UK - Nedbank

Planning for a century

As more of us reach the age of 100, financial planning is vital to ensure we have enough money to fund our lifestyles through a potentially long retirement.

Reaching the age of 100 may seem a rather fanciful prospect but if you were born in 1974 in the UK, as I was, your chances of becoming a centenarian are 20.4% if you’re a woman and 13.9% if you’re a man. Based on the latest estimates from the United Nations, there were 593,000 centenarians around the world in 2021 and it’s a fast-growing age group. Studies estimate there could be 3.7 million centenarians alive by 2050.

Better healthcare and lifestyles around the world, along with luck in the genetic lottery, play a big part in increasing longevity. Yet there is still no way to accurately predict how long any of us will live and this is a crucial factor when it comes to planning your finances. How do you ensure you have enough money to fund your lifestyle through a potential 30-40 year retirement?

Here are six things to consider when preparing your wealth for a long life well lived:

1. Define your long-term financial goals

Talking about money and your aspirations with loved ones is key to understanding what you want from life – for yourself and your legacy. Defining this will help build a framework for managing your wealth to achieve these goals.

2. Make your pension a priority

Pensions can be one of the most efficient ways to save for your retirement, so it may be worth ensuring you make the most of your pension allowances. In the UK, the benefits include tax relief on your contributions and tax free growth of the investments within the pension. In addition, pension funds do not form part of your estate when you die and are therefore free from UK inheritance tax. If you have a number of pensions, it may be worth consolidating them, although the associated risks and charges should be considered. Taking advantage of ISAs is another tax-efficient strategy for long-term financial planning in the UK.

3. Invest for the long-term

The power of compounding and diversification make investing for the long-term one of the best ways to grow your wealth. Make sure you are comfortable with the investment risk in your personal portfolio, and it is suitably diversified to meet your needs.

4. Contingencies

If you live to age 100, there are likely to be a few unexpected events along the way. However, the financial impact of these can be considered and options such as life insurance, income protection and critical illness cover can help to protect your wealth and provide peace of mind for you and your family. Life expectancy may be improving but it is no guarantee of good health, so the possibility of long-term care should also be considered.

5. Estate planning and gifting

As well as managing your wealth during your lifetime, it’s important to consider how it will be managed after you’ve gone. The first step is to ensure you have an up-to-date will or wills (if you have assets in more than one jurisdiction). Whether you plan to pass your wealth on to your family or have philanthropic ambitions, considering your options and putting the right structures in place is vital to ensure a smooth, efficient transfer. Structures such as trusts, family investment companies and donor advised funds may be appropriate.

6. Make a wealth plan

Having considered your goals and values, creating a wealth plan will allow you to visualise the financial route you need to take – right up to age 100. Using specialist cashflow software, a wealth planner will work with you to define your current and future financial circumstances and align them to your goals and values, enabling more informed financial decisions. We call it ‘investing with purpose’. The future is never certain, and your wealth plan can explore various scenarios to stress test situations. This means you can be as prepared as possible for the unexpected. Your wealth plan should be flexible and with regular reviews it can be adapted as markets, fiscal regimes and your personal goals and circumstances evolve.

At Nedbank Private Wealth, we can partner with you to understand your financial goals and create the most appropriate wealth plan. We work with clients and their families around the world, in tandem with their professional advisers, to help them achieve a life well lived – all the way to 100 or more!

Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how wealth planning can help them achieve their financial goals and objectives, or call +44 (0)1624 645000 to speak to our client services team.

If you would like to find out more about how we can help you with retirement planning or more general wealth planning support, please contact us on the same number as above, or complete the contact us form using the link below.

Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.

Simon Prescott

Simon heads up the wealth planning division for the international business. He works with clients and their families, in tandem with their professional advisers, to help structure their investments and other financial assets to achieve their goals and aspirations through the development of bespoke wealth plans. Working in partnership with our teams of private bankers, he integrates the benefits of wealth planning alongside our broader wealth management and wealth structuring capabilities.

Simon has over 24 years’ experience of delivering investment and planning advice, 15 of which have been with Nedbank Private Wealth. His appointment followed the establishment of bank’s wealth planning function, where he was instrumental in its design, build and implementation.

Simon holds the Level 7 Diploma in Advanced Financial Planning, the highest financial planning qualification in the UK, and is a Certified Financial Planner^TM, a Chartered Wealth Manager and a Chartered Fellow of the Chartered Institute for Securities & Investment.

Can the bank of Mum and Dad work long term?

While parents and grandparents have been property lenders for many years, the recent rise in mortgage rates and the cost of living crisis have led to far more help for the next generation. But does this support have long-term, unforeseen ramifications?

