Annual legacy income reached a record level during 2022/23 but charities are being urged to brace themselves for a fall in the value of legacies over the next four years due to a declining value of homes amid the cost-of-living crisis.

The warning has been issued by consultancy Legacy Foresight, which expects legacy income to fall to just under £3.9bn in 2025/26.

Considering inflation, it expects the real value of legacy income to fall by around 9% over this period. It warns that house prices may not start to recover until 2025/26.

The warning comes as its figures for 2023/23 show legacy income reached £4bn for the first time, representing annual income growth of 6.5%.

However, this growth “has been primarily driven by a very buoyant housing market in the post-Covid years of 2021 and 2022”, and this boost “is likely to be a short-lived one as house prices have already started to fall”.

It added that “some charities are already reporting evidence of falling values”.

According to asking price figures for November 2023 from online property website Home.co.uk the value of homes has slumped by 1.6% over the last year.

Prices fell over the last month in all English regions, Scotland and Wales, with the largest monthly fall in the South West, where prices “plunged” 1.2%, the website added.

Figures for October from mortgage lender Halifax, based on mortgage transactions each month, put the annual fall in the value of homes at -3.2%.

Legacy Foresight added that “falling house prices not only impacts average gift values but can also impact the time taken between notification and money being received by a charity, as houses take longer to sell while people hold out for higher sale prices”.

It said it started to see evidence of this in 2021/22 with a quarter of charities it is involved with seeing residual bequests take longer than 24 months between notification and income.

“But in 2022/23, this number rose to 46%. While this doesn’t change income over the long run, it does create a challenge for charities in terms of cash flow and budgeting,” added Legacy Foresight.

“While it’s not good news that legacy income is likely to fall over the next few years, it is worth noting that the reduction in income is relatively small and comes at a time when other forms of fundraised income are under even more pressure due to people feeling the squeeze in the cost-of-living crisis,” said the consultancy.

“Given this, it is likely that legacy income will retain its position as a key resilient source of income in the challenging next few years.”

It expects legacy income to accelerate rapidly after 2026 and forecasts legacy income will reach over £6bn in real terms by 2050.

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