Interest Rates
The End of Self Certified Mortgages?
Wednesday, October 21st, 2009 | View from the Top | No Comments
The FSA has signaled its intention to end the option of self certifying income on a mortgage application. This announcement has caused concern amongst borrowers, some of whom may be effectively forced to stay in their current home and as such has not helped improve the housing market.
After the market turmoil of the last 2 years it is a surprise that this area did not come under focus sooner, but the solution of a complete ban may turn out to be the proverbial “hammer to crack a nut”.
From a lenders perspective, it makes sense to ensure that a borrower can afford to make the payments on their mortgage and that this income has been legitimately obtained. If they do not check this affordability then they only have themselves to blame if the loan goes bad. However the change in regulation is proposed by the FSA and not the lenders, who continue to offer self cert mortgages, albeit in reduced numbers, at the time of writing.
It is likely that the new regulations will make it very difficult for lenders to provide creative products for borrowers who have a genuine difficulty in proving all sources of income to the satisfaction of a “lending official”. This will be particularly true if the method of proof is prescribed by Government bodies.
Self Certified mortgages, used correctly, have been a perfectly acceptable method of borrowing; they have been abused by sharp practice amongst mortgage brokers and poor administration by lenders but the risk associated with the reduced paperwork for this type of loan is generally offset by the increased pricing of the product.
There is still time to use the self certification route sensibly and consider other alternatives before legislation forces the point.
Whether you are looking to buy your first home, move house or just ensure that you have the best mortgage deal, my advice is to speak to an independent broker as a matter of urgency to review your options and make a fast decision on what to do before new regulation is implemented.
0845 30 50 222
http://news.bbc.co.uk/1/hi/business/8313853.stm
ISA Changes for over 50s
Thursday, October 1st, 2009 | Financial Digest | No Comments
The increase in the ISA subscription allowance to £10,200 from April 6th 2010 is good news for all investors. This further reinforces the use of ISAs as a foundation in building a significant investment portfolio in a tax efficient way.
Investors aged over 50 on 6th October 2009 have an advance opportunity to invest up to £10,200 after that date and counting in the current tax year.
With stock markets showing signs of recovery and some confidence returning now is a good time to consider investing and making the most of the increased allowance.
For more information and for a free no obligation conversation or meeting please call 0845 30 50 222
Pensions Act 2008 – What it means to you.
Wednesday, September 23rd, 2009 | Financial Digest | No Comments
Allow me to bore you for two minutes regarding Pensions.
We all know that there is a looming pension crisis in this country and all the major political parties agree that pension reform is essential. In the past decade we have had various initiatives to try and stimulate more pension contributions such as Stakeholder pensions and the 2006 Pension Tax Simplification reforms. There have also been reforms introduced to the State Pension schemes with more to follow.
However, perhaps the biggest and most important reform is just around the corner. The above mentioned initiatives have largely failed to encourage the Great British public to contribute to a pension scheme and so the Government are going to the next obvious step. From April 2012, pension contributions will be compulsory for all employees and employers. For employees who do not have an employer’s pension scheme available to them, a new scheme (largely based on the existing personal pension rules) called Personal Accounts will be introduced to accept their pension contributions. A new body has been formed, PADA (Personal Accounts Delivery Authority), and they will be responsible for delivering this new scheme. However, whilst the topic of Personal Accounts has been the source of most discussion over recent months, I believe that it will be Auto Enrolment that should and will focus most Employers minds.
Under Auto Enrolment rules, employees will be automatically enrolled into a pension plan – it will not matter whether that scheme is a Personal Account, a personal pension or a group personal pension. If the employee does not want to join a pension scheme they will have to elect to ‘opt out’ of pension contributions (this decision will be reviewed periodically with the objective to ultimately auto enrol all employees). If an employee does not elect to opt out the employer will also have to make a pension contribution. It will be the employers’ responsibility to deduct contributions from their employees and make sure the contributions go to the relevant pension scheme and it will also be Employers who are saddled with the task of ensuring that their employees are enrolled or opted out. Not only will they have to find extra revenue to make an employer pension contribution to their employees pension fund, they will also face the prospect of fines and even the threat of a prison sentence if they or their employees breach the rules.
