Tuesday, 30 June 2015

Why Are Mortgage Approvals At 6 Month High?

The Mortgage Market Review, which took effect in 2014, imposed “affordability criteria” on lenders.  In simple terms it aimed to rein in high-risk mortgages.  Like any change it triggered speculation about its potential effects.

Almost a year later, mortgage approvals remain high, while house prices are currently holding fairly steady.  So what does this mean in practical terms?  Well if you are thinking of buying a house, here are some questions you might want to consider.

Is Now The Right Time For Me To Buy?
One of the key points to understand about house-buying is that it involves a lot of expenses in addition to the actual price of the house.  Along with the infamous stamp duty (on homes costing over £125K), there are likely to be fees for solicitors and surveyors as well as mortgage-arrangement fees.  These all need to be factored in to your rent v buy calculations.

Some mortgages impose an early repayment charge if you end them before the full term of the loan (e.g. if you move house).  Likewise if you use an estate agent to help sell your house, you will pay a fee for their services.  Therefore it is a good idea to think carefully about how long you will need to stay in a house to make all these expenses worthwhile.  It can also be a good idea to factor in a margin for adjustment.  In other words, where would you stand if house prices stayed steady rather than rising?  What about if they actually fell slightly?  If you feel uncertain about any of these points, then renting may be a better option for you.

I am Ready to Buy, How Do I Reduce My Mortgage Payments?
The good news is that lower interest rates can feed through into lower rates on loan products, including mortgages.  There are still great mortgage deals out there.  The trick to being able to take your pick from the low-cost mortgages is making yourself as attractive as possible as a customer.  There are basically three steps to doing this.  Firstly, put together as much of a deposit as you possibly can.  Secondly, make sure your credit record is sparkling clean. In particular make sure that you avoid being scored negatively for reasons you can easily address.  For example being on the electoral roll is a plus point for your credit score so make sure you are.  Also make sure that any actual mistakes are corrected.  Thirdly make sure that you stay within the affordability boundaries laid down by the Mortgage Market Review.

You can expect a prospective lender to check this thoroughly, so doing your homework in advance can be a useful exercise in seeing yourself as others see you.

What Happens If Interest Rates Go Up, Or If They Go Down?
If you are on a fixed-rate mortgage deal then any changes in interest rates will only affect you once the fixed-rate term comes to an end.  If mortgage rates rise then you can reasonably expect this to feed through into your mortgage repayments.  Therefore in addition to all the other questions we’ve just discussed above, it is also advisable to think about how you would cope in this situation.  In principle lower interest rates should also mean lower monthly repayments.  It would, however, arguably be very risky to base a financial strategy on this happening.  In practical terms, if you are planning to make a house a home and stay in it over the long term, say at least 5 years, then it is entirely possible that you will see interest rates rise and fall during this period.  Your financial strategy needs to be able to cope with both scenarios.


For more information please do not hesitate to contact Catherine Doyle at Ward Williams Financial Services Ltd on 01932 830664 or by email catherine.doyle@wardwilliams.co.uk.

Thursday, 25 June 2015

Will I Benefit From The Pension Reforms If I'm Already Retired?

One issue in the world of personal finance has dominated the headlines for months; the changes to Britain’s pensions industry that will have profound implications for savers and retirees for decades to come.

Much of the focus of the reportage has been on the effects of the changes on savers waiting to retire, but there are equally far reaching changes afoot for those who have already finished their careers and are enjoying their retirement.

In this article, we will explore what already retired pensioners need to know about their rights and entitlements under the new pension laws that come into effect this year.

What is an annuity?
There are currently five million pensioners living off annuities, insurance products bought with a pension lump sum that guarantee an income for life.

Because many annuities were virtually compulsory on pension policies until 2014, there has been less incentive in the market to provide competitive products that provide value for policy holders.

Why are annuities so bad?
This means that while some annuities have performed well and are offering pensioners a decent income in retirement, others pay out poorly every month.

Impoverished pensioners have been left feeling frustrated, with large sums invested but weak returns limiting their ability to enjoy the rewards of a life of work.

New rules now allow pensioners who hold annuities to sell disappointing policies, enabling them to regain control over their investments.

What can policy holders do?
Selling your annuity for cash will be possible from the financial year 2016-17.

The chief purchasers are likely to be the pension companies themselves, many of whom have already encouraged Pensions Minister Steve Webb to help develop the market.

