Investors should expect further volatility in the markets in 2023, experts suggest.

Economies around the world are facing recession due to factors including high inflation and rising interest rates. The International Monetary Fund’s Kristalina Georgieva predicts that a third of the global economy will be in recession this year.

The World Bank also has a similar outlook, as it cut its global growth forecast from 3% to 1.7% after risks identified six months ago materialised. The organisation warned that fresh setbacks could lead to the second global recession in three years.

As an investor, remember that volatility in the markets is normal. Take a long-term view of your portfolio’s performance and focus on your overall goals rather than short-term market movements. 

Here are some of the factors that affected markets in January 2023. 

UK

There was a positive sign that the UK could avoid the long recession that some experts have predicted – the economy grew by 0.1% in November. 

The UK inflation rate also dipped slightly to 10.5% in the 12 months to December. It suggests that inflation is starting to ease, but it’s still far higher than the Bank of England’s (BoE) target of 2%.

However, the BoE’s chief economist Huw Pill warned that the UK could face persistent challenges if domestically generated inflation gained momentum. For example, if firms try to maintain real profit margins, it could prolong the high inflation environment. 

High energy prices in particular continue to be a challenge for both households and businesses.

Chancellor Jeremy Hunt will slash the current energy support scheme for businesses in March. He told business leaders that the current scheme is “unsustainably expensive”.

Trade body MakeUK, which represents around 20,000 manufacturers, criticised the news. It warned that two-thirds of businesses expect to cut production or jobs as a result of energy prices. 

The UK government’s borrowing reached a record high in December, which highlights the cost of the energy support scheme. The government borrowed £27.4 billion, the highest amount recorded since records began in 1993. The high figure was linked to the cost of energy and interest rates rising.

The figure was £9.8 billion more than the Office for Budget Responsibility forecast, potentially leaving little room for Hunt to cut taxes in the upcoming spring Budget.  

According to the Office for National Statistics (ONS), industrial action also affected firms, with a quarter of businesses said they were unable to obtain the necessary goods for their operations during the month. 

The ONS data suggests that some businesses plan to make cuts to their staff in the next three months. 5% say they could make redundancies, while two-thirds plan to take action to cut staff costs. Yet, the figures also show that a third of businesses are experiencing a shortage of workers. 

Readings from the S&P Global Purchasing Managers’ Index (PMI) indicate that sectors are struggling. A reading below 50 indicates contraction. 

• The manufacturing sector ended 2022 in a downturn, with a reading of 45.3. It’s the fifth consecutive month of decline.
• A fall in new orders affected the service sector, but only marginally, with a reading of 49.4. 

The ONS has warned that some households could face a significant rise in their outgoings. In 2023, 1.4 million fixed-rate mortgage deals will end, and many of them have an interest rate below 2%. As interest rates climbed throughout 2022, this means homeowners could face a much larger mortgage bill than they expect when their current deal ends. 

Figures from the BoE also show that consumers are borrowing more to cope with the rising cost of living. £1.5 billion was borrowed in November. Most of this, around £1.2 billion, was on credit cards and was the highest figure recorded since 2004. 

Europe

Inflation in Europe could be stabilising. In Germany, the figure for the 12 months to December 2022 fell to 8.6% from 10% a month earlier. However, food prices (20.7%) and energy costs (24.4%) are still much higher than a year ago. 

The PMI data suggests the construction sector in the eurozone is suffering a “sustained contraction” after the reading fell to 42.6. All three of the largest economies the survey covers in the eurozone – Germany, France, and Italy – suffered a drop.

Total output is still in the contraction territory, but it is easing with a reading of 49.3, and the service sector moved back into growth with a reading of 50.2. 

While still challenging, the pressure easing is reflected in a survey from the Ifo Institute. It found that German business morale is up as the economic outlook improves. 

Unemployment figures from the eurozone also indicate that businesses are feeling confident about their prospects. Eurostat reported that unemployment remained at a record low of 6.5% in November. 

