Personal Finance

Bringing happiness through a mobile

Candice Krieger — Wed, 04 Apr 2012 18:31:39 +0100

Oded ran left his role as head of consumer marketing for Windows Phone UK at Microsoft to join start-up Touchnote because, he says: "I thought: 'Why didn't I think of that?'"

Touchnote, founded in 2008 by Raam Thakrar and Paul Burdin, enables users to create and send printed personalised postcards across the world via their mobile phone, tablet or computer. The application was initially developed for the web following a dinner conversation between the founders who couldn't understand why it wasn't easier to send picture cards from mobile phones. Users simply download the app, select an image from their photo library or camera roll, enter some text, the recipient's address and the virtual card will be delivered as a printed one. There is also the option to doodle on pictures or add a small Google map to show the sender's location.

"I thought it was such a clever idea," says Mr Ran, who joined the Touchnote team in 2011. He had spent the previous four years at Microsoft where he was responsible for launching Microsoft's Windows Phone 7 to UK consumers. "Everyone loves receiving a picture card. It's a business that puts a smile on everyone's face.

"A lot of people don't have time to go out and buy a card. This way you can do all your holiday cards while sitting on the tube."

Mr Oded's role when he joined was to help grow Touchnote into a global player. More than two million of the apps have been downloaded on mobile phones, over 750,000 of them on Androids, making it the number one Android postcard app at the time of writing.

The company has printing stations in London, New York and northern Germany and sends postcards to more than 200 countries for $1.49 in the US, €1.49 in Europe and £1.49 in the UK (first class Royal Mail). Sixty per cent of customers are from the US. The UK is the second largest market with around 20 per cent.

Mr Oded, 33, identifies the greeting card industry as worth $5 billion in the US alone. Unsurprising then that Touchote team have recently launched a second product, Hugmail.

Aimed at the older generation, Hugmail uses larger font sizes and enables users to set reminders, such as "send grandma a postcard every two weeks."

Mr Ran says: "We are launching Hugmail as a separate brand to connect the digital generation with those who haven't grown up with the internet. A lot of older people end up missing out on news from family because they don't spend as much time online and aren't using smartphones. That's where Hugmail comes in."

Now based in London, Jerusalemite Mr Oded has ten years experience launching web and mobile products in the UK, US and Israel. Before Microsoft, where he was also head of mobile services UK, he was in charge of product management at Retailx, a global leader in retail software. He has degrees from the Hebrew University and Harvard Business School and was a team leader in the Israeli Defense Forces.

It's carnage in the housing market

Allister Heath — Thu, 06 Oct 2011 11:08:35 +0100

Forget about making money in the current volatile environment. The best most of us can hope for is wealth preservation.

With the global equity markets facing never-ending turmoil, mounting sovereign debt fears and rock-bottom interest rates, savers and investors have been having a torrid time. Almost every kind of asset has been going south.

Weirdly however, the extent of the carnage in the housing market has failed to grab the headlines, perhaps because most commentators live in the handful of booming elite central London locations that have bucked the rest of the UK trend. It is not just the decline in nominal terms that is scary: the average British home is worth £163,981 today, down 19.9 per cent from the 2007 peak of £199,612, according to the Halifax.

To that decline should be added the loss of value caused by general inflation and the pound's diminishing purchasing power. Retail prices have jumped 13.5 per cent during that time; in total, therefore, the Halifax numbers suggest that house prices are down by around a third in real terms.

In cash terms, the average UK house is back to where it was in June 2005. In real terms, we are probably back to early 2003 levels.

The losses are staggering. Other house price measures paint an equally dire picture. The Nationwide's figures, which show that the average UK house price is down 0.4 per cent over the past year in cash terms, suggest that the real, post-inflation crash has so far reached just 20 per cent. But regardless of which statistics you prefer, the lesson is that bricks and mortar have lost a great deal of their value, with significantly more to come over the next two or three years.

The real loss to homeowners is even greater: billions are poured into the housing stock every year to refurbish or extend properties. Transactions are expensive; stamp duty can be crippling. Against that, the real value of mortgages is being eroded; homeowners with the largest mortgages are losing the least from the crash.

Mortgage debt is a partial hedge against inflation. Interest bills are also down, often substantially; rents are surging and can provide a good income. But house prices remain expensive compared with average incomes, and with most mortgages requiring higher deposits and imposing far lower loan to value ratios, prices are bound to fall further, especially in real terms.

It's all good news for first time buyers frozen out of the market – but those relying on their homes to fund their retirement or build their wealth face an intensifying disaster.

