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Investment management consultant MATTHEW FEARGRIEVE discusses what 2021 holds in store for the UK housing market, why you should be wary of estate agent hype and why the supposed stamp duty savings currently on offer are illusory.

Now, the UK housing market has for the most part been a law unto itself. But the announcement by the UK government of the stamp duty holiday, at the height of the First Wave in the summer, combined with a paradigm shift from the office to the home for many affluent professionals, sparked a buying spree across the UK. The stamp duty relief is scheduled to end on 31 March next year. In this blog, we consider what the trajectory of UK house prices and demand will be in 2021, and explain some less-obvious ramifications for the stocks and shares you hold in your ISA, SIPP and retirement portfolios.

UK Property Market 2020: Roundup

Average asking prices across the nation have risen £19,920 to £319,945 over the past 12 months. The momentum provided by the stamp duty holiday - which enables savings of up to £15,000 on purchase prices up to £500,000 - has led to average asking prices finishing 6.6% up on 2019.

Average asking prices across the nation have risen £19,920 to £319,945 over the past twelve months.

Prices have undergone their strongest five-monthly gain since 2004, with the average property price rising more than £15,000 since June, according to the latest Halifax House Price Index.

It seemed that November’s nationwide lockdown failed to dampen buyers’ enthusiasm, with house prices up 1.2% over the month compared to October.

Demand has exceeded supply, with the number of properties being marketed for the year to December down by 0.6% on the same period in 2019, and the number of sales agreed up by 8.3%.

Some commentators consider that demand was already high prior to the announcement of the stamp duty holiday, and remains at 53% higher than tis time last year, notwithstanding the decreasing likelihood of completing a purchase by 31st March (thereby qualifying for the stamp duty exemption) if it is agreed now.

UK House Prices: the Outlook for 2021

It should come as no surprise that the commentary being mouthed by UK estate agents is couched in reassuring terms about the resilience of UK house prices in 2021. After all, why wouldn't it be? Estate agents live on the commissions they receive from properties which - let's face it - would sell themselves, without the agency of an odious intermeddling middleman. So don't expect any let-up in realtor hype over the festive period. You will read, and be told, that demand remains very high, and that there is "plenty of fuel left in the tank" for the housing market. Interest rates remain at near-record lows, and greater availability of low-deposit mortgages at competitive rates are expected in 2021.

Estate agents and online property websites will also - naturally - tell you that the number of available properties for sale is at a record low, and that there is therefore scope for further modest price increases in 2021.

We know that the stamp duty holiday will end on 31 March 2021. So whose view can we trust, and what will happen to house prices in 2021?

It goes without saying that the first three months of the New Year will be busy ones for the UK property market, as buyers try to complete before the 31 March deadline. Those trying to make savings on the stamp duty holiday are advised by eager estate agents to act promptly, and to have their offers in by January at the latest. 

The consensus view of estate agents is, unsurprisingly, that a "tidal wave" (as some agents put it) of buying momentum will keep the market buoyant until the stamp duty cut-off of 31 March, after which there will be a drop in demand that, far from leading to a drop in UK house prices, will more likely bring about a return to pre-pandemic normality which, in turn, will lay firm foundations for strong and consistent growth throughout 2021.

The eternally rosy picture painted by our nation's cherished estate agents will be familiar to anyone who has had dealings with them. But what is the objective, more truthful prediction of where the UK housing market will head in 2021?

Let's examine some of their assertions, and subject them to a spot of fact-checking.

The stamp duty holiday saves me money. Er, not any longer. Halifax points out that the current stamp duty saving of £2,500 on a property costing £250,000 is now far outweighed by the average increase in property prices since July. The index also shows how properties sold to home-movers recorded a much higher rate of annual house price inflation (7.9%) than first-time buyers (5.8%), even though the latter were the intended beneficiaries of the stamp duty holiday.

Buyers probably consider the stamp duty holiday when deciding to move, but it is unlikely to save them any more money than if they had moved this time last year. 

