China’s Black Monday: what the stock market slide means for mortgages, pensions and investments

Here's how your money might be affected

Click to follow
The Independent Online

Black Monday spelled bad news for global markets, after an 8.5 per cent fall in the Shanghai index sent the FTSE 100 down more than 4 per cent in a day, wiping $74 billion in value from the UK’s top 100 companies.

But Black Monday might not be bad news for anyone with a mortgage that was dreading a rise in interest rates. The plunge prompted analysts to revise their expectations for the timing of the Bank of England’s interest rate rise.

Mortgage holders could see lower rates for longer

The UK interest rate is currently at an historic low of 0.5 per cent. That’s been good news for those on the property market, and it has kept some mortgages cheap.

The Bank of England had hinted that interest rates would rise to 0.75 per cent as soon as the end of this year, with many expecting the rate rise to come in February.

But analysts have already put the rate rise back by as much as three months, until May, which would take full effect in August.

“I think it's good news for mortgage holders, as it must put back the date of the next rate rise,” said mortgage expert Ray Boulger of brokers John Charcol.

Pensioners could be harder hit

Pensions are usually heavily invested in the stock market through shares or share-based funds, and can be negatively affected by a slide.

Monday’s events will hit those pensioners taking advantage of new rules allowing them to withdraw cash from their pensions, known as ‘drawdown’ schemes, as lump sums might be worth less.

But many pension schemes may not have fallen by as much as the FTSE 100, and some might even have benefitted from being invested in bonds, which have risen in value recently.

New investors could benefit

While pensioners might have cause to worry, a younger generation could find opportunities to invest more cheaply after the chaos.

Michael Hewson, analyst at CMC Markets, said it would take “nerves of steel” to even contemplate dipping into the market now.

Others, like Nigel Green, CEO of deVere Group, a financial advisory firm, advised waiting for some stability until making any decisions: “In terms of what investors should do, it is not ‘sell in a panic’, or the opposite reaction: ‘fill your boots with bargains’.  For most long-term investors, it is ‘keep calm and carry on’.”

But some analysts spied opportunities for the brave. Mark Dampier, investment analyst at Hargreaves Lansdown, said that for younger investors "falls like this are great".

"You're buying the market way cheaper. You should be adding," Dampier said.