ISAs are an incredibly important part of many financial plans, whether you’re saving for a short-term goal or investing for a long-term one. In fact, over ten million adults saved into an ISA account in 2017/18.

Whilst ISAs have been around for 20 years, the product range and allowance has changed considerably in that time. As a result, it can be more difficult than you would expect to pick the right ISA for you. So, we’ve put together a guide to help you get to grips with the ISA options open on offer. In the guide you’ll find:

• A brief history of ISAs
• The different types of ISAs available, including the Junior ISA
• And how the Additional Permitted Subscription can let you leave your ISA savings to a loved one

Click here to download your free copy of the guide.

ISAs should form part of your wider financial plan, if you’d like to discuss how they fit into your goals, please get in touch.

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We all know what bias is and it’s something you may consider when making decisions in your day-to-day life but it’s also something that can affect financial decisions and, therefore, your lifestyle goals.

Over the next few months, we’re going to explain what financial bias is and how it could be having an impact without you even realising it. By understanding bias, where it comes from and the different ways it can affect decisions, you’ll be in a better position to focus on the facts and make choices that are right for you.

Bias: What does it mean?

First, let’s start with what ‘bias’ means. According to the Cambridge dictionary, the definition of bias is:

“The action of supporting or opposing a particular person or thing in an unfair way, because of allowing personal opinions to influence your judgement.”

We’re all guilty of making snap decisions about people, items, businesses and more, based on opinions and experiences we’ve had in the past, even if these weren’t directly related to the party in question. Being able to do so is important. It allows us to make quick decisions when necessary, even when we haven’t had to make the same choice before, based on the information we’ve gathered over time. It’s something that’s incredibly important for survival and is still useful today.

However, there is a danger of making decisions based on past experiences and information gathered, this is where bias can have a detrimental effect.

Bias, whether positive or negative, can lead to you making decisions that aren’t based on fact. Perhaps they’re based on out-of-date information or a single perspective that means you’ve missed the bigger picture. We know that we should try and focus on the facts when making decisions, but bias can skew our views.

When you think of bias having an impact, many scenarios may spring to mind. However, financial decisions are one important area you should consider the impact of.

How does bias influence financial decisions?

When it comes to finances, you have to make a lot of decisions, especially when you’re planning for the long term.

As a result, you naturally draw on experiences and information to make these choices. Perhaps when you’re deciding where to open a savings account, you’ll draw on news articles you’ve read. Or when deciding where to invest you’ll focus on previous gains/losses when coming to a conclusion. However, it can mean decisions aren’t logical once you start looking at the facts. Emotions, missing information, social influences and much more can mean bias has an impact without you realising.

There are a whole host of ways bias can influence financial decisions, which we’ll look at more in-depth in our next financial bias blog, but one example that can help you understand how financial bias works is confirmation bias.

Confirmation bias refers to the impact first impressions can have. Let’s say you see an investment opportunity that you decide is ‘good’ but you still decide to seek out information before investing your money. Whilst a positive step, confirmation bias means you give more weight to the information that supports your existing view, perhaps discarding those that suggest the investment isn’t right for you. As a result, it could lead to higher investment risk than intended or mean you miss an opportunity.

Learning more about financial bias

Understanding what financial bias is can improve the decisions you make. So, over the next few months, we’ll be looking at the topic in more detail including:

• What has an impact on your financial behaviour
• Different types of financial bias and their impact
• What you can do to minimise the effect of financial bias

Keep an eye out for our latest newsletter or blogs for the next financial bias blog, it could help you better understand the decisions and financial concerns you have.

If you have any questions about financial bias or would like to discuss your long-term plan, please get in touch.

Whilst investment markets have settled a little from the severe bouts of volatility seen a few months ago, the impact of Covid-19 continues to weigh on economic and business prospects. The next few months, as restrictions are lifted and government support begins to withdraw will be crucial and give an indication of how economies will fare in the short and medium-term.

UK

The full impact of coronavirus on the economy remains unknown. However, the lockdown and ongoing restrictions will undoubtedly have an impact. The Bank of England predicts the UK economy will shrink by 14% this year. However, it added banks are strong enough to handle this and will be able to continue lending.

During May, the government announced it was easing lockdown restrictions, allowing some businesses, including retailers, to prepare to open in June. The furlough scheme, which figures from the Office for National Statistics indicated two-thirds of firms have taken advantage of, has also been extended until October.

