China’s Crash: How Will It Affect You?

China’s Crash: How Will It Affect You?

WK 35 - China CrashThey say that when China sneezes, the rest of the world catches a cold. So when China suffered the financial equivalent of a massive heart attack at the beginning of the week, the world’s financial markets duly went into full-scale panic mode. But what does this mean for your investments?

Black Monday, as it was quickly dubbed, was the day when the myth of China’s invincibility crumbled. By the time trading was done, stocks were down 8.5% the biggest single day loss in eight years.

The reverberations were felt all around the world. The Nikkei fell by over 4% and the Dow opened more than 1,000 points down. Oil hit a six and a half-year low as commodities took a tumble. Approximately 73.74bn was wiped off the FTSE Index. China reacted by cutting interest rates in an attempt to boost the economy but to no avail. Stocks continued to fall as investors got rid of anything that had any connection with China.

The question is: how worried should we be and how will this affect your own investments? Investors panicked around the world because their confidence in the underlying health of the international economy was shaken. A slowdown in one of the largest consumer economies in the world could be a signal of bad times ahead for the rest of us.

But it’s not all doom and gloom. Around the world the general prognosis for the world economy is pretty good. In the UK, growth is predicted to be 2.8% in 2015. Against all predictions, the Greek economy did not collapse, but was recently reported to have shown some growth. China itself may no longer be delivering double digit growth, but for an economy of its size, growth is still healthy. In April to June it reported 7% growth and while its figures are often greeted with scepticism, its overall economic condition is a long way from collapse.

So, the short answer is that there is no need for anyone in the UK to panic. Daily values may fall, but in the long term you shouldn’t feel the effects as long as you follow the basic rules of diversification within the portfolio – namely don’t over expose yourself to any single market, and don’t invest in only equities (stocks and shares). As long as you have bonds and cash within the portfolio these should cushion the blow.

The crash may also have been alarming, but it is nothing truly out of the ordinary. Stock markets are cyclical with crashes such as these happening every seven to ten years. There have been big falls on the stock market before and there will be again. As long as you keep your head, the long term value of your investments should hold.

In summary, then, the message is this: don’t panic. Although it’s easy to be swept up in the hysteria, as long as you stay true to basic common sense principles such as diversification, you should be fine. 

THE VALUE OF INVESTMENTS AND INCOME FROM THEM CAN FALL AS WELL AS RISE. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

What Next For Inflation?

What Next For Inflation?

The UK has now experienced deflation for the first time since records began in 1996. The Office for National Statistics believes that the last time the UK experienced deflation was in the 1960s.

This was so long ago that you may well be asking yourself “What exactly is deflation and what does deflation mean for our economy?”.

Inflation v Deflation – What’s The Difference?

In very simple terms, inflation is when the overall cost of living goes up and deflation is when the cost of living goes down. The word overall is important because prices of different items can go up and down at different times.

How Is The Overall Cost Of Living Measured?

There are two main measures used for determining changes in the cost of living. The older method is called the Retail Price Index (RPI). This was introduced in June 1947. The newer method is called the Consumer Price Index (CPI) and was introduced in 1996.

Both systems use an “average basket of goods” to keep track of how much “average consumers” are spending. In other words, they select a range of items which they think most people need (or want) to buy. They then track the prices of these items.

There are, however, important differences in what they track. For example, the RPI includes the cost of housing (including the impact of Council Tax) but the CPI doesn’t. They also use different methods for calculating the average.

Summing all this up in a nutshell, the CPI is almost always lower than the RPI.

Can Inflation Be Managed?

It’s the Bank of England’s job to try. The BoE runs the Monetary Policy Committee. This has the job of achieving exactly 2% inflation per annum.

Of course, that’s a difficult job so the Bank gets a bit of breathing space. The government accepts inflation of between 1% and 3% per year.

If, however, inflation goes either higher or lower, the BoE is called upon to explain itself. The Governor of the Bank of England, must provide a public, written explanation of why it missed its target.

It must also advise the government what it intends to do to get back on target. The BoE’s main tool for managing inflation is the use of interest rates. In very basic terms, raising interest rates encourages people to save. Lowering interest rates encourages people to spend.

Why Does The Bank Of England Try To Keep The Cost Of Living Going Up?

In very simple terms, deflation has much the same effect as waiting for the January sales to buy Christmas presents.

Customers assume (rightly or wrongly) that the item(s) they want will be cheaper after Christmas so they wait until then to buy them.

Extended periods of deflation can essentially become a time of Mexican standoff. Buyers get used to seeing prices dropping so they put off making purchases to get lower prices.

Unfortunately this can put producers (and retailers) out of business. Over the long term, this reduces supply and can stimulate inflation. In the short term, however, it can lead to painful redundancies.

Right now, for example, low oil prices are leading to layoffs in the oil industry.

