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The emotions that arise when investing

Emotions are important. We should listen to them… most of the time at least. However, investing is one case when it’s best to let rational thought take priority over your emotions. By all means, listen to your emotions, but don’t be led by them.

Here’s a slightly shocking fact: In 2018, the S&P 500 generated an average return of 9.85% annually. However, research by Dalbar found that the average investor earned roughly half of that: 5.19%.

 Why? Humans are emotional creatures and investing is an emotional experience, therefore investors are tempted to make rash decisions like rapidly selling during a market downturn. 

When investing, a patient, logical approach is usually the most effective over the years. This means prioritising long-term investments over the impulse to buy and sell based on your emotions or short-term goals. 

We’ll admit that it’s hard to avoid becoming entangled in media hype or fear, something that can lead you to buying at the peak and selling at the bottom of the market, so you need to be self-aware enough to recognise when this is happening.

The cycle of investor emotions

It’s common for investors’ emotions to move in something of a cycle, similar to the one shown in the diagram below. The point of maximum financial risk lies at the top of the market curve. Here, there is the potential to make a decision motivated by short term gains, when it’s likely that the best gains have already passed.

Investors who wait until this point are often at risk of ploughing their cash into a market that might soon crash.

On the other hand, during times of rising market volatility, investors should remember the importance of looking beyond short-term market fluctuations and remember that although markets take time to recover, they usually do. If you sell during a downturn due to fear, you risk selling at the point where markets are lowest. 

You are essentially at much greater risk of being harmed by the adverse effects of ‘bad timing’ if you let your emotions get the better of you.

A better perspective

Resisting your emotional impulses isn’t easy while in the grip of a savage bear market or a raging bull. Because of the risk of long term goals being overtaken by emotionally motivated decisions, a mindset shift is necessary.

You should try to avoid thinking of your investments as immediate assets and stop dwelling on the daily fluctuations to your net worth. Rather than thinking “I lost £15,000 today” on the day of a large market fall, try to think in terms of your averages and your long term financial goals. You might have lost £15,000 on a single, awful day, such as some we saw in the ‘Covid Crash’ earlier this year. However, your portfolio might have gained £300,000 in overall value.

A balanced, long term investment strategy generally has a couple of features: 

Firstly, it takes into account that stock markets aren’t rational. You can’t rely on predicting the future of stock markets – billions have been lost on global markets to testify this. 

When looking back at stocks, it’s easy to fall into the trap of thinking “I wish I had invested at this time”. Unfortunately, it’s impossible to actually work out when the perfect time to buy or sell is when it’s actually happening. 

For instance, when markets fall, they often have small rises that form part of an overall downward slope. An investor might think that they are being smart by investing heavily in one of these ‘mini-troughs’, following the much lauded ‘buy low and sell high’ investment strategy. However, there’s no way of knowing for certain that this is actually the lowest point on the stock market. It might just be a momentary trough as part of a much steeper decline.

Another approach could be to consider ‘drip-feeding’ your money into investments, a strategy known as Pound Cost Averaging. 

Secondly, stronger investment portfolios tend to be diversified. There’s that old saying about not putting your eggs in one basket. Investing all your money in one place makes you far more financially vulnerable if those stocks crash. 

A stronger investment strategy would spread your money through different asset classes and different assets within each asset class. 

Whatever investment strategy you use, it’s best to try to gain a bit of emotional distance from your investments. Understanding what emotions you’re likely to be feeling is a good way to enable you to make effective decisions, but don’t let these emotions rule you. 

Sources
https://www.moneycrashers.com/emotion-enemy-investing/

https://www.moneycrashers.com/reasons-shouldnt-time-market/

Stamp duty’s been slashed! Is it worth buying a holiday home to let out when you’re not there?

On 8 July, Chancellor Rishi Sunak announced a cut to stamp duty that could save holiday home buyers up to £15,000 if they complete the purchase before 31 March 2021. The government raised the threshold on stamp duty to £500,000, in a move to restart the stagnant housing market. 

