Housing Sector & Prices – After Brexit

In the aftermath of the historic EU Referendum vote, many will be considering how their personal finances will be affected.

Homeowners or prospective homeowners will also be concerned, as the vote could have an impact upon home ownership. Further, the housing sector is also a key (although troubled) sector of the UK economy. So what are the likely consequences of the Out vote?

Considering interest rates and mortgages, the Chancellor of the Exchequer has recently argued that interest rates might rise. This is supported by other economic evidence.

However, financial experts believe interest rates will fall because the Bank of England will be forced to attempt to stimulate the economy amidst an economic fall. This was evident in Bank of England Governor Mark Carney’s initial reaction and speeches to the Out vote as he attempted to calm the markets.

The Bank’s Monetary Policy Committee will meet in July as planned to discuss the matter of interest rates. Although market movements could lead to a rate rise, economists at JP Morgan and elsewhere forecast that borrowing costs could fall to zero by August.

Linked to housing and mortgage rates, swap rates have been falling since the Out vote. Swap rates are often the precursor to changing mortgage rates. If mortgage interest rates follow the swap rates in falling, then housebuyers and those remortgaging could potentially see the cost of their monthly repayments become that bit cheaper. Interest rates have been at a historically low 0.5% for a long time recently, but lenders could decide that cheaper rates are needed to tempt what may be a smaller number of first-time buyers, movers and those seeking to remortgage.

For first time buyers, a lower rate is welcome – as are lower house prices. In the run up to the vote, there was anecdotal evidence of a clear trend to put any house buying plans on hold – even if briefly to see what the initial outcome would be. The prediction from many economists, the Treasury, and from the housing sector was that house prices would fall – by as much as 18%.

The reality was different. The housing sector did see a marked decline in the FTSE100 and in the City, as major developers lost value. Instead of a rapid crash in house prices, what experts called a ‘softening’ occurred, where a noticeable fall was seen, but not a drastic one.

Many estate agents and developers did see a spate of cancellations and sales falling through on the Friday; according to the Financial Times, estate agents such as Chestertons and property developers such as Galliard Homes saw buyers pull out of sales. London itself saw a sharp decline in house prices. Surprisingly, as the currency markets adjusted to the rapid fall of pound sterling, London saw a rash of foreign investors step in to buy property at now cheaper prices.

Overall, the first few days after the vote appeared to suggest a slowing down, rather than a reversal, of valuation inflation in most areas.

Prime property markets saw a drop, though, in areas such as London, which probably benefits most from foreign buyers. Galliard Homes, London’s largest private housebuilder, stated that post Brexit “the London economy will falter… the uncertainty it would cause will generate a value drop in the property market in a very short time”.

Whatever the longer term impact of a fall in house prices – the young and first time buyers weill definitely welcome such a fall. The housing sector has long been beset with problems, as prices seem to keep on rising, and the question of affordable housing becomes ever more of an issue. Brexit is merely another problem to impact upon an already troubled sector. For better or for worse – only time will tell. However, the initial impact of Brexit upon housing seems to be a lot less negative than forecast.

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Households Would Lose Out Over EU Exit, says Think Tank

The Centre for Economic Performance, a leading economic think tank based at the London School of Economics, has concluded that leaving the European Union would leave the average UK household worse off. The loss to British households as a result of a “Brexit” could be as much as £1,700 per year on average, the CEP said.

Longer-term, the loss to households could be even greater. The CEP suggested that over time, the average household may miss out by a total of £6,400 as a result of the UK leaving behind its EU membership.

While the UK would no longer have to bear the cost of EU contributions if it decided to relinquish membership of the Union – a fact often cited as a financial benefit to the country by those who favour such a move – the CEP said that the money lost to the country as a result of a drop in trade would likely amount to “far more” than this cost saving. Fully half of the UK’s trade, the CEP points out, is with the countries of the EU, and membership of the Union means that this trade is subject to significantly fewer barriers than it would otherwise be.

If the UK left the EU, the CEP says, then British exporters would face higher tariffs when doing business with the Union. Furthermore, there would be other barriers introduced as a result of exiting the EU, such as a new requirement that UK businesses provide proof any goods exported to the EU were indeed manufactured in the UK. Over the longer-term, the CEP says, the difference between the in- and out-of-EU trade situations for the UK would grow more marked, with the country missing out on further integration of EU markets if it were no longer part of the Union.

