Coronavirus lockdown money mistakes: transferring pensions, mortgage holidays and DIY disasters

Don’t let the current uncertainty during the coronavirus pandemic push you into making financial moves that you may regret.

For many people, the UK lockdown has meant more time to think about their lives and finances. And while well intentioned, for some, this may lead to some truly dreadful financial decisions.

Here are just a couple of money choices that people are making, which they might regret later on.

Unneeded mortgage payment holidays

According to the latest figures from UK Finance, an incredible 1.6 million mortgage payment holidays have been granted by the nation’s lenders as a result of the coronavirus pandemic. 

For some people, this will offer a bit of breathing space as a couple of months off from mortgage repayments can help their stretched incomes go that little bit further.

But these holidays aren’t free.

You are simply having a break from making repayments, rather than those repayments being cancelled, and that means your bills after the holiday will be higher and increase the overall cost of paying off your mortgage.

So, while it may be reassuring to know that for three months you don’t have to worry about making mortgage repayments, it’s really only something you should pursue if a holiday is absolutely needed.

Otherwise, you may end up counting the cost of taking a break you didn’t really need. For more information, check out our guide on mortgage payment holidays.

DIY disasters

There is an awful lot of DIY going on at the moment, as the frankly bizarre queues outside B&Q recently demonstrate.

For some, this will be because they need something to do to fill the time, and so what better way to distract yourself than by putting up some shelves?

Others may have had DIY projects on their to-do list for some time and may not have felt the urge to get on with it.

But now they cannot leave the house, they are constantly reminded of that uncompleted task and so finally have the drive to crack on.

The trouble is lots of us aren’t actually any good at DIY. And while in normal times, making a hash of your home improvement task is easily rectified by bringing in professionals, that isn’t an option at the moment.

So, think long and hard before you crack out that toolkit. Do you really know what you’re doing? And do you know how to put it right if you make a mistake?

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‘Sell in May’

There is a daft old mantra that some investors live by: “Sell in May and go away, come back on St Leger’s Day.”

The idea is that you sell up in May before the markets slow down for the summer and then buy back in before the bigger gains, which are believed to take place over winter.

The trouble is that as a strategy it's not got a wonderful hit rate.

Investment firm Willis Owen looked at how the FTSE 100 performed over the last 34 years and found it only actually dropped in 17 summer periods.

What’s more, with dividends reinvested, investors were only better off by selling in May on 12 out of the 34 occasions.

Not exactly a great adage to invest by.

And while the current volatility may make it even more tempting to sell up, it still may not be a great idea.

Indeed, falling stock prices may present you with the opportunity to snap up some bargains and pocket an even stronger return in the future. 

As always, investing should be viewed as a long-term endeavour, rather than allowing yourself to be preoccupied by short-term changes.

How to recession-proof your investments

Pension transfers

There are concerns that some pension savers are being tempted into transferring from defined benefit pensions into defined contribution pensions.

Ever since pension freedoms were introduced, some savers with defined benefit schemes have been talked into switching out, even though it’s rarely a good idea.

After all, you’re giving up the certainty that comes from knowing exactly what you’ll be getting with a defined benefit scheme and taking on the risk yourself with a defined contribution deal.

But it’s a particularly bad idea at the moment, given the volatility of the stock market.

The Pensions Regulator (TPR) has stepped in to ask scheme trustees to send letters to defined benefit members who are looking to move their funds, outlining the risks of doing so and urge them to reconsider. 

It will also point them towards free, impartial guidance on offer from The Pensions Advisory Service.

“A decision to transfer a pension pot that’s taken a lifetime to build is a very serious one and we’d urge members to be very, very careful making any transfer decisions at this time,” warns Charles Counsell, chief executive of TPR.

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