Covid 19 savings? where do I put my money?
The Covid 19 pandemic has left many households struggling. But for some, the cut in outgoings has led to significant savings.
The financial impact of the UK pandemic on households has been very divisive; it has left many families struggling to make ends meet, but for the fortunate there has been a financial silver lining.
In the UK we have some of the worse-insulated houses in Europe – making them hot in the summer and cold in the winter, unless you spent a fortune on heating and cooling. Today, with improvements in retrofitting technology and increasing concerns about climate change, it is a good time to make your old house more comfortable to live in whilst doing your bit to help cut UK emissions. Furthermore you can make a significant return on any spare capital you might have accumulated by avoiding your commute to work or that holiday from hell.
Many people still working, particularly if working from home, are making significant savings by; not commuting, not going on holiday, not going to the gym, a restaurant, the cinema, a theatre, and generally not having fun spending money.
If you are likely to be working from home over the winter and maybe never going back to your workplace full time that is another added incentive to improving the energy performance of you home. For those approaching retirement and planning to stay put, making your home super-efficient will not only bring a good return on your investment but also insulate your home and your pocket against future energy shocks.
Bank savings deposits shot up during the first lock down with £57bn deposited between March and May. Andy Haldane, economist to Bank of England, recently told the Radio $ as people's incomes held up and spending was restrained, they have amassed around £125 billion of excess savings.' As vaccines are rolled out during the spring there is expected to be a surge in spending next summer, but you are not going to go to on holiday all summer or to the pub threes time as much when they are open again.
“Bank savings deposits shot up during the first lock down with £57bn deposited between March and May. ”
With Bank of England Base Rate at an all-time low and interest rates paid on individuals’ deposits falling further, there is a real dilemma for the best place for savings. The top ISA’s are paying in the region of 0.8% on fix three-year deposit and maybe up to 1.25% for 5 year fixed. For the highest rates you will need to lock in for several years with the Bank of London and the Middle East offering up to 1.7% on a seven-year fixed term account.
Simply put, if you live in an older property, one of the best returns on investment can be made by improving the energy performance of your house.
Returns can be up to 16% if you install the right measures and are usually between and 5% to 10%. Not all houses are the same and it will require careful management but it will always improve the comfort of your home.
“Returns can be up to 16% if you install the right measures and are usually between and 5% to 10%.”
When investing in a new heating system or improving insulation in your house, there has been a tendency for people to think first about payback times. This a serious mistake and probably just a throwback to those slick double-glazing salesmen’s outrageous claims 40 years ago. When you buy a new car do you think about the payback time? No, in fact you know it will have lost several thousand pounds by the time you drive that new car out of the showroom and 15-20% over the first year.
When buying a new kitchen or shepherds hut to write your memoirs you do not ask ‘what is the payback time’ do you? Using the new kitchen is a pleasure; you have improved the quality of your life.
When improving the energy performance of your old house you are not only improving your quality of life by improving comfort level, but you will also be making significant saving in energy use, bills, and carbon emissions.
A pilot project completed back in 2011 by the Severn Wye Energy Agency and Stroud District Council found savings of up £2,000 per year on energy bills at 2011 prices. In the top ten case studies the cost of the measures ranged from £12,967 to £46,900 with an average £22,908. The annual saving of energy bills ranges from £196 to £2194 with greatest saving in those properties where wall and loft/ceiling was the preferred measure rather than installing Solar PV or Solar thermal.
When looked at in term of returns on capital these range from 1% to 16% per annum. The average return across properties being 5% per annum. However, this is just a snapshot over the period of this study.
When we moved into our 5 bed 200 year old red brick grade II listed property in 2005, it had no insulation, rotting sash windows, an old gas combi boiler and a rather dodgy coal effect gas fire in the living room. It was hot in the summer and freezing in the winter and the windows rattled in the slightest breeze.
We gradually improved the energy performance of our house over period of 7 years spending a total £23,000. When corrected for changes in energy prices over that period we were by 2012 saving over £3,000 per annum on our energy bill (equivalent to 13% return on capital) but, more importantly, our house is now warmer in the winter and cooler in summer and our emissions lower.
Devon-based Mitchell & Dickinson have been insulating period and listed properties in southern England since 2010, concentrating on what they call the low hanging fruit of loft insulation, draft proofing, secondary glazing, loft, and sloping ceiling insulation. Homeowners typically reduce their heat loss by 40-50 % and get a return on their investment of between 7% and 12 %.
As with any investment, you will be wise first to get independent advice from a suitably qualified retrofit assessor. This should cost less than £500 and there are a number of regional projects with government funding offering a free service. Independent consultants can also provide this service. This is money very well spent as it will provide you with a detailed energy assessment of your home and the retrofit measures suitable for your property and the expected energy savings. This will help prioritise your investments, assess contractors’ claims and prices, and avoid expensive mistakes.
It is a commonly held misconception that listed buildings cannot be retrofitted. For some works listed building consent may be required but as long as you are not destroying key features or significantly changing the external appearance this is not normally a problem. Early conversations with your local council building conservation department is wise and never accept ‘no’ as the first answer. Again, professional advice can help speed-up any listed building consent applications. Some works such as internal insulation can be temporarily disruptive, so it is worth planning when those rooms can best be worked on. As more people catch-on to the comparatively high level of returns on this type of investment, getting suitably qualified contractors may soon become an issue so it is well worth getting quotes now and booking your contractors for the summer.
Simon Pickering February 2021
References
Photo reference: www.mitchellanddickinson.co.uk. info@mitchellanddickinson.co.uk
General retrofit advice
https://www.cat.org.uk/info-resources/free-information-service/eco-renovation/eco-retrofit/
Gloucestershire and SW advisors
https://www.cse.org.uk/
Green homes grants
https://www.gov.uk/apply-green-homes-grant