Persimmon has become the latest homebuilder to warn on profits and completions as mortgage rates put pressure on the housing market. 

In the space of a few weeks, Persimmon, Bellway, Berkeley, Taylor Wimpey and Barrett Developments, which together have been responsible for building around 30,000 homes a year in the past, have all warned they’re planning to cut construction this year off the back of lower demand. 

It comes after 14 consecutive increases in interest rates by the Bank of England (BoE), which have risen to a 15-year high of 5.25% and pushed mortgage costs higher for homeowners.

UK housing market data from RICS shows more signs of a slowdown in property, as agreed sales fell to -44% in July, down from -36% the previous month.

The pressure of high interest rates has choked both buyer demand and mortgage applications, meaning that price declines reached levels last seen in 2009.

The average two-year fixed mortgage deal is now 6.83%, according to Moneyfacts. The typical five-year deal stands at 6.34%.

House price slump hurts Persimmon 

Persimmon has announced it reduced its headcount by almost 300 in the first half of the year and further reviews are ongoing to cut costs by as much as £25m annually.

Home sales dropped to 4,249 in the six months to June, compared with 6,652 in the first half of 2022 while underlying operating profit fell to £152.2m from £440.7m.

“Against a backdrop of higher mortgage rates, the removal of Help to Buy and significant market uncertainty, Persimmon has delivered a robust sales rate excluding bulk sales whilst growing the private average selling price in our forward order book and also securing cost savings,” chief executive Dean Finch says.

Still, the average price of each new home sold by the business rose from £245,597 to £256,445.

"As we have seen elsewhere, trading conditions have waned over the last 4-6 weeks with sales rates falling to 0.41. Pricing appears to remain resilient, but the next big test for the market will be the autumn selling season," says Investec analyst Aynsley Lammin.

Persimmon’s downbeat assessment of the housing market comes only a few days after Bellway announced it would shut two of its divisions and slow activity in a third, as it predicted that house completions would “decrease materially” over the next 12 months.

The company said it completed 10,945 homes, down from 11,198, with an average selling price of £310,000, down from £314,399 the previous year. Reservations were also down, declining 28.4% in the year to 31 July.

The FTSE 250-listed group said it would update its forecast on volumes in its full-year results in October.

It warned that surging mortgage costs impacted sales in the final three months of 2022 when the UK was already reeling from the bonds crisis sparked by Liz Truss’ mini-Budget.

Bellway is also currently consulting on the closure of its London partnerships arm, which sees it working with housing associations, councils and private rental sector investors on projects, as well as its South Midlands division.

The move could see around 90 employees from the company's 3,000-strong workforce lose their jobs.

Dark clouds build over the housing market 

As well as Bellway and Persimmon, Taylor Wimpey has said it is planning to cut jobs in order to find savings of £20m a year.

While Barratt announced in July that it would build 20% fewer homes in 2024, and Berkeley has said its annual sales were expected to fall by a fifth.

Competitors Crest Nicholson and Vistry have said high mortgage rates were hampering demand from first-time buyers.

Join us at the MoneyWeek Summit on 29.09.2023 at etc.venues St Paul's, London.

Tickets are on sale at www.moneyweeksummit.com

MoneyWeek subscribers receive a 25% discount.

The number of property transactions has fallen after a bumper month in March leading experts to say the housing market slowdown will likely be longer and deeper than anticipated.

Residential property sales slumped 8% from the previous month, while sales in April fell by 25% compared with April 2022, with around 82,120 transactions taking place across the UK, according to new data from HM Revenue and Customs (HMRC).

HMRC noted the fall "appears particularly large".

The data shows a return to the downward trend seen earlier in the year, reflecting the long-lasting effects of the mini-Budget on the UK property market.

Seasonally adjusted estimates of the number of UK residential transactions in April 2023 show there has been a huge 25% fall compared to the same month last year.

But HMRC noted the impact of March’s elevated figures. It says: "The number of transactions in March was high due to a combination of factors including a larger number of working days relative to April and the final month for purchases to be completed under the government's Help To Buy equity loan scheme."

Karen Noye, mortgage expert at Quilter, says April’s figures show a “return to the buoyant market we had grown accustomed to is not yet on the cards,” despite some optimism and promising data from elsewhere in the economy.

The spring and summer months tend to be a busy period for the housing market but high mortgage rates could undermine activity and “put a dampener on transactions as moving home or taking the first step onto the property ladder becomes increasingly unaffordable,” adds Noye.

Mike Scott, chief analyst at estate agency Yopa, says: "This disappointing number, combined with the recent equally disappointing inflation figures and the resulting increases in market expectations for interest rates, means that the housing market slowdown is likely to be longer and deeper than we originally anticipated."

Mortgage approvals drop in April

Net mortgage approvals for house purchases also fell over the past month, from 51,500 in March to 48,700 in April, separate data from the Bank of England reveals, but approvals for remortgaging increased slightly from 32,200 to 32,500 during the same period.

Meanwhile, net borrowing of mortgage debt continued to decline in April, falling to a record low of £1.4 billion - the lowest level on record when excluding anomalous data from the onset of the Covid-19 pandemic.

Alice Haine, personal finance analyst at BestInvest says it is a “reflection of the hit to consumer appetite for property amid sticky inflation and rising borrowing costs.”

She says: “The outlook from here is far from rosy, with mortgage rates edging up over the past week as lenders pull hundreds of products to reassess borrowing conditions.

“Changing interest rate expectations – with rates now tipped to peak at 5.5.% or higher in the coming months - has caused more mortgage turmoil for borrowers who were hoping for some respite from the turbulence seen over the past few months,” she adds.

What does this mean for mortgage rates and house prices?

House prices in the year to May dropped by 3.4% - the largest decline since July 2009 - the latest data from Nationwide’s house price index shows, and the trend is likely to continue owing to lower levels of buy-side demand.

Quilter’s Noye says prices will continue “falling steadily for a few months yet as sellers compete for buyers.”

She continues: “For those still keen to move or buy their first home, where possible it may be worth considering a fixed-term deal for two years to make the most of lower predicted rates in 2025.

“If you are considering opting for a tracker mortgage to see you out of the current period of inflated rates, it is important to consider the potential for further BoE rate rises and the impact this would have on your monthly outgoings,” she adds.

But Alex Lyle, director of estate agency Antony Roberts, says some types of properties are selling better than others.

“The majority of the most desirable houses – £1.5 million-plus family homes – are going under offer within three weeks of marketing. However, flats, in particular those compromised in some way, are struggling to achieve the prices we could have expected this time last year.”

