Sunday Supplement 20 Jul 25 - Good regulations?

“I was an advocate of the deregulation movement and I made - along with a lot of other smart people - a fundamental mistake. The financial industry undergirded the entire economy and if it is made riskier by deregulation and collapses in widespread bankruptcies as what happened in 2008, the entire economy freezes because it runs on credit.” - Bill O’Reilly, political commentator This week’s quote is one about the subject matter of the deep dive - does this look like a runup to another 2008? Find out later…… Before we go into this week full hammer - Rod Turner and I will be running our next Property Business workshop on Wednesday 1st October, in London - subject matter this time is Investment, with an emphasis on what metrics you really need to be considering to run your property business properly, and building your business to scale. We’re digging into the real fundamentals of property investment for growth—from proper valuation and strategic debt structuring to the investment metrics serious pros use (hint: ditch ROI and yield). Learn why some deals work for some and not others, how to manage risk as your portfolio scales, and when to shift gear from side hustle to scalable business. We’ll break bottlenecks, build strategic pillars, and unpack real-life case studies of fast company growth. How have we done so many deals? We’ll tell you! Book the SUPER EARLY BIRD tickets with 20%+ off, now: http://bit.ly/pbweight Onwards into Trumpwatch. I performed a social experiment by accident this week when I posted about the $50bn take on tariffs for June, and dared to express an opinion about Mr Trump. The lovers and the haters descended on me at scale - 396 comments on the LinkedIn post and counting at this point. It’s fair to say that many of them were not overly keen on a fact-based conversation, and not a single one had a rebuttal when after basically being told to “shut up” and that “I wasn’t allowed an opinion” I cited their internationally famous position around free speech……apparently that only works until you are saying something they don’t like? Who knew? On the tariffs anyway - the estimates are around 20% as the “average tariff rate” - assuming August 1st goes ahead as planned, Mexico and the EU will be faced with 30% on goods as stated by Mr Trump in the past week. Inflation also jumped this week back to 2.7% in the US - with consumer goods being affected. We are talking a couple of percent, short and long term, on the price of goods because of this. There’s a direct cost or “loss” per household estimated at $2800 per household in 2025; although if my LinkedIn post is anything to go by, some are still swallowing the story that the country is paying the tariffs, rather than the consumer. 3% inflation is back on the table as a sensible prediction by the end of 2025 now, thanks to the tariffs. Clothes and shoes are hit particularly hard because of their country of origin, with shoes and clothes forecast to go up 40%+ in the short run because of the tariffs. Yale sees a drag of 0.9% in 2025 on GDP - we know Q1 was disappointing although it was also distorted by a mass amount of imports. They also see unemployment up by 0.5%. These are always hard claims to verify but you can look at the 2025 GDP forecasts versus the outturns of course, and do the same for unemployment. One of the important conclusions from Yale’s work on the tariffs is that manufacturing does expand, but at a cost to construction and agriculture which is larger (which is why GDP shrinks overall). However, there is the inconvenient truth that the tariffs raise $3bn over the next 10 years (if they stay in place) with “only” $500bn in negative revenue effects. Make no mistake - this is a transfer from the households to the government, nothing more, nothing less. Context - the US is burning $2tn more than it is bringing in each year, and this is a $250bn contribution, roughly, towards that $2tn (or solves one eighth of the problem). This is all great stuff and well done to Yale for producing a comprehensive report. Hard to do when the wind changes as much as it does in the Trump world. There will be changes - but what’s clever is “Federal VAT” has effectively been introduced with a good slice of the country still falling for the misdirection that’s been pumped out around all of this. The dream of reshoring needs stable policy to take place - and perhaps that’s the plan after August 1st. You’d be kidding yourself if you think countries WON’T relocate to the US - but they are also going to want some incredible subsidies to do so, because there will be a concern that once the 4 (3.5) years are up, these situations will be reversed. Very rarely would you reshore an operation and then have your money back and a significant return on that investment within that timeframe - at least half of the remaining timeframe is going to be spent finding ideal premises, getting through planning and zoning, etc. etc. It’s one of the more fascinating economic real-time case studies in modern times - that much is for sure. For once the bonus is that