danielashby

UK homeowners more financially stable than other countries

UK adults who own their home are less vulnerable to financial shocks than those in other countries, according to HSBC.

Financial resilience

The UK has the second lowest number of people who would struggle to cope if mortgage interest rates increased by 2%; worldwide, 22% of people would face instability should interest rates rise, in Britain, it is just 16%.

Even a 5% rate rise would only negatively affect 35% of the UK's homeowners, compared to almost half (47%) of the global population.

Big spenders, bad savers

The study also shows that, on average, UK mortgage holders spend 34% of their monthly income on repayments, 4% below the global average. However, despite the tendency to spend large amounts on housing, many people looking to buy a house will struggle to save a large enough deposit. Globally, 80% of prospective homebuyers find saving a deposit to be difficult, compared to 84% of people getting ready to buy in the UK.

Despite this, current UK homeowners take an average of just four years to accumulate their deposit. While the worldwide average is a year longer, and French buyers spend around seven years saving.

One of the reasons behind the length of time people spend saving is growing deposit aspirations; 69% are planning to put a 20% deposit down. The main source of this money is regular savings at 78%.

So, whilst buying a house in the UK might be tough, it is comparably easier than in many other countries.

How interest rate rises affect homeowners

Tracie Pearce, HSBC UK's Head of Retail Products says:

Interest rates have been at historic lows for many years, and many people who got onto the property ladder in the last decade have never experienced anything else. In fact, the recent increase in the UK's Bank of England Base Rate would be the first time they have seen one.

Many home owners are heading into uncharted territory having entered the housing market with record low mortgage rates. They may have taken out a fixed rate that is due to come to an end or are on a Tracker rate and will possibly see their rate creep up over time.

While it is positive to see UK homeowners' resilience and confidence in their finances, it's important they are conscious of potential interest rate rises and how they might affect household budgets.

Preparing for a financial shock

The research shows that 41% of people are willing to stretch themselves financially to buy a better home. Consequently, leaving a larger safety net in place is sensible, because without it, the smallest financial shock could leave you in danger of:

• Being unable to make mortgage payments and potentially losing your home
• Falling behind on essential costs, such as household bills
• Falling into debt and negatively impacting your credit score
• Needing to borrow from friends and family to make ends meet

There are two forms of financial protection which can make riding out an income shock, or interest rate rise much more manageable:

1. An emergency fund

Emergency funds can be used for all kinds of financial trouble, from a broken-down car, to home repairs, or even to cover the costs of medical equipment after an accident.

Put simply, an emergency fund is money which can be used if your income cannot cover an essential expense. It is recommended that this fund is equal to three-to-six months of living costs just in case your household unexpectedly loses an income.

This will also provide a buffer if your interest rates rise more sharply than expected.

2. Insurance

The purpose of insurance is to pay out when something goes wrong. It is something that you never want to need, but you always need to have. There are three types of insurance to consider, which will protect you and yours from the financial implications of ill health or death:

• Life Insurance: Pays out a lump sum if you die of an illness which is covered within the terms of the policy
• Critical Illness Cover: Pays a lump sum or income upon diagnosis of a serious illness
• Income Protection: Replaces a portion of your income if you are unable to work due to illness or injury

The importance of financial planning

Taking financial advice and having a clear plan of action surrounding your finances can keep you financially confident and stable, no matter what trouble you may face. A good financial plan will include safeguards to protect you and your family, should the unexpected become reality.

To talk about the best ways to reinforce your family's financial stability, get in touch.

by danielashby

Spring Statement: An update for EIS and VCT investors

The recent Spring Statement included an announcement that the government will consult on how venture capital investments in start-up companies can be structured.

Venture capital schemes, including Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) deliver capital to start-up and small businesses while, subject to certain rules, investors qualify for tax-relief on their investments.

Patent Capital Review

The announcement comes after the government published the Patent Capital Review, aimed at unlocking £20 billion of long-term investment in innovative UK businesses, via venture capital schemes.

The new consultation is primarily aimed at understanding the funding requirements of innovative, knowledge-intensive companies, as well as how a new way of structuring Enterprise Investment Schemes (EIS) might work.