Over the last few years, house prices have continued to rise much faster than income and the bank of Mum and Dad remains one of the UK’s top property lenders. According to analysis by property firm Savills, the bank of Mum and Dad paid out almost £8.8 billion in gifts and loans during 2022. An estimated 170,000 first-time buyers had family help in getting a mortgage, which amounted to almost half of all mortgaged first-time buyers. With increasing interest rates, stricter mortgage criteria and a cost of living crisis, it’s expected this number will jump to 61% in 2023. The desire to help your children onto the property ladder is strong, but could this support leave you with longer term and unforeseen ramifications?

The long-term impact will depend on how you choose to fund the gift or loan. While the use of cash savings or withdrawing money from your investments or pensions are all possibilities, they have the potential to cause problems for your future financial and retirement plans, not least because we are all living longer and annuities are no longer the automatic choice.

Taking money from your investment portfolio means you run the risk of losing out on any growth and the compounding benefits that investments typically carry, as well as any future benefits from bond coupons or equity dividend payments. The potential rates of return on investments are generally higher than the return on cash over the longer term, but it is always worth remembering that markets can go down as well as up and you may not get back the original amount invested.

Meanwhile, accessing your private pension pot may mean you don’t achieve all your retirement goals. The money taken out of your pension will not be there to grow and compound but, perhaps more importantly, if you access your pension, your annual allowance – the amount you can pay in while enjoying the government’s tax incentives – has reduced from up to £60,000 a year to just £10,000. This lower tax support may mean you need to defer your retirement date.

The good news is that there is another possibility. If you have investable assets over £1 million, you can access the bespoke lending options available through private banks. Not only can loans be secured against your property or investment holdings, but the support you receive will ensure you understand the full implications of any decision and the impact it will have on your long-term financial goals. As a result, you can retain your capital and continue to benefit from your wealth while helping your loved ones with their more immediate needs.

What are the benefits?

As private banks operate on a more personal case-by-case basis, they can offer a more flexible approach for larger loan amounts, usually over £250,000. The benefits include:

A more tailored service with a dedicated relationship manager, who will take time to understand your current financial position and any long-term plans before providing the most efficient outcome for you.
Less rigid criteria and a wider range of options:
- Facilities in sterling, euro or US dollars
- Interest only loans
- Shorterrepayment terms
- Scheduled repayments linked to a specific date.
Borrowing against your UK, Isle of Man or Channel Island-based residential property.
Borrowing against your investment portfolios, provided they are held with the bank.
Quick, yet carefully considered, decisions to meet an immediate need for cash, without having to sell any of your investments.

A win for you and your family – in the short term and the longer term.

Clients can borrow against a UK, Isle of Man or Channel Island-based residence, be it a home or an investment property. We also lend against investment portfolios and loans can be denominated in Sterling, Euros or US Dollars. With clients in 160 countries, we often help clients based outside the UK, and have lent using the same approach across market cycles since 1987.

To find out more about Nedbank Private Wealth’s bespoke lending services, please visit our ‘Borrowing’ page or email [email protected]. You can also contact your private banker directly or call our client services team on +44 (0)1624 645000. Or you can get in touch using the links to the forms towards the end of this page.

If you fail to keep up loan repayments, your assets used to secure the loan may be at risk and/or your home may be repossessed. Any examples are for illustrative purposes only. The webinars and Q&A do not constitute an invitation or inducement to buy any financial product or service. None of the content constitutes advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.

Andrew Halsall

Andrew heads up the Isle of Man private banking team. He joined the bank in 2005 and has over 30 years’ banking experience. He looks after a portfolio of domestic and internationally-based clients, working closely with them, and their professional advisers, to meet their wealth management, succession planning, pension and lending needs.

Andrew is a Chartered Wealth Manager and a Fellow of the Chartered Institute for Securities & Investment.

This is not just lending. This is bespoke lending.

For high-net-worth clients with more complex borrowing needs, Chiraag Patel explains how private banks can offer a more tailored lending solution.

The fallout following the UK government’s infamous and unfunded mini-budget in September 2022 revealed the complex mechanics underpinning mortgage lending. The market turmoil that ensued saw banks and building societies scramble to withdraw mortgage offers as sterling plummeted to historic lows and gilt yields soared.

Gilt yields are important as they reflect the cost of government borrowing and are used by lenders to set mortgage interest rates. The rapid rise in gilt yields following the chancellor’s fiscal announcement meant lenders were faced with mortgage offers and products that were no longer viable. The events of September 2022 were extreme, resulting in the political downfall of a chancellor and prime minister, but they highlighted the complexities of mortgage lending and the potential difficulties in finding a product that suits your needs.

This is where a private bank, such as Nedbank Private Wealth, can often help. We have the flexibility to offer lending solutions that can be tailored to your individual circumstances, not just how well you fit a prescribed set of criteria. The benefits we offer can include:

A personal approach

Access to a dedicated private banker means a deeper understanding of your financial situation and goals.
Each lending application is judged on its individual merits.
Consideration is given to your wealth as a whole, rather than purely income.