the UK is largely unaffected - and from a comparative advantage perspective, which is important in international trade - may well actually end up benefiting from the situation. It’s probably “point 2” when I’ve been grateful to be outside of the EU - the first one being the early days of the distribution of the Covid vaccine - but the first time I’ve been “economically grateful”. The “One Big Beautiful Bill” on latest figures will need $3.4tn more debt issuance over the coming years to 2034. More tariffs, pressing for rate cuts (um, inflation? - although the trade-off “doesn’t work like that” in the US, so I’m told by the illuminati from my LinkedIn post) - and then stablecoins are somehow going to sort that out. I’d be concerned that that hasn’t worked in Turkey very recently and it isn’t going to work in the US either. My concerns are still centred around Jay Powell’s replacement next year as Fed chair - there’s very little chance he gets fired as the bond vigilantes will have a field day - although never count Mr Trump out of a decision, right? Current forecasts - debt to GDP up to 130% by 2034 in the US. Not a nice position. Throw a shock in there and……problems. This would see 20% of the federal budget spent on interest payments (unthinkable, really). Remember that when the US sneezes, the world catches a cold - but our bond yields are more inextricably linked to the US yields than any other significant nation. I’ll continue keeping my eyes open (with the occasional post on socials on the issues too!). Back to our main subject matter - the real time UK property market. Chris Watkin had a week off (well, everyone is entitled to one, right?) but still delivered some analysis of interest before he downed tools. His subject matter this week was house prices and the regional effects. A whistle stop reminder - the “history book” peak was October 2007 in house prices. Then the credit crunch came. Values then dropped significantly over the next 18 months to March 2009. 18.5% was the official print for the nation, with most areas being contained within the -17% to -19% nominal price bracket. It was the recovery that took very varying degrees of time, when sliced regionally. London (as a region) hit a new high in April 2012 - some parts of the country took well over a decade. In Inner London that date was April 2011 as the rebound was real. In the city of London that date was February 2010! Chris describes it as a “realignment of economic gravity” - in reality, foreign unleveraged money poured into London, £100bn+ over the course of a few years, buying cheaper assets in the wake of the crash. Not all crashes are created equal, is Chris’ point. I always give Chris a weekly shout out here because he’s more prolific than “just” this epic tome he releases weekly on the UK property market - he comes up with some great stats on a regular basis. Drop him a like, subscribe, and all the rest of it and some kind words for his content creation. If you are in the industry and want support in growing your business or to be a more effective communicator/be more in touch with your local market - that’s his core business - give him a shout. The article gets published on the Property Industry Eye website, and the video on his YouTube channel - @christopherwatkin

Here comes this week’s MacrOuch, which might steer you as to how bullish or not this section might be this week. It’s “meat week”, no room for the vegans I’m afraid. Inflation - bang. Unemployment - bang. If that’s not enough - the ONS PIPR - the price index of private rents and also house prices from the same source. We will mop up with the gilts and swaps - always watch when they don’t move as you’d expect.

Inflation. It’s been my focus here for just over 4.5 years now. It was coming, it’s still coming, it came, it isn’t going away. That covers the 4 positions - and each one has, I’m sorry to tell you, been correct and indeed at some points although I was screaming “fire”, I wasn’t telling you to get a big enough hose. I’ll mention once more my insistence on sharing my own “break and fix, now!” plays in 2022, which indirectly led to me being invited on a great day out this week (thanks, #no1fan, I appreciate you) - but so far of all the forecasts I have made (and of course not all of them have been correct) - inflation has been the one I have been one step ahead of all the way in this cycle. Tariffs had me a little off balance. Whilst it was clear they would have the sort of impact they are having in the US (pumping it up) - it isn’t so clear around the second order consequences for the likes of us. Indeed - as discussed earlier - the UK is in a rather unique situation in not having anywhere near as much wrath of Mr Trump to deal with as other blocs or nations. Still - they are by no means the only fruit. I discussed the “over-dropoff” as inflation fell dramatically when energy prices normalised (or more accurately, the energy component went negative for some time, but that was all normalised by Q3 2024 really). That has left a poison pill for September 2025, however, because the nadir was September 2024 - and so the base effect is that inflation will look worse in that month than any other, all else being equal. What we don’t need in September 2025 I can tell you is a sudden strengthening of the dollar, or another rumble in the Middle East leading to a surge in oil prices, because the stage is already set for a “bad one”. Why is September so important? Because the CPI print that month is used for index linked benefits including pensions. A small amount of rounding can be an extra billion these days, and we don’t have any extra billions at the moment. So the backdrop was bad. Then NI changes and well-above-market minimum wage rises pushed up prices in various sectors anyway, as businesses simply passed on whatever their respective markets would allow. Council tax was up c. 5% to boot, and water was up 26% (Ofwat’s figure). April was, as named, Awful. The effects are sticking in the calculations for 12 months, of course, because that’s how the calculations work. Onto the reality of the report for June, then, released this week. CPIH - the ONS preferred metric - is back above 4%. That’s really ugly - and it is a good job that not too many places take much note of CPI. 3% is bearable. 3.5% is twitchy time. 4% is really defcon 2, because the slightest slip takes us into “difficult to control” territory. CPIH includes housing costs, and has been printing above CPI for a couple of years as household cost inflation has been exceeding the other items in the basket of goods by some amount (mortgage rate increases and rent increases, simply put). The economists all thought 3.4% on average for CPI (same as last month). The actual print was 3.6%. CPIH printed 4.1% (last month was 4.0%). The annualised rate of inflation based on the past 6 months would actually be 4.7%, but April’s 1.2% rise in one month is deemed a “one off” (last 4 Aprils 0.3%, 1.2%, 2.5%, 0.6% - OK you could probably write off/down 2023/2022 but still, it isn’t far out of keeping with the lower ones!) - as usual though it is being played down (for good reason - not a lot worries bond markets more on a continual basis than inflation). CPI and core CPI are still very close to each other, and that convergence hasn’t been that common over the past years - but core CPI measured 3.7%, and core CPIH measured 4.3%. Neither of those suggest a return to 2% as early as has been suggested by the Bank of England - who were, at the beginning of this year, saying we would go into 2026 and see 3% inflation in Q1 ‘26 whereas the wider economic community was suggesting more like 2.5% or under - I was once again stuck out on my own at 3.5%+, which looks like where we will be (plenty of time before Q1 ‘26, but limited disinflationary factors to come into play you’d think). Stronger for longer, I’ve said, for years. One happy part - OOH, the owner occupier measure for housing (the H in CPIH, basically) is still falling month-on-month. The bad part about that - it still printed 6.4% in June. It was 8% at the turn of the year and is now evidentially very much on its way down at a pretty good pace. The gap between that and CPI is now as narrow as it has been for over a year. Rent rises the way they were simply weren’t sustainable. This CPI print was the highest in 18 months, and that figure in January 2024 was a print on the way down to that magical (or stay of execution, as I described earlier) print of 1.7% in September 2024. Seems a long time ago now. Components of note: Food again looks ugly for those on lower incomes, printing 4.5% year on year - likely still being concentrated in lower-priced foods as it is still the cost of delivery that is rising faster thanks to wages and the likes. Education remains high and will be for another year at least, as September fees for the private schools lucky or wily enough to remain open are also up above inflation at most places, due to business rates and above-market pay rises for teachers and pension costs as well. Services inflation eased slightly - but still sits at 4.7% for CPI services and 5.2% for CPIH services. Ugly stuff folks, and 2% is a healthy year+ away at this time (and that’s before the coming budget, which seems unlikely to contain anything particularly disinflationary). Even goods inflation - which was down to zero and even negative - has reared its head back above 2%, printing 2.4% this month. The highest print since October 2023. Our 3.6% compares unfavourably to France’s 0.8% and Germany’s efficient 2.0%. What did the ONS pick out - a large change (0.1% actually) caused by motor fuels not going down as much in June 2025 compared to a year ago as they did in May 2025. Not really a point worth making, let alone including in their summary, but mathematically I guess they had to. Sigh. Down or up from here? Well, September still looks risky. Gun to my head - we are going up again from here before we start a descent. Will we hit 4% this year? It might be touch and go. 3.8%+ looks nailed on before we get to 2026. Translating that into gilts and swaps - all else equal, inflation surprisingly high print equals slower rate cuts than thought before. Slower