The 'Financing growth in innovative firms: Enterprise Investment Scheme knowledge-intensive fund consultation' document issued by HM Treasury said: The government sees the venture capital schemes as being increasingly focused on growth and innovation in the future. Evidence gathered during the consultation suggested that knowledge-intensive firms - which have high growth potential but are R&D - and capital intensive - have the most difficulty obtaining the capital they need to scale up. The EIS and VCT schemes are therefore being significantly expanded for knowledge-intensive companies. The government also announced that it would consult on a new EIS fund structure aimed at improving the supply of capital to such companies.

One of the ideas under consideration is to provide additional incentives to investors, including the possibility of exempting, rather than deferring, the gains on other assets when investments are made into an EIS.

However, it is understood that the government is not considering introducing a new EIS structure, reducing the three-year minimum holding period for EIS investments, or increasing the tax-relief available to investors.

VCT and EIS Tax-relief

Subject to certain criteria VCT, EIS and SEIS investments attract tax-relief, making them popular with those investors prepared to accept the significantly higher levels of risk associated with this type of investment.

VCT investments qualify for upfront tax relief equal to 30% of investments made in to new shares. If the investment is sold within five years, the tax-relief must be repaid.

EIS and SEIS investments qualify for tax-relief of 30% and 50% respectively. However, they must be held for at least three years, otherwise the tax-relief will be withdrawn.

Furthermore, gains on VCT, EIS and SEIS investments are exempt from Capital Gains Tax (CGT) and further relief is available if the investment is ultimately sold at a loss.

There are limits on the maximum tax-relief that can be claimed on VCT, EIS and SEIS investments.

Speak to us

The consultation closes on 11^th May 2018, and more information can be found by clicking here.

If you would like to know more about the government's consultation or the tax benefits of investing in a VCT, EIS or SEIS please contact us, we'll be glad to help.

by danielashby

Homeowning: The naivety of youth

Buying a house.

It's one of the biggest commitments your child will have to make when they grow up, but research from Halifax shows that many children and teens aged 11 to 21 are in the dark about how buying a house actually works.

What do they think?

Among all 11-21-year olds, there is a widespread belief that the average price of a first home in London is between £50,000 and £200,000. In fact, the average price of a first home in London is more than twice that, at £422,580.

There is a difference in beliefs among the age groups within the 11-21-year old bracket.

11-14-year olds

The youngest teens believe that:

• Mortgages are unlimited (20%)
• Their parents will pay for their house (33%)

The top three places to look for a property, according to this age group are:

• The internet (36%)
• A 'house shop' (33%)
• The bank (27%)

The priorities of 11-14-year olds upon moving into their new house are also interesting, with young teens most anxious to:

• Meet the neighbours 32%
• Get Wi-Fi 24%
• Buy a sofa 12%
• Throw a housewarming party 5%

15-17-year olds

For those in their mid-teens, expectations seem quite pessimistic; 23% of 15-17-year olds believe only rich people own their own homes, whilst 25% think that it will take 20 years of saving to gather enough for a deposit.

18-21-year olds

Among older teens and young adults, opinions seem to be more realistic, with home ownership of high importance to 59%. However, some aspects remain tinged with naivety, as:

• 27% expect to own property by the age of 25 (the average age of first time buyers is 31, rising to 32 in London)
• 10% define Stamp Duty as money used to buy stamps
• 23% of males and 5% of females think that they will need a deposit of £5,000 - £10,000 (the current average is £32,321)
• 31% of males and 18% of females are counting on inheritance to pay off their mortgage

How can you educate your children and teens?

Opening the bank of mum and dad (and grandparents) is increasingly necessary these days. But giving money away is not enough. It is also our responsibility to prepare them for the house-buying process so that they can tackle as much of it as possible on their own two feet.

These five tips should offer a good foundation for that education:

1. Work it out together

Start by communicating and finding out what your child wants in life. The type of lifestyle they aspire to have will largely dictate how they work toward it. Explain that things are unlikely to fall into place as soon as they enter the adult world and that they may have to compromise on some aspects along the way.