Second home buyers will still have to pay the additional stamp duty surcharge at a rate of 3% for properties up to £500,000. For properties over £500,000, you would have to pay 8% rate of stamp duty up to £925,000. This figure includes the second home surcharge.

With a ‘staycation’ likely to be as much as most holidaymakers feel comfortable taking this year, it’s not surprising that demand for holiday lets has surged, meaning buyers could profit from letting out their property when they’re not there.

All this seems to make the prospect of buying a holiday property rather tempting. But is now the best time to buy?

Data from cottages.com shows that queries from investors wanting to buy holiday lets are already up 25% since Sunak’s statement.

What’s more, demand for such properties was already surging because of the fact that most Brits will holiday at home this year. Unsurprisingly, coastal areas like Cornwall have seen the highest rise in interest. 

Paul Le Blas, Regional Director of Millerson estate agents across West Cornwall, says his firm has done as many deals in the six weeks since markets reopened as it usually would in three months.

In holiday hotspots, it’s very much a seller’s market. There are reports of people making offers even before viewing properties and houses selling for as much as 7% above asking price. 

Despite forecasts that house prices could fall by as much as 5% this year, experts believe that holiday lets and second homes are outperforming the rest of the market and prices could even increase because of the extra demand. 

Now could be a good time for buyers to get in the market before prices increase any further.

At the moment, holiday let owners can take advantage of tax breaks no longer available to buy-to-let landlords. 

As of this financial year, buy-to-let investors will no longer be able to deduct the interest they pay on their mortgage from the rental income they declare to HMRC. 

However, holiday lets are still classed as a business rather than an investment, so holiday-let owners can continue to deduct their mortgage interest from their rental income.

Sources
https://www.thisismoney.co.uk/money/news/article-8522353/Britons-buy-holiday-homes-cash-rise-staycations.html

https://www.zoopla.co.uk/discover/buying/q-a-new-3-stamp-duty-surcharges/

NS&I interest rate reductions

As you may be aware, NS&I recently announced interest rate reductions, effective from 24 November 2020, that will apply to NS&I’s variable rate products and some fixed term products. The Premium Bonds prize fund rate will also be reduced and apply from the December 2020 draw.

Please see below for the statement they issued:

  • NS&I must strike a balance between the interests of savers, taxpayers and the broader financial services sector.
  • Changes will ensure NS&I’s interest rates are aligned appropriately against those of competitors.
  • Interest rate reductions will apply to variable rate and some fixed term savings products, effective from 24 November 2020 – with changes to the Premium Bonds prize-fund rate effective for the December 2020 prize draw.

In July this year, NS&I’s Net Financing target for 2020-21 was revised from £6 billion (+/- £3 billion) to £35 billion (+/- £5 billion) to reflect the Government’s funding requirements due to the Covid-19 pandemic. In Q1 2020-21 (April-June), NS&I saw inflows of £19.9 billion and delivered £14.5 billion of Net Financing. Demand for NS&I products has remained at similarly high levels during Q2 (July-September).

The interest rate reductions announced will see NS&I align its savings products against the rates offered by the banks and building societies.

Ian Ackerley, NS&I Chief Executive, said:

“Reducing interest rates is always a difficult decision. In April we cancelled interest rate reductions announced in February and scheduled for 1 May. Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence. It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”

Variable rate savings products

ProductCurrent interest rateInterest rate from 24 November 2020 (change in brackets)
Direct Saver1.00% gross/AER0.15% gross/AER (-85 basis points)
Investment Account0.80% gross/AER0.01% gross/AER (-79 basis points)
Income Bonds1.15% gross/1.16% AER0.01% gross/0.01% AER (-114/115 basis points)
Direct ISA0.90% gross/AER0.10% gross/AER (-80 basis points)
Junior ISA3.25% gross/AER1.50% gross/AER (-175 basis points)

Premium Bonds (effective from December 2020)

The Premium Bonds prize fund rate will be reducing by 40 basis points, from 1.40% to 1.00%. The odds of any £1 Bond number winning any prize will decrease from 24,500/1 to 34,500/1. The changes will be effective from the December 2020 prize draw.