even that August’s likely cut (probabilities were swinging between 80% and 90%)? We will see. That one is a decision that has likely already been made, although job data is always important…… So on we go. (un)Employment. My second specialist subject of the cycle. I’d called 4.8% this year early on, when the Bank of England were suspecting we would stay closer to 4.5% - by their own admission their unemployment forecasts are poor, but they are normally too bearish. This time round they’ve been too bullish, or they expected the April NI changes (amidst everything else anti-growth that’s been going on) to take longer to kick in than they really would. The expectation from the economists was for a hold at 4.6% unemployment, but instead we printed 4.7%. It was another miserable one folks, I’m afraid - the usually overbearing “estimated payrolled employees” for June 2025 was down 41k on the month; this is normally revised upwards, but raises no smiles. Payrolled employees have been haemorrhaged over the March to May 3 month period, losing 68k of them according to the ONS Labour Force Survey estimates. Pay growth moderated to 5%, down from 5.4% the month before. This was always on the cards, and will keep the Bank of England economists happy because we are on a downward trend back to a much more sustainable “around-inflation” world. They do need to come down to contribute towards a sustainable and slow disinflation so this isn’t terrible news, but the fairly sharp reduction probably also gives you a bit of real-time insight on the jobs market at the moment! Thanks to the inflation situation those numbers are now only 1% above CPIH/real terms, or 1.7% above CPI. CPIH is much more realistic which is why the ONS prefer it. The earnings growth splits down to 5.5% for the public sector and 4.9% for the private sector - which seems to be starting to grate on the public from what I’m hearing and from the lack of public support for the mooted resident doctors’ strike. The industries with the most minimum wage workers per head are still showing the strongest annual growth rate, which was pretty much guaranteed at a 6.7% minimum wage growth. The wage growth in those sectors is 7.1% year-on-year. Onto my favoured breakdown of the market - 75.2% employed, 4.7% unemployed, and the inactivity rate down to 21%. The rounding error occurs because not all of those groups are restricted to 16-64s (which makes no sense any more anyway and hasn’t done for years). Overhaul needed. Vacancies plummeted once more, down 56,000 in this quarter and now coming in at 727k in Q2 of 2025. That’s now a solid reduction, quarter on quarter, for 3 years running. We also lost 37k days of work thanks to labour disputes, and there are rumblings of more of course, some with higher profiles than others. There are now 68k fewer job vacancies (and plenty more people) than the quarter just before Covid. That 75.2% employed still compares unfavourably to Dec 19 - Feb 20, in that quarter (before any real pandemic disturbance at all) 76.4% of people were working; similarly, the unemployment rate at that point was 4.0% rather than 4.7%. The inactivity rate at that point was 20.3% - so of the employment we’ve lost (in percentage terms) since Covid about half are unemployed seeking work and the other half are not seeking work/studying/long term sick. It’s miserable. It’s Labour’s trademark or one of them. Their delayed, watered down, but still coming labour market reforms will do even less to create jobs. Hoist on Rachel Reeves’ own petard of extra regulation, employers will seek to offshore more, and look at self-employment options also. The redundancy rate is 3.9 jobs per thousand, in the most recent quarter - compared to 3.4 jobs per thousand 12 months ago. It’s all going the wrong way, but fairly slowly - that’s about the right summary. I don’t remember the last time I heard any kind of speech - let alone an inspiring one - about job creation. I wonder if all they get back is abuse from the myriad of businesses struggling under the weight of the extra taxation at all levels, and so they’ve given up. Now I dare say they will wait for the conference……and that’s only late September. By which time inaction will be the watchword once again, waiting for the budget/sword of Damocles once more. This unexpected unemployment should make bond yields fall, as the expectation - all else being equal - would be that rates would be cut sooner to avoid unemployment becoming a problem. The thing is, 4.7% isn’t considered problematic - so that effect is dulled - and also it is in direct contravention with what you’d expect from the inflation figures, and the inflation figures were a bigger miss to the upside than the employment figures (not that that correlates directly, but it does have an impact). Both are very important data in rate-setting, with inflation being the single most important.

Will private rents and house prices cheer us up at all? It was the ONS’ turn to release their monthly effort - which covers rents for June and house prices for May, which is always an opportunity for extra confusion!

The annual increase rate is 6.7% in rents, very close to that OOH level in the inflation report as usual, and that’s down from 7% for May. Scotland is still printing much lower after the lifting of rent controls (go figure, eh? It wasn’t like there was a huge body of evidence, pointing almost exclusively one way - bit like the evidence on wealth taxes, but that’s another question….) - Scotland is up 4.4%, Wales 8.2%, England 6.7%. Northern Ireland’s data is a couple of months older but printed 7.6% as their buoyancy continues. The ONS has the annual house price increase at 3.9% for May, up from 3.6% for April (and there were some anomalies around that price increase at the stamp duty cliff which will play out as strange figures for next year as well, but on the downside next year around February and March. The primary conclusion is that in most areas, yields are still increasing to compensate for lower or no cashflow thanks to interest rate normalisation. This has been the story for the thick end of 2.5 years now according to the stats - house prices started increasing faster than rents in August 2020, and then drastically outpaced rents, until January 2023 where the trend was reversed and in a similarly dramatic fashion, with house prices actually nominally falling at the ONS between July 2023 and March 2024. Rent inflation had a “double peak” hitting 9% in March 2024, dropping back but then peaking again at the same number in November and December 2024. The 6.7% looks a lot milder in that context, and the pace at which rent growth is outpacing house price growth is starting to converge again. In another 6 months or so it looks like the lines will meet again. The house price inflation in England was 3.4% in May 2025 - the national figure was pushed forward by Wales (5.1%), Scotland (6.4%), and Northern Ireland which is still absolutely rocking and rolling (9.5%). Prices are moving up above that 3.4% figure in the North and the Midlands, as has been the pattern since interest rates started to normalise - and below that average in the South. For the first time in many months however the North West was just slightly under that average, printing 3.3%. The North East remained at 6.3%, with both Yorkshire and the East Midlands at or just over 5% house price growth. It remains a tale of two halves, but with the Southern regions all printing very close to 2%, the normalisation process seems to have now stabilised but is leading to a “slow creep” in affordability when it comes to wage rises kicking in. On regional rents, London (7.3%) slipped to fourth place behind the North East (9.7%), the North West (7.9%) and the East of England (7.9%). The regional pattern isn’t as clear with the Midlands flanking the average, and then the South West (4.8%) and Yorkshire and the Humber (3.5%) bringing up the rear. It seems to suggest that if there is one area of the country with plenty of rental stock, these days, it is Yorkshire and the Humber. If you want to look at rents by size, or by number of bedrooms, the interactive maps are great on the website: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/privaterentandhousepricesuk/july2025 OK - house price growth continues at pretty much inflation, according to the ONS - with rent growth still a few per cent above that. The sooner it is down to earth, the better for the sustainability of rentals for tenants - the market is functioning to bring more landlords by tempting them with juicier percentage returns (the invisible hand at work) - that’s one way of looking at it, anyway! That leaves us with the gilts and swaps. The gut feel would be a yield expansion week based on our macro, and indeed it was - the Wednesday inflation report moved the yields about 0.05%, and the jobs report did no real work to moderate that. There was another move on Tuesday though around 2pm which was of similar magnitude - that sort of timing means it came from the US, and indeed it did as their inflation print was released that moved them up from 2.4% to 2.7%. It wasn’t a surprise to their economic consensus, but nevertheless the confirmation hardened the UK yields as the two track each other quite so closely, with the UK deemed to be the “follower”. We opened the week on the 5 year gilt at 4.061% yield and closed it at 4.095%, so, not a disaster (the trend had been downwards before the inflation numbers). Thursday’s close was at 4.091% and the swap market closed at 3.725%, still at that 36-37 basis point level for the discount. That compares to 3.674% one month ago, and 3.809% one year ago, retaining that convergence that has appeared in the past 12-18 months. How about the longs? Well, this week I’ve seen a particular ramp for buying the long-dated bonds in the UK. There are also noises suggesting that the DMO (the Debt Management Office) might stop issuing them. This makes far too much sense to be normal policy - the point is that the cost of them to the Treasury is much higher than the shorter dated debt. The 30s again followed a very similar pattern to the 5s, but opened at 5.45% yield and closed at 5.51%. That 6 point difference means that the yield curve is even steeper than it was last week; the difference is very subtle but worth keeping an eye on. Why would so many outlets be pushing 30-year bonds as a great bet? Well, even if they don’t realise it, they are advocating for inflation not to be the long-dated problem that the likes of myself have said that it is. There’s other reasons too to make that bet, or take that position. As and when a recession comes, a couple of which are highly likely in the next 30 years, the yields are likely to fall across the board. If you took a position that the next recession or crisis event will happen to be a particularly bad one - then buying 30s at over 5.5% yield would make sense. My bigger fear around all of this (I don’t disagree on buying 30s either - but it is more of a hedge against the latter than a bet on the former, for me) is that if any long-term investors can buy and “do nothing” at 5.5% per year, how does that impact long-term projects with similar time horizons in the UK. The recent report that I covered - making affordable homes viable, 6 weeks ago, mentioned an IRR of 5.5% for not-for-profits being acceptable. At 0.01% under the 30-year gilt yield, that goes up, not down, increasing the cost of building social homes. So - one more week with a steeper yield curve. My eyes will stay on it! That leads us nicely into the deep dive. You won’t have missed the fact that the Chancellor gave a speech this week, I’m sure - the Mansion House speech, and this was her second such speech (the first one was a couple of weeks after her dreadful 2024 budget). Reeves used it as a platform to reaffirm how much she wants the job, and to calm any doubts about her cracking up, or getting fired - neither of which she’s really in control of, of course! I do believe, though, for what it is worth, that she’s always wanted this job and in spite of how hard it is - or perhaps even because of how hard it is - she won’t be doing the former, and I’m much less convinced of the latter than many of the political commentators are as well. She chose to focus on what has (arguably) been achieved, or at least points that she promised and can politically claim to have delivered. Restoring stability - you can’t argue with the mess created by changing leaders so many times in the past administration, for example. Just turning up ticked that box. Securing investment - I’m more sceptical, but they are claiming over £100bn of investment secured since they took office. Some was soft pledges turned into harder agreements, but either way - they’ve pledged more than they’ve raised, and more than they will raise from the taxpayer, which means it is primarily debt-funded with private sector or international investment coming in second. She then stuck with “delivering reform” - the one they really, really need to reword if they have an ounce of political nous, because the word Reform only means one thing these days……and, frankly, nothing has really been delivered yet other than some changes to the planning system. There’s lots of it being talked about, and some encouraging noises, but we need demonstrable evidence of things done, rather than plans that are a percentage of the way through (and that are poorly communicated, mostly). Reeves talked about “renewal” - the renewal of Britain in every home and every street - but then chose to focus on the financial services sector - 10% of GDP and 1.2 million jobs, she cited (so far fewer jobs than its GDP contribution percentage, which won’t surprise anyone). The next part is hard to disagree with - “There’s nothing progressive about a government that simply spends more and more each year on debt interest, instead of the priorities of ordinary working people” - the unfortunate part here is that is exactly what she is going to preside over for the rest of this government, if she is staying. So what? She simply restated her commitment to the fiscal rules. She then claims the four cuts in the base rate since the election, reducing the cost of mortgages and business lending (we know this effect has in reality been very small, just looking at the 5-year swap market compared to one year ago, there is no real discernible difference, and certainly not 1% worth, so this is inherently disingenuous). There was also some fortuitous timing with the FTSE breaking 9000 for the first time on the day of her speech. The FTSE that is coping with a dramatic lack of IPOs and continuing disgust at the stamp duty on shares; the FTSE that will now start to list shares in dollars and euros. Private company share trading is also coming on PISCES, as she referred to in her Mansion House speech back in November - that’s coming this year now, apparently - and yet one more quango, the Listings Taskforce - to get companies to list in London. I think they will come up against the same blockers - the very blockers that Reeves asked for a list of and promised to do something about, but perhaps stamp duty on shares will be abolished after all. The city can hope. Pension fund “Megafunds” will - it is claimed - start to put something together that looks more like a Dutch or Canadian pension fund system, meaning they can make larger and more meaningful investments and also meaning that running costs are lower and so the pension fund beneficiaries can keep more of their hard earned proceeds. Hard to be overly negative about that - more a case of “get on with it”. As we get more into the meat of the speech, the Chancellor refers to her “Leeds Reforms” - the most