Interest rates will remain low in 2021. This looks like a dead cert. The Bank of England is sustaining very low interest rates as a means of fiscal stimulus, and even negative interest rates are being talked about. This environment certainly favours borrowers like mortgage buyers. But the economic theory behind keeping interest rates low points to the deeper problems that we will all have to face in the UK in 2021 and beyond: the extreme likelihood of shrunken economic growth (thanks to the lockdowns of 2020), inflation and rising numbers of jobless people nationwide. 

Low- or zero- rates of interest certainly give leveraged buyers more short-term buying power. But, their lending banks will be all too aware of the broader implications of these rock-bottom rates, even if their customers are not.

Rates this low, combined with the economic price for repeated lockdown and extensive furlough that the UK will surely have to pay in 2021, and for many years thereafter, are cause for deep concern. Lenders should be wary when taking an offer of lending today, when the chances of it being pulled tomorrow are higher than ever before.

Mortgage products are generous and plentiful. Not true, for the reasons we just mentioned. Anyone who has been house-hunting since September will have heard stories, and more than once, from homeowners whose property is "unexpectedly back on the market" (as the estate agent's spiel goes) because the would-be buyer's lender withdrew the mortgage offer at the last minute.

This trend has been particularly prevalent following Chancellor Rishi Sunak's Spending Review in November.

House hunters who need leverage to fund their purchases are fools if they tell themselves that there is no risk of their lender pulling the mortgage product before they complete or - worse - after they have moved in. 

We began this blog by pointing to the unhealthy disconnect between the economic fundamentals at play (recap, if you need one: shrunken economic growth, unprecedented government borrowing, Brexit upheaval to trade and rising unemployment and continuing fears over mutant strains of COVID-19) and the rising UK property market. Beware estate agent hype, and similar assurances of normality on property websites (we all know which ones) which try to convince you that everything is going to be fine in 2021 and (by implication) beyond.

Savings are at record high levels. Because no one could spend much during lockdown. This may to some extent be true. But beware the false corollary that estate agents extrapolate from this, that the "savings" of an estimated £100bn are available to spend on property in 2021.

Like hell they are. Those so-called savings will be absorbed by survival strategies of households who are trying to deal with the effects of rising food costs (Brexit) and loss of income (unemployment or reduced hours). And anything left over will be taken by the taxman, to pay for the overly-generous furlough and sundry other massive expenses undertaken by new boy Rishi.

Things are going to be Just Fine; aren't they? This in essence is what every estate agency in the country will tell you. Everything is going to be perfectly normal. Everything is tickety-boo. This is not peculiar to the year of plague that was 2020. It was the same during (and after, natch) the financial crisis of 2008, which was nothing compared to the global economic damage that COVID-19 is wreaking on us.

Think of the massive blow that the lockdowns have dealt the UK economy. Think of the massive tax take that is required to pay back the furlough schemes and all the other emergency expenditure: hikes in Capital Gains Tax, Corporation Tax, a raid on pension tax relief and lowering the State Pension, not to mention the raft of stealth, under-the-radar taxes that the government is able to deploy.

So what should I do?

Let's take a more grown-up look at the fundamental economics in play.

The UK’s economy has been walloped by the pandemic. It will take many years to recover. A slowdown in housing market activity should be expected soon. Given the parlous state of our national economy, there are concerns that the housing market could go into sharp reverse if the stamp duty holiday is not extended- and even if it is. The cut is currently due to end on 31 March, the same day as the furlough and the help-to-buy schemes close. That date is likely to be a distinct turn-off for more intelligent buyers. 

Nationwide have said that housing market activity "is likely to slow in the coming quarters, perhaps sharply, if the labour market weakens as most analysts expect, especially once the stamp duty holiday expires at the end of March”.

And, as ever, we must look to London as the pace-setter of the UK property market. Ignore stories about London emptying. It isn't, for three reasons: first, any half-sensible person should know not to sell their valuable London pad to buy a place in the Styx. It's a big change, schooling is rubbish in the country and the breadwinners of the household would be foolish to assume that they can work from home forever.

Secondly, many people living in London (the affluent kind, the type the property market is interested in) may well have bought second homes in the country, but their primary residence remains in London, where their jobs and friends are, where Heathrow is, and where their best shot at socialising and eating out is to be found when the lockdowns end.

