Will house prices continue to rise rapidly?

Will house prices continue to rise rapidly?

Over the last year, house prices have continued to rise rapidly. Figures show that house prices have reached record highs, but is it a trend that will continue?

Even the challenges the pandemic presented to the housing market did not stop house prices from increasing. In fact, the pandemic may have contributed to their rise. After spending more time indoors and embracing working from home, many families have been seeking more floor space and a larger garden to enjoy.

A temporary Stamp Duty holiday was introduced when there were concerns that the pandemic would slow the housing market down. However, this came to an end in September 2021 and, so far, prices remain high.

According to the Halifax House Price Index, the average property in the UK was priced at £267,587 in September 2021. That’s after house prices experienced growth of 7.4% in just a year.

Forecast: House prices will slow but they won’t fall

While expert forecasts suggest that the pace of growth in the housing market will slow, house prices are still expected to rise.

According to Hamptons, as reported in the Guardian, between 2022 and 2024, house prices will increase by up to 3.5% a year. While that might be lower than the rise over the last year, it’s still a significant amount. On an average property, that’s a rise of just under £10,000 a year.

If you’re already a homeowner, rising house prices can help make the cost of your mortgage cheaper. As house prices rise, the more equity you’ll own in your home. As a result, you can often access more competitive interest rates. If you’re remortgaging, it’s worth checking how much your home is now worth to take advantage of prices rising, and keeping this in mind for the future too.

3 things that could affect the housing market

While house prices are expected to continue rising, the yearly increases are predicted to slow. A variety of reasons could play a role in this trend, including these three.

1. Interest rates are expected to rise

The UK has had low interest rates since the 2008 financial crisis. For borrowers, including those with a mortgage, this has meant the cost of servicing debt has been lower. When taking out large loans, for instance, to buy a home, even a small difference in the interest rate can add up.

Before the pandemic, it was suggested that the Bank of England would begin to raise interest rates. Now, interest rates could be used as means to slow the high levels of inflation the UK is experiencing. It means the cost of paying a mortgage will rise and could slow the market down.

2. Inflation is placing pressure on household budgets

As mentioned above, inflation in the UK is high. The Bank of England has a target of 2% inflation a year. For 2021, it’s expected inflation will be around double this goal.

Inflation means the cost of goods is rising, from household essentials to luxuries. As the cost of living increases, some households will find that their budgets are tighter, especially if salaries fail to keep pace. This could have a knock-on effect on the housing market if families decide to stay in their current homes to feel more secure.

For existing homeowners, it may mean families don’t want to take on larger mortgages and move up the property ladder. For aspiring first-time buyers, budget pressures could mean they find it much harder to save the deposit they need or access a mortgage.

3. First-time buyer support schemes are coming to an end

Finally, in the next few years, some of the support schemes put in place to help first-time buyers will be ending.

The Help-to-Buy Equity Loan Scheme, for instance, will close in 2023. This scheme has provided loans to thousands of first-time buyers in England to lower the deposit they need to save and the mortgage they need to be approved for. Similarly, the Help-to-Buy Scheme in Scotland will close in April 2022.

These schemes have played a vital role in the housing market by providing first-time buyers with much-needed support. If first-time buyers struggle in the coming years to take that first step onto the property ladder, it could affect the whole market.

Of course, these schemes could be extended or new schemes brought in to fill the gap, but for now, their future remains uncertain.

If you need help securing a mortgage, whether you’re buying a new home or remortgaging your existing home, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Thinking about buying a new-build property? Here are the pros and cons to weigh up

Thinking about buying a new-build property? Here are the pros and cons to weigh up

When you’re looking to buy a new home, there’s often a huge selection to choose from. Setting out what kind of property you want can help narrow down the list. From how many bedrooms you need to the location, there are plenty of important factors to consider. One of the first you may want to think about is whether to opt for a new-build property or not.

Every year, there are thousands of new homes built across the UK and you could be the first person to move in. Even after the pandemic affected housebuilding in 2020, more than 120,000 homes were built, according to figures released by NHBC.

You may be tempted to buy a new build for a variety of reasons. Perhaps a new development happens to be in an area you’d like to live in. Or maybe you’re using the government’s Help-to-Buy Equity Loan Scheme and must choose a new build for your first home. Whatever your reasons, you should understand the pros and cons of a new-build before you put in an offer.