Homeowners: avert your eyes

Allister Heath — Thu, 21 Apr 2011 11:42:39 +0100

It is not looking good for homeowners. The economy is recovering and the stock market has bounced back but the housing market is stuck in the doldrums.

The crazed bubble that coated bricks and mortar with a gilded veneer did not properly deflate when the rest of the economy imploded in 2008-09; it was artificially propped up by low interest rates, quantitative easing and cash from abroad.

Starting in mid-2009, the property market even underwent a largely irrational rebound, driven by tight supply and a realisation that the world hadn't ended.

Now that this dead cat bounce has run its course, the market is deflating again, albeit at a relatively gentle pace, for a simple reason: residential property is still overvalued.

The average house cost £168,400 a year ago; today it would change hands at just £162,900. In cash terms, that is a drop of 3.3 per cent; after inflation, that turns into a slump of 8.8 per cent. Prices have further to fall.

The downturns of the early 1990s and mid-1970s triggered dramatic slumps. Real house prices fell 30 per cent and it took four years before they started recovering again, according to Lombard Street Research.

This time, inflation-adjusted prices bottomed out only 17 per cent below peak and begun rising substantially after just 18 months. This never made any sense. Prices are likely to drift down in real terms for a long while to come, with falls set to intensify when interest rates start to rise.

Research consultancy Capital Economics has found at least eight examples of double-dips in real house prices - of the kind we are now undergoing in Britain - globally during the past 40 years. On average, the second leg of those corrections wiped off 12 per cent from real house prices (if inflation is five per cent a year, then most of this could happen in two years with stagnant nominal prices). There is still a long way down to go.

Demand remains subdued because prices remain too high compared with incomes, especially for first-time buyers. Many families are worried about the state of the recovery and see it as less risky to rent. Credit is more expensive, mortgages require higher deposits, and loan-to-value requirements have been tightened, partly because banks are worried about potential house price declines and default risk - and partly because of regulatory pressures forcing them to be more prudent and to hold more capital. Mortgage approvals are less than half of pre-recession norms.

The share of transactions financed by cash has been falling. While the super-rich will continue to buy London property, especially with the pound so low, this prop will be weakened by the increasingly crippling taxes being levied on property. Stamp duty on homes worth £1 million or more was hiked to five per cent this month.

Even before it starts putting up interest rates, the Bank of England reported an increase in default rates on mortgage lending in the first quarter of 2011. What's more, as Capital Economics points out, lenders expect a further increase in default rates over the next few months.

One reason for that is public sector job losses; another is the fact that take-home pay is dropping as a result of low pay growth, tax hikes and exploding prices; and another is the inevitable and sharp increases in the cost of lending that the Bank will soon have to impose to rein in out of control inflation.

The value of privately-owned housing more than doubled over the past decade. There was a 118 per cent increase from £1.719 trillion in 1999 to £3.755 trillion in 2009. During the same period, the retail price index rose 29 per cent. Even accounting for renovation, extension and upkeep costs, property owners banked large gains. These helped drive consumer spending - via the extraction of equity - and also investment, as many loans for small businesses rely on housing collateral.

The reverse is now true, with many owners repaying their mortgages as fast as possible. This decline is therefore bound to act as a drag on economic growth.

There are other reasons to be bearish on property. The anti-City mood and new taxes and regulations are making London less appealing for financial businesses. Shared equity schemes and the like will only help demand at the margins.

At the peak of the market in 2007, the fall in prices required to restore the house price to earnings ratio to its long-run average was 10 percentage points greater than in previous episodes of over-valuation. And less of the required fall in prices was delivered by the initial crash of 2007-09 than in any previous double-dip in house prices.

All of these effects pale in comparison to the likely impact of substantially higher interest rates. The next few years will be grim for property owners.

The UK job situation is one to celebrate

Allister Heath — Thu, 25 Nov 2010 12:29:22 +0000

One of the great, widely-believed myths about the UK recovery is that it is jobless. Yet the reverse is true.

Job creation has been consistently robust over the past six months, repeatedly taking most commentators by surprise; unemployment is going down, albeit slowly.

The great news is that the private sector is bouncing back fast enough to create far more jobs than the public sector has been shedding. This is a result of the government's much-needed austerity measures.

Claimant count unemployment fell by 3,700 month on month in October after slight rises in the prior two months. This is hardly cause for uncorking the champagne, but other data is much more upbeat.

The Office for National Statistics calculates that employment has bounced back by 167,000 (or 0.6 per cent) in the third quarter - a similar increase to that enjoyed in the second quarter. In total, 320,000 extra people have found employment in the past two quarters, the highest growth since the late 1980s. This performance is the one we should be celebrating, even if progress is hardly comprehensive or ideal.