Compounding the issue are delays in processing deals.“It is hard to remember a time when deals took so long to progress from agreed to an exchange of contracts. As well as chains being more protracted, many solicitors are finding themselves working at capacity,” Lyle says.

Meanwhile, mortgage providers have pulled a number of products from sale as concerns mount over whether the Bank of England will continue to raise interest rates, possibly as high as 5.5%.

Buy-to-let mortgages have been particularly impacted, with 14% removed from the market.

It pays to be prepared and make a note of the important dates in 2023 that could affect your finances. From self-assessment deadlines and tax changes to the energy price guarantee and the state pension increase, here are the key dates you need to know.

31 January – Self-assessment tax deadline

People who have to file self-assessment tax returns must do so by 31 January. It’s also the deadline to pay any tax owed from that return.

It doesn’t end there, either. Self-employed workers are also required to pay a payment on account – this is an advance payment towards your next tax bill, based on your previous tax liabilities. The first payment must be made by 31 January.

Remember, payments to HMRC can take a few days, so complete your tax return a few days ahead of the 31 January deadline.

March – The Budget

Every year we have at least one big Budget statement delivered by the chancellor, when he or she runs through the financial forecasts for the year ahead as well as any proposed changes to the tax system.

The Budget is usually delivered in March. The Office for Budget Responsibility has been asked to prepare a forecast by 15 March to accompany the Budget, meaning the Budget could be held on this date or shortly afterwards.

5 March: Rail fares rise

Like last year, the government is freezing rail fares for January and February, meaning fares will officially rise on 5 March 2023.

While the cost of train tickets is usually pegged to inflation, the government has said fare increases for 2023 will be capped at 5.9% – 6.4 percentage points below July 2022’s retail prices index - to help people with the cost of living.

31 March – End of Help to Buy

The Help to Buy scheme involves property buyers gaining an equity loan to supplement their deposit when purchasing a new-build property.

Buyers had to apply for that loan by 31 October 2022, but have until 31 March 2023 to complete the purchase of the property. Homebuyers are expected to have the keys to their home by 6pm.

1 April ‒ Energy Price Guarantee rises

One of the measures brought in by Liz Truss’s short-lived government was to support households with soaring energy price bills with the Energy Price Guarantee. This froze the unit cost of gas and electricity, meaning the average typical household bill comes to around £2,500 a year - the more you use, the more you pay.

On 1 April 2023, the guarantee will rise to a higher level, meaning the average typical household will have to pay around £3,000 for their annual energy bill. This guarantee will be in place until April 2024. You can read more about energy prices in our article will energy prices fall in 2023?

Though there is little you can do about the energy price, there are things you can do to keep energy costs low, which we explain in our article.

1 April – Changes to household bills

Changes will take place to a host of household bills from the start of April.

For example, many broadband and mobile phone providers impose price increases each year that are tied to the rate of inflation. These increases occur even if you are mid-contract.

If you are at the end of your contract, now is a good time to shop around and lock in a new deal.

Water bills are also due to change from April. Annual water bills are divided into 12 monthly payments, with the new prices beginning from the start of April. Many households will see their water bills fall next year, as water firms have failed to meet targets imposed by Ofwat, the water regulator, on issues such as pollution and water supply interruptions.

However, other factors like inflation, could mean water bills rise significantly, depending on your water supplier.

You can't change your water provider to get a cheaper water deal, but you could potentially be better off using a meter instead, depending on the size of your house and the number of people living in it. Use the calculator from Ofwat to see if you are better off with a meter.

And then there is council tax. We don’t yet know the scale of the increases to council tax, however last year’s Budget included the detail that councils will be able to raise tax by 3% - plus another 2% for social care – without holding a referendum. With rising social care costs and other financial pressures, many local authorities are likely to raise council tax as much as they possibly can.

1 April: National Living wage and minimum wage rise takes effect

Chancellor Jeremy Hunt announced in November that the National Living Wage for workers aged 23 and over would increase by 9.7% from £9.50 to £10.42 an hour. The rates for those aged under 23, and apprentices, will also rise too.

5 April – End of the tax year

The 2022-2023 tax year ends on 5 April, so if you’re planning to utilise your entire annual ISA allowance, the full £20,000 will need to have been paid into your accounts by this date. This also includes junior ISAs, which come with a separate annual allowance of £9,000 per tax year.

Anyone wanting to pay extra into their pension should also try and do this before 5 April. Most people can contribute up to £40,000 to their pension pot each tax year and benefit from tax relief. However, those with an annual income – including salary, and income from savings and investments – of more than £200,000, or those who earn less than £40,000 a year, have a lower pension allowance.

To find out how the pension allowances work, and for information about how to “carry forward” unused allowances into the next tax year, take a look at this article.

6 April – New tax year: pensions and benefits

The start of the next tax year is 6 April, and this is a date when increases to various state benefits and tax reliefs will kick in.

For example, the state pension and pension credit will both rise by 10.1% while universal credit will increase by the same percentage.

6 April – New tax year: tax changes

In his inaugural Autumn Budget, chancellor Jeremy Hunt made several tax changes, which will hit high earners and investors. He reduced the threshold at which the top 45p rate of income tax becomes payable from £150,000 to £125,140. This will take effect from 6 April, 2023.

Hunt is also planning to eliminate the dividend tax-free allowance, which currently stands at £2,000 a year.

This will fall to £1,000 on 6 April, and then £500 for the 2024-2025 tax year. The tax rates on dividend income remain unchanged.

Meanwhile, the threshold for paying capital gains tax will be more than halved from £12,300 to £6,000 for the 2023-2024 tax year. It will be cut again to £3,000 in the 2024-2025 tax year.

31 July – Second payment on account

The second and final payment on account for the 2022-2023 tax year will have to be paid by self-employed people by the end of July.

31 July - Deadline to use up non-barcoded stamps

Customers have until 31 July to use up any non-barcoded 1st and 2nd class stamps before they become worthless. The deadline affects “everyday” stamps featuring the late Queen’s profile; themed, commemorative and Christmas stamps that don’t have a barcode can still be used after this date.

The previous cut-off was 31 January 2023, but Royal Mail said it recognised that customers needed more time to use up their non-barcoded stamps. If you don’t manage to use the stamps, they can be swapped for barcoded stamps of the same value, free of charge.

Bear in mind that Royal Mail is still advertising a date of 31 January to use up the stamps. However, it explained to MoneyWeek: “The official deadline remains January 31. But from this date we have introduced a six-month period of grace for anyone sending non-barcoded stamps. So during this time non-barcoded stamps can be sent as usual.”