Many employers and business owners will not be aware of any of this, and as these rules will be with us with in 3 years it will have a major impact on their business plans.
If there’s any moral to the tale of Auto Enrolment, it’s seek advice at the earliest opportunity.
Please call us on 0845 30 50 222
Global Markets Update April 2009
Thursday, April 9th, 2009 | Market Updates | No Comments
Global equity markets staged a recovery during March. Share prices rallied from the middle of the month following the news that the US Federal Reserve (Fed) intends to buy back over US$1 trillion-worth of debt, fuelling hopes of an earlier-than-expected end to the global recession. Concerns about deflation rapidly evolved into worries about the possible return of inflation, leading to renewed interest in gold and other commodities as a means of protection against inflationary pressures.
Central banks are trying increasingly radical methods of stimulating their economies. The Bank of England announced a programme of quantitative easing intended to encourage commercial banks to revive lending activity. The measures involve the purchase of £75 billion-worth of commercial banks’ assets, which will be financed with newly created money. Meanwhile, the Fed announced plans to inject almost US$1.2 trillion of newly created money into the US economy in order to help kick-start bank lending, revive the housing market and lead to economic recovery. Nevertheless, export growth is still on the wane in the UK, US, China and Germany, reflecting the decline in worldwide demand, and the World Bank expects the global economy to decline for the first time since the Second World War during 2009.
After reaching a 12-year low during early March, share prices in the US rose in the latter part of the month, led higher by the financial sector. This rally followed the announcement of further measures to alleviate the effects of toxic assets upon American banks, and news of better-than-expected new home sales.
Equities advanced in the UK during March; however, their rise was relatively muted, dampened by a raft of disappointing corporate profits announcements and yet more negative economic news. Share prices in Europe posted relatively strong gains overall, although underlying country performance was mixed, reflecting the fortunes of individual companies and a welter of overwhelmingly negative economic data.
Most Asian markets posted strong gains during March, buoyed by hopes that the world might emerge from recession sooner than expected. In particular, financial stocks rallied on the news of the Fed’s quantitative easing measures. Japan announced further measures intended to stimulate flagging economic growth, although Japan’s substantial public debt is likely to hamper its scope to boost its economy. Meanwhile, Japanese exporters were heartened by a weakening in the yen ahead of the fiscal year end, amid mounting hopes that the global financial crisis might be on the wane.
Worried About Redundancy?
Thursday, April 9th, 2009 | Financial Digest | No Comments
Unemployment figures have been accelerating upwards as the economic environment deteriorates and are predicted to go higher for the remainder of the year, leaving the spectre of redundancy looming large for many people. However, for anybody worried about their job security, there are a few practical steps that can potentially cushion the blow.
Build an emergency fund
Holding three months’ income in readily available funds will provide some breathing space in the event of redundancy. This should be in an instant access savings account or ISA but do check the small print – banks frequently penalise savers for taking money out of a savings account through loss of interest. An emergency fund is particularly important for families where there is only one breadwinner.
Assess your outgoings
Keeping track of expenditure can highlight potential problem areas. You may find you have old direct debits for things you no longer need – insurance payments on long obsolete mobile phones, for example. See if you can switch to cheaper utility providers, better value car insurance or credit cards with lower interest rates. Set a budget and then make sure you stick to it.
Pay off debt where possible
Reducing debt can significantly cut your monthly outgoings. Start with the most expensive debt first, which is likely to be credit and store cards. Banks will also charge heavily for overdrafts, even when they are arranged, and personal loans can be cheaper. It is worth checking the rates for all debt and, if you can’t pay it off, switching to cheaper types of debt. Mortgages will usually be the cheapest debt – so although it is worth paying down mortgage debt, it should be a lower priority than unsecured debts.
Delay large purchases
This is not the time to start a kitchen refurbishment or loft conversion. Keep new purchases to a minimum and consider putting planned expenditure on hold. With house prices falling, refurbishment may not add value the way it did only a couple of years ago.