A deal with the EU, similar to that held by Norway, would represent the best possible situation in the event of the UK electing to leave the Union in the upcoming referendum, according to the CEP. The free trade agreement that Norway has with the EU eliminates tariff-based barriers to trade, at least. However, non-tariff-related barriers remain, and this would still be a net loss in income for the UK of 1.3%, according to the CEP’s researchers. Per household, this is equivalent to a loss of £850 per year.

Vote Leave, the campaign pushing for an EU exit, has criticised the CEP’s conclusions. The group described the predictions as ones that lacked “credibility” and said that they were “ridiculous.”

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As Oil Prices Plummet – Petrol & Diesel Falls Below £1 A Litre

Although many economists have watched with shock as oil prices have resolutely fallen over the last year, and seen economic doom and gloom as a result – motorists have actually reaped the benefits of cheaper oil.

The ‘oil shock’ of early 2015 saw the price of petrol fall at the pumps. Before Christmas, that fell to less than £1 a litre at most petrol stations. It was only in January that the price of diesel (usually cheaper than petrol) also fell to under £1 a litre.

Sunday 3rd saw Morrison’s cut the price of diesel to under £1 a litre (the cheapest since 2009) – with Tesco, Asda and Sainsbury’s following suit on Monday 4th. As of Monday 4th January, Morrisons, Asda and Tesco were charging 99.7p a litre – with Sainsbury’s the most expensive at 99.9p a litre. Previously, November had seen Asda and Morrisons cut the price of petrol to under £1a litre. According to Morrisons’ Petrol Retail Director Bryan Burger, motorists would be paying £20 less to fill up a 50 litre fuel tank than in 2012, which saw fuel prices at an all-time high.

These low prices are illustrative of the global fall in oil prices and markets. Oil prices are at their lowest for 11 years, with UK Brent Crude oil having lost 35% of its value on the markets over 2015, and now trading at just below £26 ($38) a barrel. Additionally, Iran is about to fully re-join the global oil and enrgy markets, which will have a further impact upon falling oil prices.

The RAC’s Fuel Watch observes and monitors the price of oil, and its relation to forecourt petrol and diesel prices. The motorists’ organisation said that the forecourt prices for diesel should have been cut earlier. The reasoning was that the wholesale price of diesel (the price paid by fuel retailers and supermarkets) has been 2p lower than the equivalent wholesale price of petrol for several weeks before Christmas. That saving should have passed on to motorists sooner, argued the RAC- especially as the RAC pointed out that more miles were driven on diesel than on petrol in the UK last year.

An RAC spokesman stated that “diesel drivers will clearly welcome this move by the big supermarkets, although it would be fair to say it is overdue…We hope that other supermarkets and the cheaper fuel retailers will follow suit and do the right thing for motorists. This should reduce the average price of diesel for motorists everywhere who will benefit from the low price of crude oil.”

However, about 75% of the price of fuel in the UK goes to the Treasury in duty, taxes and VAT. Of the remaining 25%, refinery costs, distribution account for most, leaving only a slender profit margin for fuel retailers in forecourts across the country. As such, the link between the price of oil, and petrol and ideal at the pumps is not that evident or apparent. Passing on such savings is therefore not as easy for the fuel retailers and supermarkets is not as easy as many assume.

Whether overdue or not, ultimately, following years of high prices at the pumps, this news is very welcome to motorists. Although economists are worried at the overall impact of falling oil prices, for hard pressed households being able to save money at the pumps is very welcome.

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Corbyn Calls for Tax Changes

Recently-elected Labour leader Jeremy Corbyn has called for changes to several areas of the UK’s tax system. Many of the changes Corbyn has suggested are aimed at improving life for those on lower incomes and taxing the wealthy in a way which he believes would be more fair.

One of the main changes Corbyn has suggested is the introduction of a graded system of inheritance tax. Corbyn criticised the current, flat-rate system for helping the “very richest become richer.”

Speaking as the latest Labour Party Conference approached, to be held in Brighton, Corbyn was particularly critical of the planned increase in the threshold for inheritance tax. Previously, 40% inheritance tax had to be paid on homes worth more than £650,000, but Chancellor George Osborne recently announced that this would be increased to £1 million. What happened as a result of this, Corbyn claimed, is that “the richest 60,000 families have suddenly had a tax break.”

“Somebody leaving a normal house to their children or family – fine,” Corbyn said, “But when you cut the overall rate of inheritance tax that means that the very richest become richer because of it.” This, he said, is why he believes a graded system should be introduced.