Flexibility

Experience of working with those who may not fit the criteria of many high street lenders, such as those who have less traditional income streams.
Rates decided on an individual basis depending on the size of the loan relative to the value of the property, and the loan term.
For clients who are asset-rich but cash-poor, borrowing can be secured against a range of investments as well as UK property.

Expertise

Experience in providing lending solutions to clients around the world, often with complex financial affairs.
International expertise that can help expat and foreign national clients who are choosing to move to or invest in the UK.
Options for wider wealth planning opportunities alongside your lending arrangements.

Quick decision making

The autonomy to make quick decisions, allowing you to move quickly.
By taking a charge on existing assets to free-up cash, you can secure your new asset at the right price and remortgaging can be arranged at a later point.

Competitive pricing

Competitive interest rates and fee structures that can meet your immediate needs as well as supporting your longer-term wealth goals.
Cost effective, as your investments need only be transferred to us if the loan is secured against them.

Ultimately, we have the time and experience to understand you as an individual, which means we can provide a bespoke lending solution that will meet your financial needs in the most appropriate way.

Whether you are about to borrow for a specific purpose in the near future or are planning for something further down the line, it pays to discuss your needs in advance. Get in touch today and we can discuss your options.

Clients can borrow against a UK, Isle of Man or Channel Island-based residence, be it a home or an investment property. We also lend against investment portfolios, and loans can be denominated in sterling, euros or US dollars. With clients in 160 countries, we often help clients based outside the UK, and have lent using the same approach across market cycles since 1987.

If you fail to keep up loan repayments, your home or property used to secure the loan may be repossessed. Any examples of products and services are for illustrative purposes only and do not constitute an invitation inducement, advice or a personal recommendation. Nedbank Private Wealth does not provide tax advice, and instead works with tax advisers to ensure clients receive the appropriate advice. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.

Chiraag Patel

Chiraag joined the team in 2021 with responsibility for Nedbank Private Wealth’s lending proposition in the UK. His primary role is to support clients’ borrowing requirements, as well as help clients who have been introduced by mortgage brokers and other property intermediaries.

With 18 years’ experience as an adviser in the property teams of financial services firms, with an emphasis on serving the high net worth market, Chiraag’s previous roles include time as a credit specialist at Santander Private Banking and Barclays.

He holds a Certificate in Mortgage Advice and Practice (CeMAP) and graduated from the Queen Mary University of London with a BSc (Hons).

Seize the moment with Lombard loans

Sometimes an investment opportunity arises that’s simply too good to miss. By borrowing against your liquid financial assets, Lombard loans offer the flexibility to diversify your portfolio when needed, without having to sell any of your existing assets or investments or disrupt your long-term plans.

A Lombard loan is borrowing secured against a diversified investment portfolio. One of the key advantages is that investors are able to retain their ownership and authority over the portfolio. This means they can benefit from any future performance gains, while simultaneously opening up a range of other financial opportunities.

This type of finance was pioneered by the Lombards, a community who conquered Italy in the 6th century and settled in Lombardy. At the time, this region covered most of Italy before being scaled back to the north of the country. By the 16th century, this style of banking was prevalent across Europe. While the banking sector has moved on, the name stuck and Lombard loans continue to play a part. To explain how they work, we answer a few of the questions we are frequently asked below:

1. What can Lombard loans be used for?

Alongside diversifying an investment portfolio, we find Lombard loans are used for a variety of other reasons – an entrepreneur’s business needs, a family emergency or, perhaps, another unforeseen event that requires immediate access to cash. This is the case even if it is likely that the loan will be paid down relatively quickly, such as through the receipt of an insurance claim or annual bonus. We have also provided Lombard loans to enable parents to loan or gift to their children, to help them buy a home, for example, without needing to sell their investments. Clients have also used them to fund the purchase of homes where it is difficult or expensive to get finance on the property itself, e.g. for second homes abroad.

2. What investments can back these loans?

In today’s world of finance, these loans are available against diversified, high quality portfolios which include ‘liquid’ investments that are priced and traded on a daily basis. Investors can borrow against both discretionary investment management services and execution-only investment portfolios held with a bank.

We can also lend against non-diversified portfolios, for example, against a single blue-chip holding that a client might have, for instance with share options accumulated during their employment. While this is not Lombard lending per se, it can provide a client with liquidity for many purposes, including to diversify their holdings and build a portfolio.

There are some restrictions on the type of investments clients may use as security, for example, Alternative Investment Market (AIM) stocks, which can be more volatile, are not acceptable.

3. Can you borrow against investments held in ISAs and personal pensions?

It is not possible to borrow against investments held in ISAs for regulatory reasons. A self-invested personal pension (SIPP) is itself able to borrow (up to 50% of its net value), but this will depend on the scheme administrator and the purpose of the loan and, as such, it is not a vehicle or wrapper that we could provide Lombard loans against.