Thirdly, and perhaps most importantly, ultra-rich foreign buyers are really only interested in buying in London, even if they seldom visit their properties there. And this investment is a major driver of the capital's property market and, therefore, the UK's. And overseas byers have been making merry with the discounted asking prices that 2020 has had to offer.

2021 action plan. Resist the temptation and the false encouragement from estate agents and property websites to rush into a home purchase before 31 March 2021. And resist these same things thereafter. Consider carefully the fundamental economic situation that each month of 2021 brings. Any supposed "stamp duty saving" will be wiped out by the overall price rises and bidding wars that you will find yourself in. And prices hikes, we believe, must be curtailed by the overarching economic fundamentals of 2021 and beyond.

Better to keep your money in the bank, proof your financial position against what the medium-term has in store for us all (essentially, lower economic growth and poorer employment prospects) and wait for lower property prices in 2021/22 before buying.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his blog here and see his Instagram here.

Matthew Feargrieve

With interest rates falling to zero, and stock markets on the rebound, now is the time to invest in mutual funds, says investment management consultant MATTHEW FEARGRIEVE.

With governments and central banks around the world scrambling to limit the economic damage being caused by COVID-19 lockdowns, investors and savers worldwide are faced with the prospect of negative interest rates. In the United Kingdom, the Bank of England has refused  rule out negative interest rates, which in theory is a move designed to stimulate the economy. the Bank's monetary policy committee has decided to stick for the time being with a base rate of 0.1 per cent, but a further rate cut to zero or lower cannot be ruled out.

The idea behind negative rates is to get money flowing out of banks and into the economy in the form of loans and mortgages. Negative rates should encourage borrowing, while discouraging savings    

The prospect of negative rates should provide a further, final impetus for savers to reconsider hoarding all their spare cash in bank accounts that provide negligible or nil rewards and instead invest their money in stocks and shares. 

So what should savers do to counter the rewardless, close-to-zero interest rate environment that we currently find ourselves in?  

Don't worry about whether interest rates turn negative or not 

The Bank of England has already asked banks to report on their 'operational readiness' to deal with zero or negative interest rates. But there are differences of opinion as to whether negative rate will actually help the economy. Andrew Bailey, Governor of the Bank of England, has indicated that the Bank is still considering whether or not to impose negative rates. 

However, you should not worry a great deal about whether rates go negative or not. The fact of life at the moment is that rates are close to zero, and will not work their way upwards for some time to come. And so savers might as well act now. 

If you are holding large cash reserves, you should take the opportunity now to consider investing more. Think carefully about whether you have the right balance between cash savings and investments, and consider funnelling some cash that you are not likely to need over the medium term into investments that have the potential to deliver better returns than the pathetic rates of interest that the banks are offering. 

These investments can include corporate bonds, index-linked bonds, absolute return funds, real assets such as gold and infrastructure, and equities (also known as shares). We consider some of these investment products below. 

Research how markets are reacting to low or negative rates

If interest rates do turn negative, it would affect the value of assets in different ways. Holding cash would earn little reward and there is even a chance savers may have to pay to keep cash in the bank. Also, if negative rates drove down yields on Government bonds, investors might be tempted to seek riskier assets in the hope of a better return. 

Jason Hollands, a director at wealth manager Tilney, says those in search of a real return (one above inflation) from their savings would be 'pushed up the risk curve into corporate bonds and equities'. But he warns that the value of such assets would not be guaranteed and would fluctuate. 

McDermott also says negative rates would be a 'positive' for the value of gold. He says: 'Gold is a much safer store of value than cash at this point. Also, negative interest rates would mitigate the Achilles heel of gold – namely its inability to earn interest or produce an income. Suddenly a major disadvantage becomes an asset.' 

Research the investment funds that will benefit

Having weighed up how negative rates might impact your investment portfolio, the next step is to ensure you have the right investment funds. 

Investment funds (also called mutual funds) are collective investment vehicles which pool investors' money and then invest that money in stocks, shares and other financial products. Equity funds invest in stocks and shares (which are really the same thing) whilst bond funds invest in debt instruments that can be issued either by governments (gilts) or by companies (corporate bonds). There are other investment funds that invest in other things; for example, commodities like silver and gold, or alternative assets like Bitcoin and other cryptocurrencies.  

