Month: May 2021

Financial planning in a post-pandemic world…

‘Fail to plan, plan to fail.’ It’s an expression that anybody who has worked in management or the military must have heard a thousand times. Like all oft-repeated clichés, it carries a kernel of truth – and in no aspect of human life is the phrase more apt than in financial planning.

Unless you have a financial plan; for retirement, for saving, for long-term investment, for buying your home, for estate planning; then you cannot realistically expect to achieve your financial objectives.

Sceptics may ask ‘What’s the point of financial planning? What’s the point of any planning? We’ve just lived through the most turbulent, changeable year in any of our lifetimes.’

At first glance, it’s a valid point. On March 23rd last year the UK – like so many countries around the world – went into lockdown. Further lockdowns followed. Tens of thousands of people lost their jobs. Businesses which had taken years to build were wiped out overnight. Stock markets around the world experienced tumultuous times.

But 13 months later a vaccine programme is being rapidly rolled out. The economy is rebounding. Many of the world’s leading stock markets actually gained ground in 2020. All the world’s leading markets – with the exception of China, which fell 1% – made gains in the first quarter of this year.

What the last 13 months illustrates is not that there’s no point to financial planning: rather the reverse – that it is more important than ever. Pandemic or no pandemic, house sales continue, we still have to save for our retirement and – with a hefty bill for Covid to pay – the Government is still going to tax us on our savings, investments and our final estate.

What is interesting is that the fundamentals of financial planning have been completely unaffected by the pandemic. If the last 13 months have taught us anything, it is that what we previously thought couldn’t happen can happen – and in many cases happen very quickly – so we need a plan, we need savings: we need a buffer.

It has also reminded us that saving and investing is a long term commitment, and that there will always be short term fluctuations. More than anything though, we have been reminded how important regular contact between a financial adviser and a client is. Plenty of our clients have needed reassurance over the last 13 months: plenty have had questions that needed answering. We have been happy to do both.

There will undoubtedly be changes in the future, whether those are what Harold Macmillan famously called ‘events’ or clients drawing on the last year to re-evaluate what they want from life and their financial planning. We will always make sure that your financial planning is flexible enough to cope and to adapt. But make no mistake: the old adage ‘Fail to plan, plan to fail’ still rings true.

Will it ever get better for first time buyers ?

Over the past year we’ve seen tens of thousands of people lose their jobs. We’ve seen businesses up and down the country cease trading and we’ve seen enough uncertainty to last most of us a lifetime.

At the moment the forecasts are that the UK economy will be back to pre-Covid levels by the second or third quarter of next year – assuming, of course, that there is no ‘third wave’ of the virus next winter.

With all that going on – with the UK at one point facing the deepest recession for 300 years – there is surely one certainty in the financial world: house prices must have declined last year. Surely, at last, more first time buyers than ever must have had a chance to get a foot on the housing ladder. After all, there wasn’t just the pandemic, there was also the uncertainty of Brexit…

In fact, the opposite happened. Nationwide’s House Price Index for March showed that house prices were up 5.7% on a year-on-year basis, with the average house in the UK costing £232,134. After a year of lockdowns, house prices were still rising.

For first time buyers – young people looking to get a foot on the housing ladder for the first time – rising prices over the past year must have come as a real blow. In fact – with young people the demographic most likely to have been affected by the pandemic in the jobs market – it has been the proverbial ‘double whammy.’

So is the position for first time buyers likely to improve?

There are some grounds for optimism. The Chancellor’s stamp duty holiday is due to end on September 30th. As a consequence, the Office for Budget Responsibility expects house prices to fall by 1.7% next year. The forecasting organisation Oxford Economics, however, is suggesting that the fall will be between 4% and 5% in 2022.

Will that be the case? Some pundits believe that as the housing market has stood up to the pandemic reasonably well, it will do even better as the economy starts to recover.

There are also regional factors to take into account. Many people have used the period of lockdown to reassess their lives and where they want to live. The BBC recently reported an ‘explosion’ in demand for property on England’s south coast and on the Welsh coastline. First time buyers in these areas are likely to face competition from people buying second homes or relocating from cities and downsizing.

The Chancellor sought to give first time buyers a further boost in his March Budget, with the mortgage guarantee scheme providing government backing for 95% loans on both new builds and existing homes. But as the economy ‘bounces back’ first time buyers may need further help still in order to find a foot on the housing ladder.

How to choose the best cash ISA…

We all know that interest rates are at historic lows – and with them showing no sign of increasing in the near future, you could be forgiven for thinking that Cash ISAs would be quickly losing their popularity.

Despite the fact that even significant levels of saving don’t get much more than a few pounds in interest, more than eight million people in the UK pay into a cash ISA each year. Perhaps with good reason: if the last year has taught us anything, it’s that what you once thought impossible is this week’s ‘new normal.’. And in such uncertain times the value of a cash buffer cannot be underestimated.

It’s easy to think that when rates are so low it’s not worth the time and effort to shop around; to make sure that you’re getting the best cash ISA for you. We’d argue that’s a dangerous approach to take with any aspect of your financial planning. We’re happy to advise clients on the best available products, and clients doing the work themselves should be equally diligent.

Traditionally, the longer you lock your money away for the higher the interest rate. At the time of writing 1.25% is available on a cash ISA – but you need to deposit at least £1,000 and tie the money up for seven years. There are other rates above 1% – but they are typically five year fixed rates, and the simple fact is that most cash ISAs are paying a rate of interest below the current level of inflation.

So would you not be better off forgetting cash ISAs and simply putting your money in a savings account, retaining flexibility and easy access to your money?

We would almost always recommend making the most of your ISA allowances, purely because there is no way of knowing when the Government might withdraw or cut the personal savings allowance. As we saw in the recent Budget, the bill for the measures taken to support jobs and businesses during the pandemic will have to be paid at some point.

Once your money is in a cash ISA it is sheltered from the taxman indefinitely. If, for example, you wanted to move your savings into a stocks and shares ISA, putting it into a cash ISA now will protect the tax-free status of the money.

In summary, despite the historically low interest rates cash ISAs still have an important role to play as part of many savers’ and investors’ overall financial planning portfolio – and it is still worth doing the necessary research to find the best rate available. As the old saying goes, ‘Take care of the pennies…’