Current prize fund rateCurrent oddsNew prize fund rate (from December 2020)New odds (from December 2020)
1.40% tax-free24,500 to 11.00% tax free34,500 to 1

Value of Premium Bonds prizes

Value of prizesNumber of prizes in September 2020Number of prizes in December 2020 (estimate)
£1,000,00022
£100,00074
£50,000149
£25,0002816
£10,0007143
£5,00014083
£1,0002,2041,639
£5006,6124,917
£10030,24426,637
£5030,24426,637
£253,786,4742,790,269
Total:3,856,0402,850,256

Fixed term savings products

On 24 November, NS&I is also reducing the rates on offer for its fixed term investments, by between 90 and 115 basis points. Fixed term investments are not on general sale and are only available to customers who wish to renew an existing investment when it matures. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before their end of their term, outlining their options.

Customers holding Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates and whose investments mature on or before 24 November 2020 and who automatically renew into a new Issue of the same term, will receive the previous, higher interest rate. After this date customers who automatically renew into the same term will receive the lower interest rate from 24 December 2020.

However, any customers who choose to renew into a new Issue but a term of a different length, will receive the reduced interest rate effective from 24 November 2020.

Current holdings will be unchanged until they mature and customers do not need to take action now. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before the end of their term.

ProductCurrent interest rateInterest rate from 24 November 2020 (change in brackets)
Guaranteed Growth Bonds(1-year)1.10% gross/AER0.10% gross/AER (-100 basis points)
Guaranteed Growth Bonds(2-year)1.20% gross/AER0.15% gross/AER (-105 basis points)
Guaranteed Growth Bonds(3-year)1.30% gross/AER0.40% gross/AER (-90 basis points)
Guaranteed Growth Bonds(5-year)1.65% gross/AER0.55% gross/AER (-110 basis points)
Guaranteed Income Bonds(1-year)1.05% gross / 1.06% AER0.06% gross / 0.06% AER (-100 basis points)
Guaranteed Income Bonds(2-year)1.15% gross / 1.16% AER0.11% gross / 0.11% AER (-115 basis points)
Guaranteed Income Bonds(3-year)1.25% gross / 1.26% AER0.36% gross / 0.36% AER (-90 basis points)
Guaranteed Income Bonds(5-year)1.60% gross / 1.61% AER0.51% gross / 0.51% AER (-110 basis points)
Fixed Interest Savings Certificates(2-year)1.15% tax-free/AER0.10% tax-free/AER (-105 basis points)
Fixed Interest Savings Certificates(5-year)1.60% tax-free/AER0.50% tax-free/AER (-110 basis points)

Sources:

https://www.nsandi-adviser.com/nsi-reduce-interest-rates-24-november-2020

Three of the best autumn holiday destinations in the UK

After quarantine measures were imposed during August for returnees from several European countries including France and Spain, many will be looking to stay closer to home for their autumn breaks. 

While the UK doesn’t offer the 30 degree October sunshine that you can find in the Algarve or Costa Blanca, there are plenty of stunning locations from which you can make the most of the crisp autumn weather and red and gold landscapes.

Here are some destinations that we recommend:

The Jurassic Coast, Dorset

Running from Swanage to Lyme Regis, the Jurassic Coast features some of England’s most stunning coastal landscape. 

The eastern part of the coast encompasses the dramatic cliffs and headlands of the Isle of Purbeck. It is incredibly thrilling to watch the large autumn swells crash against the cliffs below.

To the west, you can find Lyme Regis, a beautiful town that is prone to overcrowding during the peak summer months. By visiting in autumn you can experience the ‘Pearl of Dorset’ without having to navigate the busy summer crowds. While the weather might be too chilly for a swim, the beaches surrounding Lyme Regis are teaming with fossils. You can spot all sorts of prehistoric wonders by just looking carefully at the area’s dark grey cliffs.

