The Money Pandemic

The COVID-19 pandemic has already had a mighty short-term impact on personal finances, but the effects could be here for many years. It’s a fool’s errand to try to make financial predictions, but we can certainly make some educated guesses about what happens next.

Tax rises of some kind seem almost inevitable after the public spending deficit exploded with furlough pay and other measures. It is true the government has explicitly committed to no rises in the rates of income tax, national insurance or VAT until the next general election. That said, a cut in personal allowances or the 40% rate threshold would mean a bigger tax take without breaking the letter of the pledge.

It’s also getting harder to see the famed pension ‘triple lock’ surviving. It currently guarantees the state pension will rise each year in line with average earnings, inflation, or 2.5%, whichever is highest. One possibility is to ditch the 2.5% figure and simply go with the higher of earnings or inflation.

It seems many of us have got the taste for avoiding the commute and there’ll certainly be some permanent shift away from office working. That could affect the housing market, with the commuter belt becoming less of a mandatory destination for some. Meanwhile, city centre offices could be less in demand by businesses and potentially repurposed as apartments. Some effects have already been felt, with traditional two-bed buyers now looking to three-bed properties, earmarking the extra room as a home office.

The mortgage market has already absorbed the initial shock of COVID-19 with a period where few lenders were interested in anyone with less than a 40% deposit. Fortunately, that seems a short-term measure, but it certainly appears 95% mortgages will get rarer while rates and availability will become even more favourable to those with bigger deposits.

Even the practicalities of day-to-day spending have been changed by the coronavirus, with the upper limit for contactless payments rising from £30 to £45. With few signs of increased fraud, this is likely to be a permanent switch.

Once overseas trips become more normal again, reading travel insurance policies in full will become more important. Many insurers put in a hard deadline after which new policies didn’t cover losses stemming from COVID-19. Until that changes, holidaying could be a more risky proposition, while it’s possible COVID cover could become an optional extra.

Finally, investors and those with non-state pension plans will continue to be somewhat at the mercy of markets. Stocks have certainly taken a huge hit during the pandemic, though many analysts hope they’ll recover in the medium-term given that this is ultimately a financial hit stemming from a health crisis rather than a fundamental economic failing. As always, it’s important not to panic when markets fall and remember that losses aren’t ‘real’ until you sell.

John Lister (www.johnlisterwriting.com) is a freelance writer based in Bristol, specialising in technology and personal finance.