Coronavirus: Your Financial Questions Answered

Coronavirus: Your Financial Questions Answered

It’s a hugely uncertain time – and the economic health and stability of the country is on so many people’s minds. With the government announcing new measures each day, we thought it worthwhile sitting down with Jason Hollands, managing director at financial planner Tilney, to find answers to some of the big questions.

If you are unable to work after catching coronavirus, what are you entitled to pay-wise?
If they haven’t already communicated their approach, this is something you should check with your employer, as it will depend on your employment contract and whether your employer has committed to more generous terms during the current health crisis. Statutory sick pay (SSP), which is set by the government, is £94.25 a week and paid for up to 28 weeks once you have been off work for four days in a row. Many firms, however, will provide better terms than this, including full pay, for a limited period in their contracts.

How does SSP affect deductions like National Insurance or pension contributions?
This also depends on the terms provided by your employer. If you are on full pay during the period of up to two weeks of ill health associated with coronavirus, nothing will change. If you are on statutory sick pay, your earnings will be below the threshold for National Insurance and pension payments can be ceased at any time.

What happens if your employer can’t afford to pay you, even if you’re able to work?
Businesses should not find themselves in this position in respect of employees under contract. The chancellor and the Bank of England have announced an unprecedented support package of £350bn in potential loans available to businesses struggling to keep going and paying staff due to the disruption caused by the coronavirus outbreak. This follows on from other emergency measures in the budget to deal with the coronavirus crisis. If you are well but self-isolating because you have come into contact with someone with coronavirus and your employer isn’t able to facilitate home working, then you should be able to claim SSP. However, not everyone will be eligible, such as those who are on zero-hours contracts. If your employer says they can’t pay you at all, despite the measures announced by the government to prevent this, you may be eligible for redundancy payments depending on your employment contract. You may also be eligible for state benefits.

Will the current crisis affect the value of ISAs or pensions?
This depends on what you hold in your ISA or pension. Cash values won’t have changed but because the Bank of England has cut interest rates to a 350-year low to support the economy, you will be getting very little interest on cash ISAs from here on and less return than inflation. ISAs and pensions invested in the stock market will have seen their values fall steeply in recent weeks. Providing you weren’t about to cash these in or use your pension to buy an annuity, we fully expect values to recover over time and the speed of this will largely depend on the quality of the investments you hold in them. Good managers will claw back the losses more rapidly than poor ones. Use time spent at home to review your investments to see how they are doing compared to the markets overall. When the markets have calmed down, it may make sense to switch out of some funds with poor track records into stronger performers. Finally, accept that what has happened to the markets is out of your control. The important thing is to stay calm and make sure your investments are positioned well for the recovery stage.

The chancellor and the Bank of England have announced an unprecedented support package of £350bn in potential loans available to businesses struggling to keep going and paying staff due to the disruption caused by the coronavirus outbreak.

What do falling interest rates mean for savers?
Interest rates are falling across the globe as central banks try to support their economies. In the UK, the Bank of England has already cut UK rates to 0.25% – an all-time low – and many market watchers expect it may go further. For example, in the US, interest rates have been cut to zero. While ultra-low interest rates are good for struggling businesses, borrowers and mortgage payers, this is painful for those with significant cash savings. When interest rates are much lower than inflation (the pace of price rises), this means your real return – the spending power of your cash savings – is weakening. Everyone should keep some cash aside for a rainy day to see them through unexpected, tough times like these. However, don’t hold more in cash than you sensibly need as a safety net. As we saw with the credit crisis when interest rates were also slashed to next to nothing, this eventually acts as a signal for savers to move more money out of cash and into investments in order to achieve a higher return.

What rights exist to stop paying mortgage providers or landlords?
In its package of support measures, the government and Bank of England have agreed with mortgage providers that anyone struggling to pay their mortgage due to impact of the current crisis will be able to take a ‘mortgage holiday’ and suspend payments for three months. Specific measures for those unable to pay rent have not been announced yet, but are expected to be addressed.

What effect will coronavirus have on house prices?
It’s too early to say for sure but a lot of activity in the property market is expected to stop in the short-term as people focus on their health and safety, and others pull out of purchasing due to uncertainty around their jobs. That will likely lead to lower prices. That said, record low interest rates should be very supportive to the property market, making mortgages incredibly attractive. That should benefit property market activity when the virus has abated and it will also present some excellent opportunities for those re-mortgaging a property. Getting out of a house purchase now will depend where you are in the process. The crunch point is the exchange of contracts. If you have already exchanged contracts, pulling out can be very costly as the seller is entitled to keep the deposit, which might be 10% of the value. You will also still be liable for your solicitors’ fees.

What’s the likelihood of another global recession?
Coronavirus is causing an economic shock and while it will be extremely painful for many businesses, especially small firms, pubs, the travel sector, airlines and oil companies, some of whom will likely require support from governments to survive, the economy will bounce back. The damage won’t be permanent but over the next few months a global recession – which is two quarters of negative growth – is an increasing possibility.  It is worth pointing out that in 2003 China was hit by the SARS virus. This caused its economy to shrink over a quarter but then rebound significantly in the second half of the year.

What about the UK economy specifically?
Coronavirus is an unprecedented event for the UK. When people have been cooped up at home for several weeks, they will be itching to go out and spend money on holidays, restaurants and shops once the virus has abated and of course businesses will be eager for their custom after a lean period. We would therefore expect a V-shaped recovery; a sharp slide down followed by a sharp pick-up. Borrowing costs are now at a record low, oil prices have also tumbled which will mean lower petrol costs and more money in pockets of consumers, all of which should support the economy during the recovery phase.

Unless you desperately need to access the cash, the worst thing you can do in a bear market is panic sell your investments when prices are depressed or start to make big changes.

Is it true stock market investments are now worthless? 
Stock markets have experienced sharp declines in recent weeks as concerns about the spread of the virus have hit share prices. Since the start of the year, global share prices are down by around 30%, so unless you’ve invested in a whole load of companies that have all gone completely bust, your investments will not be worthless, just less than they were a few months ago because the market has essentially adjusted to expect most companies to have lower profits this year because of the outbreak. These periods of sharp declines – known as ‘bear markets’ – are undoubtedly unnerving but they are actually more common than you may think. Major ones have included the bursting of the dot com bubble at the turn of the century and the 2008 credit crisis.

Is the stock market guaranteed to recover?
While coronavirus is undoubtedly a major shock to public health and economies, it will prove temporary and pass. Markets will recover, they always do. In fact, China – which was the epicentre of the coronavirus outbreak – is currently the best-performing stock market so far this year. This is because infection rates have peaked, and people are returning to work. The same will likely happen here, over the coming weeks and months. Looking at previous bear markets, it typically takes a couple of years for share prices to recover from their lowest points to their previous peaks. This is the phase you don’t want to miss out on. Successful investing is about buying more shares when prices are low and benefitting from the recovery phase, as that is when the strongest returns are made. As Warren Buffet, the world’s wealthiest investor, says: “Be greedy when others are fearful.”

When should you start moving money around?
Unless you desperately need to access the cash, the worst thing you can do in a bear market is panic sell your investments when prices are depressed or start to make big changes. Markets haven’t simply gone down in recent weeks, we’ve seen days of very sharp rises as well as steep falls, so it is easy to come a cropper moving investments around in an environment like this. You could sell one share or fund on a sharp down day and end up buying a new investment on the back of a surge the next day. Selling shares now turns paper losses into real ones.

For free, impartial financial advice, contact The Money Advice Service or Citizens Advice
For those struggling with debt contact the National Debt Advice Line or StepChange.

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