2. Look at the options

Using the time they have before buying a house is necessary, to look at some of the available options, there are several sources of help, for example; calculators and government schemes.

Use online calculators to determine how much mortgages cost and how much your child is likely to need to save to buy a house. Then investigate how much buying a home costs when you factor in the legal and moving costs.

Secondly, read up on Lifetime ISAs, Help to Buy schemes and Shared Ownership. These are all designed to get young adults onto the property ladder and could turn out to be the helping hand your child needs.

3. Create a plan

Now that you know where your child wants to be in the future and how much will be required to achieve that, you can work with them to create a plan. Consider how old they are and how much they will be able to afford as their income increases over time and work out a rough guide to get them homeowner ready in their 20s.

4. Check their credit and find ways to improve it

Of course, this is aimed at older teens and young adults, but it is never too early to learn about the impact of a credit score and what they can do to keep it healthy as they transition into adult life.

If your child is not old enough to have credit, you could show them your own credit profile and explain the different aspects and how they impact on the ability to access credit.

5. See a financial planner together

It may be worth taking you child along to an appointment with a financial planner so that they can see how important finances are in adult life. However, if your child is already over 18, maybe they would like to start seeing a financial planner themselves?

Either way, why not give us a call to see how we can help?

by danielashby

Divorce: Why you might be paying the price for decades to come

Getting divorced is an expensive process.

It can also take years, or even decades to fully be free of the effects.

During the process, you are likely to be affected emotionally, physically and financially, but over time, the first two effects will lessen. Unfortunately, the financial effects are often the slowest to heal.

According to research from Prudential:

• The annual income for divorcees is £3,800 less than those who have never been divorced.
• 23% of retirees will take significant debts into retirement with them, compared to 16% of non-divorcees.

The good news is, whatever the circumstances surrounding your divorce, it is possible to get yourself into a financially stable position again.

Richard Collins, Charles Russell Speechlys Family Law Partner, says:

We are beginning to see many more people divorcing just prior to, or during retirement. These decisions can only be made easily if there is proper financial provision in place for both spouses' retirement.

The fact that divorcees tend to have lower debts than their married counterparts may be down to the courts encouraging a clean break between divorcing couples where a clean break is affordable.

This allows divorcing couples to regain control over their own finances and consider how they want to plan for their separate futures. Many divorced couples re-evaluate their spending and finances after divorce and take this opportunity to build a stable financial future for themselves including growing enough pension provision for their retirement.

I've seen people post-divorce relishing their independent financial status and seizing the opportunity to make financial decisions for themselves, knowing that they are building up wealth and securing their future.

Your first priorities should be:

• Housing

Having somewhere to live in the short and long term is the most vital thing to consider when separating or divorcing. If you are staying in a shared home, will you be able to afford the payments now you are alone?

You may be entitled to support or state benefits to help you to find affordable housing and stabilise your finances.

• A financial safety net

One of the best ways to improve your financial stability, is to build up a financial buffer or safety net. Ideally, this should be equal to three-to-six months household expenditure. Try to hold your emergency fund in an instant-access account, even if that means compromising on interest rates.

At this point, it is also worth updating your will, as divorce will render your current one invalid.

Top tips for maintaining your financial stability during divorce

1. Handle the process practically

Don't rush into decisions. It is understandable that your head will be ruled by your heart at a time like this. However, financial decisions can affect you for life, so it is vital that you allow your sense of logic to step in and override any rash commitments you may be tempted to make.

To give logic a fighting chance, it may be worth discussing your ideas and thought processes with a friend or family member you trust.

2. Get your paperwork in order

Take care of your current obligations first, whether that's cancelling payments, changing your address with your bank or updating your nominated beneficiaries on your life insurance. Most of these can be done over the phone or online and, whilst they are small tasks, they can often feel very important and will give you a sense of accomplishment and control.

3. Re-evaluate your goals

What you want out of life may have changed since you last thought about your finances. During a calm moment, you should think carefully about what you want your life to look like and your ideal financial situation. Make some notes as you rediscover your priorities and keep them in a safe place; you will need them again.

