Page last updated at 08:14 GMT, Wednesday, 29 August 2007 09:14 UK

Market jitters and your pocket

Trader watching screen displaying share prices
These are nervous times for stock market investors
Stock markets around the world have been in turmoil in recent weeks on fears that the crisis in the US housing market could undermine the global economy.

It is feared that a squeeze on credit - the amount of money circulating in the banking system - could hurt companies and consumers.

But what does this market turbulence mean for your own personal finances?

STOCKS AND SHARES

Millions of Britons own shares directly, accounting for about 13% of the total value of companies on the London Stock Exchange.

Investors have had a white-knuckle ride in the recent weeks with many billions wiped off the value of the UK's top 100 publicly listed companies.

Analysts have warned investors to expect continued turbulence as the extent of the credit problems affecting banks and their wider economic implications becomes clear.

Investors worried about further falls always have the option to sell their shares for cash.

But investment experts advise that shares should be seen as long-term investments and decisions should not be made on the basis of daily, or weekly, fluctuations in value.

PENSION FUNDS

The health of personal and occupational pension schemes is linked to the performance of the stock market.

Experts say recent falls knocked billions off the value of company pension schemes, which invest in individual company shares.

According to forecasts from actuaries Aon Consulting and Lane, Clark & Peacock, FTSE 100 companies had a combined deficit in their final salary pension schemes of between 15bn and 26bn by the end of Thursday, 16 August.

Man walking in Canary Wharf
Some City firms are said to have frozen recruitment

This compared with estimated surpluses of between 9bn and 12bn in company schemes before the recent market turbulence began in July.

Companies have steadily been rebuilding their pension schemes since the collapse of the dotcom boom in 2000 sent markets reeling.

People nearing retirement and not on a guaranteed-benefit pension could feel the effects of the market turmoil because they may not have time to make up any losses incurred.

But Aon's Marcus Hurd said people should not overreact to the current situation and "shouldn't get too concerned about one week of falls".

MORTGAGES

The wave of mortgage defaults in the US has raised the spectre of similar problems in the UK and cast doubt over how much longer the house-price boom can be sustained.

House repossessions in the UK rose 30% in the first six months of 2007 while research by credit rating firm Fitch argued that the UK housing market was among the most over-valued in Europe.

Concerns surround the number of people with variable-rate mortgages, which are particularly sensitive to rising interest rates.

Boards showing houses for sale
Experts believe the US mortgage crisis will not be repeated in the UK

Pressure on people to meet their mortgage payments, particularly in London and the South East, where rising prices have forced many homeowners to borrow up to the hilt to get on the housing ladder, is also a worry.

But experts say lending conditions are much stiffer than in the US, while the market is being underpinned by strong demand, a shortage of new homes and a robust economy.

Recent data showing a fall in inflation, allied to concerns about market instability, means many experts feel the Bank of England will refrain from further rate rises for the time being.

"Much will clearly depend on how inflation, growth and financial markets develop over the coming weeks," said Howard Archer, chief economist with Global Insight.

JOB SECURITY

The favourable economic conditions of recent years - with low interest rates making credit cheaply available - has helped companies expand and fuelled a takeover boom.

But there are clear signs of retrenchment in the financial sector, with firms struggling to find buyers for the debt needed to fund multi-billion pound deals.

Jonathan Said, from the Centre for Economics and Business Research, told the BBC that up to 5,000 jobs may go as a result of the recent turmoil, and that 2007 bonuses will fall by up to 15%.


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