The benefits of buying a new-build property
  • There will often be little work for you to do

If you want to move straight into a property without having to take on projects, a new-build can be attractive. There will often be little maintenance work that you need to do, and you’ll have a blank canvas to put your own stamp on. It can make moving home less stressful. If you buy your property off-plan, before it’s built, you may be able to have a say in things like the tiles used in the kitchen or even the layout.

  • A new build is likely to be more energy-efficient

New-build properties must comply with energy efficiency regulations. As a result, they’re likely to be far more energy-efficient than older properties. This can make your home more attractive when you sell it, as well as reducing your energy bills.

  • A new-build won’t be part of a chain

Buying a new-build means you don’t have to wait for the seller to find a new home. It can speed up the process of buying and put you in an attractive position if you’re selling a property.

  • Most new-builds come with a warranty

While not every new-build property benefits from a warranty, most are guaranteed for 10 years. This can give you confidence and means you won’t have to worry about large maintenance costs in the short term. Be sure to check what a warranty will cover and any restrictions that may be in place.

  • You can buy a new-build while using the Help-to-Buy Scheme

If you’re a first-time buyer and hope to use the Help-to-Buy Equity Loan Scheme, you will have to purchase a new-build property.

The drawbacks of buying a new-build home
  • You’re likely to pay a premium for a new-build

If you compare a new-build property to a similar property that is older, the new-build will likely cost more. As a result, your mortgage outgoings will probably be higher. The new-build premium can mean the value of your house falls in the short term, so if you’re planning to move relatively quickly, this can be a problem.

  • New-build properties can be less spacious

Property developers trying to get the most out of land may squeeze in as many properties as they can. In some cases, this means new-build homes are less spacious than older properties, particularly when it comes to storage areas. When viewing a property, make sure you look at the measurements and how the space will suit your lifestyle.

  • The quality of new-builds can vary

New properties have received bad press for poor quality in recent years. It’s important to note that this isn’t always the case, but that quality varies. While it’s a new build, it’s still advisable to pay for a snagging survey. A snagging survey involves an expert highlighting the defects that the developers should fix, and they may liaise with the developers on your behalf. Even with a new property, things may not be perfect.

  • Developments can face delays

If the property isn’t yet complete, keep in mind that developments don’t always run smoothly. A delay in when you can move in can have a knock-on effect. For example, your mortgage offer may expire, it could affect the sale of your own property, or you may need to rent a home for longer than expected.

Are you ready to search for your new home?

Whether you decide a new-build is right for you or not, the home buying and mortgage processes can be complicated and stressful. We’re here to help you throughout the process and secure the right mortgage deal for you.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Do you have more than £10,000 in cash? You could be missing out on investment returns

Do you have more than £10,000 in cash? You could be missing out on investment returns

How much money do you hold in cash accounts, like a current account or savings account? Figures suggest that millions of people are in a position to invest but are missing out on potential returns because they’re choosing cash.

A new Financial Conduct Authority (FCA) campaign is aiming to reduce “investment harm”. This includes helping investors spot potential scams and reducing the number of people invested in inappropriately high-risk investments. But one form of “investment harm” you may not have thought of is choosing not to invest.

The FCA estimates nearly 8.6 million people are holding more than £10,000 of investable assets in cash. So, if you’ve been holding cash over investing, you’re not alone. Reviewing your money can help you see if investing could make financial sense for you.

Why cash savings affect your long-term finances

On the surface, holding money in cash can seem like a sensible option. It’s in your account and you can withdraw it whenever it’s needed. This can make it seem like the “safe” choice when deciding what to do with your money.

Under the Financial Services Compensation Scheme, your money, up to £85,000, held in a cash account is often protected, even if the bank fails.

So, why would cash mean you have less in the long term? Inflation means the money in your savings account will gradually buy less. The interest rate you receive on cash savings is likely to be below inflation. Over time, the value of your savings will start to fall. It’s not something you notice in the short term, but it does devalue your savings over the long term.

Even over just a decade of saving, inflation can have a marked impact. The Bank of England’s inflation calculator shows that if you had £10,000 in a savings account in 2010, you’d need £13,112,60 to achieve the same level of spending power in 2020.

Current interest rates are unlikely to have generated the £3,112.60 extra you’d need for your savings to have the same value. As a result, your savings are now worth less than they once were.

Investing can provide an opportunity to make your money work harder and offer a chance to keep pace with inflation. However, it’s not the right option for everyone.