16 August – July inflation announcement

The inflation figure for July is important as it is used to set the increase in rail fares, which will take place from the start of 2024.

5 October – Deadline to register for self-assessment

If you’re new to self-assessment, this is the deadline to register with HMRC. This applies if you’re self-employed or a sole trader, not self-employed, or registering a partner or partnership.

18 October: September inflation announcement

The figure for September is also really important, as it is used when calculating changes to benefits, the state pension and tax credits.

For example, the triple lock means that each year the state pension increases by the largest of the following three figures: 2.5%, the rate of inflation, or the rate of earnings growth.

It’s the September inflation figure that is used in this comparison.

31 October: Postal self-assessment deadline

Some taxpayers opt to file their self-assessment by post rather than online.

If you choose to do this, you have an earlier deadline of 31 October.

November: Autumn Statement

Effectively a mini Budget, the Autumn Statement is another big statement from the chancellor. It is usually delivered in November.

31 December: End of mortgage guarantee scheme

Launched in April 2021, the mortgage guarantee scheme was due to expire at the end of 2022. However, the Treasury has confirmed that it will now run until 31 December 2023 amid concerns that falling house prices and an upcoming recession will reduce the number of low-deposit mortgage deals.

The scheme is designed to help first-time buyers get on the property ladder with just a 5% deposit. It has already helped 24,000 households, giving people with a deposit of less than 10% the chance to buy a house up to the value of £600,000.

Additional contributions from Ruth Emery

Persimmon shares currently offer the second-highest yield in the FTSE 100. With a dividend yield of 13.8% for 2023, (according to Refinitiv analyst estimates) the homebuilder looks highly attractive from an income perspective.

However, a high dividend yield (especially one in the double-digits) can indicate a company in distress. It can be a sign that investors are avoiding the stock, pushing the value of the shares down and the yield up.

So, is that the case with Persimmon? Can you trust the dividend – or is the market sending a warning signal?

Persimmon shares slump on recent trading update

Anyone who’s been reading the news recently will know that the UK housing market is creaking.

After years of breakneck growth, powered in part by ultra-low interest rates, house prices are starting to decline as borrowing costs soar.

Persimmon is one of the largest homebuilders in the UK. Its average private selling price of £267,325 (20% below the UK average) puts it firmly in the affordable and first-time buyer bracket. That’s important because these two markets have different fundamentals to the rest of the real estate market.

The builder also claims that its properties are 30% more energy efficient than existing housing stock, a major selling point in the current environment.

Still, there’s no getting away from the fact that the outlook for the housing market is deteriorating.

In a trading update published on 8 November, the homebuilder told its investors there are clear signs the property market is slowing and sales across its development sites had slumped 20% in the past six weeks. More worrying, the number of buyers cancelling purchases has jumped by a third (to 28%).

Unsurprisingly after this update Persimmon shares dived.

Dean Finch, group chief executive, said, "Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour and this is reflected in our recent weekly sales rates and forward sales position.”

Persimmon’s selling prices have taken a hit as a result. Since July, the average price of its homes has fallen 2%.This time last year the group had agreed sales worth £1.15bn for the year ahead. Today, the value of sales agreed for next year is just £770m.

Most of the company’s issues can be traced back to interest rates. Interest rates are on the up, meaning buyers are facing higher mortgage costs and the pain is likely to be felt more by buyers on low-deposit mortgages, such as first-time buyers.

Indeed, historically around 20% of Persimmon’s sales were to buyers using the Help to Buy scheme, a scheme aimed at first time buyers. This scheme has now ended.

Challenging market conditions will hit Persimmon shares

The company’s poor forward guidance has hit investor sentiment towards Persimmon shares.

The uncertain outlook for the housing market means the group cannot provide guidance for 2023 at this stage, although it does expect construction volumes, selling prices and demand to fall.

“Our current expectation is for fewer legal completions than in 2022 and this together with a deterioration in average selling prices will have an impact on 2023 margins,” the group’s latest trading update notes.

And with that being the case, management is revisiting Persimmon’s cash return and dividend plans.

Back in 2012, the group laid out a shareholder capital return programme, which has remained in place ever since.

Under the plan the company has returned 1,530p per share to investors via dividends since April 2023.

That means investors who were savvy enough to buy the stock when the capital return programme was announced have received a return of 430% from dividends alone. Not bad!

However, management has now decided to “conclude” this programme. It will be replaced with a new capital allocation policy that reflects “the increased uncertainty in the political and macro-economic environment, alongside increased corporation tax and the residential property developer tax.”

Management is aiming to prioritise a strong balance sheet and is investing in the future of the business. Ordinary dividends will be “set at a level that is well covered by post-tax profits” leaving plenty of headroom to both invest in growth and return cash to investors.

Can Persimmon’s dividend be trusted?

The new plan suggests the dividend on Persimmon shares is going to fall in the near term.

Analysts have a payout of 183p per share pencilled in for 2023, giving a forward dividend yield of 13.8%. But that greatly depends on how the housing market performs over the next 12 months. If property prices continue to decline, the group’s profits will fall and management will have to reduce distributions.

Despite the company’s uncertain near-term outlook, management remains optimistic that over the long-term, demand for property in the UK will remain robust.

“In the medium to longer term, the demand for new homes will remain strong,” its recent trading update declares.

“Persimmon is well positioned to serve the continuing need of customers across the UK who seek high quality and energy efficient new homes at a price they can afford,” it goes on to say.

So, long-term, the outlook for the business seems pretty secure, after all the UK isn’t building enough houses and the population is only growing.

However, as the business invests for growth, and the economic outlook clouds over, it’s clear investor cash returns are no longer a priority for the enterprise. On that basis, I don’t think the dividend on Persimmon shares can be trusted at its current level. A cut seems likely next year.

Investors seeking income might have to look elsewhere - see our article on 4 investment trusts to buy now yielding over 12%.

The author of this article does not own any share mentioned in this article

An irritated tweet from a reader. He lives in Scotland, had just bought a house and, thanks to Scotland not slashing stamp duty on house purchases in the same way as England had (no tax is payable on purchases up to a price of £500,000 in England vs £250,000 in Scotland), he said, just paid tens of thousands more to get his house than he would have had he been in the UK. I can see how that would be totally maddening.

But here’s the question – had he really paid more than he would have in the rest of the UK? I suspect not. Because, in the end, houses sell for as much as buyers are able to pay – and if they aren’t paying stamp duty, they can pay more in total for the house itself.

