The new year is upon us and with comes lots of changes that could impact your finances. From Brexit to tax changes, we take a look at how your finances will be affected this year.
You’ll be able to earn more before paying tax
From 6 April 2019 the amount you can earn before tax – known as the personal tax allowance - is set to rise from £11,850 to £12,500. This will give basic rate taxpayers an extra £130 a year.
For higher earners on more than £46,350 the 40% tax threshold will rise to £50,000, making them better off by up to £860 a year.
However, National Insurance contribution (NIC) limits have also moved in line with the change in the income tax threshold. As a consequence, higher earners will lose half their newfound tax gains.
People earning more than £46,350 currently pay 12% NICs on earnings up to that level but only 2% on higher amounts.
However, from April they will pay the full 12% rate of NICs on everything up to £50,000, as the upper earnings limit is hiked up. The 2% rate will kick in on earnings above £50,000.
As a consequence, while tax payable on that slice will be reduced by 20%, NICs will go up by 10%, so the net gain is only 10%.
Most experts are predicting that house prices will flatline in 2019 as Brexit uncertainty continues to bite.
The property market is currently going through a bit of a slump, with buyers holding off to see what happens until after the UK leaves the EU.
However, most think a crash is unlikely with property prices likely to remain stable due to the chronic under-supply of housing.
The Royal Institution of Chartered Surveyors (RICS) says house price growth is set to grind to a halt in 2019, with Brexit uncertainty and higher prices forcing many buyers out of the market.
RICS expects prices in London and the South East to pull back slightly in the first half of next year, while remaining flat in the North East of England, East Anglia and the South West.
However, prices in Northern Ireland, the North West of England, Wales and Scotland are all predicted to increase.
Rightmove is predicting zero growth for house prices with “stretched affordability” limiting people's ability to buy for the first time or trade up.
It is not all doom and gloom though. Halifax expects annual house price inflation to be in the range of 2% to 4%, though it cautions this is dependent on the UK leaving the EU with a withdrawal agreement.
David Hollingworth of mortgage broker London & Country says: “With Brexit looming large on the horizon and so much uncertainty it’s of little surprise that the property market has softened at the end of 2018.”
He adds: “Buyers are likely to take a wait and see approach and therefore purchase activity could be muted in the first quarter. Those that are looking to purchase could therefore find that property availability is limited but that buyer competition is not as fierce.”
Council tax could rise
Council tax could go up by as much as 4.9% in 2019, as funding shortfalls for local councils continues.
The move will see average bills for a B and D home go up by £80 a year taking it from £1,671 to £1,751.
The 4.99% figure includes a 2% hike that many councils will be able to use to fund social care for adults.
Residents also face other rises on top for district and parish councils, police and fire services.
Police will be allowed to add another £24 for their part of the council tax bill.
Energy bills could fall for some
From 1 January the energy regulator Ofgem is bringing in a new cap which could see energy bills fall for millions of customers.
The cap will be set at £1,137 per year for a typical dual fuel customer paying by direct debit.
This means suppliers will have to cut the price of their default tariffs to the level of or below the cap, forcing them to scrap excess charges.
Ofgem says that 11 million households could see their energy bills fall by £76 on average a year and as much as £120 on the most expensive tariffs.
Pay rise for the lowest-paid workers
The national living wage, the statutory minimum for workers aged 25 and over, will increase by 4.9% to £8.21 per hour from next April.
The 38p increase means workers on the minimum wage will see their wages rise faster than the rate of inflation. The rise will mean workers will see their wages go up by around £700 a year on average.
Rates for younger workers will also increase above inflation and average earnings.
Those aged 21 to 24 will see the minimum wage rise from £7.38 to £7.70, while 18 to 20-year-olds will see a rise of 25p to £6.15 an hour.
For people aged 18 and below their money with go up by 15p to £4.25. The minimum wage for apprentices is also increasing from £3.70 to £3.90.
A difficult year for investors?
Many experts are predicting Brexit will have a significant impact on the stock market in 2019. But while opinions differ on the impact, most are forecasting short-term volatility at the very least.
And it is not just Brexit. Trade wars and labour market concerns mean there are plenty of uncertainties for investors to navigate over the coming year.
Darius McDermott, managing director of FundCalibre, expects 2019 to be another difficult year for investors.
“The consensus is that a recession is highly unlikely next year, but the stock market does tend to act ahead of the economy.”
He suggests that investors would be best-served by taking the opportunity to rebalance any biases in their portfolios ahead of a potential downturn.
He says: “The biggest risk to the UK stock market at the moment is Brexit. If we get a hard exit, small and medium-sized companies are likely to be hit harder than larger ones, as they are more domestically-focused. In the same vein, if global stock market volatility is to continue, larger companies tend to outperform in the shorter term.”
Interest rates and mortgages
The Bank of England raised interest rates last August for the second time in 10 years to 0.75% and has warned more rises might be necessary to bring inflation back under control.
It has hinted that it could raise interest rates if the UK manages a smooth exit from the European Union, while its forecasts suggest rates could rise to 1.5% over the next three years.
