For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
The rise of Generation Rent - and Generation Landlord
There are a number of statistics which emphasise the growing generational wealth divide in the UK; such as the projection that so-called millennials will be the first in modern history to be poorer than their parents.
So acute is the issue in the UK, that a report by the Resolution Foundation found that our country's under 30s have suffered a reversal in financial fortunes surpassed only by Greece within the developed world since the financial crisis. The study also found that the subsequent pay squeeze since 2008 has been twice as severe on this age category as it has on over 50s.
Yet it is arguably the balance of home ownership which most tangibly illustrates the size of these inter-generational fissures. Moreover, the contrast in fortunes between 'Generation Rent' and 'Generation Landlord'. Staggeringly, around 1 in 30 adults in Britain are now landlords, with rental income accounting for around 3 per cent of GDP. And to illustrate the extent to which the pendulum has swung, recent statistics show that the proportion of homeowners between the ages of 16 and 35 has fallen from 50 per cent to roughly a third in the past decade alone.
Why is this gap increasing?
There are a number of contributing factors, but the one which matters most is the relationship between escalating house prices and wage stagnation. Even as recently as 2005, the average house price in the UK stood at around £150,000. As of 2017, this figure had soared to more than £220,000. This increase has been felt most sharply in London, where the average cost of a property has risen from just under £220,000 in 2004 to over £490,000 today.
Given that the above has coincided with a decade in which real earnings have declined, it becomes obvious why young people are being locked out of home ownership. After all, those under the age of 30 are less likely to have been on the housing ladder by the time the financial crisis struck, and the years since have pushed the bottom rung further away. In fact, it is estimated that the rate of home ownership has fallen from just under 50 per cent to only 20 per cent for those aged 20-29 in the last two decades. For those in their late 20s, the rate of home ownership is just 33 per cent, while the corresponding figure for baby boomers at that age is thought to be in the region of 60 per cent.
Exacerbating this problem has been the conundrum of renting. With homes not being built at a fast enough rate to keep pace with demand, upward pressure is placed on house prices. Higher buying costs and reduced supply mean a greater number of people are forced to rent. This in turn boosts demand for rented properties, which, due to market forces, drives up rental costs. Yet as a result of rent accounting for a greater share of monthly expenses, first-time hopefuls find it ever more difficult to save towards buying a house. All this while, on the other side of the equation, landlords have seen their rental incomes grow.
How can this gulf be addressed?
In fairness, Government has taken steps to deal with the housing crisis, and specifically the age gap in homeownership. The Help-to-Buy scheme - whereby qualifying homebuyers receive a 5-year, interest-free loan to put towards their deposit - has been a relative success, and with the promise of an additional £10 billion being pumped into this initiative, homeownership could become accessible to many more people. Additionally, the Help-to-Buy ISA, which involves a bonus scheme for first-time buyers, has seen significant take-up since its launch, with over a million of these accounts being opened and nearly £2bn saved in the first two years.
Shared ownership is another venture which has been tried. In this instance, individuals can purchase a portion of the home, and rent the remainder from a housing association. Although its popularity appears to be on the decline, it has nonetheless been a viable stepping stone for some.
More regressively, a stamp duty surcharge of 3 per cent on buy-to-let properties (and second homes) introduced in April 2016 has made becoming a landlord less attractive; as have other measures which include removing the so-called 'wear-and-tear' allowance, and a clampdown on landlords writing off interest costs against income tax.
Conversely, the Chancellor scrapped stamp duty for first-time buyers on purchases of up to £300,000 at the last Budget, which represented a clear olive branch to younger voters.
So, will the gap start to close?
Nothing in economics happens in a vacuum, and any number of factors could influence how the housing crisis unfolds from here. It is abundantly clear though that more needs to be done, as all current statistics underscore the disparity of the status quo. If that is allowed to continue, it will only intensify the sense of injustice among young people, and conceivably fester ill-feeling towards their older counterparts.
Yet in a bid to appease the young, constructive solutions do not lie in taking a punitive approach to those of an older disposition. Let us not forget that those over the age of 50 account for half of consumer spending in the UK, and are the crucial engine of growth and prosperity for the economy (not to mention that the vast majority have been prolific taxpayers their entire lives). Damaging their wealth will serve no one, and it is vital that frustration among the young does not lead to policy decisions that result in the pockets of over 50s being unduly raided - directly or indirectly.
There are no easy answers, and even well-intended schemes such as Help to Buy have the unwanted consequence of artificially inflating house prices. Yet the inter-generational homeownership divide is a gaping wound in our society which needs to be addressed. Perhaps radically. However, the steps taken need to be palatable for all.
But of all the big ideas being bandied about, surely straining every sinew to improve on the dismal housebuilding records of successive governments would represent a good and simple start?
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
As the tax year end approaches, the financial services industry readies itself for a flurry of activity. That's in large part because, with just a couple of months to go, the so-called 'ISA season' is upon us.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.