Corbyn also criticised the current government for not taking enough action against companies who move their offices abroad in order to avoid paying UK tax rates on some or all of their profits. Despite recent initiatives such as the diverted profits tax, Corbyn claimed that the government is still doing “very little” on the whole against companies making such moves. He pointed to Boots, which now has its headquarters in Switzerland, as a particular example.

Companies earning significant profits within Britain, he said, “should pay tax on what they earn in Britain not by some piece of sophistry move it to Switzerland, Luxembourg or Lichtenstein.”

Responding to Corbyn’s comments, a spokesperson for Boots insisted that the company “pays all the tax that is due in the UK. It is a major contributor to the UK economy.”

Corbyn also spoke about his plans for Labour’s policies on income tax. In line with the views he expressed when discussing income tax, he said that he had “no plans” to change his previous proposal of introducing a 50% top income tax bracket. At the opposite end of the scale, Corbyn claims that he hopes it will be possible to reduce the rate of income tax for the UK’s lowest-income households.

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Payday Lender Cash Genie Ordered to Pay £20m in Compensation

Cash Genie, a payday lender recently found guilty of “unfair” practices, has been landed with compensation payouts worth a total of more than £20 million. The lender is having to pay compensation to some 92,000 customers affected by what the Financial Conduct Authority (FCA) described as “serious failings.”

Cash Genie is part of the high-interest and rather controversial payday loan sector. The company is registered under the name Artiste Holding Limited and specialised in offering short-term loans with interest rates of almost 3,000%, along with the potential for a variety of other charges.

The £20 million of compensation will take the form of a mixture of cash payouts and debt write-offs. The firm, which ceased its lending activities in September last year, has already cancelled fees and interest for affected customers worth a total of £10.3 million. A further £10 million in cash payments is to follow after a review of the firm’s business practices.

Speaking about the case, the industry regulator expressed its disappointment with the way the payday loans sector keeps repeatedly producing examples of poor practice. Past examples include Wonga, the biggest payday lender in the UK, which had to pay compensation of £2.6 million after overcharging customers and sending out threatening letters purporting to be from law firms which did not, in fact, exist. The poor practices of which Cash Genie has been found guilty are:

  • Refinancing or rolling over loans without the consent of customers, and without making the necessary checks into the financial situation of the borrower.

  • Charging “unfair” fees and interest rates, as well as fees to which the firm was not entitled under the terms of its own customer contracts. One example of a fee considered unfair was a £50 charge for transferring customers to debt collector Twyford Developments. Twyford Developments is a sister firm of Cash Genie, and the transfer therefore carried no costs for the firm.

  • Collecting payment through bank account information registered with other websites owned by Artiste Holding Limited without the consent of customers. Furthermore, many customers were led to sign up for these other sites and provide the details of their bank “under the false pretence” that loans had already been approved in advance.

  • Not sending out annual statements to customers who held loans for at least 12 months – a failure which meant the firm should have lost the right to impose further interest or fees.

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Energy Regulator to Investigate Forced Installation of Pre-pay Meters

Energy companies have been no strangers to controversy over the past year or two. Now, they are facing a fresh investigation by industry regulator Ofgem over the forced installation of pre-payment meters (PPMs) into people’s homes.

When customers get into debt, energy firms can potentially obtain court orders for the forcible installation of pre-pay meters. According to figures that have reportedly been obtained by the BBC, the past six years have seen half a million such forced installations made across England, Scotland and Wales. Ofgem has said that, once these figures are released, it will investigate the matter.

Much of the controversy around this relates to costs, raising concerns about the real motivations of energy companies in obtaining the court orders. Energy UK, an industry body, insists that pre-payment meters can be a good thing for those who have struggled to pay their energy costs as some people find them helpful for managing their budget.

However, according to the Citizens Advice Bureau, pre-payment meters actually give customers a “raw deal.” On average, energy customers with pre-pay meters pay nearly £80 a year more than their counterparts who pay by Direct Debit. In other words, switching customers to pre-payment meters means that energy companies will most likely end up charging them more.

“pre-payment meter customers can’t take advantage of the competitive energy market,” said Citizens Advice’s Audrey Gallacher. “Many people become trapped on them and can’t get a better deal.”

Gallacher also said that more and more people had been contacting Citizens Advice with problems that relate to pre-payment meters. As for the figures suggesting an increase in forced installation of the devices, she said that the data was “concerning” but did not come as “a big surprise.”

