base rate increase happening until 2018. That is good news if you have a variable rate mortgage, but bad news if you have a deposit account or cash ISA.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Mr Carney prepares to write a letter as inflation risesbb

The latest inflation numbers show prices rising at their fastest rate for nearly four years.

The May inflation data came as a surprise to many pundits. The expectation had been for inflation, as measured by the Consumer Prices Index (CPI), to remain at April’s level of 2.7%. Instead, National Statistics revealed that annual inflation had reached 2.9% (3.7% on the Retail Prices Index yardstick).

Chart

Source: ONS

 

 

 

 

 

 

 

The last time inflation was at this level was June 2013, as the graph shows. Since then it has taken a rollercoaster ride to around zero for much of 2015, only to surge upwards in the past year: in May 2016 CPI inflation was just 0.3%.

At 2.9%, inflation is already above where the Bank of England had been expecting it to peak later this year. If the rate adds another 0.2% next month, then Mark Carney, the Bank’s Governor, will have to write a letter to the Chancellor explaining why the inflation target has been missed by more than 1%. It’s already clear what he would say from statements issued recently by the Bank: blame the fall in sterling since the Brexit vote.

The Bank sees little respite in the short term. In the press release issued in June alongside its interest rate decision, the Bank said inflation “is likely to remain above the target for an extended period as sterling’s depreciation continues to feed through into the prices of consumer goods and services”.

With many deposit accounts paying interest rates of under 1% (before tax), the news on inflation is a wake-up call if you’re holding more cash than you need to. A year ago money on deposit was just about keeping pace with price increases, whereas now it’s losing buying power at the rate of about 2% a year. To discuss your options in the renewed battle against inflation, please talk to us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Importance of financial planningbb

As we go through life we experience many significant milestones, from starting a job to buying a first home. Our finances play an important role in the key stages of our lives and can help us to achieve some of our goals. It makes sense to have a financial plan.

For some people, money is a topic they do not understand well and so the easy option is to do nothing and hope for the best.

The better approach is to take control of your future and make financial planning a central part of your life.

Simply Investing Front Page

 

 

 

 

 

Please click here to read our Taylor & Taylor – Simply Investing Guide

 

 

 

 

 

 

 

The Bank of England has a slight change of heart  bb

The latest Quarterly Inflation Report (QIR) from the Bank of England has been published and shows that ‘the Old Lady’ has changed her mind a little. But the market projections for short-term interest rates don’t make for helpful reading for those with cash deposits.

The QIR was published in May, a few days before the Office for National Statistics revealed that in April, CPI inflation was running at 2.7%, 0.7% above the Bank’s target. The Bank shouldn’t have been surprised to see the higher inflation number. It’s QIR projected a short-term increase, with inflation reaching 2.8% in the final quarter of this year. Thereafter the Bank’s central projection is in for a gentle decline in the pace of price increases that will still leave inflation above target in the early part of 2020.

 International  Forward Interest Rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Why isn’t the Bank raising interest rates?

In his opening remarks when presenting the QIR, Mark Carney, the Bank’s Governor, said “The projected inflation overshoot entirely reflects the effects on import prices of the fall in sterling since late November 2015 – a depreciation caused by market expectations of a material adjustment to the UK’s medium term prospects as it leaves the EU.” This explains why the Bank is not raising interest rates, which would be its usual response to above-target inflation.

There is a highlighted page of the QIR devoted solely to explaining why global interest rates are so low and likely to continue to be. For the UK, the Bank notes that the money markets are currently projecting that short-term real (inflation-adjusted) rates will still be around 0.25% in ten years’ time, compared with an average of 2.75% between 1993 and 2007. Demographics and “heightened risk aversion” are to blame in the Bank’s view.

The current combination of sub-1% short term rates and 2%+ inflation is unwelcome news if you hold much cash on deposit: the longer your money is in the bank, the less it will buy. That may be a price worth paying if you are convinced that investment markets worldwide are headed for a fall in the near term. If you are not, or are just feeling uncertain where your money should be placed, do talk to us about the many options available.

 The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Article posted: June 2017

FTSE at 20,000bb

No, it’s not a mistake, but it is not the FTSE 100, either.

The most frequently quoted index of UK share prices is the FTSE 100 index, or the “Footsie” as it is frequently described. The FTSE 100 index was launched at the end of 1983, with the aim of giving a yardstick to the value of the largest 100 companies listed on the London Stock Exchange. It started life with an initial value of 1,000 and is now about 7,500, equivalent to an average annual return of about 6.2% excluding dividends.

Two years after the FTSE 100 came into being, the FTSE 250 appeared. This captured the performance of the 250 UK listed companied that ranked below the Footsie’s larger constituents. The FTSE 250 was launched with an initial value of 1,412.6, an odd-looking number which becomes more understandable when you know that was the reading on the FTSE at the FTSE 250’s birth.

In May, the FTSE 250 hit one of those round numbers which cause a brief flurry of comment: 20,000. That is equivalent to an average annual return of 8.8%, again excluding dividends.

The difference in performance between the two can largely be explained by the difference in the industry concentrations in the two indices, as illustrated in the chart below.

FTSE 250

 

Source: FTSE Russell 28/4/2017

The industry concentration is partly driven by the nature of the companies. The FTSE 100 contains many large multinational companies, including mining groups (e.g. Rio Tinto), with little more than a share listing in the UK. On the other hand, the FTSE 250 is more domestically oriented.

The gap between the two indices’ performance is a reminder that the numbers that make the press headlines do not always tell the full story and that relying on a fund tracking the Footsie may mean missing out on some of the better performing UK companies. A review of your portfolio can be a useful exercise.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Article posted: June 2017

Back