INTERESTing Times

 

One of the downsides of historically low interest rates is the impact it has for savers, who have been hit the hardest since the banking collapse. However, a new initiative from The Financial Conduct Authority (FCA) may inspire some positive movement for savers.   

 

To try to emphasise the importance of ‘shopping around’, the FCA has published a name-and-shame list as part of its review of the savings market. The results aren’t pretty reading:

 

- 6 organisations offer rates on cash of 0.05% or less.

 

- A further 6 banks or building societies offer rates as low as 0.1%.

 

Some of the worst offenders were:

 

Danske Bank 0.01%

Progressive Building Society 0.01%

Ulster Bank (RBS) 0.01%

HSBC 0.05%

First Trust Bank 0.05%

First Direct 0.05%

 

The initiative will see the FCA publish the list of poor interest rates every six months for the next year and a half. The FCA also announced new measures to force firms to provide clearer information on interest rates. From December 2016, banks and building societies will have to tell consumers when interest rates change and when introductory offers run out.

 

They don’t get too much positive press but the initiative from the FCA can only be a good thing for consumers and increase competiveness in the savings arena.

 

It’s a double win.

Stamp On Buy To Let

 

The introduction of a Stamp Duty Land Tax (SDLT) could be the most significant statement on pensions that George Osborne never made.

 

In short, a new surcharge of 3% on stamp duty will commence from April 2016 for buy to let properties and this measure is expected to bring in £4 billion over the next 5 years. However, the main result is it reduces the attraction of this form of investment. 

 

The tide is finally turning against property in favour of pensions after the Chancellor targets the buy-to-let market.

 

I am not a fan of buy to let investment. It frustrates first time buyers by putting up the prices of reasonably priced property and concentrates housing wealth in the hands of a few. It is in effect, anti-social housing.

 

Nor do I like the impact that it has had on the pensions market. The get rich quick brigade have shown that you don’t have to save prudently for retirement. You just need to have a portfolio of properties which you can buy and sell with impunity of taxation (on the whole).

 

There has been an implicit bias in the housing taxation laws towards buy to let for as long as I can remember. This bias has not just led to a fair number of people ignoring pensions in favour of buying houses to let, but envy among those who do not have the capital and see themselves having to use pensions as a second best. I have lost count of the number of times that people have told me their house is their pension. However, the reality is that most people do not sell their homes and trade down to more appropriate later life accommodation. The housing stock that should be passing through the generations is not. This is another impact of the skewed taxation system that promotes property ownership above all other forms of private wealth.

 

Our homes are our castles, even if we can’t afford to heat them.

 

In summary, the changes announced on buy to let properties are:

 

1. Restriction of Tax Relief to Basic Rate only

 

2. Increase in Stamp Duty by 3% above equivalent residential property

 

3. Requirement to pay any Capital Gains tax due on sale within 30 days

 

As a consequence of these changes, I really hope that people will start saving for their retirement, rather than borrowing to buy to let and that people increasingly think of their homes as a place to live rather than a pension.