Check your insurance situation
Unemployment cover can be bought on its own or with policies such as income protection, and protects in the event of longer-term unemployment. The cost will vary depending on when the payments kick in and the level of income needed. Insurers have policies in place to ensure that people don’t take it out in the knowledge they may be made redundant imminently. There is usually a qualifying period and the insurer will not provide a policy if there is already a specific risk to the policyholder’s job.
WORRIED ABOUT REDUNDANCY?
If the worst happens and you do lose your job
Check your financial rights
Everyone is entitled to statutory redundancy, even if the company goes bust. For those who have been employed for more than two years, this is one week’s pay (subject to a statutory maximum – currently £350 per week) for every year of employment. For those over 41, this increases to 1.5 weeks pay for each year, subject to the same statutory maximum. Some companies will pay out more than statutory redundancy.
Check your employment rights
Companies need to follow the proper procedure when making someone redundant and, if they do not, you may have reason to claim for unfair dismissal.
Check what you are entitled to from the Government
Claiming benefits is not a long-term solution, but can offer a temporary respite.
Invest any lump sum wisely
While it is tempting to dip into capital for living expenses, it may be worth investing a lump sum to generate an income. While this may be less than you are used to, it will provide some breathing space to find alternative employment. Alternatively, use the sum to pay down debt and reduce your outgoings.
Maximise your tax benefits
Statutory redundancy payments are tax-free and a total of £30,000 paid on termination can be tax free. The remainder can also be free of tax if it is moved into a pension. This is a suitable option for those nearing retirement. A lump sum of 25% of a pension pot can be taken as a lump sum from 55, so it may only mean tying the money up for a few years.
Ensure you claim any insurance entitlement
It may sound obvious, but it is time to dust down the files and root out any insurance policies you may have forgotten about. Unemployment insurance and income protection will kick in after a certain number of months, depending on the policy. Payment protection insurance has proved poor value, but if you already have historic policies in place, you may also be able to claim.
Look at your mortgage repayments
You may have a number of options depending on the flexibility of your mortgage and it may be possible to take a payment holiday. This will either lengthen the term of your mortgage or increase your payments when they resume, but can give you up to a year with no mortgage repayments. You may also be able to reduce repayments by changing the length of the mortgage or switching to interest-only.
Consider alternative sources of income
Could you rent out a room in your house perhaps ? Under the rent-a-room scheme, you can earn £4,250 per year tax-free. Also, you may be able to take short-term, part-time jobs or raid the attic for things to auction.
Call us for help on 0845 30 50 333
Surviving the Crunch
Monday, March 30th, 2009 | View from the Top | No Comments
Ten Point Checklist to help counter the Credit Crunch
Managing Partner Simon Harris writes:
It depends on where you subscribe, but the current economic difficulties are expected to end somewhere in the next 3 years.
The important point is that all sources report that it WILL end – the Federal Reserve Chairman recently suggested that it may be as soon as the end of 2009. In the light of all published performance indicators this appears optimistic, but if it were true that could lead to a very quick return to positive in the UK thereafter.
In the meantime the majority of people in the UK are waiting for the turnaround, some more concerned about survival than others. Is there anything we can do to improve our circumstances while we wait? This checklist might help to ensure you are in the best position:
1. Review your savings return.
Most savers have lost out over the past 12 months, but there is no reason to simply accept the rate your current savings institution is offering. There are many ways to invest for a better return, for which seek expert advice from an independent financial adviser.
2. Can you release equity from your house?
Whether for your own requirements or a family member, it is often possible to release money from your property despite the difficult lending environment. Even if you are not working or have retired there may be a plan to suit you. An independent broker can help further – please resist the temptation to do this on your own as it is now, more than ever before, a specialist field.
3. Have you made best use of tax allowances?
It is surprising how few people fully utilise the tax allowances available, but then again the information is not always that easy to find or digest. An independent financial adviser can help to ensure that you have used your allowances effectively.
4. Do you have employment insurance?
Unless you have been notified of redundancy it’s not too late to insure a percentage of your income, protect your mortgage payments or provide a fixed lump sum in the event of redundancy. An independent adviser will find the best policy for your circumstances.