Some investment funds are riskier than others, and some are more expensive than others; remember that the manager of the fund will charge you an annual fee for managing the portfolio on your behalf. Your aim, in general, should be to invest in fund that delivers an index-beating or index-tracking return at a reasonable cost.

So your objective should be to identify fund managers who have delivered returns that have beaten or at least tracked the markets over the previous five year, with investment products that have an OCF (the "ongoing charges figure": broadly speaking the annual fee you pay the manager) of less than 1.00% per year (we think that any fee greater than 1.00% per year is too high). We divide them into two groups: actively managed investments and passive investments (index trackers). Actively managed funds charge you higher fees, often around 1.00% a year or more. Passive funds track a given index, and so their fees are lower.
You can read more about how to select investment funds here.

A good idea is to start with five investment funds offering good exposure to regions and also different types of funds. 

A global tracker or index fund offers geographical exposure at a competitive cost. A technology fund taps into the rise of tech titans, while an emerging markets fund gives you access to the growth in emerging economies.

You might also want a little exposure to a healthcare or biotech fund to back efforts to prevent a repeat of Covid-19. And a small exposure to a gold fund is a good hedge against inflation and volatility. You might even view Bitcoin as a safe-haven asset for 2021. You can read about gold and cryptocurrencies as safe-haven assets in our blog here. 

UK Shares are Cheap

UK stocks are cheap, so this a good time to invest. UK businesses are undervalued, and have a lot to offer.

The UK also has strong areas of growth, such as renewables. We have a big natural resource in offshore wind which is set to surge. 

But you will need to be quick. Economic stabilisers are on the horizon, like the covid vaccine and Brexit certainty, and these will hike the price of UK bluechip companies in the medium-term. You can read more about investing in the shares of UK companies in our blog here.    

Act your Age!

An important rule of thumb is that the older you are, the more you should put into safer assets (bonds). Younger people can afford to take more risk and have more invested in riskier assets (shares, also known as equities). 

For example, a 60 year old would have 60 per cent in bonds, 40 per cent in shares, and a 30 year old would have 30 per cent in bonds, 70 per cent in shares. 

Bear in mind also that you may well already be an investor without knowing it, if you have investments via a workplace pension. Through this investment you, and your employer, will be putting money each month into investment funds, which in turn invest in companies listed on stock markets.

It may seem boring, but it is important to spend a Sunday afternoon taking time to find out how much you have invested in your workplace pension scheme and crucially, the investment funds in which it is invested. With a little research, you may find that you are not overly impressed with the performance or the fees being charged by these funds; or both. Then you might wish to use fund supermarkets, like Fidelity or Hargreaves Lansdown, to pick your own investment fund and move your pension money into those.

Keep it Simple

Don't over-complicate things, or get too ambitious. While you might hear stories of the dramatic profits people have made from buying bitcoin, or day trading, these are complex and risky and, chances are, they don't crow too much about their losses.

Read up about the investments you're interested in and never buy anything you don't understand.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his blog here and his Twitter feed here.

With the FTSE All-Share still trailing other global indices, MATTHEW FEARGRIEVE says that now is the time to buy UK stocks and investment funds before Biden stabilisers, vaccine uplifts and Brexit certainties kick in.

The FTSE All-Share Index is up just 15.9% over five years, versus a 93.1% gain for global stock markets, with that performance lag exacerbated this year as the coronavirus crisis has hit the UK stock market hard.

Notwithstanding the recent uplift in the FTSE on the back of vaccine hopes, a prolonged period of disappointing absolute and relative returns, compounded by 2020's rollercoaster markets, have left unloved UK stocks trading at significant discounts.

As Joe Biden prepares to take the presidential reins from Donald Trump, investment expert MATTHEW FEARGRIEVE considers the implications of a Biden presidency for your investment portfolio and what action investors should be taking.

Leaving aside the fall-off of the S&P500 as Donald Trump’s current refusal to concede the election plays out (something that investors will need to keep a close eye on), it is axiomatic that when the US sneezes, the rest of the world catches a cold. And, whilst investors naturally keep an eye on the US as an economic bellwether, we should keep in mind that the US went into recession in February 2020 and has not officially re-emerged.   

