Market update and analysis

Exploring the recent changes in government economic policy

4th October 2022

At Crowd2Fund we’re a platform that champions entrepreneurial success and the recent changes in government economic policy gives us a new landscape for business owners and investors to work in. In this article, we outline our analysis of the disruptive markets along with valuable investor insights. 

Highlights of the new tax policy

The main changes in tax policy are:

  • No planned increase in corporation tax
  • Reversal of recent increase in national insurance contributions
  • 1% decrease in basic income tax
  • Significant reduction in stamp duty

The scrapping of the planned increase in corporation tax would have had the most significant impact on SMEs. However, this tax had not been implemented in the first place, we think there will be little impact felt in the day-to-day operations of businesses.

We think the impact will be broader, as the take home from employee's wages will be higher, consumers will have more money to spend and therefore an increase in sales generally should be expected. That is though, hoping that the take home from people’s wages outpaces the rise in inflation.

Crowd2Fund investor insight: From an investors standpoint there are signals that there will be an increase in the generosity of EIS and SEIS, but even perhaps an increase in the generosity of the ISA savings and investing scheme allowing investors to continue to benefit from investing in entrepreneurs.

Higher risk investing environment

We’ve listened to our investors and assessed the changing market landscape. We have modified our credit policy appropriately by introducing new checks to reflect a high inflation environment for our clients and increased the interest rate offered to investors – now up to 18% APR tax-free. 

This means by building a balanced portfolio and making good investment decisions you can generate inflation-beating returns, which arguably are less volatile than other Individual Savings Accounts.

Crowd2Fund investor insight: Depending on your risk appetite keep your portfolio diversified and take advantage of the higher tax-free earnings on offer.


Value of pound sterling

Having a floating currency which is determined by a free market is a good thing. The upside of having a floating currency is that when it’s lower value it means buying things with other currencies such as cars, services, technology, property, pharmaceuticals, or aircraft for example are cheaper – and currently, quite a lot especially if your main currency is $(USD).

The downside is that for the SMEs you’re investing in if they import a lot and can’t source the goods and materials from the UK, their products may become more expensive. The drop in currency is not due to the fundamentals of the economy but more market sentiment. If the economy can demonstrate growth over the next period – partly due to economic policy, then it can be expected the strength of the £ (GBP) can return. 

If you’re an investor investing in £ (GBP) then there is no currency risk for you on Crowd2Fund. If you’re investing in another currency, then arguably you could benefit from a bonus return due to a potential strengthening of the £ (GBP).

Crowd2Fund investor insight: Consider currency risk if you’re investing in a currency other than sterling. Consider your risk appetite when businesses you’re investing in may be exposed to currency risk.

Why are some mortgage products becoming unavailable?

As an investment platform, we see the removal of some mortgage products not unusual to reflect the changing economic policy. It’s normal that where there is a risk of an increase in record low-interest rates that low-rate fixed mortgages would be reassessed while the new landscape is measured, analysed and stabilised.

Businesses that don’t have fixed-rate mortgages could be exposed to a higher monthly mortgage charge so this should be considered when investing.

Crowd2Fund investor insight: You’ll have higher earnings in your savings account if interest rates go up but you’ve also got higher interest rates on Crowd2Fund. Consider your risk appetite when investing in businesses that may be exposed to mortgages.

Stability of small businesses

The main upside of investing through P2P is that its an alternative investment choice and therefore often avoids market turbulence, which is currently being witnessed. There are gradual fluctuations in the default rate but keeping portfolios well diversified is the best way to generate good tax-free returns.

Crowd2Fund investor insight: Keep building your diversified Crowd2Fund portfolio and make sure you take advantage of the Innovative Finance ISA tax-free earnings AND higher interest rates currently available. 

Don’t forget to subscribe your full IFISA subscription of £20,000 per year where earnings are potentially tax-free.

 

Risk Warning

Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.

 

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Risk warning

Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.

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