Regardless of your views on politics in general and Brexit in particular, it’s hopefully something of a relief that we now know what is likely to happen with the former (in general terms if not, yet, in detail) and at least have an idea of the general direction of travel for the next five years. With that in mind, here’s what the election could mean for your finances.
If you’re a young adult
The bad news is that you can expect student loans to be around for the foreseeable future. There is, however, some good news. Current indications are that the government is committed to cleaning up the rental market and making it work in a more streamlined way. In addition to fulfilling their preexisting pledge to end “no-faults” evictions, they have also indicated that they are open to making deposits “portable” between landlords, although there is no indication of how they would make this work in practice.
The government has already extended the Help-to-Buy scheme for first-time buyers and the Lifetime ISA can help with building a deposit. The government has also indicated that it is open to working with lenders to lower deposit requirements, although, again, this could be politically sensitive as it could lead to concerns about a repeat of 2008, which most people would probably much prefer to avoid.
In principle, young adults could get a head start on their pension-saving through one or both of the Lifetime ISA and auto-enrolment. Of course, at the end of the day, both of these depend on having spare funds, which will depend on the post-Brexit economy in general and employment opportunities in particular.
If you’re an adult homeowner
If Brexit (or any other factor) causes the Pound to weaken, then inflation could potentially rise and, assuming that current rules remain in place (i.e. an inflation target of 2% with a 1% margin of error either way), then this could very well result in the Bank of England being forced to raise interest rates. This would be bad news for borrowers and the worse news is that, in principle, they could be raised indefinitely.
That being so, it may be advisable to remortgage on a fixed-rate deal, possibly for a longer period, such as five years. Fixed-rate mortgages do tend to carry a price premium, as lenders are only too aware of the fact that they will be the ones absorbing the impact of any increases to the base rate, but it could be a price worth paying if you want some time to see how your life develops after Brexit and decide what, if anything, you need or want to do about it.
In addition to looking out for yourself over the next few years, you should also be thinking about your longer-term future. Depending on your age, you may still qualify for Lifetime ISA, but these are not necessarily the best choice for retirement savings so you may want to talk to a professional before you decide whether or not to open one. If you’re in employment, then auto-enrolment could give your retirement savings a boost, but this depends on you being able to pay the employee’s contributions, which, in turn, could depend on a number of factors.
If you’re reaching or in retirement
The good news is that the government has committed to keeping the famous “Triple Lock”, which means that the state pension will continue to rise by the highest of average wages, inflation or 2.5%. The potentially bad news is that, per the previous comments, interest rates could be about to rise, at least in the short term, which could have serious implications for anyone carrying a mortgage, especially into retirement, or contemplating equity release.