In practice, the majority of Lombard lending is secured against a borrower’s ‘general’ investment account, i.e. investments not held in a tax-efficient wrapper.

4. Can Lombard lending be combined with property finance?

Yes, and while a Lombard loan can be much easier and cheaper to set up than one using property as security, there are often circumstances where clients take out both types of finance.

A Lombard loan alone would avoid the need for a surveyor to conduct a valuation, as well as the additional conveyancing fees that typically accrue for a loan secured against property. Although we would encourage all buyers to have a building survey carried out when buying any property.

At the same time, they can be used to fund renovations that will increase a property’s future value, but where this uplift isn’t reflected in the current valuation and is limiting the level of borrowing achievable against the property itself. Also, Lombard lending is invariably swifter and more cost-effective than securing a bridging loan.

Where a loan is being used primarily for the purpose of purchasing a rental property, it may be possible to claim tax relief on some or all of the interest applied on the loan.

5. How much can I borrow and how much will it cost?

We typically lend up to 50% of the current market value of a diversified portfolio. This gives us plenty of scope to ensure that a portfolio’s volatility does not force a difficult conversation, where we would either need to have some of the loan repaid or have additional security provided.

In terms of costs, the loan margin depends on a variety of factors and we may also charge an arrangement fee. Lombard lending facilities typically tend to be cheaper than the equivalent loan secured against property.

6. What other assets can be used as security?

Lombard loans are backed by high quality, diversified and liquid investment portfolios only. If you’re borrowing against a yacht, a classic car or a piece of art, for example, these require asset-backed lending facilities. This is a specialist form of financing we don’t provide at Nedbank Private Wealth as the market for many of these assets is extremely subjective. In addition, loans such as these often require the asset itself to be taken as security and, in some cases, such as art, held in storage until the loan is repaid, which would typically add additional costs. Alternatively, there can be restrictions placed on the collateral’s usage, meaning the enjoyment of your asset could be curtailed.

7. What happens if my underlying assets fall in value?

When taking out a Lombard loan, you should always keep the risks in mind, particularly when using the proceeds to buy additional investments (whether these are shares, funds or physical property). Leverage and flexible financing are a double-edged sword, not least as asset prices can go either way. While it might not be envisaged at the outset that a diversified portfolio would fall significantly in value, it can and does happen from time to time.

Anyone looking to borrow should be aware of the risks and ramifications of this happening, and only borrow if they are comfortable with these. In practice, this might mean either applying for a smaller loan to allow greater ‘headroom’, having additional assets in place to be able to reduce the loan, or providing additional collateral, or a combination of these.

8. What other risks are there?

It is also worth bearing in mind the impact of any taxes on your investment which could include income tax on dividends, capital gains and possibly inheritance tax. Professional advice should be sought on how these may impact your individual circumstances.

Finally, it is important to ensure you have sufficient income to service the loan, this is particularly pertinent in a world of falling investment returns, dividends and property yields.

Whether you are about to borrow for a specific purpose in the near future or are planning for something that might be 12 to 18 months – or more – down the line, it is always a good approach to discuss lending options in advance with your professional advisers, including your private banker. Taking a proactive approach will give you, as a prospective borrower, the most valuable commodity of all – time. And the period can be used to consider the options available to you and find the best, most efficient and suitable way forward.

If you fail to keep up loan repayments, your home used to secure the loan may be repossessed. Any examples of products and services are for illustrative purposes only and do not constitute an invitation inducement, advice or a personal recommendation. Nedbank Private Wealth does not provide tax advice, and instead works with tax advisers to ensure clients receive the appropriate advice. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.

Chiraag Patel

He holds a Certificate in Mortgage Advice and Practice (CeMAP) and graduated from the Queen Mary University of London with a BSc (Hons).

Christmas stockings, cranberry sauce and (self-assessment) tax returns

Many see Christmas as a time for festivities, others as the time to file tax returns ahead of the 31 January deadline. But while you and Santa are making your lists, and checking them twice, Anna Slater highlights some pointers to help you with UK self-assessment submissions.

The 2022 festive period will no doubt follow the previous years’ trend of being the busiest period for UK tax filing. For many it has become as much of a Christmas tradition as cranberry sauce on the side of their Christmas dinner. In 2021 more than 31,000 people submitted their 2020 to 2021 tax return between 24 December and 26 December, according to data from HM Revenue & Customs (HMRC), with the majority of submissions being filed festively on Christmas Eve (nearly 20,000).

Whether you choose to file your tax return in between present opening and turkey eating or at some other time, it is worth bearing in mind that a careful review of all your financial affairs, including any wealth structuring, could mean your family will achieve your financial goals quicker.