2 questions to answer before you invest
  1. Do you have an emergency fund? A financial safety net is important for long-term financial security. Before you invest you should ensure you have an emergency fund you can dip into when you need it. How much you need in an emergency fund will depend on your commitments, but a rule of thumb is three to six months of expenses.
  2. What are you saving for? If you’re saving for a holiday next year, investing isn’t the right option for you. Investment values can experience short-term volatility and, for this reason, investing should be done with a long-term goal in mind. Ideally, you should invest for a minimum of five years.
The first steps to take when you’re investing

If you’re investing for the first time, it can seem daunting and complex. When you’re used to holding money in cash, investing can seem risky.

While all investments do carry some level of risk, this level varies. These three steps can help you choose the investments that are appropriate for you.

1. Set out your goals

You should always invest with a goal in mind. Perhaps you want to invest so you can retire early, or want to build up wealth that you can gift to children in the future. How you want to use the money will affect both your investment time frame and the level of risk you take.

2. Understand your investment time frame

How long you will be investing for is important. Your time frame will affect how much risk is appropriate for you.

In the short term, markets and portfolios experience volatility. It can be difficult not to focus on this volatility and can lead to some investors making knee-jerk decisions that aren’t right for them. Setting out when you want to access your investments can help you keep the bigger picture in mind.

3. Know what level of risk is appropriate for you

As mentioned above, all investments come with some level of risk. However, when creating an investment portfolio, you should take the time to understand how much risk is appropriate for you.

If you’ve put off investing because you don’t like the idea of taking a risk with your money, it can be difficult to understand what makes sense for you. Likewise, it can be easy to take more risk than is necessary for your goals. Having a clear risk profile can help you make informed decisions that reflect your wider financial circumstances.

If you’d like to discuss which investments could be right for you or whether you should move cash savings to investments, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

Why you need to understand your State Pension entitlement

Why you need to understand your State Pension entitlement

Your State Pension may only make up a relatively small portion of your retirement income, but it’s an important part of it, and so it’s crucial you understand your entitlement. The recent news of underpaid State Pensions shows that many people don’t know how much they should receive.

More than £1 billion unpaid to pensioners

While the State Pension can seem straightforward, in reality, it can sometimes be complex. Despite efforts to simplify the State Pension system, recent reports of pension underpayment to women have highlighted how many people still don’t understand what they’re entitled to.

Earlier this year, it was revealed that thousands of women had been underpaid by the government. It’s also estimated that around 134,000 pensioners haven’t been paid what they should. While the government is correcting the mistake, it could take years to distribute the £1 billion of underpayments. Those affected will receive an average payout of £8,900 each.

The error has mostly affected elderly, widowed or divorced women due to the complexities around married women claiming a basic State Pension based on their husband’s record of National Insurance contributions (NICs).

While the Department of Work and Pensions have said human error played a role in the mistakes made, the scandal does highlight how complicated it can be to calculate how much State Pension you should receive.

So, why do you need to know how much State Pension you’re entitled to?

  1. Mistakes happen. As the recent underpayment highlights, mistakes do happen. If you understand how the State Pension works, you’re far more likely to notice if errors do occur and ensure these are rectified sooner.
  2. You can spot gaps in your NICs record. How much State Pension you’re entitled to will depend on your NICs. In some cases, you may have an opportunity to fill in gaps on your record, which could increase the amount of State Pension you receive.
  3. The State Pension provides a retirement income foundation. The State Pension provides a reliable income throughout retirement. As a result, it can play a valuable role in your long-term financial plan by providing security if other income sources are affected by things like investment market volatility.

Understanding the State Pension means you’re in a better position to create a long-term financial plan that helps you reach your goals.

How does the State Pension work?

If you reached the State Pension Age before 6 April 2016, the old State Pension rules will apply. However, most people planning for retirement now will qualify for the “new State Pension”, which sought to make the State Pension simpler.

Under these rules, you need at least 10 qualifying years on your NI record. They do not have to be consecutive years. To receive the full State Pension, £179.60 each week (£9,339.20 annually) in 2021/22, you’ll need 35 qualifying years on your NI record. If you have between 10 and 35 qualifying years, you’ll receive a proportion of the State Pension.

If you have fewer than 35 years on your NI record, you can often buy additional years to increase how much you’ll receive from the State Pension.

In addition to the amount you’re eligible to receive, you need to know when you can claim it. The State Pension Age for men and women has now equalised and is gradually rising. In October 2020, the State Pension Age hit 66 and will reach 67 by 2028. It is being kept under review and could rise further in the future.

To understand what you’re entitled to under the State Pension, you need to know your State Pension Age and how many qualifying years you have on your NI record. The government’s State Pension forecast can help you understand what to expect.