4. Prioritise financial protection and retirement

If you haven't already invested in insurance, now is the time to take out Life Insurance, Critical Illness Cover and Income Protection. If you are living alone, or have dependants, the peace of mind is worth it.

Once the immediate threat of emergency is covered, it's time to think more long-term. Research has shown annual income is less for divorcees, but how can you avoid letting that affect the quality of your retirement?

You have three options:

• Making up the shortfall with bigger pension contributions.
• Accepting that you will have less to live on and adjusting your lifestyle accordingly.
• Staying in work for longer to earn more money and continue to build your pension.

Of course, you may have had plans to grow old with your ex and gracefully mature together. Now you have the opportunity to rethink that plan and replace it with your own aims and desires. Think about what you want your retirement to look like, then use a retirement income calculator to determine how much you will need to save to achieve it.

5. Make a plan

Now that you know what you want and what you need to get there, you can begin to put a plan in place to make sure that you keep your finances on track. To do this, you will need to find ways to bridge the gap between your current circumstances and your desired lifestyle. Which may seem impossible, but there are many options to consider.

Of course, if you would prefer the hard work to be done for you, you could consult an independent financial planner…

6. Consult a professional

Independent financial advisers and planners are experts at finding the solutions and strategies to bring you closer to your financial goals.

The main benefit of talking to a professional is the knowledge that they are clued up on the many types of product available and will have access to knowledge that you will not. That means that you can be secure in the knowledge that the products and methods suggested are the most suitable for your circumstances.

To rebuild your financial stability and confidence, get in touch.

by danielashby

Why lattes cost far more than you think

A new outfit, a cup of coffee, pizza on a Friday night. They're small, impulsive purchases, but they soon add up.

Research from Scottish Widows shows that each month, we each spend an average of £124 on things we could do without.

By swapping these 'little luxuries' for the simpler things in life, you could treat yourself to an extra £9,853 annual retirement income in your later years.

So, what are these 'luxuries', and how much do they cost us each week?

• Hobby equipment that never gets used: £2.18
• Using public transport for journeys within walking distance: £3.78
• Unnecessary taxi rides: £4.25
• Hot drinks from coffee shops: £6.95
• Disposable fashion: £7.88
• Ready meals: £10.87
• Shop-bought lunches: £11.78
• Snacks and sweets: £14.81
• Unnecessary takeaways: £16.82
• Nights out: £19.21
• Going out for dinner: £25.74

Each year, that adds up to £1,491.28.

(Source: Scottish Widows report)

Of course, we're not suggesting that you forgo everything that makes you happy, but even cutting down on a few 'luxuries' could give you extra money to boost your retirement savings.

Most intend to save more

32% of people say that they are already saving as much as possible, but with 12% admitting that they never keep track of their incidental spending habits, it is estimated that many of us underestimate how much we spend on 'little luxuries' by approximately £74 each month.

62% of people plan to set themselves a financial goal for 2018, of those:

• 28% want to spend less
• 45% want to save more

Overall, 33% of us cut back on spending in January, with each person holding back £109.03 over the month. Just one quarter put this money into savings, whilst a third (30%) use it to pay debts.

If you are one of those who have promised to curb your spending habits over the next 12 months, why not consider some of the other ways you can use that £124, each week?

Better uses of your money

Auto-enrolment into workplace pensions has meant that over nine million people are now paying into a pension fund, with additional contributions made by their employer. (Source: DWP )

Currently, the minimum contributions made by both employees and their employers is 1% each. However, these will rise to:

• 2% employer and 3% employee contributions in April 2018
• 3% employer and 5% employee contributions in April 2019

Last September, Royal London reported fears that up to 30% of people could choose to opt out of their workplace pension once the minimum contributions rise. Updated research shows that it has fallen to 17%, which is positive. However, that still equates to around 160,000 people who will not have a pension fund.

With an ever-increasing State Pension Age that always seems to be just out of reach, workplace pension schemes are increasingly important. In addition to that, your employer is legally obliged to pay in their minimum contributions and you will also receive tax relief; so why pass up what is effectively free money toward your retirement?