So Is Deflation Automatically Always Bad?

That is an interesting question. It’s possible that some deflation on essential items such as food and utilities might actually be helpful. It would give hard-pressed families a respite.

It might even be enough to free up money for other purposes. For example, it might allow families to pay down debts. It might allow them to treat themselves to some non-essential purchases.

The question would be whether or not the end producers would be able to support deflation for any meaningful length of time. If not, then the pendulum could swing the other way towards high inflation – and cause a lot of pain in the process.

Guide To House Buying Jargon

Guide To House Buying Jargon

When you buy a house, you hear lots of unusual terms.

Here are our ‘dictionary’ definitions of terms used when buying a house to help you understand the convoluted world of property jargon.

Arrangement Fee

As the name suggests, it is the fee that the mortgage lender charges for arranging the loan.

Arrears

To be behind with ones mortgage payments.

Building survey

The essential survey you must take out on the property, to assess its construction and condition, to make sure it doesn’t collapse the moment you open the front door.

Chain

A ‘chain’ of buyers and sellers i.e. the people you are buying the property from are in a ‘chain’ with sellers they are buying from, and you might also be in a chain with buyers of your property. At any given time this chain might, and frequently does, break down.

Commission

A payment made to an estate agent on completion of the house sale.

Completion

When contracts, keys and monies have changed hands between buyer and seller.

Contract

A legally binding agreement.

Conveyancing

The complicated legal work your solicitor does to help you buy a property and make sure your rights are protected.

Covenant

A legal agreement specifying the uses of the land or property.

Credit check

An examination of your previous credit worthiness, debt repayments and defaults. A poor credit score can limit your chances of further borrowing

Deeds

A document granting legal ownership to a person of a property.

Endowment mortgage

A mortgage paid off by an endowment, which is an investment policy that pays out after a specific and fixed period of time or on the holder’s death.

Exchange of contracts

Where two people exchange contracts over a property.

Fixed rate mortgage

Where the interest rate on a mortgage is fixed for a period of time, normally in anticipation of a future rate rise.

Freehold

The land beneath the property. Ownership of this is particularly important if you are buying a flat.

Gazumping

The rather dubious practice of offering a higher bid on a property to secure it, after it has been offered to somebody else.

Gazundering

The practice of demanding a lower price on a property at a crucial moment in the sale in the hope that the vendor will agree to prevent the sale from falling through.

Insurance

Policies that pay out compensation to the holder in the event of accident, damage or ill health.

Interest only mortgage

A mortgage where the actual balance of the loan is not repaid, only the interest payments on the loan.

Land certificate

A document that verifies the ownership of a piece of land.

Land registration

The recording of ones ownership of a particular piece of land.

Land registry fee

The cost of the previous entry.

Leasehold

The ownership of a property for a fixed period of time, normally relating to flats. The leasehold ultimately belongs to the freeholder (see Freehold above).

Loan to value (LTV)

The ratio between the amount borrowed in a mortgage and the value of the property.

Local authority search

A search on a property carried out by your solicitor to find out who legally owns it and who has owned it in the past.

Mortgage

A property loan, typically 25 years in length.

Mortgage deed

The document that aforementioned loan agreement is contained within.

Mortgage indemnity guarantee

An insurance policy taken out by the lender to guarantee against the borrower from defaulting on their mortgage payments.

Mortgage offer

How much the bank will lend you.

Peppercorn rent

A nominal amount, normally £1, needed to satisfy the criteria for the creation of a legal contract.

Repayment mortgage

A mortgage where the borrower repays both the interest and the capital of the loan.

Stamp Duty

A compulsory tax due on all properties over the value of £125,000, calculated as a percentage of the property’s overall value.

Structural survey

A general term to cover three different types of survey, the condition report, the homebuyer’s report and the building survey (see above Building Survey).

Subject to contract

The seller of a property has accepted an offer on the home but the deal is not complete until contracts are exchanged.

Surveyor

The professional who carries out the survey.

Title deeds

A document detailing the ownership of a property.

Under offer

A property where an offer has been accepted and paperwork is pending (see Subject To Contract).

Vendor

The person(s) selling the property.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Does It Make Sense For Britain To Quit The EU?

Does It Make Sense For Britain To Quit The EU?

However it is eventually phrased on the ballot paper, the underlying question is essentially the same. “Should Britain stay in the EU?”

Sometime between now and the end of 2017, the great British public will be required to answer it. So, is the grass really greener on the other side of the EU fence? What would happen if the UK actually did leave the EU? Let’s look at some of the key points of EU membership and see how the UK might be affected in the event of a “Brexit”.