How the State Pension can help you maintain your spending power

While other sources of income in retirement may fluctuate depending on your circumstances or investment performance, your State Pension is valuable because it’s reliable. It also rises each tax year, helping to maintain your spending power.

As the cost of living rises, an income that remains the same will gradually buy less. Over a retirement that could span decades, even small increases in inflation can have an impact on the lifestyle you can afford. So, an income that rises alongside this is important.

Usually, the State Pension annual rise is protected by the triple lock. This means that the State Pension will rise by the highest of:

  • Average earnings growth year-on-year for the May–July period
  • Inflation in the year to September, measured by the Consumer Price Index
  • 2.5%.

However, average earnings growth will not be included when measuring how the State Pension will increase for the 2022/23 tax year. In 2020 during the May–July period, the country was in lockdown due to Covid-19. Many people experienced reduced wages due to receiving 80% of their usual salary under the Job Retention Scheme when they were unable to work. As the economy began to reopen, this inflated earnings figures, and the triple lock meant that pensioners would have received a record 8.8% boost.

The government has argued the earnings growth for this period don’t reflect reality and will not use this measure when calculating the State Pension increase for the 2022/23 tax year. As a result, the new State Pension will increase by 3.1% for the 2022/23 tax year and pensioners will receive £185.15 a week (£9,627.80 annually).

If you need help understanding how your State Pension fits into your wider retirement plans, we’re here to help. Please get in touch to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Generation X is looking forward to life’s small pleasures in retirement, but are in the dark about the cost

Generation X is looking forward to life’s small pleasures in retirement, but are in the dark about the cost

How much do you need to save for retirement? It’s an important question, but research suggests that while Generation X is looking forward to the life they’ll have after work, many haven’t thought about the cost.

Generation X, defined as those being born between the mid-1960s and the early-1980s, are beginning to approach retirement. While it can still seem some way off, getting plans and finances ready can help you create the lifestyle you want. Understanding what your retirement lifestyle will cost, and how to pay for it, means you can address potential gaps now to keep your plans on track.

33% of Generation X prioritise socialising in retirement

Retirement is often associated with big-ticket expenses, from luxury cruises to a holiday home in the UK. Yet, a third of Generation X want to prioritise socialising over big-ticket items, according to Money and Pension Service research. Among the simple pleasures that can make retired life fulfilling that they’re looking forward to are:

  • A trip to the seaside (42%)
  • A meal out in a nearby restaurant (34%)
  • A coffee with friends (33%)
  • Gardening (32%)
  • Entertaining family and friends at home (28%)
  • A drink in their local pub (24%).

After the challenges of not seeing loved ones during the Covid-19 pandemic, it’s not surprising that 73% said that spending time with family and friends has become more important. With a focus on loved ones and enjoying the small pleasures of life, you may think that Generation X doesn’t need to worry about saving enough for retirement. However, the research suggests many will need to cut back on their plans unless they boost their retirement savings.

Carolyn Jones, pensions expert at Money and Pension Service, said: “Enjoying life’s little pleasures, like a catch up over a coffee with friends, has become even more special than ever in recent months. But our research has served up a less than tasty truth, that many of those currently saving for retirement could face having to cut back on the lifestyle they’re expecting. The important thing is, it’s not too late to take action.”

How much do you need for retirement?

There’s no one-size-fits-all rule when it comes to how much you need to save for retirement. You need to consider things like:

  • What financial commitments will I have in retirement, such as a mortgage or supporting children?
  • What will my essential expenses include?
  • How much disposable income do I need to create the lifestyle I want?
  • Do I plan to make any large one-off expenses in retirement?

Understanding what you want your retirement to include can help you see how your pension and other assets will support this.

To provide a general idea, Which? research suggests a couple wanting a “comfortable” retirement would need an income of £26,000 a year. This budget includes some of the things that Generation X highlighted as important to them. For instance, an annual budget of £1,476 a year is earmarked for recreation and leisure. It also includes holidays in the UK or Europe. If you want a “luxury” lifestyle with a budget for expensive meals and long-haul holidays, the research estimates you’d need an annual income of £41,000.

For most of Generation X, their main way of saving for retirement will be through a pension. So, understanding how a pension can translate into an income is important.

If you have a defined contribution pension, your savings will usually be accessible from the age of 55, rising to 57 in 2028, and will be a lump sum. There are several ways to access your pension. You could purchase an annuity to generate a guaranteed income for life. Or you could use flexi-access drawdown to create a flexible income, with your untouched savings usually remaining invested.