wide-ranging package of reforms to financial services regulation in more than a decade. This is accurate - partially on the basis that not much has happened in FS regulation in that time after stabilising the mortgage market thanks to the mortgage market review back in 2012. These reforms are pretty comprehensive, though, and worth a detailed look. What’s actually being done in terms of cutting regulations then? A streamlining of the SMCR - senior managers and certification regime - simplifying accountability requirements for banking executives. Smaller banks are benefiting from easing capital requirements to boost their ability to write mortgages and lend. The Ombudsman service is also being reformed, including a lower rate of interest for compensation claims which was singled out in the press as one that was “selling customers down the river” according to Martin Lewis. Ring-fencing rules are being reviewed - not to damage the protective structure but to explore resource sharing (read - cut costs). The looser income thresholds you already know about from the past few weeks here - suggesting 36k first-time buyers annually will be helped although last week’s figures suggested it could be closer to 100k in year one, as discussed. Consistent rent payments can now count towards affordability assessments, which is great and has been called for for a long time. The government-backed mortgage guarantee scheme can let lenders take more risk and therefore also get the benefit of better returns. Then there’s the much discussed retail investment matter - encouraging the person on the street to invest in stocks and shares. Just as the 30-year bond reaches a very tempting 5.5% as discussed……timing is everything, and this timing is poor. Reminiscent of Skipton releasing the 100% mortgage when rates had gone up from sub 2% to over 4% (and at points over 5%) post-Truss. The question is - will the phrase “the value of your investment can go down as well as up” - be changed? There’s a big dilemma here. Here’s what I’d do. I’d get the most influential financial commentator - probably Martin Lewis - perhaps Robert Peston as he is well trusted - and also get some less advanced in years as well to communicate more effectively with the younger generations (for example, the two guys on the Making Money Podcast, Damien Jordan and Timeyin Akerele, and Kia Commodore and Emilie Nutley to get a blend of approaches) - and get them to record an explainer video which explained the following: The returns of the stock markets on average over the past 100+ years The variance - how much markets can go down and up by The time horizon that should be being considered - 5 years at a minimum, likely 10+ years What pound cost averaging is and how it can help with investment - and in fact, how it is the dominant strategy Why markets going down can be a good thing if you are investing for the long term How a “life strategy” investment works At the end I’d get them to endorse a particular “fund”, with their name on it (or a suite of them) with varying degrees of risk, blending stocks and bonds - and ensure that ISA providers were offering those funds. Anything else is pretty much tinkering at the edges - the gap between financial sophistication and effective communication to the masses (and always remember, 50% of people are below average intelligence simply by definition, not that this is all about intelligence by any means) - is huge, and needs to be bridged to get this to work. Not that hard, not that expensive, highly effective - videos distributed via social media and traditional media directing potential investors to these funds. What’s actually being done? A fair amount of stuff that not a lot of people will understand, in a fractured way. Long term asset funds will be included in Stocks and Shares ISAs, which have previously been for pension fund investments. Advertising to shift low-interest monies to stock investments (I don’t get this bit - if people are using low-interest accounts they are either apathetic in which case they won’t do anything anyway, or financially non-savvy in which case they shouldn’t be investing in stocks and shares). Just my 2p anyway on capital markets for retail investors. Next up - modernising regulation, which is badly needed in a digital world let’s face it - including AI champions, and a scale-up unit. More tweaking, realistically. There will also be a concierge service to assist overseas financial firms. This would only attract smaller players, you would think, but it is something. There will also be policy, regulations and messaging aiming to double financial services net-export growth by 2035. The overall reaction has been positive - but compared to more regulations, of course it would be. Some fear another 2008-style manoeuvre - but this is lazy critique I think. Anyone who doesn’t recognise that very close to a crash, there is likely to be a pendulum swing too far in the direction of too much regulation is not a behavioural economist, that is for sure. This is hardly ninja loans, and LTVs haven’t even been touched - repossessions are a fraction of what they were with fewer homes back in the late 2000s. I’m more aligned with the city insiders who described the reforms as “underwhelming” and you can see above where I believe they’ve missed the