Free Movement Of Citizens

The free movement of citizens is a key part of the Maastricht Treaty and therefore of the EU. It is what enables Polish workers to come to the UK. It is also what enables British retirees to make their homes in sunnier climates. Polish workers compete against local job seekers. British retirees may need to make use of their host-country’s medical facilities. There are economic pros and cons to many aspects of EU membership.

There are also security issues to consider. The recent “I am an Immigrant” campaign stressed the positive contribution immigrants make to the UK. At the same time, British teenager Alice Gross is believed to have been murdered by Latvian builder Arnis Zalkalns. He already had a conviction for murder in his home country. The EU’s open-borders policy, however, allowed him to come to the UK regardless.

There have also been issues with Polish criminals organizing sham marriages with people who want UK residency.

Likewise, there are ongoing issues with the Eurotunnel being targeting by refugees living in France.

Free Movement of Goods, Capital And Services (AKA The Common Market)

Much has been made of the UK’s access to the single/common market. This allows the UK to export goods to the EU without import duties being paid by the recipient. Of course, it also allows other EU countries to export goods to the UK without paying import duties.

In fact it allows people from the UK to go on shopping sprees in the EU and bring their purchases back to the UK without paying customs duty. In the early days of the EU this led to the infamous “booze cruises”. These were trips made, usually to France, specifically to buy alcohol more affordably.

Small and light, cigarettes are also easily brought back from other EU countries where the purchase price is lower. Of course, this has implications for the NHS and its funding.

Like the free movement of citizens, there are pros and cons to the single market. It is also worth noting that the UK already trades on a global basis in any case. This demonstrates that it is quite possible to import and export without a free-trade agreement being in place.

The Single Currency

During the negotiations for the Maastricht Treaty, the basis for the modern EU, the UK opted out of the single currency.

It did, however, sign up to a clause in the treaty which requires EU members to aim for “ever closer union”. This is not just a statement of ideals. It is a legally-binding requirement. In very simple terms, the UK’s decision to keep the pound is directly contradictory to the principle of “ever closer union”.

This raises significant legal questions over the feasibility of the UK keeping the pound in the long term. David Cameron has stated that he aims to negotiate and opt-out to this requirement. The price of him achieving this may be giving up the UK’s veto in the EU. The price of him not achieving this may be the UK’s giving up the pound and adopting the Euro.

A Matter Of Life And Death

There is one topic that no one likes to think about – death. And yet, it is something that we must prepare ourselves for in order to take care of our loved ones and ensure family protection.

Making plans for the end of life is a vital task and one that, if not dealt with by each of us, falls to our families and next of kin to arrange.

There are two main tasks that everyone with dependents must undertake in order to protect their loved ones, arranging life insurance and writing a will. This article is a quick guide to help you explore the options available to you.

Why do I need life insurance?

Life insurance is a policy that is taken out to pay off any major expenses such as mortgages, outstanding debts or university fees for children if you die unexpectedly. There are two main types of policy, term insurance and whole life cover.

Term insurance is the more basic of the two types of cover and insures a person for a certain period of time and up to a certain value.

This type of cover will only pay out if you die within the specified period of the policy, and if you live longer, the premiums that you have paid into the scheme are non refundable.

You can take out decreasing term cover, meaning that over the years, the contributions you pay into the scheme lessen.

This makes sense as you pay off your mortgage month by month, the lump sum your loved ones would need if you unexpectedly died would be smaller. It also means that the policy will become more affordable over time.

Whole Life Policies

Unlike term insurance, whole life policies are not limited by time, they only expire when you do. As with the other types of policy, they pay out when you die, but you do not have to guess when that might be.

Generally, these policies cost more, but they offer the you more flexibility and don’t leave loved ones in serious financial hardship if you die following the policy’s expiry.

Why should I make a will?

With the advent of the internet, making or changing a will has become quicker and easier than ever before. If you have ever asked ‘How do I make a will?’, it is now easier and more straight forward to do than it has ever been.

A will is a simple legal document that states what should happen to your money and property after your death. If you die without one, your estate will be legally termed intestate.

This means that a loved one will have to apply for probate – the right to be the executor of the estate and decide what happens to your wealth.

There are legal guidelines for executors on how wealth must be shared out in this instance, but without your own will, you cannot be sure that your wishes will be carried out.

What could happen if I don’t make a will?

Writing a will can also limit the amount on inheritance tax that you are exposed to, meaning that if you die without one, the tax man might be able to take a considerable part of your estate.

Despite the importance of writing a will in order to protect your wealth when you die, a 2014 survey revealed that only 48 percent of adults in the UK have drawn one up.

This lack of planning might partly be due to the fact that people generally tend to avoid considering their own mortality. It might also be due to a lack of quality information about the problems dying intestate can cause.

Will Writing is not part of the Openwork offering and is offered in our own right.  Openwork Limited accepts no responsibility for this aspect of our business which is not regulated by the Financial Conduct Authority. 

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen