The ones to watch in 2018 – part 1
2017 was a year of ups and downs for savers and investors. Here, we take a look at a number of key aspects of you and your money and give some thoughts on what we can expect in 2018.
The property bubble in London seems to have finally burst and sellers are suddenly finding they need to reduce their asking price in order to sell. Property in other regions of the UK seems to be showing more resilience and there could still be gains to be made. On the whole, only modest growth is predicted in the housing market in 2018 with house price growth predicted to stay at between 0 and 3 percent for the year.
For property investors, 2018 is set to see further dents in pockets. April 2018 sees the next stage towards the removal of tax relief on interest payments for higher rate tax payers to 50%. Along with the 3% additional stamp duty land tax payable on buy-to-let properties and second homes, the National Landlords Association claim that one in five landlords is planning to sell at least one property.
The one group who could find themselves in a better position this year compared to last year is first time buyers after stamp duty was abolished in the Autumn budget for first time buyers purchasing properties up to £500,000.
Contributed to by the fall in the pound since the Brexit vote and the subsequent weaker consumer spending and slowdown in the housing market, inflation was the ‘cash killer’ of 2017.
Inflation started outstripping pay rises at the beginning of 2017 and by the end of the year, with inflation having risen to more than 3% in November, wages actually fell in real terms by 0.4%.
Looking at data from the OBR data, The Resolution Foundation has predicted that the same trend is set to stay for the first few months of the year before levelling out towards the end of 2018. In a study, it found that half of workers expect no pay rise next year and although not expecting another fall in wage rates compared to inflation, it predicted "zero real wage growth" in 2018.
When the Bank of England took the decision to raise interest rates for the first time since 2007 in November 2017, there was a flurry of comment, with some thinking this could be the beginning of the end of low interest rates. However, the following two months have not seen a further rise and there doesn’t appear to be one on the immediate horizon. The Bank of England themselves has forecast a further two rate rises over the next three years – meaning two rises could be possible in 2018.
An increase in interest rates would be welcomed by savers, who have endured pitifully low returns on cash accounts for several years. However, any rate rise would filter down to interest rates, which could be difficult for homeowners with significant bank borrowings, especially as the prospect of any real wage rises remains low.
In the second part of this blog, we’ll be looking at a further three areas that have the potential to affect you and your pocket. In the meantime, if you’d like to discuss any of the contents of this article with one of our financial planners, please contact us.