It might be buyers that have to actually hand over the stamp duty cash to the state, but it is the seller who tends to be affected by its level. When stamp duty goes up they sell for less; when stamp duty goes down they sell for more. This is not an exact science, but it is not hard to see in the numbers either.

The stamp duty cut came into effect in July. By the second week of August, the papers were reporting exactly what you would have expected: there was, as The Times put it, a “surge in the number of homebuyers, leading to bidding wars and the number of homes being sold over the asking price reaching record levels.”

There was a 45% rise in first-time buyers, and various estate agencies reported inquiries up by 30%-40%. The number of buy to let investors looking rose by 28% and of second home buyers by 22%.

You can see this same kind of dynamic working in the Help to Buy scheme as well. State attempts to subsidise the house purchases of the young simply push up the total amount they are able to pay – and do pay. Most research suggests that Help to Buy purchasers end up paying 5% to 8% more than ordinary buyers of new-build houses, something that has long allowed builders to keep their prices up while maintaining their glorious record of delivering generally shoddy products. Nice.

I think stamp duty is an awful tax. It gums up the housing market, it penalises those without well-off parents (if you need to pay a deposit and your stamp in cash saved out of earned income, you have an awful lot of saving to do); and it should be replaced by CGT on primary homes. But that doesn’t mean removing it will always make the final price of a house cheaper than keeping it.

The numbers aren't looking good for residential property investors. House price growth in the US fell to a mere 1% at the beginning of this year, according to the latest report from the Dallas Federal Reserve. Look at global data across the 18 largest economies in the world and things don't look much more encouraging. This could be the year in which we see "global growth dip to its lowest pace in a decade". Investment is slowing fast, says Oxford Economics.

The UK is no outlier here. The Nationwide index and the Rightmove Asking Prices index show prices and asking prices respectively to be all but flat. The Halifax House Price index shows a better annual number but suggests prices fell mildly in June. You can see the same trend in Hometrack data, which suggests that the falling prices we have seen in London are beginning to spread: over a third of homes are now in areas with annual price falls (the higher value the market the more likely this is), although the absolute levels of falls is small. So what next? Most analysts expect the market to tread water from here (at best) although if a new PM were to pull a Brexit deal from the hat we could of course see a little London bounce.

A flat market...

This is probably correct. There is still some support for prices. Housing starts are falling slightly (so the supply of housing is not rising much). Interest rates are low and will go lower if Brexit goes horribly wrong. The banks' wholesale funding costs have also edged down, and that should soon feed into mortgage rates. At the same time wages have jumped (year-on-year growth excluding bonuses hit an 11-year high in April) and household disposable incomes are also on the up.

That makes houses even at today's silly prices seem more affordable. Prices, says Nationwide, are likely to be at least supported by "healthy labour market conditions and low borrowing costs." That said, there isn't much to push prices up either. They are still high relative to incomes. The tax and regulatory hit to buy-to-let is discouraging buyers in that market. An unwelcome (to big property owners, at least) overhaul of property taxation may be on the way. And the Help to Buy scheme (which has played a clear part in pushing prices up) is likely to beat least scaled back soon. Put all those factors into the mix and it is hard to see a rebound in prices in 2019 "or beyond" says Capital Economics.

... is good news

The key thing to bear in mind there is that this is not bad news unless you very recently paid too much for a house. One thing we have all agreed on in the UK for decades now is that houses are too expensive relative to average earnings. That makes it tough to get on the ladder and tough to move up the ladder. Add today's high levels of stamp duty to your cost of buying and it's nasty out there.

But the fact that house prices are not really rising in nominal terms, combined with the small real rise in wages over the last two years, is beginning to change this situation. In 2007 Nationwide's house price to earnings ratio for the UK was 5.42. At the end of 2016 it was 5.25. Today it is 5.03 times. That's not ideal but if this gentle drift down continues and we end up at more like four times, it will suddenly be an awful lot easier to buy (and sell) houses. That would be a very good thing.

Head for Hampshire

Nevertheless, for those of you determined to find the next hot location in the property market and make your fortunes the easy way, Anne Ashworth writing in The Times has an idea for you. She suggests checking out age profiles. Why? Because the younger the crowd, the higher the potential for growth. In areas with an older demographic, you can expect to see sales and downsizing (the cash from which then gets spread around children and grandchildren who won't necessarily live in the area). In one with a younger demographic you can expect to see the opposite.

Look back over the last decade, says Lucian Cook of Savills and you will see this in action. Those areas with large concentrations of people in their 40s have seen much greater price appreciation (up 56%) than elsewhere. With that in mind, look at somewhere such as Aldershot in Hampshire. There 39% of households are headed by someone between 31 and 40. They won't be downsizing any time soon.

Housebuilders face a profit squeeze

Everybody's got an answer to the UK's housing crisis. Jeremy Hunt, for instance, has a new "Right to Own" plan in mind which he reckons will produce 1.5 million cheap homes. The cheap bit will be the result of forcing developers to share the rise in the value of their land post-planning permission with councils (there are echoes of the rationale for a land value tax here see here for moreon this).

He also wants to ease planning regulations so that people can "build up" (he's talking about putting new stories on top of existing apartment blocks). As far as Boris Johnson is concerned, we need to cut stamp duty, particularly in London, although he is not yet prepared to "put a figure" on it. And Prince Charles, who is more focused on quality than on price, reckons a series of policies that would allow more houses of better quality to be built is the answer.

The real answer is likely to be a combination of all these things. But it is worth noting that most plans to improve the UK market (Boris Johnson's aside) one way or another look likely to involve the housebuilders having to raise quality, quit landbanking, share planning bonanzas and submit to more regulation. None of those things will be good for their profits.

Buy-to-let investors in the UK have suffered a dismal few years. The government's determination to make the sector less appealing to investors seems to have worked.

As we pointed out in last week's issue, the number of landlords in the UK has fallen by 120,000 in the past three years, according to figures from estate agent Hamptons International. Nevertheless, these landlords are leaving the sector with fairly significant profits. The average landlord in England and Wales sold their buy-to-let property in 2018 for £79,770 more than they paid for it (before tax), having owned it for nearly ten years on average.

Last year, 85% of landlords sold their property for more than they paid for it, with 15% making a loss.As you might expect, those selling property in London made a profit almost three times the national average, selling for a £248,120 profit. However, landlords made more money in 2017, selling for a £83,430 profit, with London landlords making £272,120. It's also important to take into account the potential opportunity cost of leaving the sector.

Until a few years ago, buy-to-let was a fairly reliable source of income and capital growth for many. The government was concerned that landlords were pushing up prices beyond the reach of first-time buyers. While its clampdown has cooled the buy-to-let frenzy, it's a shame that the Help to Buy programme is having the same effect.

The chancellor, Philip Hammond, tackled energy efficiency and Help to Buy in his Budget.

The trouble with the sheer volume of Budget coverage in the press is that it's easy to overlook some of the less dramatic announcements. Here are two property-related changes you might have missed, along with a rare good-news story for landlords.

Help to Buy has its wings clipped

Last week's Budget confirmed that the Help to Buy equity-loan scheme, which offers taxpayer-backed loans worth 20% of the purchase price of a new-build house, will be extended until 2023. But from April 2021 it will only be available to first-time buyers. Buyers will also only be able to purchase properties worth up to 1.5 times the "current forecasted average first-time buyer price" for the region, with a maximum of £600,000 for London. This will mean buyers in the north east will only be able to buy houses worth a maximum of £186,100, while those in the north west will be able to spend up to £224,400.

The current iteration of the equity-loan scheme has been widely criticised for pushing up the price of new builds, as it widened the pool of people who could suddenly afford new-build properties and fuelled demand. So it follows that a price cap might push prices down somewhat by tempering demand, perhaps to the point where the original Help to Buy borrowers could have afforded to buy without the scheme. Unfortunately, these people are already (or will soon be) stuck paying the interest on their government loans (which are interest-free for the first five years).

Crackdown on energy efficiency

Another measure from last week's Budget that escaped many people's attention will see more landlords required to improve the energy efficiency of their properties. Since April, landlords who own properties with an energy-performance certificate rating of F or G have had to upgrade them to at least band E or face being barred from arranging new tenancies. Yet landlords only had to carry out these improvements where financial support was available to cover the costs.

From 2019, however a date is yet to be specified landlords will have to pay for improvements that don't exceed £3,500. The cost of bringing a house to the minimum energy-efficiency level is typically around £1,200. This new rule will affect 290,000 properties, estimates the government. Most landlords should not be affected by this rule change, assuming their properties already comply.

Buy-to-let borrowers in demand

Mortgage lenders are offering attractive deals to buy-to-let landlords, in a bid to win the business of those who haven't left the increasingly unprofitable sector. The past few years haven't been kind to landlords, as the government has brought in various taxation and regulatory changes in an attempt to slow the expansion of the buy-to-let market. In the first half of this year, landlords spent £12.1bn on new buy-to-let purchases, which is 30% lower than the amount spent in the first half of 2015.

So buy-to-let lenders are competing for fewer customers, and adjusting their offers accordingly. Last month the average five-year fixed buy-to-let rate had fallen to 3.4%, the lowest level since data provider Moneyfacts began collecting these figures in November 2011. Leeds Building Society currently offers an "easy start" mortgage, which gives landlords an initial three months of interest-free payments before reverting to a fixed rate of 2.72% for the rest of the five-year period. The Mortgage Works, part of Nationwide Building Society, offers a five-year fix at 1.99% (plus a £1,995 fee), while Sainsbury's offers a two-year fix at 1.4%.

On 5 March, Theresa May announced a major overhaul to theNational Planning Policy Framework to "deliver the homes the country needs". If only it were that simple, says Emily Hohler.

The housing crisis is a politically toxic issue and poses an existential threat to the Tories traditionally the party of property ownership. Runaway house-price growth over decades has left home ownership beyond the reach of many, particularly in the southeast. Houses in the UK now cost almost eight times average earnings. In London, the figure rises to 14.5. These are the worst ratios of any developed country, and housing costs are a major source of inequality. Prices are high in part because property has become a speculative market, especially in London, fuelled by private capital (often foreign), easy mortgage credit and subsidies such as the Help to Buy scheme.

For Theresa May, however, the "root cause is simple": not enough homes in the right places. The 2016/17 financial year saw a 15% increase in new-builds, to 217,350, but this falls short of the government's target of 300,000 annually by 2025. The draft National Planning Policy Framework (NPPF), which is due to become official policy after a consultation period ending just after MoneyWeek went to press, sends out a clear message that the government intends to accelerate housebuilding.

A savagely centralised regime

The NPPF sets out the government's planning policies for England and how they should be applied. New houses cannot be built without a planning process addressing hundreds of issues, from their location to their appearance and surrounding infrastructure. When the NPPF was first published in March 2012, the then housing minister, Greg Clark, emphasised the need for planning to be "collective". Planning policy was "elaborate and forbidding", with targets imposed and decisions taken by "remote bodies", he said. Local communities were being excluded. To reverse this, the "regional apparatus" was dismantled and neighbourhood planning introduced.

Councils were told to determine their "objectively assessed need" for housing. Based on these figures, local authorities were required to develop Local Plans setting out a comprehensive vision for future local development and providing an overarching framework for Neighbourhood Plans to be prepared by local parishes. But Local Plans can take years to prepare. According to 2017 Planning Inspectorate figures, of England's 383 councils, 101 still did not have an adopted local plan and 32 hadn't published one.

This apparent lack of willingness on the part of local communities and their elected representatives has led to ministerial impatience. In recognition of the imperfections of the current system for assessing "need" which ends up being far from objective and results in big discrepancies between councils the revised NPPF proposes a centrally determined methodology based on local house prices, wages, average household growth and the number of key workers in the area.

This standardisation is aimed at making the system "fairer and more transparent". Areas with a high "unaffordability ratio" will be required to build even more houses, said the then housing secretary Sajid Javid the idea being that the greater the supply, the more prices will fall. A new housing delivery test will focus on the number of homes delivered, not simply planned for, and councils that fail to meet their targets will be stripped of the right to decide what gets built where. In an interview with The Sunday Times, Javid said the "new rules will no longer allow Nimby councils that don't really want to build the homes their local community needs to fudge the numbers". The government is effectively introducing the "most savagely centralised planning regime in English history", said Simon Jenkins in The Guardian.

Objections aren't just about Nimbyism

Communities trying to fend off huge developments and already struggling with creaking infrastructure and overcrowded schools will be bewildered at the government's sense of urgency. The bulldozers have already arrived. In Oxfordshire, where a Growth Board has been formed to help deliver 100,000 homes by 2031 (a 37% increase to the current housing stock), historic towns and villages are under siege. The BBC series The New Builds are Coming: Battle in the Countryside highlighted the cases of Culham, a hamlet of just 450 people, which stands to be gobbled up by a development of 3,500 new homes proposed for 94.5 hectares of green belt, and Hanborough, another Oxfordshire village losing its battle with developers who have submitted planning applications to its north, south, east and west. In February, Cherwell District Council approved a 1,950-home development on green-belt land a few miles away.

Local protestors aren't all the selfish Nimbys they are made out to be. Most agree that people need somewhere affordable to live. According to the 2017 Social Attitudes Survey, 73% of the public are in favour of new building if the houses are genuinely affordable to local people on average incomes 65% of those in rural communities do, too.

But communities also want developments that are sensitively sized, appropriately sited and attractive. The quality of new-builds is a major issue. More than half of all buyers of new-builds in England have had problems with their houses, and 81% of respondents in a recent survey said they wouldn't want to live in a new-build. Last year Bovis Homes had to set aside £7m for remedial works.

David versus Goliath

Locals often feel powerless. Without a Local Plan or a five-year deliverable land supply for housing, councils can become the target of unscrupulous developers who are more likely to be able to force through unwanted planning applications. "The planning system is Janus-faced," says one of the UK's leading planning silks. "It is trying to cater for irreconcilable interests and it leaves no one happy." But local communities do "have real power and influence", he adds. "The problem is that they do not know how to apply it." They don't know how to navigate the byzantine planning system nor argue their case effectively.

Developers, meanwhile, are juggernauts. The industry is dominated by a handful of giants with expertise and money to spend on planning consultants, lobbyists, lawyers and public-relations experts. Most large applications pass through at the initial stage and about 33% of appeals succeed, according to the QC. If opponents do persuade councillors to reject a development, developers appeal (something local residents can't do) and if that fails, they simply put in a new, modified application. It's a war of attrition.

The Council for the Protection for Rural England (CPRE) believes that local communities should have their hand strengthened. If Javid was sincere when he said that the new NPPF will ensure that "development is dictated by what local people want and not by speculative applications", he should provide a "cast-iron guarantee that locally agreed development plans (including neighbourhood plans) would be upheld when deciding planning applications", writes the vice-president of the CPRE, Andrew Motion, in The Times. As it stands, the revised NPPF could "allow local authorities to overrule neighbourhood plans, either when local plans are reviewed (every five years) or if not enough homes are delivered elsewhere".

Another, more obvious, solution is to build on brownfield sites (previously developed land). In 2014, the CPRE published a report claiming there was enough brownfield land in Britain to build one million homes. Though dismissed as "wildly over-optimistic" by ministers at the time, the figure was subsequently proved to be accurate when, in 2017, the government made it a legal requirement for planning authorities to publish a register of brownfield sites. And much of that capacity, says the CPRE, is available in places where people actually want to work and live.

Why not build on the brownfield sites?

The government has come round to the idea and the revised NPPF emphasises that brownfield sites should take priority. Councils are to be given freedom to make better use of brownfield land, building higher to maximise density. Green belts, created in the 1950s not to preserve landscapes but to prevent urban sprawl, should only be built on in "exceptional circumstances", said May, adding that she would "rather see an ugly, disused power station" in the green belt "demolished and replaced with attractive housing than a wood or open field concreted over".

That and more is already happening, since the interpretation of "very special circumstances" (the original 2012 wording) appears to have been broad. According to a 2017 CPRE report, 425,000 houses are currently planned for green-belt sites, of which more than 70% are unaffordable. Green fields are vulnerable, too. For all May's soothing words, Javid announced plans for a mega-city "corridor" stretching from Oxford to Cambridge featuring up to five new garden cities and up to a million new homes. The architect Richard Rogers has long been a vocal opponent of such schemes. Far better to build homes in cities where the jobs are and where services can be efficiently supplied, he argued in a 2014 article for The Guardian, than to build "lifeless dormitories" and force people into long commutes. Brownfield sites are also quicker to develop than greenfield sites, typically by six months. So why isn't it happening?

The regional chairman of a leading UK developer says that the public sector is partly to blame: "Much of the brownfield land that should be built on is owned by the public sector which is inordinately inefficient at releasing land and getting it built on." Developers, he adds, are often unfairly blamed for spoiling the countryside. "Our company actively wants to build on brownfield sites," he says; "they are less straightforward to develop and the risk is therefore greater, but so is the reward." The trouble is, the country has a "structural problem" with an economy that sucks people into the overcrowded southeast. "What happened to George Osborne's Northern Powerhouse?" he asks. "It was spot on".

Wherever the houses of the future get built, surely it is the duty of our generation to preserve our irreplaceable countryside, a national asset enjoyed and treasured by so many. If we don't, as the poet Philip Larkin predicted in Going, Going, it will soon be "all concrete and tyres", and "that will be England gone".

First-time buyers who purchased their homes using the government's help-to-buy scheme could find themselves short of options when they decide to remortgage. Borrowers with help-to-buy equity loans cannot access the cheapest deals on the market because they are limited to specialised help-to-buy mortgages. Several prominent mortgage brokers have raised concerns about the lack of products currently available for this sector of the market.

The help-to-buy equity loan scheme launched in April 2013, offering buyers with a 5% deposit a 20% equity loan from the government if they bought a new-build property, with the remaining 75% of the purchase price funded by a help-to-buy mortgage. The first wave of these borrowers is now coming to the end of the initial fixed-rate mortgage and finding that, although about 20 lenders sell help-to-buy mortgages, only a quarter of them offer remortgage deals.

Very few lenders offer a "free legals" package for help-to-buy remortgages (whereby the provider covers your legal fees), making the transaction even more expensive. Some offer a free valuation and an element of cashback, but this is usually about £250 far less than the cost of a help-to-buy remortgage transaction. "In a lot of cases borrowers can find themselves to be mortgage prisoners due to cost and lack of alternative choices," says Helen Pierson of the broker Mortgage Bureau. As well as grappling with higher costs, borrowers could find that their remortgage takes longer than usual.

Financial services software firm Target is responsible for administering help-to-buy loans, but it can take up to two months for it to release documents crucial to a remortgage deal. Buyers wanting to repay some of their equity loan have experienced the worst delays.

The main hurdle here is that the equity loan provider and the mortgage lender need to value the property, says Jonathan Harris of the mortgage broker Anderson Harris. "As the equity loan is a percentage of the property value and not a fixed amount, they need to carry out their own valuations to determine how much is required to be paid back. Both valuations need to match each other and are carried out by different surveyors."

The other option for help-to-buy borrowers looking for a better mortgage rate is to ask for a "product transfer" through their existing lender. "Most, if not all, lenders who have offered mortgages in conjunction with the help-to-buy [equity loan scheme] will offer a product transfer and so there should be no need for borrowers to revert to their lender's standard variable rate," says Ray Boulger of the mortgage broker John Charcol.