US

There are positive signs for the US economy – inflation fell and the number of jobs increased. 

In the 12 months to December 2022, US inflation fell to 6.5%. It indicates that the cost of living pressures are starting to ease. 

The US job market ended 2022 on a high. The Department of Labor reported that 223,000 jobs were added to the economy at the end of the year. Unemployment also fell to 3.5%, taking it to its pre-pandemic low.

Yet, some businesses are still struggling. The PMI for the factory sector suggests it suffered its fastest rate of decline since May 2020, with a reading of 46.2. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Given that energy prices have soared, it’s not surprising that energy efficiency measures have become essential to homeowners. However, a survey found some trends that you might not expect, and it could change how you view your property if you’re thinking about updating it. 

According to Halifax, almost half of homeowners want to make improvements to their property within the next few years. So, what should you focus on?  

According to 62% of people, a good Wi-Fi connection is essential. It’s easy to see why this would be important. Whether you’re working from home, enjoying streaming a TV show, or connecting with family and friends, you’ll often be using the internet.  

Another unsurprising must-have is energy efficiency measures, which 58% of people said were crucial. Over the last year, household energy bills have soared for many families. So, cost-cutting measures, like insulation, energy-efficient appliances, or renewable energy sources could save money in the long run. 

Considering energy efficiency could also make your home more attractive if you want to sell it in the future. 

Separate research from Legal & General suggests that potential buyers would be willing to pay a premium of up to 10.5% for a low-carbon home. Demand is growing too; searches for mortgages that consider the Energy Performance Certificate (EPC) rating, which measures a property’s energy efficiency, increased by 34% in July 2022. 

So, while energy-efficient measures can be costly to install initially, they could pay you back through lower energy bills and potentially a higher sale price. 

Making spaces functional with a utility room (40%) and study space (27%) has also become more popular. If you’re thinking about updating the layout of your home or how you use different rooms, giving each space a designated purpose could be useful. 

5 upcoming trends that could make your property more attractive 

As well as the must-haves you’d expect to find in a home, the survey uncovered upcoming trends that some homeowners already consider essential features. 

1. Home cinema: 1 in 10 homeowners want to watch the latest box set or film in style with a home cinema set up. 
2. Boiling water tap: Kettles are deemed too slow for 9% of people, who believe a boiling water tap is now a must-have kitchen gadget. 
3. Dressing room: If you have a spare room, turning it into a dressing room could make your home more attractive, as 7% consider this additional space to be a must-have. However, losing a bedroom or storage could reduce the value of your property too. 
4. Home gym: 7% of homeowners don’t want to pay for a gym membership and consider a home gym essential for improving their health and fitness. 
5. Hot tub: Perhaps surprisingly given rising energy prices, 3% of homeowners believe that a hot tub is a must-have feature for their home. 

Don’t forget about your garden: A quarter of potential buyers say a beautiful outdoor space could tempt them

When updating your property, don’t forget about the outside.

Gardens and outdoor spaces became a key feature during Covid-19 lockdowns when families couldn’t go out. The Halifax survey suggests that gardens are still an important part of creating the perfect home. In fact, 26% of people said a beautiful garden could convince them to buy a property they may otherwise discount. 

There are two key features that prospective buyers focus on: 

1. Grass: While grass can require work to maintain, the survey found that almost half (47%) of people say it’s their preference and would choose it over artificial options or paving.
2. Outdoor building: Whether a shed that’s handy for storage or an outbuilding that’s perfect for entertaining, 33% of people consider an outdoor building an important feature. 

Gardening has plenty of benefits. As well as giving you an outside space to enjoy, it can be great exercise and provide a mental health boost too. However, if you’re hoping to sell your home, be cautious of creating a high-maintenance plot – 47% of people said it’d put them off a property. 

Contact us to talk about your home

Whether you want to create a beautiful home to live in or are getting ready to move, we could help.