The Antrim Coast, Northern Ireland

Just an hour’s drive from Belfast, this beautiful coastline is home to many outstanding natural features, including the world famous Giant’s Causeway. On a clear day, you can look over the Irish Sea and see the Scottish hills.

Those of you who have a head for heights can brave the hair-raising Carrick-a-Rede rope bridge that wobbles nearly 30m above the raging Atlantic below.

The area also features the ‘Dark Hedges’, a road lined with intricate trees which has gained popularity as a tourist destination after featuring in the TV series Game of Thrones. Expect warm hospitality and unreliable weather on this part of the Northern Irish coast in autumn.

South Cornwall

While North Cornwall might be the destination of choice for hardy surfers who want to brave the heavy autumn swells, South Cornwall perhaps offers something of a more leisurely holiday at this time of year. 

Here, bad weather doesn’t mean you can’t marvel at nature’s triumphs; the area is home to the famous Eden Project. Two large climate controlled biodomes host the world’s largest indoor rainforest and a Mediterranean paradise.

If you prefer your nature outdoors, you can venture further west to Trelissick Gardens, a beautiful country estate with parklands that fall down to the estuary. In the autumn, the estate’s trees turn a wondrous array of colours, with red and gold contrasting the green blue water of the Carrick Road estuary.

Autumn visitors will find South Cornwall’s stunning villages and coves remarkably quiet and peaceful in the absence of the summer crowds.

Sources
https://www.independent.co.uk/travel/uk/uk-best-family-friendly-destinations-holidays-staycations-a9669366.html

Make your lockdown saving habits last a lifetime

saving during lockdown

While the economic consequences of lockdown have seen many households struggle, others have been able to save far more than usual. Data suggests that UK households could have been saving an average of around £171 per week during lockdown, with pubs, restaurants and high street shops closed. Country wide, savers have stashed away a record £157bn as many day-to-day expenses disappeared. 

Now, with restaurants, pubs and non-essential shops open again – most will see their outgoings creep back up. As you start to spend again, here are our top tips on making your lockdown saving habits last for the long run:

Draw up a monthly budget (and stick to it!)

Have a look at your pre-lockdown bank statement and find which expenditures were making the biggest dent. Some – like the cost of your commute – will be unavoidable, but others – such as your weekly lunch out on a Friday – could be reduced.

Smartphone apps like Monzo or Mint can help you get a better overview of your spending. These are a great way to keep you on track with your savings goals.

Sort out your debts

At the moment, interest rates are so low that there is little point putting money into savings accounts if you have credit cards or loans to pay off. 

Since the interest rate on your debts will be higher than that on your savings accounts, it makes sense to pay off as much of your debts as you can. Essentially the ‘cost’ of your debt will be rising much faster than the value of your savings, so it’s best to get rid of this first.

Build up a range of savings pots

As a rule, you should try to keep between three and six months’ worth of income set aside for emergencies. These should be in easily accessible accounts that don’t penalise you for withdrawing. We recommend that you keep these separate from your long-term savings.

You could work towards this figure by setting up a direct debit to transfer money into a savings account as near to pay day as possible.

Pause before you buy

All of us are prone to buying something we don’t really need from time to time. While there’s nothing wrong with these kinds of purchases sometimes, if they become too frequent, they can start to harm your bank balance.

An effective technique to cut down on unnecessary purchases is to wait 24 hours between finding something you want to buy and handing over cash.

Another way to save is to make it harder for yourself to spend your money. You could remove your automatically saved card details from your computer or unsubscribe from promotional emails, meaning you’ll be less tempted to make impulsive purchases.

Sources

https://www.aviva.co.uk/aviva-edit/your-money-articles/lockdown-winners-and-losers/

https://www.thisismoney.co.uk/money/saving/article-8521995/Make-Lockdown-savings-habit-lifetime-ten-tips.html

5 steps to bring your dream of early retirement closer

Do you find yourself counting down to Friday each week – even when it’s only Monday morning? Do you wish you could ditch the daily commute and long hours at the office? Have you got a secret desire to drive across America or buy a second home in the South France?   