Unsurprisingly, economic activity has slowed considerably over the last couple of months:

• Official figures show UK GDP shrank by 2% between January and March, just as the pandemic was beginning to take hold
• UK private sector output fell to record lows, with data going back to 1998. The composite PMI index fell to 13.8 in April, with a reading below 50 indicating contraction
• CBI’s measure of factory output suggests volumes are down 54% in the last quarter, with 84% of respondents stating they have seen a negative impact on their domestic output.

In a sign that consumer confidence is falling and an economic downturn is weighing on decisions, the Bank of England reported that credit growth and mortgage approvals are at their lowest point since 2013. Credit card lending fell for the first time on record, with records going back to 1987.

Europe

In a similar picture to the UK, Christine Lagarde, President of the European Central Bank, expects the eurozone economy to shrink by 8-12% in 2020. GDP across the currency area fell 3.8% in the first quarter of 2020.

The eurozone PMI did improve in May, rising to 30.5 compared to the record low of 13.6 in April. As the figure is still below 50, it indicates a contraction but could suggest that businesses are getting back on their feet as lockdown restrictions started to lift across Europe.

The EU has also unveiled its recovery fund which is accessible to all EU member states, which could go some way to offer confidence to businesses operating during these uncertain times as well as investors. The fund totals €750 billion and includes a €560 billion recover and resilience facility and a new health programme to prepare for future health crises.

US

Mimicking what we’ve seen in Europe, US GDP fell by 5% in the first quarter and Jerome Powell, Chair of the Federal Reserve, warned the US faced a ‘prolonged recession’.

Data released in May shows that US factory orders have suffered a 10.3% slump, with PMI data for the manufacturing sector falling to 41.5 in March. Even more worrying is the PMI April figure for the US construction sector falling to just 8.2. The lower level of activity has affected unemployment rates. The private sector suffered record job losses, with 20.5 million Americans losing their job in April.

Causing concern among investors is also the risk of a trade war igniting between the US and China again. In January, a preliminary trade deal was signed suggesting an agreement could be reached between the two nations. However, President Donald Trump has since called for tariffs as the ‘ultimate punishment’ for the handling of the coronavirus pandemic, dashing investors’ hopes.

Asia

Data from Hong Kong has highlighted the impact of coronavirus in the region. The economy shrank by 5.3% in 2020, however, last year’s pro-democracy protests and the US-China trade war will also of had an impact.

As always, it’s important to consider your long-term financial plans and goals when investing. Whilst the market may be experiencing some volatility and economic downturn, focusing on the bigger picture is crucial.

If you have any questions at all about your investments, please get in touch.

The housing market has been severely affected by the coronavirus lockdown, as viewings were halted and sales that were in progress faced delays. Now there are fears that the economy will dip as a result and house prices will fall. For those hoping to sell in the coming months, it can be a concern.

According to Zoopla’s UK Cities House Price Index, the lockdown led to 373,000 property transactions being delayed, with an estimated value of £82 billion. Demand for homes fell by 70% in March and even levels of browsing property online fell.

The good news though is that many potential buyers are still keen to press ahead with plans. Some 60% of would-be home movers said they intend to still purchase a property, compared to the 40% who are putting plans on hold due to the uncertain outlook. As restrictions are being lifted, activity in the market is increasing but, unsurprisingly remains subdued.

What does Covid-19 mean for property prices?

As the property market starts to open back up, homeowners and prospective buyers are wondering what it means for property prices in the coming months. Whilst there are lots of forecasts and predictions out there, it’s impossible to say with certainty what will happen.

What we do know is that the economy has been affected by the lockdown, as has consumer confidence. It could mean in the short term, demand for property decreases as potential buyers take a ‘wait and see’ approach and hold off making major decisions. If a recession is on the cards, as some forecasts suggest, this too could lead to house prices falling.

According to Nationwide, house prices fell 1.7% in May when compared to the previous month. It’s the largest monthly fall for 11 years, which would have occurred during the financial crisis.

Robert Gardner, Nationwide’s Chief Economist, said: “We have already seen a sharp economic contraction as a result of the necessary measures adopted to suppress the spread of the virus.”

However, he added that the measures implemented to support businesses and individuals should help create an economic rebound. This, in turn, may limit the impact on the housing market.

What does a fall in property prices mean for you?

If you plan to stay in your home

No one wants to see the value of an asset fall. For many of us, our homes are the largest asset owned so when property prices fall it can be a worry. However, just like when investing, it’s important to look at the long term.

If you don’t plan to sell, the fall in value is a paper loss only. Until you sell your home at a lower price, you’ve not lost anything in real terms. Property prices have increased significantly in recent years, more than making up the fall they suffered following the 2008 financial crisis. Over the long term, house prices have recovered from short-term dips. If you’ve owned your home for a while, it’s likely the value is higher than when you bought it, even accounting for a potential fall in the coming months.

