Any hope that the Bank of England would cut interest rates appears to have been pushed back by the General Election announcement, which will have implications for mortgages, savings and annuities.
Members of the Bank’s Monetary Policy Committee (MPC) are thought to be unlikely to take any decision that might be seen to favour any political party as the nation prepares to vote.
Head of personal finance and investment experts, Hargreaves Lansdown, Sarah Coles, said: “As politicians limber up for an election race, they’ll be hoping to kit themselves out with the policies that stand them in the best possible stead to get them first past the post.
“With money so tight for so many millions of people, and so much uncertainty for us all, all eyes will be on the impact on our finances.”
Experts at the firm have identified ten key things to watch.
Tax
Sarah Coles said: “Jeremy Hunt has already pledged that the Conservatives will move gradually towards lower taxation, and you can expect Labour to have tax firmly on the agenda too.
“Right now, neither party has a vast amount of cash to play with, so we might end up with vague promises about general approaches rather than any very specific tax cut pledges at this stage. They will also have to factor in the real pressure on public services.
“ONS figures show that almost as many people are as worried about the state of the NHS (88 percent) as they are about the money in their pockets (89 percent).
“We have seen taxes on investments increased over the past couple of years, so there’s the hope that whoever wins the election will revisit that decision and whether it’s the right thing to encourage investment within the UK. This is also an opportunity to consider cutting stamp duty, to further support retail investors.
Property
Sarah Coles said: “The struggle to afford a place of our own means that housing is has been named by the ONS as the fourth biggest issue facing the UK at the moment, with two thirds of people worried about it.
“It hasn’t taken centre stage yet, but it will have a time in the spotlight. Incentives for first-time buyers may well be part of the picture, and there’s the hope that any new government will revisit the Lifetime ISA, including the limit on the value of property that can be bought through the scheme. This hasn’t changed since the LISA launched, and without a link to house prices, it risks falling behind.”
Mortgages
Sarah Coles said: “Now that the forthcoming election has pushed rate cut expectations back as far as September, it’s going to mean bad news for anyone on a variable rate deal. Plenty of people remortgaged to these more than six months ago, in the hope that a rate cut was around the corner, so yet another delay will be a real blow.
“For those on a fixed rate mortgage, who need to remortgage in the near future, the picture is equally bleak, because fixed rate deals are unlikely to be falling any time soon.”
The State Pension
Helen Morrissey, head of retirement analysis at the firm said: “The future of the state pension – most notably the triple lock – is a major issue.
“There’s support for it from both Labour and the Conservatives, but it’s a divisive policy with younger generations shouldering the ever-burgeoning cost.
“Recent research from HL showed just 16 percent of the 18-34 age group would be more likely to vote for a party pledging to keep the triple lock. This compares to 54 percent of the over 55s.
“Regardless of who wins this election, people need certainty as to what they will receive from the state pension, and when, and we need a long-term plan. The eventual victor needs to implement a review of the state pension system and the triple lock’s role within it to give people comfort that they can plan for their future without any nasty surprises.”
Auto-enrolment
Helen Morrissey said: “Auto-enrolment into workplace pensions has been a great success so far, but it needs to go further. The AE Extension Bill has the capacity to do this, as it enables people to be auto-enrolled from the age of 18, as well as allowing pension contributions from the first pound of earnings.
“The Bill received Royal Assent last year, but all has gone quiet since, with the Pensions Minister admitting it might not be implemented for some time. However, it’s an important issue and it’s to be hoped this is prioritised by either party post-election.”
Lifetime Allowance – and broader pension taxation
Helen Morrissey said: “The outcome of the general election will bring some much-needed clarity on the Lifetime Allowance. The Conservatives scrapped it, but Labour has said it wants it reinstated. As yet, we don’t know how they would do this. Such confusion brings unnecessary complexity to people’s long-term planning, and we look forward to its resolution.
“Any reform of the pension tax system should be done with the aim that people are properly incentivised to save for their futures, without having to worry about being tripped up by complex rules.”
Annuities
Helen Morrissey said: “The annuity market has been riding high in recent years off the back of interest rate rises. The most recent data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension could get an income of more than £7,100 per year from a single life level annuity.
“The expectation is that as interest rates start to decline then so will annuity incomes. However, given that a general election makes the prospect of a rate cut less likely this summer then we could see annuity rates stay higher for a bit longer.”
Savings
Mark Hicks, head of Active Savings, said: “The savings market moved quickly in response to the election announcement.
“The Bank of England is going to want to skip changing the base rate around the time of an election, to avoid the risk it becomes politicised.
“As a result, the savings market has now fully priced in a delay to September. Before the announcement, August was still a reasonable possibility, and June was an outside chance. All that has changed.
“Savers could stand to benefit, because it could mean a pause in rate cuts, so easy access savers would continue to earn rates at or above 5 percent for a while longer.
“If you have cash you can tie up for a period, it also opens the window of opportunity, because fixed rates around 5% could hang around for longer too. However, it’s still worth acting sooner rather than later. The last week or so has shown how quickly expectations can change, so it’s worth taking advantage while you can.”
Investments
Susannah Streeter, head of money and markets, said: “The next few weeks might see some market ups and downs, because investors don’t like uncertainty, and the run up to a General Election always brings its fair share of that. However, the markets are relatively politically agnostic, particularly the FTSE 100 with its international focus, so whoever wins, it will settle down. As always, it’s worth taking a long-term view. A decisive victory by one side or the other will tend to bring more settled markets than a close-run thing.
ISAs
Susannay Streeter said: “The other thing investors should keep an eye out for is ISA announcements. ISAs are increasingly important to the UK investor at a time of rising taxes. Labour has spoken about the need for simplification in the past, while the Conservative government is currently consulting on the British ISA.
“It will be interesting to see how this shakes out, and we can only hope that any changes end up making the range even simpler and easier to use, rather than accidentally introducing needless complications.”