The 2020 Election: What Didn’t Happen

First, what didn’t happen. The so-called Blue Sweep that some pundits had predicted, as Trump’s popularity appeared to wane in polls on the run-up to the election, did not materialise. Trump did significantly better than the markets had expected. History tells us that a Democrat in the White House enjoying a majority in both houses of Congress usually results in an initial market sell-off, averaging a 2.4% drop in the S&P 500 in November following a sweep, with a recovery in December averaging 3%.  

Over the past quarter century, when Democrats controlled the executive and legislative, the S&P500 rose an average of 9.8%, rallying three times in four after the election.

A Democratic sweep traditionally sees the renewable energy and industrials sectors benefitting from a new focus on infrastructure in Washington, while pharma (and, now, Big Tech) tend to dip on increased government regulation.

On the other hand, a Republican President presiding over a split Congress results in an average S&P500 gain of 5.3%, with stocks rallying following two in every three elections. And had Trump won, with Republicans holding the Senate and Democrats retaining control of the House, historical data tells us that the S&P500 would have enjoyed a short term rally of around 4% based on the election not having caused any earthquakes.

Far from the Blue Sweep, the Democrats managed to hold on to their majority in the House of Representatives but failed to wrest the four seats they needed to gain control of the Senate. There is a possibility that Democrats could win runoff races in Georgia leading to a deadlocked chamber, the more likely outcome is that the US will operate under a divided government.

And guess what? That’s not all bad news for your investment portfolio.  

What Will (Likely) Happen; and Why Capitalism is a Coward

At the time of writing, it looks likely that Biden win be declared winner by the Electoral College, but Republicans will retain control of the Senate.

Being blocked by the Senate, President Biden would be significantly hampered in his ability to legislate new policies, most obviously a regulatory crackdown on Big Tech. This scenario therefore sees a continuation of Donald Trump’s lenient corporate tax policy, the counterpart of which would be Biden’s more stable trade and international policy.

There is a broad consensus that the markets would favour such a state of gridlock (or status quo?), with historical data suggesting that the S&P500 rising by an average of 13.6% and rallying after the election. The VIX Index (or “Fear” index), which measures expected volatility in the US stock market, tailed off in the immediate aftermath of the election, having touched its highest levels since June in the run-up.

In short, the market rally that began when Biden started pulling ahead should be seen in the light, rather than as significant of any major policy departure that Biden may be able to pull off. Clearly, capitalism is a coward, and investors shouldn’t let themselves get carried away by any post-election buoyancy in the markets. What we should expect, probably, is more of the same. And as we said at the top of this blog, the US is still in recession.

What Can Biden Do?

One thing we can feel reasonably safe betting on is that President Biden will be tougher on COVID-19 than Donald Trump was. The market rally on news of the Pfizer vaccine has cooled somewhat, as the realities of its global implementation sink in, and the ability of the US to keep the virus in check will remain a key concern for the markets.

Nonetheless, cyclical stocks are leading the vaccine rally, and they would benefit greatly from a Biden-driven central bank response to reflating the US economy. Such a Federal policy-led stimulus, together with the likely downward trajectory of the greenback, suggests that US equities will fare a lot better than US bonds in 2021, although it has to be said that the prospect of a stimulus bill has been greeted by the markets, post-Election, as a broadly positive prospect for bonds as well as equities.

So what does Biden mean for my Portfolio?

Well, for a start, maybe a pivot towards US stocks and away from US debt instruments for 2021.  For this reason, we think that the traditional weighting of equities-to-bonds in the US section of your portfolio should be revised in favour of equities. If you don’t want to implement this yourself, a multi-asset investment fund can provide a convenient balance of equities and bonds with less risk than a fund investing only in equities. You can read more about this in our blog here.

After almost a year of coronavirus, growth stocks show no signs of losing pace over value stocks, the latter needing a sizeable economic fillip upwards for their re-emergence.

