What The Election Means For You

What The Election Means For You

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The pundits were confounded today when against the odds the Conservatives managed to get a slim majority to go into the next Parliament without a power-sharing partner, and David Cameron was one of the few party leaders that was not only pleased with the result, but was actually still in the job this evening.

Ed Miliband, Nick Clegg and Nigel Farage all stood down as their respective party leaders, which should create an interesting few months in politics as the power struggles begin to find new leaders. The Scottish National Party almost swept the board in Scotland, taking all but two seats and leaving Nicola Sturgeon not only with a grin as wide as the Firth of Forth, but leading the third biggest party in the country. Official.

However, that is all well and good, but while the politicians variously celebrate and lick their respective wounds, what does the election result actually mean to your pocket? Here, Alison Steed goes through the financial areas that matter to you:

Property

The housing market had remained fairly static the lead up to the General Election, but the shock outright victory for the Conservatives leads experts to believe that the UK property market could get a much needed boost.

Doug Crawford, chief executive officer of myhomemove, said: “The decisiveness of the result should provide a sure footing of stability and predictability that will deliver more confidence to the housing market. This should help to push up the number of house sales from the decline that has been seen because of the uncertainty of the election.

“We can expect to see a new Conservative Government put its manifesto commitments to improving the housing market into its legislative programme for government.

“Its plans to extend the Help-to-Buy equity loan scheme to 2020 is very popular with property professionals and consumers alike. Some 80% of property professionals attending our annual conference later this month said they support this policy when we polled them. It is also popular with the public: 65% of Britons backed this plan in our recent YouGov survey.

“Rising house prices and low wage growth have made it hard for first-time-buyers to get onto the property ladder, so they need all the help they can get. Extending the Help to Buy scheme, which has a proven track record of success, is a popular policy that delivers results.”

Alex Gosling, CEO of online estate agents HouseSimple.com, said: “This house price rise of 2.2% this quarter is encouraging news for home sellers although the annual rate still remains lower than the bounce we saw last summer.

“The recurring problem has been the lack of supply. The hope is now that the cloud of uncertainty has lifted, home sellers will have more confidence to market. The next 12 months should be a good time to market your home.”

Of course, those homeowners with larger properties will be breathing a sigh of relief at escaping Labour’s Mansion Tax, but what about those with more modest means and who own – or are looking to buy – smaller properties?

Russell Quirk, founder and CEO of eMoov.co.uk, said: “I don’t think there will be huge implications at the other end of the market. The Conservatives introduced the new Help to Buy Isa to encourage first-time-buyer votes and plan to extend it. I can’t see them making a U-turn on their Stamp Duty Tax amendments either so the lower end of the market should benefit to some extent.

“Our research has found that under their tenure, a Conservative government is twice as successful in seeing an increase in house prices, certainly a plus where homeowners are concerned. However a recent poll of MPs and the general public found that many believe that Britain is currently experiencing a housing crisis. There is a rather strong argument that the current government’s policies on the property construction, or lack of it, has contributed to this current crisis.

“One hopes that the election bribes orchestrated by the Conservatives will actually be promises that are kept. Based upon the rhetoric from previous campaigns versus the elected reality, I doubt that the pledges will be matched by the outcome regardless of who has now formed the Government. If they are to really help the housing market they need to deliver on the regenerating of brownfield land to facilitate the construction of the 400,000 new homes. Under the last government there was a woefully inadequate shortfall of around 70-80,000 homes a year and this can’t continue.”

Holiday spending

The pound surged ahead on the news that the Conservatives had a majority in the Commons, meaning if you are planning on a summer getaway you will get more for your money. It did not quite reach the heady heights of €1.41 to the pound that we saw in early March, but even so a surge to €1.38 before falling back slightly still means those travelling abroad in the coming months would do well to keep an eye on the currency rates to get the most from their euros, dollars or any other denomination they might need.

Edward Knox, FX analyst at Caxton FX, said: “Equity markets are up, and the pound has rallied. Before the exit polls were released the prospect of any party winning an outright majority seemed highly unlikely, and now beggars the question as to how reliable these polls are.