Remember: HMRC has reminded those filing returns to be very careful that they are accessing the official websites and forms and to never give financial or personal information to anyone that contacts you out of the blue asking for money or personal information. HMRC sees high numbers of fraudsters emailing, calling or texting people claiming to be from the department. If you are in any doubt, HMRC advises not to reply directly to anything suspicious, and instead contact HMRC directly.

So, just as we are sure that Santa plans his sleigh route in advance for Christmas Eve, we are sure you will want to plan your tax filing in advance too. Here are some pointers to help you plan and hopefully re-join the family quicker for the joyous festivities.

• Pay into your pension

It can be easy to procrastinate about our pensions and worryingly it appears that most do, as shown by the fact a staggering amount of contributions are left in the employer-selected funds, according to the trade body Tax Incentivised Savings Association. However, even if you haven’t reallocated the underlying investments, it’s worth remembering that any contribution paid into your pension, including a self-invested personal pension (SIPP), reduces your level of taxable income for the tax-year.

You can currently contribute up to £40,000 gross across your pensions annually – through a combination of employer and employee contributions. Although this contribution could be substantially tapered to as low as £4,000 if you surpass the current annual adjusted income figure of £240,000 net per annum or if you have flexibly accessed your money purchase pension savings in a registered pension scheme.

You also should consider the lifetime allowance, which remains unchanged at £1,073,100 for 2022/23 – a level that will be frozen until April 2026. This limit is important as it includes the money paid in, as well as any investment gains. If you do exceed the lifetime allowance, possible hefty tax charges apply once you begin to withdraw funds, and also as you celebrate your 75th birthday. The lifetime allowance excess charges may also be relevant to the recipients of your pension, with the onus of the calculation and payment of a charge resting with the beneficiaries of your estate.

• Reliefs available through other tax-efficient investment vehicles

While individual savings accounts (ISAs) are not declared on self-assessment tax forms, as there is no need to disclose any income and gains due to the nature of their wrapper (not the Christmas kind), you will need to disclose subscriptions to other tax efficient investments such as enterprise investment schemes (EIS) and venture capital trusts (VCTs). This is due to the tax relief on contributions to these structures and so you will need to claim the relief due, given there is no tax relief at source.

• Reclaim what’s rightfully yours

Most of us tick the gift aid box when giving to registered charities, and as a higher rate taxpayer the benefit is that you can claim the difference between the rate you pay and basic rate on your donation. For example, you donate £100 to charity – the charity claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).

In addition, it’s worth looking through the subscriptions linked to your profession – be these related memberships, events or trade magazines – that may see some tax relief too.

• Deferring a dividend as a business owner

Given the allowance for dividend income received is £2,000 * per person, it is worth determining whether it may be preferable to defer dividend income if you are a business owner, in order to manoeuvre your income around nearby threshold. For example, if your taxable income is based on basic tax rates, you would not have to pay tax on the first £1,000 of personal savings allowance received, while higher rate taxpayers do not have to pay tax on their first £500 of savings income**. It is also worth remembering that you can use your Personal Allowance to earn interest tax-free if you have not used it up on your wages, pension, or other income.

While Nedbank Private Wealth does not provide tax advice, we can work with your other trusted professional advisers – introduce you to some – enabling us to work in synergy with them and you to develop a comprehensive wealth plan. Not only will this help you understand the impact of your current expenditure on your future goals and aspirations, but it will also set you on the right path for the next year, enabling you to manage more of your finances in a tax-efficient manner.

You don’t have to file your tax return while tucking into the Christmas lunch. But to avoid fines and extra costs incurred it is best to get it in ahead of the deadline of 31 January (checking it twice may also be advised).

Please note: Following the Autumn Budget:

*In April 2023, reducing the tax-free allowance for dividend income (the ‘Dividend Allowance’) from £2,000 to £1,000 from 6 April 2023 and then to £500 from 6 April 2024 for individuals who receive dividend income. Find out more.

** In April 2023, the Income Tax additional rate threshold (ART) will be lowered from £150,000 to £125,140, the income level at which an individual will not have any Personal Allowance. Find out more.

Sources: UK Government (1).

If you would like to find out more about how we can help you with wealth planning support, please contact us on the same number as above, or complete the contact us form using the link below.

Sources: UK Government (1).

Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Nedbank Private Wealth does not provide individual tax advice, and instead works with clients’ existing advisers or can provide an introduction if needed. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.

Anna Slater

Anna joined Nedbank Private Wealth in 2022 and is based out of the London office, working with the wealth planning division. Alongside the team, she works with clients and their families, in tandem with their professional advisers, to ensure they have a clear wealth plan in place to help them achieve their financial and lifestyle objectives.

Anna holds the Diploma in Regulated Financial Planning with the Chartered Insurance Institute and a BSc (Hons) degree from the University of East Anglia.

Will rising interest rates slow growth in the UK property market?

As the Bank of England continues to raise interest rates in its battle with persistent inflation, what will this mean for the UK’s residential property market?