As in recent months, part-time work is rising rapidly and accounts for the bulk of the overall increase in employment.

Firms are seeking extra workforce flexibility, partly because most remain nervous of the future; in many cases, however, individuals are also seeking a shorter working week and thus getting what they really want.

While tens of thousands of full time jobs are also being created by firms around the UK, another large chunk of the increase can be accounted for by self-employment.

Many people are using the recovery as an opportunity to go it alone, but in other cases people are being forced to become consultants because they cannot find a position as an employee. That is not ideal.

The biggest problem is that a few of the millions of people stuck on welfare and long-term benefits are getting back into the labour market.

On balance, however, the jobs picture is nevertheless highly encouraging. Recoveries are always characterised by a bounce in part-timers and the creation of thousands of new businesses. All the signs are that, despite the depth and nastiness of the recession of 2007-09, the worst is over for the UK labour market.

It is a shame that nobody seems to realise that there is more to economic news than doom, gloom and sovereign crises.

Time to tough it out as market declines

Michael Ranis — Thu, 10 Jun 2010 11:34:06 +0100

Over a few weeks in May the MSCI World share index lost 13 per cent of its value. A sovereign debt crisis in Europe, new concerns about the prospects for growth in China, regulatory government initiatives aimed at curbing financial institutions, and even technical glitches all seemed to conspire to bring markets down in a hurry. Investors were surely baffled by the downward impetus and many may have wondered out loud: " I thought we were coming out of the terrible recession of yesteryear."

It is at times like these that old themes return to the fore: 1) Is this a correction or the beginning of a new bear market? 2) Do the fundamentals justify the extent of the decline? 3) Were investors so overly exposed to volatile equities to suggest there is a bubble? 4) What to do when markets come down so quickly?

Since March 2009, when equities began a steep rally, we have seen little sight of a correction and volatility stayed comfortably low. This, however, is not the normal state of equity markets and should not be expected to last forever. Conversely, the start of a bear market will typically reflect conditions significantly worse than those we are currently facing.

The European debt crisis should not be cavalierly ignored, as it will have consequences for European economic growth (though a cheaper Euro will also make European companies more competitive).

Clearly, slowing growth in China will have worldwide implications (but how much deceleration are we talking about anyway?). Notwithstanding, we should not ignore the fact that other economies seem to be gradually improving and demonstrating the return to normal economic activity levels.

So, to me, this is not the start of a bear market and the fundamental story remains a positive one.

It is possible that investors became a bit overconfident and were willing to expose themselves to equities beyond their acceptable levels of tolerance. The correction will redress that.

Sharp market declines will make any investor nervous. Managing investments in a countertrend fashion is in that sense a good, solid, approach. To wit: if markets have been on a steady run upwards, maybe it is wiser to reign in a bit and reduce exposure. Wait for the markets to correct so as to invest in cheaper opportunities later. I am well aware that market timing is extremely difficult, but actively managing a portfolio is more appropriate than simply holding investments in a passive mode.

Finally, some positive news about pensions

Ros Altmann — Thu, 03 Jun 2010 14:28:03 +0100

A new government brings a new era for our finances and, despite the desperate need to reduce public-sector debts, there is actually some good news on taxes and pensions.

Although not immediately affordable, the government says that it will substantially increase income tax thresholds and eventually everyone earning below £10,000 will pay no tax. Another piece of excellent news is that Equitable Life investors will at last receive compensation. This huge scandal should have been sorted out years ago and the sooner victims receive money, the better.

There will be some positive pension changes too. For example, the requirement to buy an annuity by age 75 will end. This welcome reform should enable people to pass their pensions to their heirs, rather than to an insurance company, when they die.

Also, the government wants to introduce more flexibility for pensions, allowing some money to be withdrawn before retirement. This is good for younger people, who are frightened of locking money into a pension for many decades in case they need it urgently in a few years' time. There is even some improvement for state pensions. The basic state pension will gradually become more generous, with a 'triple guarantee' that it will increase by 2.5 per cent a year, or prices or earnings inflation, whichever is higher.

So far, so good. But it's not all positive news, I'm afraid. On the negative side, capital gains tax on second homes, shares and non-business investments - currently 18 per cent - may more than double to bring it into line with income tax. Savers have had a really raw deal lately and the last thing they need is another tax burden. I really think the government should reduce capital gains tax rates the longer an investment is held in order to encourage long-term investment and avoid taxing inflationary gains. You might consider selling now to lock in gains at the current rate (perhaps with a lower taxpaying spouse buying them back).