In some cases, you could borrow more against your home through your mortgage, which you could use to turn your property into your dream home. If it’s something you’re thinking about, we could help you understand the long-term cost, find a lender that’s right for you, and offer support throughout the application process. 

If you’re planning to move, we’re also here to help you find a mortgage for your new property. Please contact us to arrange a meeting. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Think carefully before securing other debts against your home.

Over the last year, interest rates have increased from historic lows. Fixed-rate mortgage payers that have been shielded from the rises so far could find their outgoings rise if their deal ends in 2023. 

The Bank of England increased its base interest rate several times over the last 12 months to tackle high levels of inflation.

For savers, it’s been good news, as interest rates on savings accounts have started to rise after more than a decade of being low.

However, for borrowers, it means the cost of debt has climbed. From credit cards to loans, the amount you pay to service debt has probably increased. As a mortgage is often one of the largest loans you’ll take out, even a small change to the interest rate could affect you. 

57% of fixed-rate mortgages ending have an interest rate below 2%

Data from the Office for National Statistics suggests that 1.4 million households will need to renew their mortgage deal this year. 

Among the fixed-rate deals coming to an end, 57% have an interest rate below 2%. It’s unlikely you’ll find a new mortgage deal that has an interest rate this low. So, monthly repayments could rise for thousands of households over 2023. 

Let’s say your remaining mortgage debt is £150,000. If you choose a 20-year repayment mortgage, the table below shows how an increase of just a few per cent could affect the cost of borrowing.

Source: MoneySavingExpert

If your mortgage deal is ending, being proactive can help you prepare for the potentially higher costs and get to grips with your budget. 

6 practical things you should do if your fixed-rate mortgage ends in 2023

1. Review your budget

Take some time to understand what rising interest rates will mean for you. Being prepared means the hike in your mortgage outgoings won’t be unexpected. 

2. Decide if taking out a new mortgage deal is right for you

While it can be tempting not to take out a new mortgage deal if there’s nothing comparable to your current one, you could end up paying more.

Once your current deal ends, you’ll usually be moved on to your lender’s standard variable rate (SVR). This rate isn’t usually competitive, and you could save money by taking out a new deal. 

However, there are some circumstances when remaining on your lender’s SVR does make sense. For instance, if you plan to move, you could face exit fees if you choose to take out a new deal. Or, if you want to make significant overpayments, remaining on the SVR could mean you avoid fees. 

3. Decide what kind of mortgage is right for you

Do you want to take out another fixed-rate mortgage? Or would a variable- or tracker-rate mortgage suit you now?

Interest rates may continue to rise over 2023. So, you may choose a fixed-rate deal again. This would mean that your repayments could not increase during the term. However, if interest rates began to fall, you wouldn’t benefit.

In contrast, with a variable- or tracker-rate mortgage, the interest rate could rise and fall. 

Which is right for you will depend on your financial circumstances and priorities. If you want certainty, a fixed-rate deal can be useful, but you should review all your options. 

4. Set out the mortgage term and how much you want to borrow

Usually, each time you remortgage, the term and amount you borrow falls. However, this doesn’t have to be the case.

You may choose to shorten or extend how long you’ll be paying the mortgage. If you shorten the term, your repayments will be higher, but you could be mortgage-free sooner and pay less interest overall. If the cost of living crisis means your budget will be stretched, choosing a longer term could provide more flexibility and lower initial repayments but will mean the overall cost of borrowing is higher. 

You may also choose to borrow more. You could use this money to renovate your home or pay for other expenses. Again, keep in mind that borrowing more against your home will mean paying more in interest, and it’ll affect your repayments. 

5. Search for deals early

You can often lock in a new mortgage deal up to six months before your current one ends.

Searching early means you can avoid paying your lender’s SVR while you find a new deal and it gives you more time to find a suitable option for you. 