 

If one of your main aims is to realise your dream of retiring early, take a look at these five steps. It may not be as unattainable as you first thought.   

1. Take control 

Retiring early won’t just happen. As life expectancy increases and governments raise the age at which you can take the State Pension, you could find yourself working for much longer than you’d anticipated. So if that‘s not in your game plan, you need to take positive steps to build up a pot of your own money. The State Pension should just be seen as an added extra.              

2. Set realistic goals

Once you’ve decided you’re serious about retiring early, you need to draw up a plan with attainable goals. A yacht and a penthouse suite might sound idyllic but if such a lifestyle is not  achievable then it’s no good setting yourself up for failure.

Instead think about the net figure that will give you enough to live on each year, with a lifestyle that suits you. Everyone is different. Some people may want to eat out frequently, some may be keen to travel the world, others may prefer more time at home with the family.      

3. Crunch the numbers 

Now’s the time to get down to the nitty gritty. It obviously depends on how early you are going to retire but if you are planning on retiring in your forties, a good rule of thumb is that you need to accumulate a pot of money worth 25 times’ your annual living expenses before you give up work. As well as thinking about what level of luxury you’re going to allow yourself, don’t forget to also factor things in such as insurance and care costs.  

4. Start early 

Save as much as you can while you’re working and start investing early. Compound interest  can have a significant impact on your original investment over time. In fact, when you start saving can be even more influential than how much you save. For example, if you started saving when you were 25 you could accumulate 35% more over the length of your career than somebody who started saving the same amount at 35. It’s also important to make sure you’re investing with the right level of risk depending on what stage of life you’re at.                 

5. Don’t be led by FOMO  

The ‘fear of missing out’ or FOMO can make us do things because everyone else is doing them. But making large purchases or taking on a large mortgage could steer you off course if your real goal is to retire early and travel the world. So keep focused on your goals. Remember, it’s your retirement plan, unique to you, not a colleague, neighbour or relative.  

Sources
https://www.lovemoney.com/gallerylist/65384/17-steps-to-make-your-early-retirement-dream-a-reality-in-2020

Booking a winter holiday? Make sure you know this information before you book

Covid-19 has devastated travel around the globe. Although many lockdown restrictions have been lifted, airports remain eerily quiet with airlines operating just a skeleton service. 

This summer, most people’s holidays will more closely resemble summer holidays in the era before cheap international flights allowed us to travel to warmer climes and avoid the undependable British summer. 

Last year, Brits took 72,610,000 trips abroad. The 2020 figures will be far slimmer – many will favour homely caravans and campsite staycations over luxury cruises and Canary Islands vacations. After all, the government warned against all but essential foreign travel up to 4 July.

It’s hardly surprising that most are postponing their summer foreign holiday until next winter or the following summer, when the international travel situation might be closer to normality. However, the risk of a second wave and further travel restrictions mean that the travel insurance situation is still rather complex. Here are a couple of key need-to-knows:

Do new insurance policies cover coronavirus cancellations?

It’s now impossible to get new policies that cover coronavirus cancellation.

After the FCO warned against all non-essential travel in mid-March, insurers stopped selling policies that covered cancellation due to coronavirus travel disruption or restrictions.

This means that you will have to cover the costs of coronavirus disruption. However, it is still worth getting travel insurance if you don’t have it. There are a whole host of reasons that you might need to claim that are not related to coronavirus.

What’s more, while new policies will not cover you for Covid-19 disruption, some may cover you if you or a family member catches coronavirus before you travel and you need to cancel for this reason.

I already have a policy. Am I covered if travel restrictions are reintroduced?

If your insurance was taken out and holiday booked before mid-March, you should be able to claim for coronavirus travel restriction disruption. 

To make a claim, there will need to be a Foreign and Commonwealth Office (FCO) warning for your destination. In this scenario, your travel insurance company will expect you to try for a refund from your airline or travel firm first. 

