2016 overview and predictions
The end of 2016 has seen a flurry of organisations publish their ideas on how to beat the problems facing Britain’s housing market.
The Redfern Review on home ownership, a report on modern methods of construction from the Building Societies Association, another on affordable and appropriate housing provision from the Confederation of British Industry and yet another from the Royal Institute of Chartered Surveyors all highlighted the chronic shortage of new homes delivered each year and called on the government to boost construction of new homes.
Then the Chancellor of the Exchequer Philip Hammond announced a set of measures in the Autumn Statement, designed to funnel money into the infrastructure needed to support the construction of homes across the country.
This is welcome news for those hoping to get a foot on the property ladder, and who are struggling to save significant enough deposits to achieve it. But while Hammond hopes this funding will support the construction of tens of thousands of new homes, the plain fact of the matter is that not even several hundred thousand new homes would satisfy the demand for housing in the UK.
Why is this relevant for solicitors who deal with wills and probate work? House prices.
A shortage of homes continues to push prices up across the country with the latest index from Nationwide showing that although the annual rate of house price growth slipped, to 4.4% in November, down from 4.6% in October, house prices are still climbing.
In fact a recent study by Saga Investment Services revealed that one in four homes sold in 2015 went for more than £325,000, the threshold at which people’s assets become liable for inheritance tax. This was double the 13% of property sales in England and Wales exceeding the inheritance tax limit just six years ago.
Property is almost always the single largest asset owned by any individual and rapidly rising house prices are pushing more and more people over the tax-free threshold, which has implications for solicitors.
Coupled with the proposed changes to probate fees due for introduction next year, this is likely to put significant pressure on many clients’ ability to afford inheritance, inheritance planning and the legal services that go with it.
This may seem tangential but bear with me: the cost of living, and of dying, is going up, and how clients meet this has to be important to those who help manage these processes.
Housing has been kept separate from financial planning, retirement planning and income in retirement for decades. But this is changing, partly because people are living longer and partly because people’s homes increasingly account for the vast majority of their wealth.
While just two decades ago most people aimed to buy a house, repay their mortgage and live off their final salary pension after they retired, today, large and growing numbers of people are forced to dip into their homes to fund later life.
This has led to increasing numbers of financial advisers developing relationships with mortgage brokers and with specialist equity release advisers in order to serve clients better and meet their increasingly complex needs.
There remains a gap however – advisers are beginning to offer advice that helps clients understand how to structure their finances in a way that which could, and arguably should, be filled by solicitors working with advisers.
Bridging the financial gap between generations is becoming increasingly important in a world where wealth is stored largely in people’s homes – especially when it is so hard for the younger generation to get a foot on the property ladder and the bank of mum, dad and granddad is fundamental to making that happen.
But where this means that families and loved ones are left with an unexpected bill to meet as a result of property wealth, perhaps there is an argument for solicitors and advisers to work together to help prepare clients and their families for the costs they may not have foreseen.