There are also fears, as yet unconfirmed, that higher rate pension tax relief could be abolished, so top-rate taxpayers should probably make the most of current rules and top up their pension fund quickly, just in case.

After years of policy and regulation that discouraged saving, it will not be easy to sort out our dreadful debt problems.

However, if the new government improves consumer protection and moves from a culture of borrowing to one of saving and investing, I believe we can put our economy back on the right track and ensure a better future for us all.

What we now know

Allister Heath — Thu, 08 Apr 2010 11:02:36 +0100

If most commentators were to be believed, the causes of the financial crisis were straightforward: it was all about greed, stupidity and even corruption. But as economists continue to study what really happened, it is becoming increasingly clear that the forces that caused the irrational exuberance and stupid decisions of the bubble years were far more complex than usually understood.

We all know that US and European banks lost billions because they invested in Collateralised Debt Obligations (CDOs), those infamous packets of sub-prime mortgages that everybody thought were safe but which suddenly started to lose their value in 2007, destroying the financial system in the process. Yet what nobody realises is that an obscure yet crucial piece of US regulation actually encouraged US retail banks to buy CDOs and to shun more traditional, safer assets.

The best explanation is to be found in a brilliant book edited by Jeffrey Friedman entitled The Causes of the Financial Crisis, to be published in December by University of Pennsylvania Press.

US retail banks were required to retain just $2 in capital for every $100 invested in AAA or AA-rated CDOs, compared to $5 for the same amount in actual mortgage loans and $10 in commercial loans. The so-called "recourse rule" - pushed through by the Fed and other regulators - was deliberately designed to steer banks' funds into CDOs. It succeeded: the banks gorged on them; as far as they were concerned, they were merely following the new best practice. The US authorities were therefore not only complicit but also directly responsible for the destruction of the US banking system. Their rule also helped inflate the demand for CDOs, securitisation and even sub-prime mortgages, especially when Wall Street had run out of mainstream mortgages to bundle up.

Friedman's scintillating analysis also remind us that the financial crisis was not directly caused by mortgage defaults - banks could have coped with that. Rather, it was triggered by a collapse in the market price of CDOs caused by fears about the effect of declining house prices, a much more devastating and uncontrollable phenomenon. It was this which decimated balance sheets - not mortgage defaults per se. Had the regulatory system not encouraged retail banks to hold securitised bundles of hard-to-value, opaque CDOs, rather than stick with mortgages themselves, the crisis might have been avoided or at least it would have been much less severe.

The more one studies what really happened in 2007-09, the more it becomes apparent that regulatory failure was a key driving force in the excesses of the bubble years. Not only did regulators fail to stop the rot, they actually encouraged it.

Allister Heath is editor of City A.M.

Savers: good news and bad

Ros Altmann — Tue, 29 Dec 2009 12:35:55 +0000

Last year was a roller-coaster ride for investors. For savers, it was a disaster.

The Bank of England slashed base rates to half a per cent as it tried to stimulate the economy, so base rate tracker savings accounts generate virtually no income. For example, £25,000 in an account offering 6 per cent interest last year, paid nearly £30 a week. But with interest rates at 2 per cent, income falls below £10 a week, and, if your account just pays the 0.5 per cent base rate, you will receive only £2.50.

Have you checked what interest you are earning on your savings? Shop around, as companies often offer better rates to attract new customers, but leave existing accountholders with poor deals. And don’t forget to check the rates on your old cash ISAs — many are paying almost nothing.

Last year was not a good year for pensions — except perhaps for Sir Fred Goodwin. Company pension deficits grew substantially, low interest rates pushed up annuity costs and the Chancellor cut tax relief for top earners’ pensions twice. These trends may well continue into 2010.

One change has already been announced. From April 2010, the minimum age for taking a tax-free lump sum from your pension fund will increase from 50 to 55. If you are in this age band, you need to act quickly if you want to secure your tax free lump sum early.

Pensions offer attractive tax benefits for higher rate taxpayers and abolishing top-rate tax relief or the tax-free lump sum would save many billions of pounds each year — very tempting to a future government desperate to fix the budget deficit.

So, if you can afford to, it may be sensible to take advantage of pension tax breaks sooner rather than later. Anyone buying an annuity in 2010 may find rates continue to worsen.

It is absolutely essential to shop around for the best deals and also to make sure you buy the right kind of annuity because, once you have bought, you are locked in for life.

You need to consider including your spouse, protecting your annuity income against inflation and, if you have any health issues, make sure you ask for an enhanced or impaired life annuity — which will normally give you much more.