Ofgem has assured that its investigation will be “looking into the reasons behind the increase in the number of PPMs installed for non-payment of debt on a warrant visit.” The energy watchdog ensures that it has clear guidelines on the installation of these devices, including requirements that they can only be installed by suppliers in cases where it will be both safe and practical for the user.

Head of Ofgem’s consumer team Philip Cullum also said that customers who end up in debt to their energy suppliers should be able to rely on the companies to work with them in order to find a practical solution. Energy companies are, he said, “obliged to help [customers in debt] and negotiate what’s a fair rate of repayment.”

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The Self-Employed: Personal Finance Products you Should Consider

Being your own boss and running your own business can be undeniably wonderful. However, it does mean that you miss out on certain employee benefits, and some of these can leave you potentially weaker from a financial point of view. There are certain financial products which the self-employed may want to consider in order to counteract these disadvantages.

Sick Pay or Income Protection Insurance

One situation where you may feel worse off for being self-employed is if you come down with a serious illness or injury that prevents you from working for a time. While an employer would provide you with sick pay, not working while self-employed often means not getting paid. Sick pay insurance and income protection insurance are two similar insurance products designed to protect your income against periods of illness.

Income protection insurance protects a certain percentage of your income (no more than 70%). Should you be prevented from working due to illness or injury, your employer will pay you this amount of money regularly for a certain period. Sick pay insurance is similar, but offers a fixed sum instead of a percentage of your earnings. There is a lower maximum (though in real terms it may be higher for low-earners) and monthly premiums tend to be more expensive, but it has the advantage of simplicity and your cover will not be affected if your income changes between taking out the policy and getting ill.

Personal Pensions

The other important financial safety net that you will lack as a self-employed individual is a workplace pension. When you reach retirement, this might be seriously felt as it is doubtful that the state pension alone will maintain the standard of living you are used to. For this reason, it is a good idea to take out a personal pension plan to take the place of the workplace pension that employed people are entitled to receive.

You will still somewhat lose out in the sense that, unlike a workplace pension, you will not receive employer contributions. However, you will receive tax relief. The taxman will top up your pension pot by £25 for every £100 you pay in, assuming you are a basic rate taxpayer. As many self-employed people have variable levels of income, it is usually best to take out a flexible pension plan. This means that if you are going through a period where business is slow, you will have more freedom to reduce or even pause the payments you make.

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Preparing for Your Self-Assessment Tax Return

January is almost here, and the new year means many things. If you are self-employed or run a small business, then one of the more daunting things that the arrival of January represents is the approach of the tax return deadline. Online returns for the 2013/2014 financial year are due by midnight on the 31st of January, and the arrival of the final month before the deadline leads to a busy time for submissions. If you are preparing to submit your self-assessment tax return next month, there are a number of things you should bear in mind.

First Tax Returns

If this is your first time submitting a self-assessment tax return and you have yet to begin the process, make sure you don’t leave it until the month is nearly at an end. As you are not familiar with the tax return from previous years, you are more likely than a seasoned veteran to encounter problems. If you come across something you are unsure about while completing your tax return, or you realise that you would like to clarify something before submitting, you will want to make sure you leave yourself time to work those issues out before you submit. Otherwise, you may be left with a choice between submitting a return you are unsure about or sending it late and facing the penalties.

Get Ready in Advance

No matter how organised you are, there is a chance that some important document or record will prove hard to find. Even if you believe you know where everything is, make sure to get your records together and check through them before you plan to submit your tax return. This will give you time to dig out anything that seems to have gone missing and generally make sure everything is in order. This is doubly true if you are having a tax return completed by a third party such as an accountant. They may have to charge rush fees if you give them relatively little time to prepare your return before the deadline, especially if they are already busy with other clients, so it is best to be prompt.

Declare All Income

If you have multiple sources of income, make sure that you declare them alongside your business earnings. This includes interest on business accounts, investments such as property, or anything else that has earned you money in the tax year. It is easy to miss an income stream, but this can lead to problems. Even if you have some financial interest on which you have not earned money, such as a property that has made a loss, this should still be declared. Failing to do so can lead to problems should HMRC decide to investigate your affairs for any reason, even if it turns out everything else is in order.

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Choosing a Loan: Secured or Unsecured?

There are big differences between the two types of loans; secured and unsecured. When you are thinking about taking out a loan and looking into your options, it is important to understand these differences in order to make the correct choice.