Balancing luxuries and planning for the future

The biggest concern here, is that, rather than giving up the occasional takeaway or night out, people will choose to opt-out of their workplace pension to continue to enjoy those small luxuries. Of course, no-one can force you to use your money one way or the other. But, it might be worth considering just how important the coffee and ready meal you buy today, will feel in 30 or 40 years' time.

Taking advice is always recommended. Research from Unbiased has shown that, those who seek independent financial advice could benefit from additional savings of £39 each week, which could lead to an extra £3,654 in annual retirement income in later life.

To discuss how you can boost your pension funds and prepare for your future lifestyle, contact us.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

by danielashby

Low growth predicted for UK house prices during 2018

Experts from Nationwide have predicted that house prices will largely remain flat throughout 2018, rising by a marginal 1-1.5% during the next 12 months.

Trends of 2017

Last year, London saw house prices slow significantly, with the growth rate falling for the first time in nine years.

In other regions, averages varied from month to month. For example, in northern England, Scotland and Wales, house prices are now 5% lower than they were 10 years ago.

Robert Gardner, Chief Economist for the Nationwide Building Society, said: Annual house price growth remained in the 2-4% range throughout 2017, in line with our expectations and broadly consistent with the 3-4% annual rate of increase we expect to prevail over the long term, as this is also our estimate for earnings growth over the long run.

Predictions for 2018

For those hoping house prices will rise in 2018, the outlook for growth is not optimistic. The ever-present squeeze on household budgets is predicted to slow down housing market activity, which will, in turn, affect house price growth.

Robert Gardner, again commented: We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth.

Overall, we expect house prices to be broadly flat in 2018, with perhaps a marginal gain of around 1%. Over the longer term, once the economy regains momentum, we would expect house prices to rise broadly in line with earnings (around 3%-4% per annum), though if the rate of house building fails to keep up with population growth, prices may outpace earnings once again, as they have in recent years.

Factors expected to affect house prices in 2018

There are four key areas which could challenge the growth of house prices over the next 12 months:

Politics: We don't like to bring politics into things, if it can be avoided, but there's little we can do this year to avoid the effects of Brexit. With the deadline for negotiations approaching in early 2019, it is not yet certain how the housing market will be affected by the EU/Britain divorce settlement.

New policies: The 2017 Autumn Budget brought in some big changes for prospective homeowners. With cuts in Stamp Duty for first time buyers purchasing homes under £300,000 and a reduction in the tax for homes costing up to £500,000, new buyers may be able to afford more expensive homes than they planned. However, there has been speculation surrounding whether those selling properties will view this as an opportunity to simply push the asking price up.

Rate of building: Throughout the first month in 2018, house prices saw a surprise boost due to a lack of available housing. Robert Gardner commented: The flow of properties coming on to estate agents' books has been more of a trickle than a torrent for some time now and the lack of supply is likely to be the key factor providing support to house prices. Though Nationwide do not believe that this will change their prediction of a marginal growth of 1-1.5%. (Source: The Guardian)

Interest rates: In November 2017, the Bank of England (BoE) doubled the base interest rate from 0.25% to 0.5%. This had mixed results, with savers seeing potential growth in their deposits and borrowers facing higher repayments.

The interest rate rise means that most mortgages will now be subject to higher interest rates, so homebuyers taking out a mortgage in 2018 might see higher monthly repayments than those who bought their house before the interest rate rise. That could result in lower buying rates and overall affordability.

What do other experts say?

Halifax predict that house prices will grow during 2018; but only slightly, with some external influences having major effects on the market. Russel Galley, Managing Director of the bank, says: On the flip side UK House Prices in general are likely to be supported, seeing modest growth in 2018, through the combination of a shortage of properties for sale, continued low levels of housebuilding, low unemployment levels and finally good levels of affordability due to the low interest rate environment. Despite the recent rate rise we do not expect this to have an adverse impact on transactions. A further rate rise is not seen as imminent and we may not see one until the latter part of 2018, if at all.