Howard Archer, chief economic adviser to the EY Item group, says the Bank of England could hold off hiking interest rates until August to see how the economy holds up in the aftermath of the UK leaving the EU.
He says: “We expect just one interest rate hike in 2019 followed by two in 2020 - taking rates up to 1.5%. We see a further two interest rate hikes in 2021, causing them to be at 2% at end-2021.”
But what does this all mean for your mortgage?
If the Bank of England raises interest rates there is a good chance you could see your monthly mortgage payments go up if you are on a variable rate mortgage.
If you are on a fixed rate mortgage you will be safe but if you a coming up for renewal you could see the rate increase.
Many experts believe now is a great time to get a new deal, especially if you are a stuck on a high standard variable rate. Locking in to a fixed rate deal can help guard uncertainty and fluctuations in the interest rate.
Mr Hollingworth says: “The mortgage market looks set to remain extremely competitive which should be good news for those reviewing their mortgage deal. I expect that many borrowers will be keen to make the most of the low mortgage rates on offer, especially as the direction of travel for interest rates has been upward.
“That could continue in the new year but much will depend on Brexit, although the Bank hasn’t ruled out a cut if it feels that the economy requires greater support.”
Pension auto-enrolment contributions are also set to change.
Minimum automatic contributions will rise from 5% (2% employer and 3% employee) to 8% (3% employer and 5% employee contributions) in April 2019.
Under auto-enrolment, all eligible employees are signed up to their workplace pensions. Contributions are automatically deducted from their salary and are topped up by an employer contribution and tax relief unless they opt out of the scheme.
The state pension will rise by 2.6% in April.
For those on a new state pension this works out at a cash increase of £4.25 a week or £220 a year.
This means the full state pension will be worth £168.60 per week, or £8,767.20 after rising from £164.35 a week - above the rate of inflation.
Those receiving the basic state pension will get an increase of £3.25 a week, taking their pension up to £129.10 a week. This means they will get an extra £169 a year, giving them an annual income of £6,718.40.
The level of the state pension rises every year by 2.5%, the growth in average earnings or by inflation – whichever is higher. Known as the triple lock, it gives retirees a guaranteed rise in incomes every year.
The state pension age is also set to rise. From 2019 the state pension age for men and women will gradually increase to reach 66 by October 2020. It is then due to increase to 67 by 2028 and 68 by 2039.
There is also good news for millionaire pension savers. The lifetime allowance for pensions – the amount you can save into your pension tax free - will increase in line with inflation to £1,055,000.
Train fares will rise
Train fares are set to rise again by an average of 3.1% from the beginning of January.
This means long-distance commuters could see their fares rise by as much as £280 from 2 January.
A season ticket for Brighton to London will go up from 4,696 to £4,844 – a rise of £148.
Meanwhile, a ticket from Reading to London will go up by £160 a year to £5,168.
Rail fares have rocketed in Britain over the past decade, growing at more than twice the speed of wages. Since 2008, fares in Britain have risen by 42%, while average wages have increased by just 18%.
Fares rose at the beginning of 2018 by 3.4%, just below the 3.6% cap for regulated fares.
Regulated fares account for half of fares available and include most commuter journeys. They cannot increase more than the Retail Prices Index (RPI) measure of inflation.
However, the use of RPI inflation for train fare price increases has drawn widespread criticism as it runs higher than CPI inflation – the official measure for inflation used by the government and the Bank of England.
Isa limits are set to remain the same in the 2019 tax year at £20,000, but it could be good news for savers if interest rates go up in 2019.
It has been a painful decade for savers hit by rock bottom interest rates following the financial crisis. However, some commentators believe the fall-out from Brexit could see the Bank of England raise interest rates again.
A lot will depend on inflation though.
With high inflation the price of goods rises more quickly. This is bad for savers as it erodes the purchasing power of your money.
With most savings accounts paying less than the rate of inflation, millions of savers have actually seen the real value of their savings go down.
Anna Bowes, co-founder savings advice site Savings Champion, says that it is difficult to predict what impact Brexit might have on savings rates.
She says: “All you can do is try to hedge against what might happen. Savers might want to lock some away into fixed term accounts for a couple of years or even longer, that is where the best rates are.
“Bonds are a good choice in times of uncertainty because whatever happens you know what you are going to receive back. Rates have been going up over the past few years, but you do need to shop around.
“Obviously when you tie your money up in a fixed-term account the gamble you are taking is that the interest rate rises out of all proportion and you are suddenly stuck in a less competitive account.”
Help to Buy Isa
First-time buyers need to get in quick if they want to get a Help to Buy Isa as the scheme is set to come to an end on 30 November 2019.
Those who already have a Help to Buy Isa have until 1 December 2030 to claim the bonus.
Launched in December 2015 and was designed to help first- time buyers to save for a house deposit and get a foot on the housing ladder.
However, it has since been superseded by the Lifetime Isa which allows you to save up to £4,000 a year which the government will top up by 25% - £1,000 more than the Help to Buy Isa.