The Coronavirus pandemic has had a financial impact on many people, from the furlough scheme to changes in the way we work and earn an income.
SoGlos spoke to Chris McManus of Gloucester-based Wise Wealth Management to find out why now is a good time to give your finances a health check.
About the expert – Chris McManus from Wise Wealth Management
Chris McManus is an financial adviser at Wise Wealth Management, an Associate Partner Practice of St. James’s Place Wealth Management, offering financial advice on everything from investing to grow your income to planning for retirement with a pension.
With years of experience and a face-to-face approach, Wise Wealth Management’s financial advisers based in Gloucester are there to help clients achieve their goals and offer guidance through unexpected events, such as the current Coronavirus pandemic.
The Coronavirus crisis has had a big impact on many people’s finances, but there are schemes, like mortgage payment holidays, designed to help. What exactly is a payment holiday?
Most mortgage lenders are able to support you if your income has been affected by the Coronavirus outbreak, which could include a repayment holiday of up to three months.
The mortgage payment holiday will provide flexibility in repaying your mortgage by allowing you to stop or reduce your monthly payments for up to three months. This could provide much needed short-term help and usually comes with no additional fees or charges, but it won’t be suitable for everyone and interest will still be incurred.
Due to the ongoing ramifications of the coronavirus pandemic, the Financial Conduct Authority have recently announced they have extended the stance they have taken regarding lenders making mortgage holidays available up until Saturday 31 October 2020, for those who have not yet taken advantage of the scheme
What should people consider before applying for a payment holiday?
When taking a payment holiday, there are various ways your lender will adjust your mortgage. They may increase the length of your existing mortgage, which means afterwards you will see a small increase in your monthly repayments and, as you are paying your mortgage back over a longer period, you will also be paying interest for longer.
Your lender may spread your deferred payments over the remaining term of your mortgage which, again, will lead to higher monthly repayments once your mortgage holiday has passed. The shorter the term left on your mortgage, the higher the monthly repayments will be and you must consider how the higher monthly repayments will affect your finances going forward.
Alternatively, your mortgage provider may offer you the option of temporarily making interest only repayments, which will reduce your monthly repayments, but you will no longer be paying off capital towards your property. You should consider the impact this will have when restarting interest and capital repayments, as they will incur higher monthly repayments in the future.
What is income protection and how could it help in situations like the Coronavirus pandemic?
Income protection safeguards one of your most valuable assets, your income. When I am putting together a financial plan for a client, I will always advise that a well-established protection plan is in place as an underpin to their financial goals. This may be to protect debts, lifestyles and family estates – because if your income stops, all other areas of your finances will too.
An income protection policy is designed to pay out an income if an individual is unable to work due to illness or injury. It will usually pay up to 75 per cent of pre-tax income as an incentive to encourage individuals to return to work afterwards and usually comes with a deferred period.
A deferred period could be between four weeks and 12 months and is the period between stopping work due to illness or injury and the first payment from your protection policy, the longer the deferred period the lower your monthly payments will be.
Your chosen deferred period depends on your individual circumstances, you should take into account two factors – employee benefits and your savings. If your employer pays six months full pay, it would make sense to have a deferred period of six months, however if you are self-employed and have no employee benefits or savings, you would be better with a four-week deferred period. If you have excess savings, you can take these into account to extend your deferred period and lower your monthly payments.
If you have time off due to contracting the Coronavirus, an income protection policy would be able to replace lost income after the initial deferred period, until you’re well enough to go back to work.
That sounds like a really useful thing to have. Do many people have income protection?
I believe not enough people have income protection due to the fact it is an intangible asset and cost, that cannot be seen or touched. Many people feel that they are healthy and that they will never use the benefits of such policy. However, as we grow older, and the pace of life continue, there is an increased likelihood of someone falling ill and a much higher chance of needing to claim the benefits an income protection policy can provide.
The interesting thing is that although people insure their car against loss or damage, significantly fewer people insure their income. However, if you lose your income for an extended period perhaps you may never fully recover financially from such a loss and this could have a domino effect on the rest of your finances such as savings and pensions.
You mentioned pensions being affected, how can people protect their pensions in the current financial climate?
For investors with pensions and other investments, the markets are expected to remain extremely volatile. Therefore, it’s hard to say how badly it will hit your investments in the short term.
If you’re young, you shouldn’t be as concerned as you have more time for markets to potentially recover before you take your pension. If you’re older and close to retirement, you are going to need to access your pot sooner. However, it’s worth noting that if you have reached this stage then a well-managed pension should be partially invested in less volatile assets such as in bonds, which are lower risk and usually offer a fixed rate of return. The older you get, the more schemes tend to choose to invest in such assets to lower the risk to your pension pot.
How is the Coronavirus crisis affecting the markets?
The Financial Conduct Authority has enforced rules which require property fund managers to consider suspending certain funds under extreme market conditions. Suspension of funds is a tool which helps to protect investors as the world looks for ways to tackle extreme events such as the virus when investors and fund managers are unsure of the value of their underlying assets, which is necessary to help stop the financial markets becoming too disorderly.
Despite this time of uncertainty, it does seem that financial markets are starting to slowly recover. These gains in the market are in part down to increased investor confidence and the US and China (two of the largest economies in the world) recovering, alongside hopes of a vaccine.
While the Coronavirus will continue to impact markets, I believe long-term investors should not be overly worried. This is because stock markets suffer from volatility consistently and have the potential to rebound quickly once issued are resolved.
Why should people consider a financial adviser?
I believe nearly everybody could benefit from speaking to a financial adviser, whether you are starting out your career and looking to set up a savings plan, wanting better returns on your investments or are looking ahead to retirement. It may be a quick 10-minute chat or a deep dive into your current situation and creating a financial plan, but there is always a benefit.
Today, many of my clients are far too busy working, looking after their family and enjoying their free time to sit down and dig deep into their finances. As a financial adviser it is my job to give peace of mind with an expert opinion or provide solutions to help reach their financial goals both in the short and long term. I also offer ongoing advice as their circumstances change, with the likes of new jobs and family additions.
Where my clients benefit most from a financial adviser is looking at their situation from a third-party perspective, as quite often there are areas they may have overlooked. Using my experience in finance, I am able to challenge and question some of the decisions and choices made by my clients and, in most cases, recommend a solution that will suit them better.
I offer my clients ongoing advice to help keep them on track with their financial plan. How often depends on how complex their circumstances are or how often they change but can vary from monthly to once a year. It is a great feeling to stay in touch with clients, build friendships and over time see your clients achieving their goals.
I also offer no obligation initial consultations, so anyone who is looking for financial advice at the moment can contact me and I’ll be more than happy to help.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
Wise Wealth Management Ltd is an appointed representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice are marketing terms used to describe St. James’s Place representatives.