The Brexit vote has introduced additional complexity that has to be taken into account as part of the financial planning process. Whilst not exhaustive, both mortgages, pensions and savings are good examples of planning areas where the UK’s potential independence from Europe will impact the thinking of both clients and advisers.
In an uncertain post-Brexit-vote world, there is one uncertainty many homeowners could eliminate. That is the threat of their biggest financial outgoing, their monthly mortgage payment, becoming an even greater burden. One solution could be a fixed rate mortgage – a tool available to both homebuyers and those who want to stay in their home but cut their monthly bill.
One factor that could make a fixed rate mortgage so compelling, apart from payment certainty, is that rates are currently attractive when compared to historical rates. For example:
- HSBC: 0.99% - Fixed to 31/08/18
- Chelsea: 1.15% - Fixed to 31/07/18
- Yorkshire BS: 1.25% - Fixed to 31/07/18
Five-year fixes are available (subject to circumstances) at around 1.89 -1.99%.
Even if the Bank of England resorts to a short-term cut in base rate to ward off an economic downturn, fixed rate loans may not become much cheaper than they are at the moment.
PENSIONS & SAVINGS
Many pundits are telling us that low interest rates and volatile stock markets could be the order of the day for the foreseeable future.
This means it may be more challenging to build long-term wealth, whether inside a pension, Individual Savings Account or other investment vehicle. One way to ride out the uncertain times is to keep saving and investing – using all available allowances – through thick and thin. That includes taking advantage of the annual ISA allowance, £15,240 in the current tax year.
Pension saving should also remain a priority, especially given that the tax relief currently available on contributions may not be here forever. Earlier this year the Government threatened to overhaul this generous tax incentive, but backed off in response to a backlash from key areas. However, the saving of £20bn+ will probably be back on the Government’s agenda sooner rather than later. As Tom McPhail, head of retirement policy at fund broker Hargreaves Lansdown, says: ‘It’s a tempting target if the Government needs to trim its spending.’
Morten Nilsson, Chief executive, NOW: Pensions says: ‘Over time, aspects of UK pension law will need to be disentangled from EU legislation, which presents an opportunity to reconstruct UK financial services legislation in a way that best serves the UK market in the most cost effective way.
Ultimately, pension saving remains one of the most tax efficient ways to save in the long term. The decision to leave the EU hasn’t changed that.’