What caught my eye this week.

For most of the week, my Weekend Reading links included articles warning that Rachel Reeves was finally going to cut the cash ISA allowance at her Mansion House speech next week.

The rumours had run for months. At last reality was at hand!

Yet by the end of the week, it was all change.

From the BBC:

Rachel Reeves was thought to be considering reducing the allowance for tax-free cash savings, in a bid to encourage people to put money into stocks and shares instead and boost the economy.

But strong opposition from banks, building societies and consumer campaigners mean any such move has been put on hold.

The Building Societies Association said it welcomed the Treasury stepping back from making any “hasty decisions” on ISAs.

So, we’re finally out of the woods on this one?

Not so fast. That same BBC article quotes a Treasury spokesperson as saying:

“Our ambition is to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy.”

…and it adds that changes have not been ruled out for the future.

Similar pieces in The Guardian and the FT tell the same on/off story.

Stranger than fiction

Perhaps you blame the media for this.

After all, nothing gets a certain class of drive-by readers clicking and sharing like a threat to their personal wealth.

That was my co-blogger The Accumulator’s initial take.

TA compared the early cash ISA rumours to the annual ‘Pension Allowance to be SLASHED’ bogeyman that’s brought out every March – apparently almost in concert with wealth-gathering (and advertisement-running) financial services firms – only for things to stay the same most years.

But I judged there was more substance to the cash ISA threat. And by Thursday I was readying myself for some modest but smug satisfaction at being proven right.

Foiled again.

Smoke and fire

There are reasons why I don’t entirely blame the media for the ISA story however.

Firstly, many people want to hear about this stuff. Even if it is all rumours.

When the threat to cash ISAs flared up for the second or third time earlier this year, I ignored it in these links. I felt it was time to wait for concrete news from the Chancellor.

Yet readers asked me afterwards why I’d not included the story. Some even sent me links to it themselves.

The more important reason not to shoot the messenger however is it’s the Government itself that is cranking the handle on this rumour roundabout.

That’s why all the main outlets ran with the ‘no change’ story within hours of each other on Friday.

The official word had come down from on high that cash ISAs were to be left alone. So could they please mention this ASAP to their readers?

Make up, break up

For decades now government policy has been more and more determined by focus groups, public relations concerns, and the electoral calculus, as much as by what the country really needed.

And for the past 15 years or so, this strategy has included a much more explicitly open dance to trail potential policies in the press to see how the public reacts.

Whoever is running stuff up the flagpole in Downing Street must have severe tennis elbow by now!

Of course, politicians have rarely ever given us entirely what we needed, unencumbered by worries about the democratic popularity contest. Perhaps unity governments during wartime were the exception.

But with the present crew the situation is getting out of hand.

We saw it before Rachel Reeves’ first Budget. Her doom-laden stocktake on Labour winning the General Election raised more questions than it answered, leading to months of speculation. From an early mood of relief and even optimism, Britain fell into almost a paralytic stupor waiting to find out what Reeves would axe, or where taxes would rise.

And now savers have endured many months of wondering about their cash ISAs – thanks entirely to trial balloons being floated up from Whitehall.

Ask the audience

I understand why they feel the need do this.

Much of the electorate has lost all interest in evaluating policies. The Overton Window to make outlandish pronouncements in opposition about everything from immigration to taxation to nuclear submarines is wide open. But that same fact-free tribalism narrows the freedom to act when in power.

On top of that, judging by last week’s welfare U-turn Labour can’t even predict how a few hundred of its own MPs will respond to its policies. The electorate must be a black box by comparison.

However making up legislation as you go – based on how much furore your hints caused on the Internet and whether you think you can handle any further backlash – is no way to run a country.

Many of us despair at the US president’s reality TV show-style decision making.

But this policy-by-public-plebiscite experiment we’re running is arguably only a more genteel version.

Deal or no deal

There are consequences everywhere – but at Monevator our concern is with people’s finances.

On the one hand, MPs and mandarins alike lambast the public for not thinking long-term about their investments, or for not putting enough money towards their distant retirements.

Yet at the same time ministers fiddle with our savings and pensions vehicles with every other Budget – and threaten to make twice as many changes in between.

Enough is enough. This government started with five long years ahead of it and a big majority. Plenty of time to do what it thought was right upfront, and then to manage the consequences in the aftermath.