mark or missed even one more opportunity. This is one area, however, where a tinker might be more appropriate - the largest changes have been made in the housing market, and I remain sceptical as to the motives here, because they know that one of the best ways for an incumbent government to stay in power is for the housing market to be doing well (in terms of price rises). The particular dynamic that’s playing out at the moment, with lower priced properties doing the best, thanks to interest rate normalisation rather than anything else, is more likely to favour their core home-owning voters as well……just saying. The pension megafunds is the other part I will just dive a little deeper on - primarily because they have the ability to get more deeply involved in the property market in the UK. Firstly - what defines a megafund? A pool holding more than £25bn. If you followed Australia or Canada, when they went “megafund” - last millennium, for the record - real estate investment was limited, indirect and often via REITs or pooled vehicles. After - pension funds could afford in-house teams, made global investments, and allocated between 8% and 15% of assets into property (Canada). In Australia it went from almost no real estate investment in pension portfolios to 10%-20%. Australian pensions also own parts of Heathrow, King’s Cross, and offices in New York and Tokyo - and Aware Super have got stuck into build-to-rent and also affordable housing. The Netherlands are similar, allocating between 8% and 12%, post reforms, mostly because they went international because they always had a tradition of property investment. If we picked 10% as a number that’s come across in all of those countries, we would be talking about 10% of £3.8 trillion in total (£380 billion) but the Local Government Pension Scheme alone holds around £400bn so that would be £40bn alone. Remember the residential market is worth around £8tn, but two-thirds of that is privately owned/not for rental. So the addressable market is more like £2.7tn. You can see the numbers involved are enough to make a significant difference (and if they do start to get heavily involved in secondary market stock, enough to influence prices to the upside), but not so much as to make a huge spike likely in any way. Still - a little more oxygen for the coming “fire to the upside” that I’ve been detailing over the past few weeks. So - what are they already doing in terms of pension funds anyway? USS purchased c. 3000 shared ownership homes from Blackstone in a £405m deal last year, NEST is partnering on housing joint ventures as well, but some of the commentators have speculated that more like £100bn more will be deployed by 2030 with these changes. The number at the moment owned by institutions including pensions? 0.3%-0.4% according to Savills, or 1.5%-2.5% of the rental stock. This is not just pensions though, this is funds and REITs as well. The commentators consensus is that 2030 will just be starting to hit their stride, with 10% of the PRS being owned by institutional capital by about 2032-33. This is all part of the story I am feeling that I am seeing unfold in real time at the moment. The nascence of pension funds and the likes getting involved in UK property. This offers a different level of opportunity - to package larger portfolios and prepare them for sale for pension funds - finding out what they do and don’t want, and what they will and won’t accept. There’s a few years to get the ducks in a row - but this is truly the future of a chunk of the PRS, whether anyone likes it or not. These reforms are all leading in the same direction, in my view - and on the way there, housing is going to go up in price in the UK and be back to above-inflation and above-earnings-increases percentages. The larger players in BTR still only have a little over 10,000 units each in their pipelines plus completions - so very large deployments of capital are not easy, but taking a significant share in say Grainger will only work for one or two funds before they start to influence the price upwards too much. The secondary market will - mark my words - be the only sector in which these funds can deploy sufficient capital - and those who open those doors and facilitate those transactions will be the ones making the big money. I hope you find that zoomed-out perspective useful and also motivational if you are building a portfolio with the goal of exiting at some point (we all do, you know, one way or another…..) Before I do close, don’t forget to book your SUPER EARLY BIRD tickets to the next Property Business Workshop that Rod and I are running on Wednesday 1st October in central London. This time around - investment metrics and how to run your property business at scale. My favourite topic of all! Book here: http://bit.ly/pbweight Above all - please remember to Keep Calm, ALWAYS listen to or read the Supplement, and Carry On; there will be opportunities abound this year and towards 2030 and beyond - the landscape has been set for a bull run. It will be slow, and take a little while longer to get off the ground - and the amount of stock around is keeping things suppressed at the moment - but as yields currently continue to improve, it is a case of “here we go” in my opinion.

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