What the Lifetime ISA means for Croydon


By - Thursday 21st April, 2016

Changes to savings mean that the pounds really can start looking after themselves, writes Frank Mukahanana: it’s up to us to spend them locally


Photo public domain.

What’s the big story in the 2016 Budget for Croydon?

Although national media has been full of the sensational, controversial aspects of the budget, let me tell you about an aspect of it that is hugely important for Croydon. Why? In Croydon in particular, for many years the sheer mention of savings and pensions would cause the rolling and blurring of eyes. Not anymore. With the introduction of the LifeTime ISA in the budget, long-term savings are now attractive to the young in Croydon.

Why is the Lifetime ISA so important and so good for Croydonians?

This budget is telling the young people of Croydon something thought to be impossible: that long term savings are sexy. The LifeTime ISA (LTISA) is an ingenious way of building a tax-efficient long-term investment (similar to a pension) that has significant shorter term benefits, where the funds in the LifeTime ISA can be withdrawn without penalty or loss of the tax benefit and used towards the purchase of your first home valued no more than £450,000. For the younger generation in Croydon, this is the perfect helping hand to get onto the property ladder: in a way, you now can have your cake and eat it.

Thanks to my experiences as a financial advisor, I am now on a personal mission to help fellow Croydonians, from Mitcham to Caterham and from Coulsdon through to Addington, to realise that it is possible to live a life that is not riddled with credit cards and loans, and that financial success is closer than you think. I want people to learn how money works and how they can get their money working for them. I want to see a Croydon where many who are right now paying off credit card debts make the switch from borrower to investor.

Unlike pensions, the LifeTime ISA is very simple and gives the young the best of both worlds

The perfect helping hand for young adults in Croydon to get on the property ladder is now in reach through this LifeTime ISA. Unlike pensions, it’s very simple and gives the young the best of both worlds: long term investment and short term benefits. Could this be the death-knell for pensions as we have known them – for those under the age of 40?

Okay, let’s simplify what that really means in real terms using my daughter as a case in point. She is planning on starting university this year, and here is how my wife and I could help her to purchase a house/flat. We could cobble together £210 per month into a LifeTime ISA for her, and by the ripe old age of 28 she would have enough to purchase her first home for £440k. How many parents with adult children in Croydon would celebrate at that?

Why are the budget initiatives the game changers that Croydon has been waiting for?

A couple of years ago, the Independent published an article that branded Croydon as the debt-worry capital of the UK. These new savings initiatives in the budget can be the catalyst to herald a new era for budding savers in Croydon, turning our town into a new culture of savvy savers! Of all areas in the UK, Croydon will benefit the most from the paradigm shift to savings that the chancellor is introducing through the LTISA, the Personal Savings Allowance (PSA) and Innovative Finance ISA (IFISA) savings initiatives. It is about giving ordinary people in every CR postcode access to better returns at relatively low risk, but at the same time giving Croydon citizens the chance to refinance and get rid of debt through peer-to-peer (P2P) loans.

I joined the board of the UK Crowdfunding Association in 2014 and have been part of the team for helping to make the IFISA possible. Through a lot of hard work and campaigning, we secured the inclusion of peer-to-peer (P2P) and debt based investments into Individual Savings Accounts (ISAs).

In additional to the IFISA, we also now have the new PSA, which is good news as majority of people in Croydon will earn interest up to the threshold without having to ever pay any tax!

How does this year’s budget affect Croydon businesses?

On the one hand, I struggled to find anything directly significant in the budget for Croydon businesses. However, having given it some thought, I realised that there’s a bigger picture here: at a personal level, if individuals moved some of their savings from low performing cash ISAs, and diversified into Croydon personal loans via an IFISA they would grow their nest eggs quicker. This will trigger further diversification into IFISA loans to successful Croydon businesses and investment into Croydon start-ups. Now that would be a sure way to finance growth of Croydon businesses in a sustainable way!

Also, if Croydon consumers were to take advantage of the savings opportunities and reduced their overall debt levels even by just 20% over the next five years, that could mean up to £100 million less debt interest paid, increasing consumer confidence – and guess where some of that extra disposable income will go. Yes, it will be ploughed back into local Croydon businesses. That can only be a good thing for our local retail sector.

It all starts with each Croydonian doing their part to learn how money works, freeing up cash otherwise spent on high-interest credit cards and earning healthy returns with the cash that we have managed to put aside.

Frank Mukahanana

Frank Mukahanana

Frank is the Founder of QuidCycle, a leading P2P company with an ethical approach. He has over 15 years’ experience in the financial industry, across Asset Management, debt & capital markets, investment banking and advising on technology strategy. Frank is a seasoned business and financial strategist, entrepreneur, and Chartered Management Accountant. Since 2014, Frank has served on the board of the UKCFA (UK Crowd Funding Association), an association that considers peer-to-peer as a significant part of the crowd funding revolution.

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