Pull the bandaid off if you’re going to do it. Picking at it will just make it worse.

Have a great weekend.

[continue reading…]

How’s this for a contrarian opportunity? Prime London residential property.

I’m thinking about flats and houses in South Kensington, Chelsea, Notting Hill, and Knightsbridge.

Okay, you could easily spend £1m just to secure a very bottom-rung apartment near the Natural History museum – so perhaps ‘houses’ is a stretch for all but a handful of moguls.

But then again, if you do have a few million quid to spare then why not grab yourself a four-storey slice of stucco-fronted heaven?

Because it looks like the best time in a decade to buy London’s most expensive property.

Astonishingly, prices in the prime residential areas of Kensington and Chelsea are back to 2013 levels:

Source: FT

These are nominal prices, remember. Adjusted for inflation, prices are down almost 40%.

Hence if you do bump into an oligarch at your next London cocktail party – or perhaps when they’re slumming it at Stamford Bridge, home of Chelsea Football Club and a previous plaything of multi-billionaire Roman Abramovich – please do extend your sympathies.

If they’d sold their prime London residential property at the start of 2013 and put the proceeds into a global tracker they’d be up nearly 350%.

That’s quite a price to pay for believing that ‘you can never go wrong’ with London property.

Come take a walk in sunny South Kensington

I guess if the Brexit vote for some was about sticking it to the elites, then the elites who owned property in Kensington & Chelsea have been well and truly stucked.

We might – ahem – have been taking back control. But foreigners saw a formerly sensible safe haven losing the plot and they began to steer clear. Shunning both our prime properties and our stock market.

Brexit and the half-a-decade of political tumult that followed it took the froth out of top-tier London prices first, but beyond that it’s ongoing hits to wealth – capital gains and dividend tax increases and swingeing stamp duty hikes, as well as the changes to the non-dom regime – that has seemingly put the boot in.

The hard data is debated. But the non-dom flight appears to be real:

True, that Guardian article goes into why it’s hard to quantify exactly how many non-doms have left – as well as what the hit to GDP and the subsequent tax receipts might be.

Reports of thousands of ordinary British millionaires leaving the UK are also hotly contested.

Nevertheless, we have prime London property prices back to levels last seen when Robin Thicke’s Blurred Lines topped the UK charts, untroubled by the still-to-come Me Too movement.

So something has definitely happened.

I’m not sure I’d finger higher interest rates, incidentally. Obviously rates rising hasn’t helped. But we’re talking about a slice of the market dominated by the wealthy, many of whom are cash buyers.

Wider London prices have been sluggish for years too. I’d definitely see rate hikes as a culprit there.

But those non-prime areas have seen prices up, whereas prime has actually fallen back. That’s a big difference.

The bottom line is foreign buyers have long been the pivotal players in prime London property. Both as investors and as residents. And in recent years they’ve not been very keen to buy.

Whether they’re coming or going and in what numbers, the prices don’t lie.

Primed for recovery?

It’s hard to be super-optimistic about the near-term future, too.

London’s productivity – which drives its non-imported wealth – is back down to pre-pandemic levels. And new data from UBS has found the UK’s rich actually got relatively poorer in 2024.

However… if you think Britain’s fortunes will change – or at least not get any worse – then could this be the dip that enables you to buy property in one of the world’s most desirable postcodes?

A neighbourhood with the highest life expectancy in the UK, not coincidentally.

The idea does hold some appeal.

Profiting from the Great London stock market sell-off is one thing. But the American private equity firms and hedge funds that are swallowing up UK PLC on the cheap can’t dismantle and ship King’s Road back to Connecticut. (Putting aside the fate of the original London Bridge).

Buying a stake in prime London property would be like putting down a wager for the decades.

What you’ll pay to move into prime London residential property

I know South Kensington well. I’ve watched its ups and downs – and the influx of foreign wealth – over three decades, and I’m confident it’ll eventually recover.

The French and Russians may have retrenched. But in time they’ll be replaced by more North Americans, Indians, and East Asians.

The numbers still make me blanch. Not only that sticker shock – over £1m for a entry-level prime postcode flat, and £1.5-£2m for anything with a modicum Rightmove appeal, up to multiple millions for a luxury apartment – but also the hefty service charges, low yields, and the high interest rates I’d have to fund any purchase with myself.