5. Have you checked your mortgage payments?
Despite the fall in house prices and sales volumes there has been some good news in the falling interest rates for borrowers. There are some excellent savings to be enjoyed, check first with your existing lender to ascertain their best offer and then use an independent broker to compare that to the whole mortgage market for you.
6. Compare your life insurance.
Rates have fallen over recent years and you may well be able to switch life insurance providers achieving the same (or better) cover for a lower premium.
7. Review your pension fund.
You may be surprised by the improvements available by changing providers. It is essential to use an independent financial adviser, as pensions can be quite complicated.
8. Compare your other insurances.
Many people already compare buildings and contents, car, pet and holiday insurances using an Internet comparison website, which often does not present every available option. If you are not doing so, now is a good time to start, or better, seek help from an independent broker.
9. Are you under notice of redundancy (or feel it’s imminent)?
I. Make sure you know the redundancy procedure at your firm and check that it meets the legal requirements. Try www.direct.gov.uk for more details.
II. Make full use of the £30,000 tax free band for redundancy payments.
III. Consider paying for transitional benefits to be included in your severance package – it may be a lot cheaper that way and buy you some time whilst you look for other work.
IV. Look closely at your pension if funded by your employer – this should also be included in your severance pay and is tax efficient for your employer.
10. Are you struggling with mortgage or other loan repayments?
I. Never hand back the keys to your house – you will continue to be responsible for the debt and any shortfall after the bank has sold the property. The fees and charges will be significant and lenders will respond more positively to a borrower taking action to address the problem than one who is in denial.
II. Talk to your lender first – whether it’s a secured or unsecured loan you should always contact your lender first to discuss the options that they are prepared to make available to you.
III. Talk to your financial adviser – review your overall financial position with an independent financial adviser, who will introduce you to a debt specialist if appropriate. There may be savings that you have not considered, or different ways to release money from your existing position.
So, in all there are a number of moves you can make to try to keep ahead of things. Many of these points form the basis for an ongoing regime, which your adviser will guide you through as part of your annual review process.
Please telephone 0845 30 50 222 to arrange a free initial appointment.
Quantitative Easing – What…?
Thursday, March 26th, 2009 | Financial Digest | No Comments
UK interest rates reached a new low in March as the Bank of England (BoE) cut rates from 1% to 0.5%. The cut, which was widely expected, brings interest rates even closer to zero, reducing the BoE’s scope to boost economic activity through monetary policy.
The news that UK interest rates had fallen yet again triggered renewed concerns about the outlook for savers, who have been badly hit by the dwindling rates on their deposit accounts. The Building Societies Association went so far as to describe March’s rate cut as “a kick in the teeth for savers”, while the Confederation of British Industry criticised the BoE’s ongoing series of rate reductions, describing them as “becoming less and less effective as a means of stimulating the economy”. Lower rates are also likely to renew pressure on sterling, which has already weakened substantially.
In a radical and unprecedented move, the BoE announced that it intends to pump £75 billion into the financial system by buying securities from banks in return for additional credit. Although this measure – known as “quantitative easing” – is sometimes described as “printing money”, no new banknotes are actually produced; nevertheless, because the BoE’s asset purchases are not funded by debt, they should increase the circulation of money in the financial system. Many experts believe that a lack of available credit is a far bigger problem than the cost of borrowing and the BoE is likely to hope that its programme of quantitative easing will help to alleviate this problem.
Global Markets Summary
Friday, February 27th, 2009 | Market Updates | No Comments
‘Stop the world, I want to get off…’
The true cost of the sub-prime mortgage meltdown
2007 was the year in which the US sub-prime mortgage sector collapsed, triggering worldwide problems within the financial system. However, 2008 was the year in which governments, businesses and individuals became fully aware of the consequences of the sub-prime debacle amid the development of a worldwide credit crunch.
As the year progressed, investors and governments realised that the problems faced by financial institutions were even more extensive and serious than had previously been thought. Moreover, it became clear that these problems would not remain confined to the financial sector, but would affect almost every business and household. During 2008, confidence in the financial system has collapsed, share prices have plummeted and governments and central banks have striven to boost confidence in the financial system and kick-start lending activity.