So, if you’re not planning to sell your home, you shouldn’t be worried about property prices.

If you’re hoping to sell

If you’re hoping to sell in the coming months, the fall in property prices can be frustrating. However, whilst some predictions suggest a fall in prices, others indicate there will be strong demand from buyers that were forced to put plans on hold.

Ultimately, you need to decide what you’d be willing to sell your home for and be prepared to negotiate with potential buyers. Getting your home valued and speaking to real estate agencies, as well as keeping an eye on sales in your area, can help give you an idea of whether your goal is realistic.

If your property value does fall in the coming months, and you’re not happy to sell at a lower price, delaying the sale may be an option. Historically, property prices have recovered and when you look at the long term, have risen considerably.

If you’ll be buying another property, it’s worth noting that you’d also benefit from a fall in price during the purchase, helping to balance out a potential fall in value for your current home.

If you’re a first-time buyer

A fall in property prices does ultimately benefit first-time buyers. You may be able to get more for your money and stretch that deposit further. If you already had plans to buy, now could be a great time to look at what’s available.

As always though, the value of a property is linked to what you’re willing to pay for it; do you think the asking price is worth it?

Whilst lower property prices as a whole can make stepping on to the property ladder seem attractive, it doesn’t always mean you’re getting a bargain and you need to consider if the property is right for you and whether mortgage repayments would be affordable. During times of recession, it’s normal for banks to stress-test mortgage applicants more carefully. As a result, a mortgage offer may be lower than expected.

If you’re worried about the property market and would like some advice, please contact us.

Whilst the last few months have been unusual for many businesses, there are key dates that still need to be penned into diaries of business owners to ensure they stay on track and meet financial commitments.

Business is gradually getting back to normal and there is government support available for many businesses that are struggling with the impact of the coronavirus lockdown. Understanding the key dates and what help is out there can help keep firms on track during 2020 whilst uncertainty continues for many.

If you’re a business owner, here are six dates to consider when measuring cash reserves, planning the coming months and seeking support.

1. Corporation Tax payment

With most businesses having December or March tax year ends, the upcoming Corporation Tax payment will be based on earnings before the coronavirus pandemic took hold. As a result, the tax bill may be larger in proportion to current cashflow if capital has been depleted in recent months.

If you work to a December year-end, Corporation Tax payment will be due on October 1 2020, moving to January 1 2021, if your year-end was in March.

2. VAT payment

If your business pays VAT quarterly, like the majority of business in the UK, the next due date is November 7, covering the third quarter. With many businesses expecting to get back to normal working operations over the summer months, it’s important to plan for your next VAT payment when assessing cashflow and capital in the coming months.

The government previously announced that VAT payments due between March and June could be deferred in a bid to help businesses manage cashflow during the worst of the lockdown restrictions. If this is an option that you took, your next VAT payment may be higher than usual if you choose to repay the deferred amount. However, you do have until 31 March 2021 to make this payment.

3. Income Tax payment

On 31 January 2021, income tax payment is due, which may affect business owners taking an income from the business. On this date, the tax liability for income earned during the 2019/20 tax year will be due. As a result, it may be significantly higher than your earnings over the previous 12 months if operations were affected by coronavirus. Some business owners may have found they’ve dipped into savings allocated to income tax amid stagnant cashflow too. Being aware of the date in January can help build up the sum you need to pay.

If you choose to defer an income tax bill due on 31 July 2020, this will now also be due on 31 January 2021.

For businesses and owners that will struggle to pay the next income tax payment due to the effect of lockdown, there may be an option to discuss a Time to Pay arrangement with HMRC. This doesn’t clear the amount owed but can spread out the cost.

4. Delayed VAT payment

As mentioned above, businesses did have the option to delay making VAT payments amid the coronavirus crisis. If this is an option you took advantage of, the deferred VAT payment must be made by 31 March 2021. At a time when you may have other financial commitments, it’s important to keep this additional payment in mind.

Hopefully, as lockdown restrictions begin to ease, the majority of businesses will be able to get back to ‘normal’ in the coming weeks, setting them on the right track to meet repayments next year.

5. Start of repayments for coronavirus loan schemes 

The government introduced several schemes designed to help business during the uncertainty of the pandemic. These included the Coronavirus Interruption Loan Scheme and the Bounce Back Loan Scheme. These offered favourable lending terms to eligible businesses. If you’ve taken advantage of these schemes, it’s important to keep in mind when repayments will need to be made.