Fionnuala Earley, Hamptons International Residential Research Director has given her take on the 2018 housing market. She predicts house prices will rise by 1%, with rents increasing by double that. She concludes, The 2018 outlook for house prices is fairly benign given the economic conditions. (Source: Zoopla)

We won't try to guess what is going to happen to the housing market during 2018, but we can help you to plan for whatever the next 12 months has in store. So, if you're planning to buy a house soon, get in touch.

by danielashby

The gender pay gap: even pensions are not immune

By the age of 50, men's pension pots are double the size of women's, according to research from Aegon.

Why?

• The gender pay gap
• Differences in working hours
• Family responsibilities

What is the gender pay gap?

According to the Government Equalities Office: The gender pay gap is an equality measure that shows the difference in average earnings between women and men. (Source: gov.uk)

The past three months have seen huge progress made in terms of equal pay and the gender gap. In December, the Equality and Human Rights Commission declared that all companies must disclose the difference in pay between male and female employees, alongside limitless fines for non-compliance.

January has seen large media focus on the 500 large UK companies shown to have a significant difference between male and female staff wages.

The Government Equalities Office reports that the gender pay gap is now at its lowest level since records began; 18%.

What causes the difference in lifetime income?

The opinions on this topic are hotly debated and vary widely from group to group. However, there are three factors which may affect the average lifetime earnings of women:

1. Industry and sector:

There are less female employees in high-paying industries.

Research has shown that certain industries pay proportionately higher than others. A great example of this is STEM industries (science, technology, engineering and mathematics). In 2016, a worldwide study showed that entry level positions in this sector pay, on average 20% more than other fields. (Source: Korn Ferry)

Further research has shown that, despite 13,000 women entering the STEM sector, the overall percentage of women working in these industries has fallen from 22% to 21%. (Source: WISE Campaign)

2.Time spent in work:

Throughout life, there are events which force women to stop working, or reduce their working hours, including pregnancy, childcare and caring for relatives or loved ones. This means that, over a lifetime, men are likely to have more working hours in total, than women.

In September 2017, women made up almost three quarters (73.55%) of the part-time workforce, whilst men accounted for 63% of all full-time employees. (Source: ONS)

In addition to this, men who work full-time are likely to work longer days. According to Statista, in the year to June 2017, men worked for an average of five hours more than women each week.

3. Seniority:

Research from the Chartered Management Institute last year, showed that 66% of junior management positions are filled by women. Comparatively, senior management positions are more likely to be filled by men, with 74% of current positions held by males.

The same study found that, for women who are employed at a senior management level, pay is still disproportionate, with:

• Male directors paid an average of £175,673
• Female directors paid an average of £141,529

In addition, annual bonuses have shown a gender gap of 83%. Male CEOs receive an average annual bonus of £89,230, whilst females in similar positions receive just £14,945, on average.

How does that effect pensions?

People who earn more money can afford to put more aside for the future, it's that simple.

Given that employees are only automatically enrolled into a workplace pension, if their annual earnings reach £10,000 or above, it is likely that many part-time employees are not eligible. That means that many women, who have reduced their working hours may be left unable to save for retirement.

In 2015, government research showed that just two fifths of those who were eligible for automatic enrolment were female. (Source: Gov.uk)

The problem is further compounded by the fact that employer contributions are based on a percentage of earnings and the larger the contribution, the greater the level of tax relief.

What can you do?

There are many things you can do to improve your retirement income.

The only thing you shouldn't do, is nothing.

Of course, you can rely on the State Pension as a base income, if you have accrued enough credits to receive it. But it is unlikely that it will be enough to pay your living costs, any care needs you have and allow you to enjoy having more time to yourself.

To boost your pension savings, you can:

Ask to be included in your employer's workplace pension. Even if you fall below the earnings threshold, you can ask to be included in the scheme. The minimum contribution rates are due to rise in April, so be aware of how much you will lose in monthly income by doing so.

Start saving. Choose a vehicle which works for you, whether a savings account or pension, and start putting money away.

Seek independent advice. Research has shown that people who seek professional advice could save up to £98 each month toward their pension, giving themselves an additional £3,654 in retirement income each year.

Looking to make sure that you get an equal pension fund in later life? Contact us for more help and advice.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

by danielashby