6. Contact us

We’re here to help you find a mortgage that suits your needs. If your current deal is coming to an end, please get in touch. We can help you understand which type of mortgage could be right for you and how the rising interest rates will affect your repayments. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Not all mortgage contracts are regulated by the Financial Conduct Authority. 

Think carefully before securing other debts against your home.

You have until 5 April 2023 to make the most of your ISA allowance for the current tax year. If you want to boost your savings or investments, adding more to your ISA could make sense.

For the 2022/23 tax year, you can add up to £20,000 to adult ISAs. The allowance is for each individual. So, if you’re planning with a partner, you should consider making use of both of your allowances. 

ISAs are a popular way to save and invest. According to government statistics, around 12 million adult ISAs were subscribed to during the 2020/21 tax year. In total, the cash value of ISAs stood at around £687 billion. 

If you’ve yet to make use of your ISA allowance for the 2022/23 tax year, here are four reasons you should review your deposits. 

1. You could access a higher rate of interest with a Cash ISA 

If you’re building up your savings, using a Cash ISA could mean you benefit from a higher interest rate when compared to regular savings accounts. 

As interest rates increased throughout 2022, it’s a good time to review if your Cash ISA is still competitive. There may be an alternative provider that offers a higher rate.

You could also choose an ISA with a fixed term in return for a better rate. However, you may not be able to withdraw your savings during the term, so it’s important to consider what you’re saving for.

If you don’t have a Personal Savings Allowance (PSA) because you’re an additional-rate taxpayer or you’ve exceeded your PSA for the current tax year, a Cash ISA can also be beneficial for tax purposes. Interest earned on cash held in an ISA isn’t liable for Income Tax. 

2. ISAs offer a tax-efficient way to invest

For investors, Stocks and Shares ISAs can be tax-efficient. You don’t need to pay Capital Gains Tax on investment returns when investing through an ISA. As a result, it can reduce your tax liability and help your money go further. 

As with any investment, you should invest through an ISA with a long-term time frame and understand what level of risk is appropriate for you. 

3. If you save with a Lifetime ISA, you could benefit from a 25% bonus

A Lifetime ISA (LISA) isn’t the right option for everyone, but it can be valuable in some circumstances, including if you’re saving to buy your first home. 

You must be aged between 18 and 40 to open a LISA and you can contribute until you are 50. You can deposit £4,000 in the 2022/23 tax year and receive a 25% government bonus. In effect, it means you could benefit from £1,000 of “free money” each year. 

However, you will face a 25% charge if you make a withdrawal or transfer the money to another type of ISA before you’re 60 for a purpose other than buying your first home. This means you could lose the bonus plus some of your original savings. So, you should think carefully about what you’re saving for and the alternatives before you use a LISA. 

You can choose a Cash LISA to earn interest on your deposits or a Stocks and Shares LISA if you want to invest. 

4. If you don’t use your ISA allowance, you will lose it

Finally, you cannot carry any unused ISA allowance into a new tax year. If you don’t use it before the 5 April 2023 deadline, you’ll lose it. So, reviewing your saving or investing plans now with this in mind can help you get the most out of your ISA allowance. 

Should you use your ISA allowance to save or invest?

While a Cash ISA can seem like the “safer” option, as your money isn’t exposed to investment risk, inflation can erode the value of your savings over time. As a result, you should consider if saving or investing is right for your goals.

A report in FTAdviser suggests that UK savers storing money in Cash ISAs are experiencing wealth erosion at the fastest pace in more than four decades. This is due to high levels of inflation, which interest rates aren’t matching. The report estimates that when compared to inflation, savers are facing a gap of £26.7 billion. 

In contrast, investing could help the value of your savings keep up with inflation. However, returns cannot be guaranteed and investing isn’t always the right option.

It’s important to set out your goals and how far away they are to understand if saving or investing could be right for you. 

Contact us to talk about how to use your ISA allowance 

If you want to talk to a financial planner about how to get the most out of your ISA allowance, please contact us. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.