Soaring energy prices and crippling inflation are fuelling fears of a recession. As the Bank of England responds by raising interest rates, what impact will this have on the UK’s residential property market?

September 2022 saw the consumer prices index, the UK’s preferred measure of inflation, rise by 10.1% year on year, up from 9.9% in August and back at the 40-year high set in July. We are also yet to see the effects of the 80% rise in energy bills due in October and further large increases expected in January.

The Bank of England continues to respond with aggressive monetary tightening – hiking the base rate of interest from 1.75% to 2.25% in September – the highest level for 14 years. This marks the central bank’s seventh increase since December 2021 as it attempts to get a grip on spiralling inflation. Any increase in the Bank of England’s base rate quickly feeds through to increased loan and mortgage rates, so the cost of borrowing rises.

This situation was exacerbated by the new UK government’s unfunded mini-budget, which sent financial markets into turmoil at the end of September. A rapid rise in gilt yields prompted mayhem in mortgage markets as lenders rapidly withdrew products in response to the soaring cost of funding them. The Bank of England stepped in to stabilise gilt markets, but the political and economic aftershocks are still playing out and the volatility and uncertainty are not good for the housing market.

The more affluent house buyers have certainly not been deterred by rising interest rates. Property group, Savills recently released its five-year forecast for the UK’s prime housing markets, which reflected strong levels of activity, despite the backdrop of international and domestic uncertainty. The firm expects prime central London prices to rise by 4% across 2022 but has forecast better growth of 7% for 2023 as international buyers are expected to return, particularly if sterling continues its downward trend and makes UK property more appealing.

Although annual average house prices in the UK had continued to increase up to June 2022, according to the Office for National Statistics, there are signs they are slowing. The outlook for both interest rates and real incomes remains negative and the impact of the government’s unfunded budget plans will not help consumer confidence. The GfK consumer sentiment indicator, a snapshot of how UK consumers feel about the economic outlook over the next 12 months, was already at a record low of -44 in August.

While rising interest rates, falling consumer confidence and the cost of living are all serious risk indicators, why is their impact on the housing market still muted?

The fact is there are other aspects of the housing market that give grounds for more optimism.

Interest rates are still low

Interest rates while rising fast are still relatively low. Between 1971 and 2022, interest rates have averaged 7.15% – from an all-time high of 17% in November 1979, when Margaret Thatcher’s government was battling inflation, to a record low of 0.10% in March 2020, in response to the COVID-19 pandemic.

Housing supply remains constrained

As we mentioned earlier, demand continues to exceed supply and unless the government has plans for a massive house building programme, this is unlikely to change anytime soon.

Cash buyers and fixed rate mortgages

About a third of homes are bought with cash, and around three quarters of borrowers are protected in the short term by a fixed-rate mortgage. With more than 90% of new borrowers choosing this option, a sizeable majority of borrowers will not feel the effects of the base rate rises until they need to renew their current deal.

More stringent borrowing criteria

As always, the lower end of the market will be most vulnerable to rising interest rates. Although mass repossessions are less likely since lenders introduced more stringent affordability tests in the wake of the global financial crisis, and the current labour market remains tight. Unemployment levels are at an almost 50-year low, at 3.8% for April to June.

The high end of the market remains buoyant

Not everyone is struggling to get by and as the Savills forecasts show, the market in prime locations is expected to remain buoyant, particularly for property above £5 million. This section of the market is less reliant on borrowing so less likely to be affected by further interest rate rises.

We are likely to see a fall in transactions in the wider market, though, as buyers hold back in the face of rapidly rising mortgage rates and escalating energy costs, which could serve to dampen overall demand.

Predicting the future of UK property prices is notoriously difficult because for nearly two decades governments have frequently intervened to boost prices when growth has stalled. However, with soaring energy prices, a cost-of-living crisis and its own political problems to contend with, will this government have the capacity to support homeowners as well?

Opinions vary on how the current economic disruption will play out in the UK property market but, as with any investment, it always pays to take a long-term view.

Clients can borrow against a UK, Isle of Man or Channel Island-based residence, be it a home or an investment property. We also lend against investment portfolios, and loans can be denominated in Sterling, Euros or US Dollars. With clients in 160 countries, we often help clients based outside the UK, and have lent using the same approach across market cycles since 1987.

To find out more about Nedbank Private Wealth’s bespoke lending services, please contact your private banker directly or call our client services team on +44 (0)1624 645000. Or you can get in touch using the links to the forms towards the end of this page.

Chiraag Patel

He holds a Certificate in Mortgage Advice and Practice (CeMAP) and graduated from the Queen Mary University of London with a BSc (Hons).

The lay of the land: property taxes across the UK

Temporary property tax holidays for the lowest property tax brackets came to an end in 2021. We take a look at what property taxes buyers now need to pay across the UK, whether resident or not.