A banking sector in disarray
The collapse of sub-prime and the subsequent credit crisis led to massive changes in the structure of the global financial sector, not to mention wholesale redundancies. JP Morgan bought troubled investment bank Bear Stearns in a deal underwritten by the US Federal Reserve (Fed), while American International Group (AIG) was bailed out in order to avoid the risk of meltdown in the global financial sector. However, 158-year-old Lehman Brothers was allowed to collapse in a move that shook the sector. Merrill Lynch was taken over unexpectedly by Bank of America, and venerable investment banks such as Goldman Sachs decided to transform themselves into ordinary bank holding companies in order to allow themselves the chance to benefit from Treasury funding if necessary. Meanwhile, in the UK, mortgage banks Northern Rock and Bradford & Bingley were nationalised by the British government and Lloyds TSB launched a takeover bid for HBOS.
Iceland hit the headlines in the autumn following a raft of bank failures that strained relationships between London and Reykjavik amid concerns that Iceland was refusing to guarantee the deposits of UK-based savers. This controversy, combined with Northern Rock’s collapse in 2007 and subsequent concerns about toxic debt within the banking system, triggered new debate about compensation schemes for savers.
Global stock markets experienced heavy losses
Financial markets experienced wild swings during 2008, and movements of four per cent in a single day were not uncommon towards the end of the year. The MSCI World Index fell by over 40% during 2008, and every major market experienced heavy losses, with the American stock market plumbing depths not seen for over five years. Corporate profits are under pressure; companies are cutting or cancelling dividends, and high levels of redundancies are swelling unemployment statistics as firms do whatever they can to cut costs, shore up their profits and stay afloat. Higher unemployment is likely to compound pressure on economic growth as consumers tighten their belts and stop unnecessary spending.
Propping up the financial system
Amid the financial and economic turmoil, governments and central banks have worked hard to prop up the financial system. After some political wrangling, the US agreed a rescue package worth US$700 billion intended to help bring back confidence in the financial system and encourage banks to restart lending activity. A subsequent package worth a further US$800 billion was agreed in November. The European Commission announced a spending plan to boost the eurozone economy worth €200 billion, while the UK government announced measures to help shore up the UK economy in its annual pre-budget report.
Interest rates tumbled
Interest rates provided some of the most dramatic headlines during 2008. UK interest rates began the year at 5%, and ended the year at 2% – their lowest level for over 50 years – amid growing fears about the risk of deflation and concerns about the worse-than-expected economic downturn. Meanwhile, American interest rates reached an all-time low of 0.25% as the Fed attempted to kick-start economic growth and control price stability. The Fed’s actions have increased speculation that the Bank of Japan might cut Japanese interest rates from their current level of 0.3%. Elsewhere, interest rates in the eurozone ended the year at 2.5%, but have been tipped to fall as low as 1.75% during 2009.*
So what will 2009 bring?
The International Monetary Fund (IMF) expects world economic growth to slow from 5% in 2007 to 3.75% during 2008 and to just over 2% in 2009, and this decline is likely to be led by the major economies. The IMF expects the UK economy to experience a particularly significant decline of 1.3% during 2009, while, the all-important US economy is forecast to contract by 0.7% next year. **
Although analysts still await official confirmation, the UK and US economies are widely considered to have fallen into recession some months ago, and this has already been discounted in share prices. Nevertheless, businesses, investors and analysts remain preoccupied by the possible length and severity of the recession, and are likely to keep a sharp lookout for evidence that the economy is either improving or deteriorating. As we say goodbye to 2008 and head into 2009, this uncertainty is likely to keep investors’ nerves on edge, and ensure that share-price performance remains volatile.
Sources:
* Bloomberg, 15 Dec 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=azuNjokrEk88&refer=home
** International Monetary Fund, 6 Nov 2008
http://www.imf.org/external/pubs/ft/weo/2008/update/03/index.htm#table1
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UK Business News
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