We think that, because of the policy inhibitors the Republicans will place on Biden, investors do not need to be overly wary of Tech stocks, but they should nonetheless keep in mind the combination of Big Tech’s high market power and low tax yield, which may prompt more regulatory action against stocks like Amazon, Google, Apple and Facebook.

One obvious corollary of a Biden presidency would be a broadening of your portfolio’s exposure to Healthcare, particularly given the Democrats’ promised reprisal of Obamacare. Speaking of Obama, his administration tried but made little inroads into the ability of Pharma to fix its own prices for its own drugs. Investors should not forget that the US population is an ageing one.  

Bank stocks are cheap right now, and we think the markets are overly bearish about them, for the reasons just mentioned. We think that there will likely be an across-the-board resurgence in prices following Year End reports, and certainly by the time of Biden’s inauguration in January 2021.

Infrastructure should do well under a Biden administration, being a sector historically favoured by the Democrats.  Biden has pledged to spend US$1.7 trillion in order to turn the US by 2050 into a fully clean-energy economy, with net-zero emissions.

Companies with a play in “low carbon” should also be kept under surveillance by investors during Biden’s first term. Regulations are increasingly more likely across economies outside the US to reduce the energy demands powering infrastructure. This will similarly create opportunities for companies in this space.      

In conclusion

We have explained in this blog how President Biden will face some real inhibitors from the Republican-held Senate on his ability to implement serious policy change. As we have seen, the markets are already responding favourably to this state of semi-deadlock (some would call it a continuation of the status quo in the US).

In our view, investors would do well to similarly react in a measured way, both to the Trump-Biden transitional process and thereafter to Biden’s first term. His presidency at the moment poses measurable and relatively low-impact risks that will, because of Republican blockers, take time to evolve, giving investors opportunity to adjust their portfolio accordingly.

Investors will likely find themselves implementing this strategy in a time of buoyant US equities, which are set for a healthy 2021 if the incoming POTUS is able to get to grips with COVID-19 in the US and manages to reflate the US economy with a programme of centralized fiscal stimulus.

Matthew Feargrieve is an investment consultant. You can read more about him here.

Disclaimer: the views expressed in this blog are the author’s personal views only, and nothing in this article is intended to be financial advice.

The COVID-19 pandemic has caused widespread disruption and rising unemployment. At a time when many of us are jostling for jobs, it's a good idea to brush up on your interview technique. And a key tool in your box should be your Good Boss/Bad Boss radar. In this blog, MATTHEW FEARGRIEVE draws upon two decades of workplace experience - plus some recent pandemic job hunting - to help you answer the ultimate question: Do I Really Want to Work for This Guy?

Do I Really Want to Work for This Guy?

1. Check Online

Use websites like LinkedIn, AboutMe and Crunchbase to research things like how long employees stay at the company. High staff turnover is always a red flag.

2. Observe the work environment

If you’re going to an in-office interview, or if you are offered a tour of the office, look around you. Pay close attention to how employees interact with each other. Do they seem happy and energized? Or stressed and serious? Are they comfortably talking with each other? Or are they glued to their desks with their heads down?

3. Observe communication style

Don’t overlook unprofessional or rude behaviour, such as emails that aren’t returned for a long period of time (or, when they are returned, without apology).

4. Ask behavioural questions

A few examples:

• How would you describe your management style?
• How have you dealt with a difficult or under-performing employee in the past? 
• How have you rewarded an employee’s excellent performance and hard work?

Rule Number Five: Remember, there is no Hiding Place

Times are hard. The coronavirus pandemic has made job hunting a lot harder. But there's no point getting a job if you can't keep it. So make the interview process count. Assess your prospective boss and employer. Be discriminating.

If there is any aspect of their behaviour or personality that you don't like, identify it and ask yourself about it. Can I work for this individual? Remember that you'll be spending long and stressful hours in his or her company, whether physically or remotely. Whilst it's true that many of us are working a lot from home, a bad boss can still be a toxic inflicter of online stress. And when, hopefully, COVID-19 has been dealt with, the majority of employers will expect us to drag ourselves back to the physical workplace. You owe it to yourself to make sure you have a good boss waiting for you there.

Matthew Feargrieve is an investment funds specialist. You can read more of his blogs here.