However, it will not be possible to simply return an unwanted policy to the company you bought it from for a refund.

How do I sell my annuity?
The trade in second hand annuities could result in a new derivatives market where bundles of policies are packaged together and sold, which means that insurers will be keen to buy ‘good’ annuities and avoid ‘bad’ ones.

An annuity policy must stop paying out when the original holder dies, therefore insurers will be wary not to buy back policies from holders in poor health.

This will have implications for policy holders, who will possibly be required to pass a medical examination in order to get the best price for their policy.

How much is my annuity worth?
At the moment, selling your annuity attracts such massive tax penalties that there is no point in doing so.

The minimum tax levied on an annuity sale is 55 percent, with some policies attracting rates of up to seventy percent.

The lump sum that you receive will be taxed at standard income tax rates, so if you have no other income and your lump sum falls within the basic income tax band (say £30,000), you will be taxed at 20 percent. This means a tax bill of £6,000.

This is of course, far better than a tax penalty of over 55 percent, but by no means ideal.

The Chancellor has suggested that for many pensioners with good policies, the best strategy is to hang on to them. The new market for annuities does not exist yet and will take at least a year to evolve, which gives annuity policy holders time to get advice.

For more information please do not hesitate to contact Cliff Pocock at Ward Williams Financial Services Ltd on 01932 830664 or by email on wwfs@wardwilliams.co.uk.

Tuesday, 23 June 2015

How To Profit From Deflation

It seems like a world away now, but the 1970s and 1980s both saw periods of double digit inflation, where prices rose at one point in 1975 to nearly 25 percent.

How any economy could function like this seems a mystery, until the obvious answer presents itself - Britain’s economy didn’t function under this burden, strikes, chaos and by 1982 over three million unemployed.

Ah, the good old days.

It rather puts our recent difficulties into perspective, whilst we have had a tough time as a nation since 2008, prices have remained stable in some areas and fallen dramatically in others.

We are in a period of deflation and whilst this might be bad news for manufacturers or property developers who hope for high prices for their goods and services, it is certainly good news for consumers.

It is good news for everyone willing to take advantage of the opportunities that deflation offers. This article is a quick examination of some of the ways you can benefit from our deflationary economy.

It is suggested by independent financial advisers that a review of ones mortgage deal every three years is advisable.

If you are approaching a point whereby it is time to consider the mortgage once again, it might be worth remortgaging with a different provider.

If you are currently wondering ‘how do I reduce my mortgage payments?’ now might be a good time to explore your options.

Whether you choose to take out a fixed rate deal or a variable rate or some other kind of mortgage deal with your new provider, the current market is, to some extent, geared towards the buyer.

Obviously we no longer live in the carefree days pre 2008 when questions like ‘and how will sir be repaying that home loan’, seemed petty and banal.

The irresponsible lending of the boom years is long gone and good riddance, now there are stringent and forensic surveys of a borrower’s ability to pay, but if those criteria are satisfied, interest rates on mortgages are lower than they have been for decades.

Where do I invest for growth?
The declining cost of fuel has had a remarkably positive effect on a whole range of companies (except the oil companies, of course).

Road hauliers, food manufacturers, construction businesses and the car industry have all seen their balance sheets improve over the last few months.

This means that their dividends have also improved and therefore investing in shares where overheads decline in cost can be seen generally as a good idea (though it goes without saying that the value of investments can go down as well as up and you might not get back what you put in).
Big Spends
In a period of time when the cost of borrowing, property and fuel are low, it is almost a given that other consumer goods and commodities will see their prices reduce.

You can normally get a good gauge for the price competitiveness of the economy as a whole by looking at the bargains on websites like eBay, Amazon and Groupon for example.

This isn't a licence to go mad and by the jacuzzi you’ve always wanted (though you can if you want), but our sage suggestion is that you use the opportunity to find bargains that will add to your overall financial well being.

Investing in your home, buying an essential but costly item for your business or investing in a second property all might seem beyond your means normally.

However, in the current period of deflation it might be worth exploring whether these items are significantly more affordable.

If you are thinking of taking advantage of the opportunities deflation offers, then it might be an idea to get some impartial financial advice.

For more information please do not hesitate to contact Cliff Pocock at Ward Williams Financial Services Ltd on 01932 830664 or by email on wwfs@wardwilliams.co.uk.