What Are Secured and Unsecured Loans?

Unsecured loans are simply money that you borrow, then pay back in installments while accruing interest. In other words, they are just loans.

Secured loans function in a similar way, but they are secured against an asset you hold, usually a property. If you do not keep up repayments, this asset can be taken by the lender and sold to repay your debt. This means that, from the lender’s point of view, there is less risk involved in giving you credit.

Secured Loan Pros and Cons

The advantages of secured loans largely stem from the fact that the lender is not taking such a big risk in giving you money. This means that they will usually offer you much better terms. For example, the interest rate on secured loans is usually significantly lower. It is also possible to potentially borrow a much larger sum if your loan is secured. This type of loan is also easier to obtain if you have a less-than-perfect credit history.

The main disadvantage of a secured loan is that you are putting an asset at risk. This is particularly pertinent since loans are usually secured against the equity in your home. As a result, if you encounter trouble paying the loan back the consequences can be far more severe and you could face losing your home. Great care is required before entering into any loan agreement using your home as security.

Unsecured Loan Pros and Cons

Unsecured loans are usually available for sums of up to £25,000. While trouble meeting repayments is far from ideal, the fact that you will not face the prospect of losing your home or another valuable asset is a big advantage compared to secured loans. Unsecured loans also tend to offer a lot of flexibility in repayment terms and methods.

However, you will usually need at least a fairly good credit score to obtain an unsecured loan. The very best deals will require more than that, being reserved for those with very good credit scores. You will also generally face higher interest rates on very large or small amounts or on shorter-term borrowing (the best rates usually being for repayment over 3-5 years).

Which is Better?

As with many things, the best option is down to your individual needs and circumstances. Secured loans offer larger amounts at better rates, but have a very big risk disadvantage. Care should be taken before taking out any loan, and this is especially true for secured credit.

However, if you have a suitable asset that you are willing to risk, are confident in your repayment abilities, and want to borrow a large sum or get the very best terms, secured loans can be ideal. Otherwise, unsecured loans are a safer way to get access to quick finance.

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Three Alternatives to ISAs

New ISAs (NISAs) have made tax-free savings more flexible and allowed people to put more cash away. However, interest rates remain low and are only increasing slowly. A lot of people wonder whether there is any point to using an ISA, and many are looking for an alternative that have the potential to prove more profitable.

A Note on Risk

Even when rates are at their strongest, the advantage of banking has never been the strongest returns. Rather, the advantage is safety and the fact that it is very unlikely you will lose any of your money. All other approaches include an element of risk, even if only small, and your funds can decrease as well as increase. Before taking any other route with your savings, it is important to understand these risks and be sure you are happy to take them.

Stocks and Shares

These are not strictly an alternative to ISAs, because one of the key advantages to stocks and shares is that they can be placed into a suitable ISA instead of cash. This means that all returns will be tax-free, and if you invest wisely these returns could be much greater than you would get in interest.

Stocks and shares go up and down all the time, and the element of risk is significant. If you choose your own investments, you should do so carefully and be prepared to move your funds if the value of your shares looks likely to fall. Alternatively, for a percentage fee, you can invest in a fund which is managed by an expert. You should still choose your fund carefully and be aware that the value can fall as well as rise.

One key advantage of stocks and shares is high liquidity. Funds can be turned back into cash in seconds through easy online transactions.

Property

Property is often considered one of the safest investments, though it is definitely not risk-free. Usually, it involves a buy-to-let approach where you reap returns both from rent and, hopefully, from the property increasing in value.

One of the key downsides to property is low liquidity, as selling a property is a slow and involved process. Another is that it requires a large sum to get started – at least enough for a deposit on a buy-to-let mortgage. This latter problem can be bypassed by investing smaller amounts through funds that pool the resources of many buyers and then distribute the returns in proportion. This can be a great idea for some savers, but it is important to understand everything involved.

High-Interest Current Accounts

Some high-interest current accounts offer the safety of a bank and interest rates which, at first glance, seem to put ISAs to shame. Of course, unlike an ISA a high-interest current account is not tax free and this shrinks the net interest received. Often, there is also a regular charge. Nonetheless, this type of account can offer net rates that rival some ISAs but come with much better flexibility.

The disadvantages to this approach are usually the conditions. As well as charges, there will likely be a minimum monthly deposit. There will also be a maximum amount that can benefit from the high interest rate, and often a minimum balance in order to qualify.

 

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