In July 2020, temporary property tax holidays were introduced for UK residential housing. The break aimed to encourage people to have confidence when buying, selling and renovating houses, and provide support for economic growth and jobs.

And while taxes returned to their previous level, changes have been introduced for England and Northern Ireland following the Chancellor of the Exchequer’s ‘mini -budget’ on 23 September 2022.

However, the difference in approaches taken across the country served to highlight how the UK landscape for property tax diverges across its four home nations, deviations often due to the devolved parliaments in Scotland and Wales.

So, while stamp duty land tax is due in England and Northern Ireland, it is the land and buildings transaction tax in Scotland, and the land transaction tax in Wales. And there are other differences buyers should be aware of, which we explain below.

What do you pay where?

England and Northern Ireland

In England and Northern Ireland, at present, no stamp duty is due on the first £250,000 of a property purchase, provided it’s your main residence and you are UK resident. That threshold, however, increases to £425,000 if you’re a first-time buyer and the property you’re buying costs £625,000 or less.

It’s also worth noting stamp duty is progressive and marginal, i.e. different percentages apply to each price band. As such, if the property you’re buying is worth between £250,001 and £925,000 the initial rate of tax is 5% of the final sale value. If that value is between £925,001 and £1,500,000, the tax paid on the ‘chunk’ above £925,001 increases to 10%. Finally, 12% is due for homes on the portion worth more than £1,500,001.

If it is a second home – i.e. you already own a home anywhere else in the world – or an investment property, collectively categorised as ‘additional properties’, you should expect to pay 3% more. A further 2% is also usually due if you are not UK resident and you spend less than 183 continual days in the UK either before or after the completion date of your property transaction. It is also worth noting that you can claim this tax back if you become UK resident within a two-year period of the completion date.

Scotland

The main difference between Scotland and the other home nations is the thresholds and rates currently in place. In Scotland, first-time buyers pay no land and buildings transaction tax on the first £145,000 of a property. Then, if the property you’re buying is your main residence and is worth between £145,001 and £250,000, you’ll pay 2%. If the value is between £250,001 and £325,000, the percentage increases to 5% for that portion. It then reaches 10% for the portion of a property’s value between £325,001 and £750,000 and, again, a 12% marginal rate due on any homes worth more than £750,001.

As elsewhere, additional properties and those being bought by non-resident buyers are taxed at higher rates.

An additional complexity for those buying north of the border is that Scottish properties typically require offers over the value being advertised. Elsewhere, the value advertised is seen as a guide and offers below the asking price may be appropriate, e.g. if the property has been on the market for many months.

Wales

In Wales, the thresholds and rates are different again to those detailed above, and there is no extra relief for first-time buyers. As such, no stamp duty is due on the first £180,000 of a property. If the property you’re buying is your main residence and is worth between £180,001 and £250,000, you’ll pay 3.5% on the portion between that band. If the value is between £250,001 and £400,000, that figure increases to 5%. It then reaches 7.5% for properties worth between £400,001 and £750,000, 10% for properties worth between £750,001 and £1,500,000 and finally 12% for a home worth more than £1,500,001.

As before, additional properties are taxed at higher rates.

To summarise these for home buyers, while noting that Scotland and Wales have not made changes to their stamp duty equivalent taxes (as at the time of writing), we have put together the table below:

Payment due dates

If you’re buying in England or Northern Ireland, you have 14 days from the date of completion – the day when all the contracts are signed and dated, and you get the keys – to file the stamp duty return and pay what you owe. In Scotland and Wales, you have 30 days.

To help you understand how much you’ll pay on a property, we recommend you use the stamp duty tax calculator for England and Northern Ireland, the land and buildings transaction tax calculator for Scotland, and the land transaction tax calculator for Wales.

Meanwhile, if you are non-resident in the UK and buying a UK property to live in, you can reclaim the non-resident surcharge if you become UK resident within two years following the purchase. For those buyers who remain non-resident, it’s worth noting that any gains from UK residential property sales are subject to capital gains tax of 28%, which includes gains due to share ownership in ‘property-rich’ non-UK companies.

For those interested in learning more, it’s worth flagging that Nedbank Private Wealth doesn’t provide individual tax advice, but as a regulated mortgage provider, we work closely with legal and tax advisers. We are also able to introduce you to professional advisers if you do not have one.

As well as helping individuals and companies buy residential property in the British Isles, our award-winning wealth planning support can help you borrow for additional wealth goals, while ensuring your purchase fits with your broader financial plans.

This articles was previously published in August 2022, but updated following the announced change in stamp duty on 23 September 2022.

Clients can borrow against a UK, Isle of Man or Channel Island-based residence, be it a home or an investment property. We also lend against investment portfolios, and loans can be denominated in Sterling, Euros or US Dollars. With clients in 160 countries, we often help clients based outside the UK, and have lent using the same approach across market cycles since 1987.

Chiraag Patel

He holds a Certificate in Mortgage Advice and Practice (CeMAP) and graduated from the Queen Mary University of London with a BSc (Hons).

Is retirement planning more important than ever?

Although retirement planning should be carried out as early as possible, many of us only seriously review our financial situation a few years before we plan to retire. Recent events, however, highlight regular reviews of your wealth are more important than ever, as Simon Prescott explains.

We are often reminded that – in the words of a former UK prime minister, Benjamin Disraeli – “Change is inevitable. Change is constant”. This has certainly been the case with regard to later life planning. Then add into the equation the increasing amount of time that we’re spending (money) in retirement, and substantial changes in our expectations for life as a retiree. Meanwhile, governments around the world are regularly reviewing the needs of their populations in retirement. Here, we highlight three changes that we think those coming up to retirement need to be aware of:

1. Longevity

We all question how long we will live for, and a lot of factors affect the outcome. These can be known (such as your ancestry and lifestyle) or beyond your control and foresight (such as medical developments). Meanwhile, as many of us underestimate how long we will live for, the situation becomes even more complex because we are planning for an undetermined timeline with a finite sum of money.

Given the number of unknowns, we believe it’s best to plan to the age of 100. Yes, this is above the current averages for life expectancy levels, but centenarians are a steadily growing demographic group.

Using the UK as an example, it is estimated there are currently 92,000 people aged 100 or older in the UK, up 44% since 2000. However, by 2041, the number of people in this group is expected to have grown by 78%. This is a particularly important consideration for women, who currently make up 80% of UK centenarians, and who may outlive their spouses by many years.

These are just some of the facts and statistics to be taken into account. In addition, for example, you also need to review the increasing chance of health risks – such as arthritis and dementia – that affect your quality of life and may result in you needing full-time care. These health risks have financial implications too, which should be discussed and factored into your planning.

2. Low interest rates remain relatively low, despite the increased cost of living

While interest rates have risen in a bid to curtail inflation, they still remain low compared to, say, the 1970s or 1980s. At the same time, we have seen stock market valuations fluctuate significantly.

This means the risks associated with investing remain a concern for many clients, not least since the returns derived from some investments are linked to the level of interest rates. This is particularly the case for those who have already retired and would struggle to generate a new income stream

Weighing alongside this has been the dramatic rise in the cost of living, particularly for basic costs such as energy and food.

And while many are confident that the cost of living will moderate – once the supply chain issues linked to the pandemic are finally resolved and the Russia-Ukraine war eventually ends – it is worth flagging that prices may continue to rise for other reasons, e.g. if the wage increases being demanded across many markets are subsequently priced into the cost of goods and services.

Taking into account all of the above, it’s likely that people may underestimate how much annual income they need over the long term or overestimate the level of withdrawals their portfolios can reasonably sustain.

3. Changing pension legislation

Over the past few years, governments around the world have updated pension legislation to adapt to ageing populations and other new trends. And they will continue to have to do so, particularly where individuals have insufficient savings. The UK is not alone in raising the qualifying age for state retirement benefits. Eligibility for Australia’s pension, for example, is rising from 65½ to 67 years by 2023.

And while small changes are regularly implemented – typically related to state pension payment levels and limits for the lifetime allowance – many have not thought through changes such as those introduced in 2015, which saw the pensions landscape in the UK changed radically as investors were no longer ‘forced’ to buy an annuity when they retired.

The new ‘freedoms’, however, mean there is no longer a definitive point when your funds are permanently transferred to an insurance product providing you with a set lifetime income (albeit typically with adjustments for inflation). This has implications for you as you will own all the responsibilities linked to drawing down on your pensions, entering that phase of life called decumulation.

Limited understanding of these changes, however, continues despite the intervening years and due to the complexities and risks (e.g. those of sequence, longevity and inflation) that come with the management of investments. But these are important matters to grasp to help ensure you enjoy a lifetime income over an indefinite period from a finite sum of money.

And as I started with a quote, it feels apt to finish with one. This time, it’s by American country singer and broadcaster Jimmy Dean, who stated: “I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.” This reflects the complexity of retirement planning, the balancing of multiple needs and aspirations and risks in order to achieve financial success in retirement.And whatever winds of change might sweep through the future life you have planned, we believe it’s important you should receive support as early as you can, ahead of retirement, in the form of a personal wealth plan. You should also make sure this is regularly reviewed, particularly as you approach the date when you’re looking to retire, and to reflect any changes in your circumstances, and those of your family. In providing the necessary details, it will allow you to live the life you aspire to in retirement and offer the flexibility to change tack as needed. Just get in touch for an initial conversation as we are here to help.

Sources: Australian Government, Financial Times; and Office for National Statistics

Simon Prescott,

1. Define your long-term financial goals

2. Make your pension a priority

3. Invest for the long-term

4. Contingencies

5. Estate planning and gifting

6. Make a wealth plan

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