But borrowers who transfer products miss out on important independent advice from brokers, says Pierson. "This is usually an execution-only' transaction ie, no advice on the suitability of the product chosen, no advice on the equity loan element and no Financial Ombudsman recourse as the sale is non-advised," she warns.

Most help-to-buy borrowers would benefit from advice on whether to keep the loan, or repay some or all of it. The loan is interest-free for five years, but from year six the borrower is charged 1.75% of the loan's value. This increases every year in line withthe retail price index, plus 1%. Those who have used help-to-buy and who have since benefited froma change in circumstances may therefore decide that it is in their best interests to buy out the loan sooner rather than later.

The loan will be repayable at the same percentage of the house's current market value as the percentage of the purchase price that was originally borrowed, typically 20%. Borrowers looking to do this should speak to their help-to-buy agent to get a more accurate idea of the amount they would need to pay.

It is a miserable business being a first-time homebuyer in the UK. Santander tells us that the average price to income ratio is over seven times. The Council of Mortgage Lenders says 18% of such buyers in London end up spending more than £500,000. And we know that nearly 60% of first-time buyers now borrow with mortgage terms over 25 years.

That's the bad news. The good(ish) news is that, in a semi-capitalist state such as ours, where there is a problem there is also always a fascinating range of solution providers knocking around. The government likes to think it is one of them: note the explicit favouritism it displays towards first-time buyers with the free money machines that are Help to Buy and the Help to Buy Isa.

But its efforts pale next to the solutions offered by the financial sector. This has put many great brains to work and come up with a set of impressively creative products to suit the needs of the nation's desperate property lovers.

Some are old news (parental guarantees, multi-generation mortgages, cheap buy-to-let schemes up north and abroad that are supposed to build you enough capital to buy in Winchester and so on). Some are reinventions of good ideas for example the branded rental buildings going up in London for younger people who can't or don't want to buy. Look up Vantage Point Tower in Archway (where you can have dinner parties in the communal areas) and you might soon start thinking that renting isn't so bad after all.

Some are completely nuts. First up we have Gifted Deposit'. This launches in April and will allow first-time buyers to use their "social wealth" to beg family members and strangers to give them the cash they need for a deposit. They can "tell their story to a global audience" using photos and videos to "create engaging campaigns" and then sit back while the money rolls in.

This is clearly absurd. The global audience has (I hope) better causes to donate to than the bank accounts of residents of first-world nations who are mildly dissatisfied with their housing arrangements. So any donations made via this silly site will be made by family. And guess what? It doesn't come cheap. Hand over a cheque to your kid and the additional cost will be zero. Send it via GiftedDeposit.com and it'll cost you 5%. I think you get my point. There's no need to visit the site.

Still, I'm not sure that this pimped begging is the worst deposit-building idea out there for first-time buyers. Another comes from the Social Market Foundation, a think tank that considers its work to be "characterised by the belief that governments have an important role to pay in correcting market failures".

To this end it has produced a report, sponsored by a property crowdfunding business, which suggests that crowdfunding could be a good way for first-time buyers to build up deposits particularly if the government could be persuaded to let those with Help to Buy Isas invest them via property crowdfunding sites.

Property crowdfunding is pretty straightforward in theory. You go on to a website such as Property Partner or Propnology and you choose a property or properties in which to invest. You end up with shares in a company set up to own the property. It gets rented out. You get some yield. At some point it is sold and you get the capital returns too.

This isn't a terrible idea. It's an easy way to get into the property market, it's mostly unleveraged, and if you just want long-term diversification into the residential property market you could, I suppose, look at some of the options. However, for anyone attempting to build up a deposit it is madness for two reasons: cost and liquidity.

Most firms take 2%-5% of your investment upfront as a finders/administration fee. They then take a percentage of any rent (10%-15% seems the norm) and on top of that there will be all the usual costs of property ownership. The net yields on the properties offered by Property Partner appear to be a mere 2.94%. You will be relying almost entirely on getting your returns via capital gains.

That might happen, but what if you want to get your hands on those gains? You can try and sell via a relisting on most platforms but that isn't going to get you the same market value as selling the whole house. Or you can wait until the platform lists the property for sale itself to get your money out. But however you do it, it isn't going to be easy or quick.

That matters. Imagine you are saving for a deposit in a savings account, and property prices start to fall. You'd be thrilled. Now imagine the deposit you've saved is already tied up in a property and it's a property that you can't live in and you can't sell. Not thrilled now, are you?

All this makes me pretty irritated. Those grandstanding about the misery of first-time buyers have come up with no end of ideas. But if you are genuinely passionate about their plight you could do something that might actually help.

You could demand that stamp duty is abolished (it eats up cash that could be used in a deposit). You could call for an immediate end to Help to Buy, which, according to Capital Economics, has given us a "sharp rise in average house prices". You could petition for the normalisation of interest rates or the reversal of quantitative easing both of which could easily bring down house prices (and hence deposits) with a nasty bump.

You could call for a land value tax something that would deal with the London bubble even faster than the oil baron capital repatriation is currently doing. You could insist on the softening of planning restrictions. And of course you could demand even more of a massive infrastructure build in the south than we are seeing already (houses need roads, train lines, sewers, electricity and superfast broadband).

You could do all these things and if you got your way on even a few you could really make a difference. But addressing our jammed up and overpriced housing market by suggesting that the young and sort-of-broke get into property crowdfunding doesn't address market failure. It just adds personal financial risk to public policy failure.

This article was first published in the Financial Times

Asset allocation is at least as important as individual share selection. So where shouldyou be putting your money? Here's May'stake on the major asset classes.

Insanely expensive

Government paper has been extremely expensive for years; now it has become insanely expensive. Yields have gone negative in some cases, meaning that investors will make a loss if they hang on to maturity. The average yield on all German government debt is now zero. Investors are clearly hoping to sell these bonds, which are being hoovered up by the European Central Bank, on to another investor at an even higher price the hallmark of a market bubble.

Corporate debt isn't cheap either. Yields have slipped to the mid-single digits, the kind of level that in normal times would have been associated with solid government credit. Companies have continued to lock in cheap credit for the long term: in the first quarter, firms raised $79bn and $39bn in the US and Europe respectively, according to credit-ratings agency Moody's. While a pin that could burst the bubble, such as a jump in inflation, is not currently in sight, we would steer clear of corporate bonds.

Look abroad for bargains

The housing market has featured prominently in the UK general election campaign, with Ed Miliband's proposed exemption from stamp duty for first-time buyers hitting the headlines this week (see page 5). Like the Coalition's Help to Buy scheme, it would merely boost demand and prices in an already overpriced market. Price rises are already set to accelerate now that lenders appear to have digested the new mortgage regulations introduced last year. According to the British Bankers' Association, mortgage approvals rose at the fastest pace for more than a year in March. Look outside the country for better bargains in residential property.

