Financial experts say 2016 will be year of turmoil

A number of lenders are expected to launch new 95 per cent loan-to-value deals in a bit to attract first-time buyers. Photograph: Jane Barlow

A number of lenders are expected to launch new 95 per cent loan-to-value deals in a bit to attract first-time buyers. Photograph: Jane Barlow

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TAX shocks, pension disappointments, cheaper energy deals and a challenge to high street banks all lie ahead over the coming months.

We can also expect an overhaul of financial advice, higher borrowing costs and light at the end of the tunnel for long-suffering savers, according to the experts sharing their predictions for 2016. Here’s what they think you should look out for over the coming 12 months if you want to keep on top of your finances:

BANKING

Andrew Hagger, personal finance expert, Moneycomms.co.uk

Expect to see more upfront cash incentives in the current account market as competition remains fierce. However, on the downside I wouldn’t be surprised if we see more bank accounts with monthly fees, following the likes of Barclays and NatWest/RBS in 2015.

New digital banks including Starling Bank, Atom Bank and Tandem Bank are waiting in the wings and ready to challenge the high street giants. These mobile/online-only banks aim to disrupt the banking market over the course of the next decade and you can expect to see new names touting for your custom during the latter part of 2016.

There’s a growing feeling that borrowing interest rates may well have bottomed out and with Bank of England governor Mark Carney suggesting he may rein in borrowing by forcing banks to keep higher levels of capital, borrowing costs are likely to become more expensive in 2016.

HOUSING MARKET

Ian McGrail, director, First Mortgage

Further house price rises could prove challenging for the market in 2016 as property ownership becomes less affordable. This could particularly affect first-time buyers, who could struggle if affordable options are not maintained.

Help-to-buy has brought relief to some buyers and, with the current help-to-buy guarantee coming to a close in 2016 we expect a number of lenders to launch new 95 per cent loan-to-value deals. This will hopefully attract first-time buyers that missed out on the 2015 help-to-buy offerings.

Concerns over a possible interest rate rise in 2016 will drive an increase in remortgaging as buyers look to secure a favourable rate.

We don’t anticipate much of an impact from the land and buildings transaction tax (LBTT) that came into effect in 2015. The 3 per cent additional LBTT charge on buy-to-let and second home purchases, taking effect in April, won’t have a big effect. Buy-to-let property will continue to provide high yields and steady long-term growth, so while completions will increase ahead of April, with a slight drop for the three months post change, over the medium-to-long term the buy-to-let market in Scotland will remain attractive and consistent.

PENSIONS

Rachel Vahey, independent pensions consultant

The new single-tier state pension comes in from April. Its starting value is £155.65 a week, although many people will initially get less as we work through the transition from old to new systems.

Contracting out of pensions will stop for defined benefit (final salary) schemes, and members of these schemes, such as public sector workers, will have to pay higher national insurance contributions. This will come as a nasty shock for those unaware of the changes.

April will also bring a reduction in the lifetime allowance to £1 million and tapering the annual allowance for very high earners, measures that could have a big impact on those with larger pension pots or salaries.

The pension industry will continue to get to grips with that other big pension policy of freedom and choice, so expect to see more innovation in this area.

Finally, in the March Budget we will find out what changes the Chancellor is planning for pensions taxation. Higher earners may want to top up contributions ahead of any change. The Treasury and Financial Conduct Authority will also jointly report on their advice and guidance review, which could lead to a shake-up of the advice market.

TAX

Richard Libberton, private wealth manager, Anderson Strathern Asset Management

The levels of UK income tax rates paid in Scotland will be reduced from April by 10 pence in the pound, with the Scottish Government setting a new levy on top. In theory this could make a real difference to take-home pay north of the border.

In December, however, finance minister John Swinney announced that the Scottish rate for 2016/17 would be set at 10p, keeping it in line with the rest of the UK. This means that for now, the only change on your payslip will be a new tax code starting with S for Scotland. Meanwhile, the Scottish Government has also elected to freeze council tax for another year.

The Scottish rate of income tax does not affect the personal allowance, which will increase to £10,800 from 6 April. A £5,000 tax-free dividend allowance will also be introduced.

It will be a brighter year for savers, with the launch of a new personal savings allowance. It will apply to up to £1,000 of a basic rate taxpayer’s savings income in a bank or building society, and up to £500 for higher rate taxpayers.

ENERGY BILLS

Ann Robinson, director of consumer policy, uSwitch.com

Given the fact that wholesale energy costs – which make up around half of our bills – are low and likely to drop further, energy prices for most are likely to remain stable this winter. Suppliers have so far been reluctant to pass on the reductions in wholesale prices to the majority of their customers on so-called standard variable tariffs.

But a raft of new, highly competitive fixed term deals have been launched in the last few months, some as much as £307 a year cheaper than standard plans.

We would expect to see more cheap fixed deals coming onto the market this winter, so the advice is to shop around.

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