Some policies may cover a coronavirus cancellation when there’s no FCO warning. For instance, if there’s no official FCO advisory and your flight or hotel is cancelled so you can’t travel, some policies will pay out. This depends on your insurer.

As with all things coronavirus related, the situation is very fast moving. We recommend that you keep a close eye on the latest travel developments before booking anything.

Sources
https://www.finder.com/uk/outbound-tourism-statistics%20

What happens to your mortgage if there are negative interest rates?

With the Bank of England’s base rate being at an historic low of 0.1%, there is talk that we will soon see negative interest rates.

In the past, Andrew Bailey, Governor of the Bank of England, had not been in favour of such a step but has admitted that he is now not ruling it out in order to kickstart the economy. 

The Bank is under pressure to push interest rates below zero as data has shown that inflation dropped from 1.5 per cent in March to a four-year low of 0.8 per cent in April. Low inflation might sound good but it can suppress economic growth and prevent wages increasing. The bank’s usual target is to keep inflation around 2% but lockdown has understandably had a severe effect on spending so economists think inflation will stay low for some time. 

How would negative interest rates work?

Anyone wanting to deposit money with the Bank of England, such as high street banks, would have to pay to do so. This is designed to encourage the banks to lend to households and businesses.

Negative interest rates have already been used as a tool by the European Central Bank and Japan. Typically, the Bank will lower interest rates when the country is facing a recession because it encourages borrowing and spending which stimulates the economy. But negative interest rates are controversial as it is felt they have limited effectiveness in encouraging spending and investment in the long term. 

They also do little to encourage companies to keep a cash buffer in times of crisis which, as many have found during the coronavirus outbreak, has been crucial.       

What would the effect be on your mortgage? 

If you have a fixed rate mortgage, the most common type, it would not be affected. If you have a variable rate mortgage that follows the standard variable rate of the bank that made the loan, or a tracker mortgage that follows the Bank of England base rate, it could fall a little if the base rate is cut.

It’s likely, however, that any drop would be limited by certain terms and conditions. Most tracker mortgages these days have a ‘collar’ which stops the lender having to cut the rate at all. It’s worth checking your paperwork to see whether your lender has specified the lowest rate it would ever charge.

Could new mortgages be free? 

Denmark has shown this could be a possibility. The rate, last year, for borrowers at Jyske Bank was -0.5% which meant the total sum they owed each month fell more by more than the sum they had repaid. That’s a great kind of mortgage! Although it looks like the UK is a way off that.             

While fixed term mortgages are falling in price, some tracker mortgages have been withdrawn and re-priced with larger margins to protect lenders against falling rates. 

A negative base rate would mean banks and building societies would have to pay to keep money on deposit. The thinking behind this policy is that it would encourage them to lend instead.      

Sources
https://www.theguardian.com/business/2020/may/21/what-would-negative-interest-rates-mean-for-mortgages-and-savings

https://www.thisismoney.co.uk/money/news/article-8341497/Interest-rates-cut-zero-suggests-Bank-England-boss.html

Will triple lock state pensions survive the current economic crisis?

The Covid-19 pandemic has dealt a crippling blow to the British economy. The latest predictions from the Office for Budget Responsibility say that the country is on track to see the largest economic decline for 300 years, with output falling by at least 10% over 2020. While the long term economic outlook is uncertain, the various economic support measures announced by the government will go some way to protecting it. For instance, the job retention scheme, where the government paid the wages of 6.3 million people, should prevent some of the fallout that would be caused by large scale mass unemployment.

However, all this needs to be paid for. For the first time in 50 years, government debt exceeds the size of the economy. Income from tax, National Insurance and VAT has plummeted while government spending has soared.

All this means that the state pensions triple lock could again come under the microscope. Under the triple lock system, state pension payments rise by the higher of inflation, wages or 2.5% each year. This policy has been a central part of the government’s commitment to pensioners over the last ten years.