“The market has been trading off polls showing a much tighter race and as a result of the uncertainty sterling markets suffered. The Conservatives time in government had been viewed as economically successful, with the market largely trusting Chancellor George Osborne decisions.

“A continuation of this will be positive news for the pound in the short term, indeed the pound is enjoying its best performance against the dollar since early February and has had its biggest one-day gain against the euro since January 2009. Cameron’s second stint as PM is however not without its problems. The trouncing of Labour by the Scottish Nationalists North of the border means that Cameron will have a fight on his hands to unite the union. The groundswell of Nationalism in Scotland will be one of the first things Cameron will seek to address. Longer term concern will turn to the EU referendum that Cameron has promised in 2017. A conservative majority with its eurosceptic backbenchers have made this referendum a very real problem and this will be a nagging concern for the market going forward.”

Pensions and annuities

Chancellor George Osborne offered increased flexibility in pensions and although pensions minister Steve Webb was a casualty of this election, the plans that have been put in place and outlined in the Conservative manifesto mean higher-rate taxpayers who want to maximise their tax relief should act sooner rather than later.

Tom McPhail, head of Pensions Research at Hargreaves Lansdown, said: “After the seismic changes in the 2014 Budget, further changes to pension taxation seem inevitable, particularly for higher earners. In particular given the manifesto proposals, anyone with plans to make pension contributions in the immediate future and particularly those paying higher rates of tax should consider acting sooner rather than later.”

In their pre-election Manifesto, the Conservatives announced plans to cut pension tax relief for high earners from the current £40,000 annual allowance that applies to pension contributions. It would mean that the annual allowance will fall by £1 for every £2 they earn above £150,000. This would mean someone with an income of more than £210,000 a year would have an annual pension allowance of just £10,000.

For example:

  • £150,000 total taxable income or less = £40,000 annual allowance
  • £170,000 total taxable income = £30,000 annual allowance
  • £190,000 total taxable income = £20,000 annual allowance
  • £210,000 total taxable income or more = £10,000 annual allowance

However, it is currently possible to contribute more than the annual allowance by ‘carrying forward’ unused tax relief from the previous three tax years. Whether a Conservative government would target this is unclear at this point.

Adrian Walker, retirement planning manager at Old Mutual Wealth, said: “For higher rate taxpayers concerned that the election result means tax relief on future contributions may be cut back, it is worth considering making additional contributions now while tax relief matches tax paid on income. Carry-forward rules mean that any unused annual contribution allowance from the past three years can be used, meaning an individual could actually make up to £120,000 in contributions.”

Annuity rates – the amount of money you are paid each year if you choose to buy an annuity which is a product that gives you a ‘pension for life’ – may also rise in the coming weeks as bond yields, one of the key indicators of annuity rates, have started to rise.

Mr McPhail said: “Bond yields [have been] edging upwards in recent weeks (15 year Gilt up from 1.7% on January 30 to 2.3% on  May 7), which could mean annuity rates getting pulled upwards in the days and weeks to come. But we have had so many false dawns in the annuity market over the past five years that investors should be wary of pinning their hopes on a significant improvement in the rates.”

Savers

Savers were offered increased flexibility in individual savings accounts (Isas) in the last Budget alongside pensions, with the ability to freely transfer your total Isa allowance of £15,240 between both cash and stocks and shares Isas. These popular savings products – almost 14m people subscribed to an Isa in the 2012/13 tax year according to HM Revenue & Customs figures – allow you to invest tax efficiently, because your investments are sheltered both from capital gains tax, the additional tax a higher-rate taxpayer would need to pay on dividend income, and no tax on interest paid in cash Isas.

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “In addition, following March’s Budget, later this year we should see the introduction of increased flexibility for withdrawals and reinvestments into Isas, as well as the introduction of a new Help to Buy Isa.”

However, savings rates are at some of the lowest levels ever seen, thanks to a record low Bank of England base rate of just 0.5%. So the fact that peer-to-peer lending would be an acceptable investment in the more flexible Isa regime is potentially very good news, especially as interest rates in peer-to-peer lending can exceed 5%.

From April 2016 you will be able to receive your first £1,000 of interest from savings accounts and peer-to-peer lending tax free as a basic rate taxpayer, or £500 tax free as a higher rate taxpayer.