- Mortgage approvals for house purchases rise to their highest level since August 2022, according to Bank of England data released today
- £42 billion has flowed into Cash ISAs this year to date as interest rates and taxes rise
- Savers might be doing themselves a disservice by hoarding cash
- High cash holdings by consumers also undermine the UK stock market
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“It looks like house prices might be off to the races again soon as mortgage approvals hit their highest level in two years, rising to 65,600 in September. Approvals for house purchases are a leading indicator of property prices and have been steadily rising throughout this year. The housing market has been bolstered by falling interest rates and less inflationary pressure on UK consumers. A more buoyant property market will be good news for homeowners and the economy at large. The fact prices rises look to be in the post is a bad omen for those looking to make their first step onto the property ladder though.
“Whether there is any help for first time buyers in the Budget remains to be seen. Housing is an area chancellors like to meddle in, and though money is tight, underwriting loans to first time buyers might be seen as a relatively cheap way to boost economic activity, and curry some much needed favour in what promises to be a gloomy Budget. Any changes to inheritance tax could work as an incentive to money being passed down for a house deposit, depending on precisely how they are devised.
Cash ISAs on a roll
“Cash ISAs continue their strong run with another £3.9 billion being pumped into these tax-efficient accounts in September. There has been a deluge of consumer savings flowing into Cash ISAs this year, prompted by significantly more attractive interest rates and rising tax liabilities.
“When George Osborne introduced the Personal Savings Allowance back in 2016, it looked like he might have inadvertently killed off Cash ISAs. With a tax-free allowance of £1,000 for basic rate taxpayers and interest rates at close to zero, savers had very little motivation to stash funds in a Cash ISA. Now cash rates are back to more normal levels and income tax bands have been frozen, the tables have turned. In the first nine months of this year, £42 billion has been saved into Cash ISAs, up from £36 billion over the same period in 2023, and compared to a net outflow of £4.2 billion in 2022 (source: Bank of England).
“Savers are dead right to make the most of their available tax shelters seeing as we’re in the middle of a dramatic rise in taxation. Conventional financial planning wisdom suggests individuals should have three to six months of expenditure held in cash, just in case. But there are questions over whether consumers are hoarding too much cash and not investing in the stock market, when prudent financial planning would suggest they should.”
