Sit tight to weather a winter of discontent

THE WORLD is heading for a winter of discontent, amid a second wave of Covid-19, and Brexit uncertainty. Millions of Britons could lose their jobs in the troubled months ahead, while others fear for their savings as interest rates plunge almost to zero and stock markets remain volatile and unpredictable.

House prices are rising for now but that is largely due to Chancellor Rishi Sunak’s stamp duty holiday, and its outlook is uncertain, too.

It is not a time to make rash moves but knuckle down to ensure your finances survive the winter squeeze.

MARKETS UP

Investors kept their heads last week even as some US politicians may have lost theirs, as they welcomed – after days of nail-biting chaos – the Presidential election result, a victory for Democratic Party candidate Joe Biden, but a Senate controlled by Republicans.

Richard Hunter, head of markets at Interactive Investor, said markets assume the Senate will block Biden’s ambitious plans to hike business taxes and tighten regulation, which would hit company profitability and shareholder returns. “Further fiscal stimulus could well follow in the new year, lifting the economy,” he said.

In another boost, Biden may also reduce trade tensions with China by being less confrontational than Donald Trump. That explains why the FTSE 100 surprised everybody by ending the week up nearly 6 per cent, with Wall Street also rising.

Share prices are being underpinned by global monetary stimulus, particularly from the US Federal Reserve, and this has spared pension and Isa investors from making even bigger losses.

Last week, the Bank of England gave the FTSE 100 a further lift by unleashing another £150billion of quantitative easing to prop up the economy during lockdown 2.0, lifting the total to £875billion.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said this was bad news for savers as it will weaken returns on cash: “The Bank has not ruled out negative interest rates, which would come as another blow.”

Savings rates are already at rock bottom, with easy access accounts paying 0.08 per cent on average, rising to 0.29 per cent on fixed rate and notice accounts, she said. “Low rates should not put you off saving, and an emergency safety net is vital at times like this.”

Coles said with the big high street banks paying just 0.01 per cent, it pays to shop around: “You can get up to 0.75 per cent on easy access, or more than 1.26 per cent by fixing for two years.”

DUTY DEADLINE

If the rising stock market is surprising, the property market’s buoyancy is astonishing.

House prices in October were an incredible 7.5 per cent higher than a year ago, according to figures from Halifax, as buyers race to complete their purchases before the stamp duty holiday ends on March 31 next year.

Many fear prices will collapse once the tax break ends and Miles Robinson, head of mortgages at online broker Trussle, said a second wave of Covid-19 could also dampen demand: “While the property market remains open for business and the furlough scheme has been extended, it may still need to be propped up with further support.”

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DEBT

Borrowing is due to get harder as lenders set tougher criteria for credit cards, mortgages and other forms of debt, amid rising default fears.

Totallymoney chief executive Alastair Douglas said only apply for a payment holiday if you really need one, as the interest still rolls up: “On the average household credit card balance of £2,241, the interest will total £221 over six months at the average rate of 20.71 per cent APR.”

If in trouble, contact your lender as late payments and defaults will remain on your credit file for six years: “This will make it harder to get accepted for things like credit cards and mobile phone contracts.”

The lockdown is not bad news for everyone though. AJ Bell senior analyst Tom Selby said while one in five will take a financial hit after being furloughed or losing their job, others will be spending less: “In the first lockdown people saved thousands on expenses, such as going out, driving costs, commuting and holidays.”

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TAKE COVER

Worryingly, nearly one in five have cancelled or cut back on insurance policies such as home, motor, pet, life and health cover, according to research from Premium Credit.

Kevin Pratt, personal finance expert at Forbes Advisor UK, said loyalty does not pay if you are struggling with bills: “If you have not reviewed your insurance, broadband package, energy supplier or credit cards for a while, check out other providers. You could save hundreds of pounds without compromising on product or service quality.”

Hunter said everything now hinges on an effective Covid-19 vaccine. “Until a vaccine is confirmed, with a realistic time frame for widespread distribution, the shackles will remain on any sustained economic recovery.”

We may hope to escape to a glorious summer next year, but first we must hunker down for a long, hard winter.