Recently, experts have been increasingly vocal in their opinion that the triple lock will have to be abandoned in order to pay for the fallout of the lockdown. The Social Market Foundation think tank advised the government to scrap the triple lock system, calling for a double lock system where the state pension would rise in line with either average earnings or inflation. The think tank estimates that this would contribute to £20bn worth of savings over the next five years.

An added concern is that following this year’s fall in average earnings – predicted to be 7.3% – average  earnings could then soar next year in the event of a sharp recovery. One estimate places this figure at over 18%. This figure would form the basis of the earnings element of the triple lock system for 2021 and 2022, meaning that state pensions could rise by over 21% in just two years. 

This kind of increase would be unsustainable, especially given the severe hardship that millions of workers will face over the next few years.

However, the triple lock pension scheme was a key part of Johnson’s manifesto, a commitment he reaffirmed in parliament back in May.

What’s more, there are some models of the country’s economic recovery which show a more restrained recovery than the one mentioned above. 

Under the Office for Budget Responsibility’s latest prediction for a “moderate” recovery, the triple lock would only see earnings rise by 5% next year, meaning that state pensions would also rise by 5%. This is a far more prudent figure than 18%, meaning Johnson could still find traction to stick with his triple lock pledge. 

Sources

https://www.moneyobserver.com/news/state-pension-triple-lock-revised-forecasts-suggest-stay-execution

https://www.bbc.co.uk/news/business-53104734

https://citywire.co.uk/new-model-adviser/news/triple-lock-bill-could-hit-20bn-as-gov-t-grapples-with-finances/a1367917

What does the stamp duty holiday mean for me?

In his 8 July summer statement, Chancellor Rishi Sunak confirmed that the stamp duty threshold will be immediately raised to £500,000 in England and Northern Ireland, in what some have dubbed the ‘stamp duty holiday’. The rise in threshold lasts until 31 March 2021 and will apply to both first-time buyers and previous owners.

Sunak said that the change will affect around 90% of buyers, saving each one an average of £4,500.

Stamp duty is a tax you have to pay if you buy a property or a piece of land in England or Northern Ireland. Buyers in Scotland pay Land and Buildings Transaction Tax (LBTT) and in Wales Land Transaction Tax (LTT) instead of stamp duty. 

The property website Rightmove said traffic to its listings increased by 22% immediately after Sunak’s announcement, an indication that this could be the stimulus for many to come to a decision about moving home.

The move comes in response to the current economic crisis. Many are worried that the housing market will stagnate in the current economic climate. Lockdown measures put sales on hold and prevented work on construction sites. The number of transactions was down by 50% in May. 

Stamp duty will be collected at a rate of 5% on transactions over £500,000. For instance, if you bought a house for £575,000, you would pay 0% on the first £500,000 and 5% on the final £75,000. Overall, you would pay £3,750 in stamp duty.

What about buy-to-let and second homes?

The stamp duty cut will also apply to those buying second homes and buy-to-let properties, allowing investors to make savings. However, the 3% surcharge for buying additional properties will apply to the new stamp duty rates.

So, property investors spending less than £500,000 would only need to pay 3% on top of the purchase, as opposed to the previous 5%.  

The housing market has responded well to the rise in threshold. It frees up larger properties for families, which they previously may not have been able to afford, and it could help first-time buyers onto the property ladder.

It’s widely expected that the stamp duty holiday will have an immediate impact on the volume of sales agreed in the coming weeks. Please get in touch if you’d like to know more about how the ‘stamp duty holiday’ will affect you.

Sources
https://www.theguardian.com/business/2020/jul/08/stamp-duty-holiday-revive-housing-market-summer-statement-property

https://www.financialreporter.co.uk/finance-news/government-raises-stamp-duty-threshold-to-500000.html

https://www.moneyadviceservice.org.uk/en/articles/everything-you-need-to-know-about-stamp-dutyhttps://www.mortgagestrategy.co.uk/news/stamp-duty-cut-extended-to-second-homes-and-btl/