AS THE dust settles around the Autumn Statement, savers are starting to get a much clearer view on what the future holds.
Ever since the Bank of England base rate was cut to 0.25 per cent in August, most traditional savings accounts have struggled to deliver returns of more than one per cent. With inflation set to rise to 2.3 per cent next year, this means that most Brits are set to see their savings depreciate in value over the coming months. As a result, more and more savers have been turning towards the alternative finance sector where peer-to-peer platforms are able to offer much higher returns.
So was Chancellor Philip Hammond able to offer any relief to savers in his first ever Autumn Statement? Read on for a run-down of the three key areas where savers could benefit and the potential pitfalls to watch out for…
ISA confusion continues
Tax-free savings accounts are one of the few ways in which savers can make inflation-beating returns on their money, particularly when compound interest is taken into account. However, the chancellor raised a few eyebrows by talking up the soon-to-be-defunct Help to Buy ISA, and not the Lifetime ISA, which will replace it in April 2017.
“With less than five months to go before the intended launch date of the Lifetime ISA, the chancellor oddly made no reference to it, choosing instead to highlight the Help to Buy ISA it is intended to replace,” said Steven Cameron, regulatory strategy director at Aegon. “The LISA will offer government incentives on savings for under 40s for either a house deposit or post age 60 retirement.
“This may reflect a rebalancing of priorities to promoting savings vehicles which are dedicated to helping first time buyers get on the housing ladder rather than on a mix of potential savings objectives. Retirement savings are already well served through workplace and personal pensions.”
While the Help-to-Buy ISA was purely designed to help young people save for a deposit on a house, the LISA can be used to save for property or retirement, or both. However, there is a controversial early exit penalty with the LISA, whereby savers forgo all government bonuses (worth 25 per cent of the value of your LISA savings each year) if they withdraw any cash before their 60th birthday.
Cash ISAs, stocks and shares ISAs and Innovative Finance ISAs are all still available as savings and investment vehicles, although the chancellor did not devote any time to these in his Autumn Statement.
Inflation-beating returns are getting harder to find
One of the few rays of light in the Autumn Statement was the announcement of a new NS&I savings bond paying out 2.2 per cent over three years. This is the highest-paying fixed-rate savings bond on the market at the moment, beating the current rate of inflation by 1.2 per cent. However, inflation is set to rise to 2.3 per cent next year and some economists have even suggested that it could hit four per cent over the next few years, depending on how Brexit negotiations go.
“Clearly the government would like to address the impact that a 0.25 per cent base rate has had on consumers’ income from their savings, however the new NS&I bond announced is way too little and shows how little the government can directly do about the impact of low savings rates,” said Stuart Law, chief executive of P2P platform Assetz Capital. “With its interest rate of 2.2 per cent and ridiculously low cap of £3,000 per person, [it] will make a mere £66 per year difference to a saver, before tax!
“With banks and indeed government ignoring normal investors, people need to look at alternative options for creating income, many of which are offering interest rates well above this proposed 2.2 per cent rate and with few limitations.”
Housing may become more affordable
Renters were given plenty to celebrate, with the news that letting agents’ fees are to be abolished. Predictably, estate agents are already appealing the decision and claim that these fees will be passed on to the landlords instead, who will cover the costs by raising rent.
Prospective homeowners also received a boost, as £3.15bn was set aside to build more names in London, and another £1.4bn has been earmarked to create 40,000 new homes in areas of high demand.
However, landlords did not receive the tax breaks they had been hoping for, fuelling fears of an accelerated rent hike across the UK, which would make life harder for the ‘just about managing’ families’ who were repeatedly name-checked in the Autumn Statement, and leave less money left over to save for home-ownership.
“It’s hard to know whether a ban on letting charges will be good news for tenants in the long run,” said John Goodall, chief executive and co-founder of property-focused P2P platform Landbay. “Landlords will have little choice but to absorb letting agent fees themselves and, in time, will pass these on to tenants.
“Scotland has already gone down this route, removing the fees back in 2012, and although there are a lot of moving parts in play here, it saw rents grow by 1.55 per cent over the past 12 months, the fastest growth of all of the UK home nations.
“It’s a start, but the fact is rents are likely to rise faster than house prices over the next five years, so the overall outlook for tenants is still bleak. What would really help those just about managing to climb onto the property ladder, is a bold but realistic commitment to encourage the expansion of rental housing, which would help maintain affordable rents.”