There is one piece of good news for savers: the annual ISA allowance will increase to £10,200 for everyone from April 2010. In fact, ISAs may be an attractive alternative to pensions, especially if you are not on higher rate tax.

I expect economic growth to recover quite strongly in early 2010, which should be good for asset markets as long as interest rates remain low. However, there are big risks of a setback once rates start rising later in the year.

So, given the economic and political uncertainties, 2010 will probably be as challenging for investors as 2009. Markets should offer some great opportunities but it will not be a smooth ride. Make sure you get good advice and I wish you luck.

Got cash overseas? Time to declare it

Shimon Shaw — Thu, 12 Nov 2009 10:07:07 +0000

UK taxpayers with overseas bank accounts face some tough decisions this month. Since September 2009, HM Revenue and Customs (HMRC) has been offering individuals the chance to come clean about any unpaid taxes under the New Disclosure Opportunity (“NDO”).

Those with savings in overseas accounts, and other overseas income or gains, who have not properly complied with UK tax law, are offered a reduction in the possible penalties on unpaid taxes of up to 90 per cent. This is coupled with the promise of a simplified procedure and very little chance of a follow-up with a more in-depth tax investigation (unless HMRC suspect criminality). Those who don’t come forward, and are later identified by HMRC, risk a tax investigation which could extend into all of their affairs. They would also face penalties of up to 100 per cent of the outstanding tax, interest on that tax and the possibility of criminal prosecution.

This will affect most people who are resident in the UK for tax purposes since their worldwide income and gains are actually taxable in the UK. It could extend 20 years into the past, if there are historical irregularities, and could also affect people who live overseas but treated as resident in the UK. People with overseas arrangements will wonder why they should disclose now as opposed to taking their chances and keeping quiet. Anyone with an overseas bank account will wonder how this affects them, especially if interest is already deducted by their bank. However, unless the same amount of tax that would have been paid in the UK (or more) has been deducted, then a UK liability may remain.

There are new factors that were not a concern previously. HMRC are relying on these to give an added push. There have been several cases where banks have been forced to hand over customer information. This could affect overseas banks with UK branches. There are also EU rules requiring certain information to be disclosed by banks across the EU.

There is also a trend for previously secretive countries like Switzerland to bow to pressure and hand over details on their banks’ customers. HMRC has also publicised that they are in the process of finalising agreements with several countries to agree mutual exchanges of information.

Most importantly, just because someone has cash abroad does not mean that they need to pay UK tax. Many people are able to reduce their exposure to penalties through the use of existing tax law. Anyone who might have outstanding tax and needs to disclose will need notify HMRC of their intention to disclose before 30 November. It is crucial they do so.

Keep a good focus on emerging markets

Michael Ranis — Wed, 28 Oct 2009 16:40:30 +0000

China? Brazil? India? What has the world come to that these are the countries that seem to attract investments from all corners? Is the elevated status of emerging markets just a fashionable concept, or is this the embodiment of a massive transition?

Does it reflect on “the decline of the West” and a rise of new, far-away powers, or just some mirage that will soon fade?

Let us consider a few facts:

● It is quite possible that my children (aged 16 and 20) will see China’s GDP surpass that of the USA. It is equally likely that they will see the combined economies of Brazil, Russia, India and China (the famous BRIC countries) surpass in size the combined economies of Europe and the USA. Whether we like it or not, that is real, inexorable, change and it commands our attention.

● Though we tend to have a derisive view toward “third-world” countries, a view that sees them as corrupt and disorderly entities, we need to recognize that, at least in some of them, there has been a significant transformation toward adopting western concepts regarding law, property and information.

● Politically, most of the emerging market world may have improved, but the improvements are limited and still provide plenty of reasons for concern. This is probably the gravest achilles heel for investors in emerging markets.

● Most emerging markets are facing disturbing problems, in part stemming from their rapid growth. We have all seen the worrisome pictures of overpopulated cities, pollution, traffic bottlenecks, large disparities between rich and poor. It is not always clear how these problems will affect investors and their choices, but we need to be aware of them.

What is one to do about all of this as an investor? It seems to me that we must begin but taking a fresh look at our portfolios. Do we give enough weight to these markets? I do not think that I am too far off the mark if I claim that in most portfolios, the weight of all equity and fixed income exposure to emerging markets is significantly below 20 per cent of total assets. That said, depending on the risk tolerance, I have seen allocations of up to 40 per cent.

For those who are less willing to invest in such markets, a valid strategy should be to identify proxies: companies whose business are likely to profit from the exponential growth in these economies. That approach has some significant benefits and curtails some, but surely not all, the negatives. The bottom line is that this is a much more interconnected world, and our investments should reflect this.