Nevertheless, I’ve toyed with a joint investment with friends within a limited company.

I have few moral qualms about letting a bijou buy-to-let in Chelsea to an Italian private equity fund manager with respect to the UK’s wider housing shortages.

Deal or no deal

For kicks I’ve run the numbers on a dozen properties. Despite stagnant prices, I see negative cashflows.

Let’s say the Monevator Mansion SPV buys a £1.5m two-bed flat in pretty good nick in South Kensington.

I model a 75% interest-only mortgage at 5%. The starting monthly rent is £3,750.

The flat will be managed by an agent (at 12% a year, with other costs), but I’ve generously not accounted for refurbishment (which is definitely unrealistic at this end of the market) nor for void periods.

Also, the simple calculator I’m using doesn’t increase service charges, which is clearly unrealistic too.

Using these ballpark figures, a 3% annual growth in prices (maybe optimistic) and matching rent rises (more credible, with inflation) yields:

Ouch! Who needs dodgy alt-coin pump-and-dump schemes when you can lose money with good old bricks and mortar?

But wait – buying into prime London is all about capital gains. And I am assuming 3% growth (left-hand side of table).

Even then – and with leverage – after a decade we have a 2% annual return on investment:

With returns like that, at least we wouldn’t have to worry much about paying higher taxes. No wonder Finumus says buy-to-let is dead.

On the other hand, wouldn’t we be doing this because we believe things will get better?

Well my 3% annual price growth does assume a turnaround. But let’s be even more optimistic. Say a 4% initial yield, interest rates cut to enable a 4% mortgage rate, and prices and rents rising at 4% a year for a decade:

That’s much better. The annualised return on investment improves to 10%, too.

Even so, 10% is only a little better than what you might hope to achieve from the global stock market – and after a lot of very optimistic assumptions and using a lot of mortgage debt to get you there.

I think we can assume few investors will be riding to the rescue of prime London property anytime soon.

Location, location, location

The better opportunity might be if you’re a high-earning HENRY type – or perhaps a retired couple who moved to the suburbs but who misses London life.

Because in that case, pleasing your heart might pay dividends that overrule your head.

For many years the majority of ordinarily wealthy British property buyers have been shut out of prime London property. But stagnant prices in Kensington and Chelsea for a decade might let a sliver of light in.

Consider that if in 2014 you were a young-ish banker (or more likely a couple) who’d reluctantly moved to still-lovely Zone Three – say Wimbledon – rather than continuing to live your dream life in Notting Hill.

Your Wimbledon property has gone up a bit in value:

Source: KFH

Okay, so a 10-30% price gain over ten years is hardly the crazy house price explosion that London saw from the mid-1990s to 2016.

But up is up. And compare it with the properties you couldn’t afford in 2014 in Kensington and Chelsea:

Source: KFH

As we’ve already seen, here prices are stagnant-to-down.

So a differential has opened.

I don’t want to overplay this observation. Prices are still sky high in the Royal Borough. And of course somebody young who eschewed Zone One in 2014 may have since acquired kids and a spouse and a golf habit that’s no longer compatible with what they can afford in prime London, even with a price cut.

Still, it’s an interesting reversal of a multi-decade trend – at least for as long as it lasts.

Streets paved with fool’s gold

I’d agree with you if you said flatlining prices for a decade around The Natural History Museum and Kensington Palace might reflect a bubble in 2013 as much as a market clobbered by later events.

Very fair.

And yet… be greedy when others are fearful.

Being greedy is easier said than done though. As we’ve seen, you’ll probably need a long time horizon to make an investment wash its face – economic miracles or self-help refurbishments notwithstanding.

Also, I don’t know any way to get exposure to the prime London residential market via equities. You might look at Foxtons (Ticker: FOXT) or Savills (Ticker: SVS) but there’s a lot else going on with those businesses, too.

Perhaps the best bet is to move to the borough. Besides saving on stamp duty, you’d be your own perfect tenant. Less money spent on agencies, regulations, and void periods. And a lot less hassle.

That’s not likely for me – I still love my flat – but it’s nice to daydream.

For now I’ve just bought a few more shares in the decidedly un-prime Mountview Estates and some other London-listed (commercial) property vehicles.