The Which? research assumes couples will receive the full State Pension, providing a reliable income to build on. For couples aiming to achieve an income for a “comfortable” retirement, the organisation estimates they would need:

  • £265,420 to purchase an annuity
  • £154,700 when using flexi-access drawdown.

While the flexi-access drawdown option may seem more attractive, keep in mind that your money will be invested and the calculations assume your savings will grow by 3% each year, which cannot be guaranteed. Leaving your money invested provides it with an opportunity to grow, but also means it’s exposed to investment risk. This can be the right option for some, but others may find the security an annuity offers is preferable.

Are you ready to plan your retirement?

While it is not too late to boost your pension, it’s not too early to start planning for your retirement either. Whether you’re looking forward to socialising with loved ones more or other experiences, the decisions you make now can have an impact.

We’re here to help you make sense of your options and how pensions can help you turn retirement dreams into a reality. Please contact us to arrange a meeting with one of our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

How much does your partner have in their pension? 78% of married people have no idea

How much does your partner have in their pension? 78% of married people have no idea

Retirement planning as a couple can be difficult. You may have very different ideas about when you want to retire and how you want to spend your time. While it’s something of a taboo subject, understanding what you both want out of retirement and how you’ll create an income can help you get the most out of it.

A survey conducted by LV= found 78% of married people have no idea what their spouse’s pensions are worth. In fact, almost half (47%) have not spoken to their spouse about their retirement plans. While you may not have discussed how much you’re putting away for retirement, planning together often makes sense.

4 reasons to plan your retirement as a couple
1. Create the retirement lifestyle you want

When you think about your retirement, what does it look like? When do you hope to retire?

Without a clear picture of what you want retirement to be, it can fail to live up to your expectations. Setting out what you want your lifestyle to look like can help you get the most out of the next chapter of your life. If you’re planning with a partner, it is just as important to understand what they are looking forward to in retirement as well.

You may have very different goals, from the date you’d like to give up work to the life you’ll build. A conversation about what retirement will look like now can help you create a plan that suits both of you.

It’s common to focus on the big things when thinking about retirement, like a once in a lifetime trip or other big-ticket expenses. However, the day-to-day lifestyle you create in retirement is crucial for long-term happiness and fulfilment too.

2. Understand how to create a retirement income

In retirement, will you pool both your incomes to pay for essential outgoings? Will you share a disposable income?

Many couples will share income and expenses while they’re working and continue this into retirement. If you’ll pay for retirement as a couple, it’s important that you understand the steps you’re both taking to create an income when you give up work. It can help ensure you identify gaps sooner, enabling you to take steps to close them where possible. You could also find that collectively you’ll have more saved for retirement than you thought, allowing you to retire sooner or increase your planned income.

3. Make the most of allowances as a couple

Planning together can reduce your tax bill and help you make your money go further. The LV= survey found that 85% of non-retired married people are not aware of the tax efficiencies of planning retirement together. By not planning together, they could be missing out on reducing their tax liability.

While you’re still saving for retirement, adding to your partner’s pension can make sense. The Annual Allowance limits how much you can tax-efficiently save into your pension each tax year. This is usually £40,000 or your annual income, whichever is lower. If you may exceed this threshold, adding to your partner’s pension can increase how you’re saving tax-efficiently.

Once you’re retired, planning together continues to make sense. Money withdrawn from your pension may be subject to Income Tax when you exceed the Personal Allowance (£12,570 in 2021/22). Spreading withdrawals across both your pensions can help you make use of your Personal Allowances to reduce the amount of tax paid.

Depending on your assets and goals, there may be other allowances that can help you create a long-term income that minimises tax. Please get in touch with us if you’d like to discuss how to save for retirement efficiently.

4. Ensure the long-term security of you and your partner

While it can be difficult to contemplate, it is important to consider how financially secure you would be if your partner passed away, and vice versa. Not planning as a couple can leave a surviving partner in a vulnerable position and potentially struggling financially.

By considering what could happen, you’re in a position to take steps to ensure long-term security for both of you, even if the unexpected happens. This could include ensuring your partner will inherit your pension by completing an expression of wishes, or purchasing a joint annuity so they would still receive a regular income if you passed away.

Start building your retirement plan as a couple

It can be difficult to know where to start when planning your retirement, especially if you have different goals for your partner. We’re here to help you put a long-term plan in place to help you get the most out of your retired life, whether you’re ready to retire now or are still saving for the milestone.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.