The Coronavirus Interruption Loan Scheme provides support to SMEs that lose revenue due to coronavirus. Through the scheme, a lender can provide up to £5 million in the form of term loans, overdrafts, invoice finance and asset finance. The lending is backed by the government in order to encourage more lending. The government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied changes. As a result, interest payments may be due from April 1 2021.

The Bounce Back Loan Scheme gives the lender a full government-backed guarantee against the outstanding capital and interest. Businesses can borrow from £2,000 up to 25% of a business’ turnover, up to a maximum £50,000, over a six-year term. The borrower doesn’t have to make any repayments for the first 12 months, with the government paying the first 12 months of interest payments.

If your business has been affected by the lockdown restrictions, getting to grips with the finances now can help put you on the right path. Don’t delay seeking support if it’s needed. We’re also here to offer advice if your personal finances have been affected by Covid-19, please get in touch if you have any questions.

Are you worried about the long-term economic impact of the coronavirus lockdown? If you are, you’re not alone.

As the coronavirus pandemic is brought under control and restrictions are gradually lifted, concerns around the health risks are easing. However, taking their place are fears about what the lockdown and ongoing social distancing guidelines mean for the economy in the coming months and years.

A survey from Aegon found those very worried about their own health was just 8%, compared to 15% in March when the lockdown was first brought in. Concern about family members remains higher at 17% but is still significantly lower than the 31% registered in March.

Instead, concerns appear to have shifted to the long-term economic impact and financial security. Some 90% of individuals said they had concerns about the impact of Covid-19 on the economy, with 84% still closely following the news for updates.

Steven Cameron, Pensions Director at Aegon, said: “In the initial period of outbreak, we were all understandably in a heightened state of alert about how we individually, as families and as a nation could navigate the greatest public health crisis in more than a century.

“Whilst remaining vigilant is still key there are some signs that health concerns are coming off their peak and are being replaced by growing concerns about damage to the UK economy and what that will mean for jobs, incomes, taxes and wealth. While the government’s focus rightly continues to be on protecting people’s health and lives, our research findings point to a growing awareness of the difficult balance the government will have to strike as it also seeks to protect livelihoods and the longer-term health of the economy.

Economic forecasts

Economic forecasts vary hugely and offer no certainty about how the economy will recover over the coming months. But the lockdown and ongoing social distancing restrictions will certainly have some impact on the economy.

There are worries that significantly decreased revenue, particularly in sectors like retail, travel and entertainment, over the last few months will mean many businesses and jobs are lost. The Bank of England has warned that the British economy could shrink by 14% this year and unemployment could more than double by spring 2021. Other forecasts paint an even more pessimistic picture.

Whilst forecasts can be a useful indicator, it’s important to keep in mind that they aren’t always accurate, and a huge number of factors will influence how the UK economy performs over the coming months. If you’re worried about economic uncertainty affecting your plans, remember to keep the long term in mind. Historically, markets and economies have recovered when you look at performance over an extended period.

Repaying the cost of coronavirus: Will income taxes rise?

The government has delivered unprecedented support to businesses and individuals during the coronavirus pandemic. This includes the furlough scheme, where the government is paying up to 80% of the salary of workers that are unable to work, which millions have benefitted from.

Whilst it’s hoped these steps have saved millions of jobs, it has come at a cost. As we still battle Covid-19, it’s impossible to tell how big the final bill will be. According to the Office for Budget Responsibility, it could be as much as £298 billion for the 2020/21 tax year.

In order to pay for this, the government will need to raise revenue from somewhere. So, it’s not surprising that people are wondering if manifesto pledges will be broken and taxes will rise. A leaked Treasury document highlighted some of the options the government is considering to balance the books, this includes increasing Income Tax and ending the State Pension triple lock, which sees the State Pension increase by a minimum 2.5% each year.

The Conservatives pledged not to “raise rates of Income Tax, National Insurance or VAT”. These, however, are among the largest contributors of tax revenue and the increasing deficit could mean promises are broken.

We can’t say for certain what will happen over the coming weeks and months, but we do know that the government will need to take action to repay the costs. It seems likely that some tax changes are on the horizon.

Preparing for uncertainty

Predicting what will happen over the coming months and years is impossible. There are a whole host of factors that can influence the economy but there are things you can do to ensure you’re able to weather turbulent periods should they happen.

• Build up and maintain your emergency fund, ideally three to six months of outgoings, to fall back on if needed
• Go back to basics with budgeting and understanding where your income goes
• Have appropriate financial protection policies in place to act as a safety net if it’s needed
• Review your investments and savings with a long-term goal in mind
• Assess your finances and plans as changes are announced.

If you have concerns about your financial goals amid economic uncertainty, please get in touch.