A man’s mogul’s got to know his limitations. But if you’re one of our wealthiest readers…?

This time three months ago, the Slow & Steady passive portfolio was suffering under the strain of Trump’s one-man assault on the global trade system. But we’ve made up all our losses since then.

Indeed we’re now ahead, albeit by a none-too-convincing 1.6% year-to-date.

Our four equity funds have put on double-digit gains in the space of a quarter. Global property is dragging its heels though – and good old gilts continue to make me rue the day.

Here are the numbers. See the annualised returns column for the all-important long-term gains:

The Slow & Steady is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,310 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults. Last quarter’s instalment can be found here. Subtract about 3% from the portfolio’s annualised performance figure to estimate the real return after inflation.

Stick or twist

I’m more convinced than ever that nobody (but nobody) can predict what’s around the corner.

Is the US market being slowly poisoned by political risk? Or is it the last bastion of economic dynamism in the Western world?

Flip a coin? Best of three?

I’m in no hurry to make a call. The political and commercial climate seems so changeable, I’d sooner make a claim for whiplash.

It’s funny how the more febrile the world becomes, the more obvious it should be – but somehow isn’t – that a passive strategy makes sense.

The thing is: we’re primed to look for new answers to new problems. Ideas, strategies, and products that are supposedly tailor-made to meet the moment.

It’s less the triumph of hope over experience than the triumph of marketing over rationality.

Perhaps there’s an analogy to be drawn between attitudes to passive investing and the apparent loss of faith in our democratic institutions?

Both realms offer the same old solutions. Products that can only achieve so much and suffer from a perceived lack of ambition in the age of moonshots. Results that are far from guaranteed and sometimes you must go backwards before you go forwards. Patience required.

The alternative? Roll the dice on a buzzy new venture fronted by a man with a tan promising the Earth.

Because that always works, right?

Portfolio Manager R.I.P.

In other developments, Morningstar’s Portfolio Manager has finally died a death. You can still visit the embalmed remains of your portfolio for a few weeks but you may not like what you see.

Four out of my five portfolios were inaccessible and the promised Export Data function doesn’t work.

Morningstar has long neglected what was a really excellent tool that could have been a fantastic promotional opportunity for its brand.

As it is, losing 16 years of transaction data is exactly the sort of customer disservice we’re being conditioned to expect from companies that do the cost-benefit analysis and decide they’d rather absorb the reputational shrapnel than look after their users.

I intend to road-test some alternatives over the coming weeks, so please let me know if you’ve found a happy home for your portfolio.

I suspect a bespoke spreadsheet may be the way forward in the end. Enforced rooting around the Internet – plus some able assistance from ChatGPT – has helped me to automate much of the work.

My efforts aren’t slick enough to share yet. But hopefully we’ll have a workable portfolio spreadsheet ready for the Monevator Massive before too long.

New transactions

Every quarter we put £1,310 down on our portfolio’s horses and hope that a few eventually romp home in the steeplechase of life.

We split our stake between our seven funds, according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.2%

Fund identifier: GB00B84DY642

New purchase: £104.80

Buy 48.64 units @ £2.15

Target allocation: 8%

Global property

iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.17%

Fund identifier: GB00B5BFJG71

New purchase: £65.50

Buy 28.648 units @ £2.29

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £484.70

Buy 0.672 units @ £721.34

Target allocation: 37%

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £65.50

Buy 0.215 units @ £304.43

Target allocation: 5%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £65.50

Buy 0.146 units @ £450.08

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £301.30

Buy 2.259 units @ £133.39

Target allocation: 23%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £222.70

Buy 205.443 units @ £1.08

Dividends reinvested: £167 (Buy another 154.06 units)

Target allocation: 17%

New investment contribution = £1,310

Trading cost = £0

Average portfolio OCF = 0.17%

User manual

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If this seems too complicated, check out our best multi-asset fund picks. These include all-in-one diversified portfolios such as the Vanguard LifeStrategy funds.

Interested in monitoring your own portfolio or using the Slow & Steady spreadsheet for yourself? Our piece on portfolio tracking shows you how.

You might also enjoy a refresher on why we think most people are best choosing passive vs active investing.

Take it steady,

The Accumulator