Follow the printed money

Among developed markets, the most appealing regions are those with a tailwind provided by central banks. In the US, the Federal Reserve is set to raise interest rates later this year, and stocks are also expensive (see page 6). But in Europe and Japan the European Central Bank and the Bank of Japan are busy printing money, which bodes well forstocks as the liquidity finds its way into asset markets. The Bank of Japan is soon likely to print more in order to get inflation up to its 2% target. Equities are still reasonably valued in both regions, and the earnings outlook has improved.

Emerging markets did better than developed ones in the first quarter, a rare example of outperformance in recent years. This was due to a strong showing from China, more stable commodity prices, and a sense that monetary tightening in the US is on hold. Go for countries with large domestic markets and governments working on their structural problems, such as India, Indonesia and the Philippines.

Oil rebound unlikely to last

Oil prices have bounced in the past few days, with Brent futures exceeding $60 a barrel. But it would be jumping the gun to bet on a strong recovery in prices. While oil may have bottomed, a return to $100 seems unlikely for now. The number of rigs at work in the US has fallen sharply, but so have the costs of fracking as technology improves; according to the IHS Cera consultancy, they are down by a third in just a year. So many wells will be able to keep producing despite lower prices. More Iranian oil could soon hitthe market again as sanctions are lifted. Russia has also managed to keep output above anticipated levels despite sanctions, notes Der Spiegel. So supply remains ample, while lower prices have yet to boost demand significantly.

Shelter from the storm

Keep 5%-10% of your portfolio in gold. Not only is it seen as a safe haven in troubled times so shock waves after a potential Greek exit from the euro would give it a boost but it is also insurance against an eventual surge in inflation after all the central-bank money printing of recent years. Emerging-market demand should gradually climb too as increasingly wealthy consumers seek gold jewellery or an inflation hedge; emerging-market central banks are also buying in order to diversify their foreign-exchange reserves. Silver is for gamblers only: while it tends to mimic gold's movements, the small market makes it extremely volatile.

Play the softs

Raw materials are treading water, and a sustained upswing isn't likely yet. China, the key source of demand for metals, continues to slow. Large supply increases are still dampening some metals' prices: the recent bounce in iron ore prices will dissipate, reckons Goldman Sachs, with prices likely to sink towards $40 a ton in the next 18 months. Agricultural commodities are in a structural bull market owing to the dwindling supply of arable land amid climate change and rising populations. Play the theme with fertiliser and farm-equipment stocks.

Asset allocation is at least as important as individual share selection. So where shouldyou be putting your money? Here's our monthly take on the major asset classes.

The bubble keeps growing

UK house prices are climbing at 5%-6% a year, according to Nationwide and Land Registry figures. That's likely to increase further, thanks to record-low mortgage rates. The average rate on new loans was a mere 2.78% in February, marking a 0.44% decline in six months. So already overpriced houses are set to become ever more expensive.

It doesn't help that governments always do their best to prop up the market, as shown by the UK's latest wheeze, the help-to-buy Isa. A change of government is unlikely to change that. US houses no longer look especially good value, but Japan and Germany (first-tier cities excepted) do.

The outlook's good for gas

US natural gas prices are likely to dip in the short term as the weather improves and production rebounds from a winter break. But in the long term gas should benefit from increasingly stringent environmental regulations encouraging businesses and households to switch to the cleanest-burning fossil fuel. The rise in demand should mop up the supply glut. Oil prices, meanwhile, may already have bottomed.

Low expectations for metals

Raw materials have trod water this quarter and a big rebound seems unlikely, given that most metals look well supplied and China's growth is slowing. But prices could perk up a bit in the next few months. Copper in particular looks oversold, reckons Barclays, and continual supply disruptions and stronger growth in America, Europe and Japan mean that the metal's prices may rise modestly from around $6,100 per tonne at present.

In the short term, the primary influence on agricultural commodities is weather patterns. Coffee prices are currently up, owing to poor prospects for this year's crop; the west African cocoa crop is likely to be strong, however. In the longer-term this sub-sector should enjoy a structural bull market, thanks to rising populations and constraints on land. Fertiliser and farm-equipment stocks remain the best way to play the theme.

Keep gold as insurance

Gold has traded sideways this year, held back by low consumer price inflation and the gradual strengthening of the US economy good news is bad news for gold. However, higher demand for jewellery in emerging markets should buoy the yellow metal over the next few years, while inflation could well come roaring back if central bankers respond too late to tightening labour markets. Keep 5%-10% of your portfolio in gold.

Silver, as usual, has been mimicking and amplifying gold's movements in both directions. With industry accounting for 50% of demand, the global recovery should give it a lift. It has also hugely underperformed gold in recent years, so there is scope for some catch-up on this front. Hence silver could reach $23 an ounce by the end of this year, says Capital Economics. But be warned: it is extremely volatile and thus highly risky.

Still afloat on a tide of QE

As long as central banks keep the money taps on, liquidity will boost stocks. But European and Japanese stocks are likely to do better than US peers. There, quantitative easing is over, while in Europe it has just begun. These markets are also better value.

Europe's improving economy also bodes well. In the US, monetary policy is about to be tightened, multinationals' earnings have dwindled due to the strong dollar, and stocks are wildly overvalued. The cyclically adjusted price/earnings ratio for the S&P 500 is almost 60% above its long-term average.

Emerging markets as a whole are currently growing by 4% a year, the slowest growth rate since the global financial crisis. The fall in commodity prices, notably oil, and the prospect of higher US interest rates, which bolster the dollar, all suggest growth is unlikely to pick up significantly anytime soon.

The MSCI Emerging Markets index reflects the shaky outlook. It is on a 35% discount to developed-world stocks in price/book-value terms. We generally prefer commodity importers with large domestic economies, such as India and the Philippines, although we also think troubled Brazil is enticingly cheap.

An asset to avoid

Government debt is so overvalued that negative yields have become common all over Europe. Investors clearly expect to be able to sell their bonds on to someone else rather than hold them to maturity and take a loss. In the corporate-debt market, yields are still positive, which is why investors have continued to pile into US company paper in the past three months.

But even these rates have fallen fast: the average yield on high-grade US corporate debt is around 3%; riskier "high-yield" debt is now a misnomer, with the average yield at 6%. Indeed, junk-bond yields have shrunk to levels seen on many governments' debt a decade ago. Stay away.