Independent Financial Advisers

The "wait and see" approach of our Autumn newsletter has stood the test of time and over the Winter months, there have been many significant developments: 

• Equity markets saw a brief "Bear Rally", before falling to new lows.
• A clearer picture has emerged of how just how deep and far reaching this Crisis is and the focus has expanded from the financial sector to the whole economy.
• The whole financial and economic landscape has changed, bringing new challenges (opportunities?) even for experienced professionals.
• Inflation fears have eased to be replaced (temporarily?) by fears of deflation.
• There has been a raft of government measures, the latest being "quantitative easing" - governments creating money to buy assets (gilts, bonds etc.).
• Interest rates and therefore cash returns have dropped to near zero.

What should you consider doing now? 

This is amongst the worst bear markets ever, with further falls being possible, but we are closer to the bottom and recently, market reaction to bad news appears to be improving. Markets often recover long before the economy does. 

Nevertheless, everyone is struggling to call this market and significant participation now is only for the adventurous, or those with very long horizons. For the adventurous, many asset prices may be considered a "bargain". 

For those with a more moderate approach to risk and with cash returns falling, then some increased participation may be considered. However, timing for a single sum is always difficult, let alone in this market, so a gradual move over several months (or years) is always recommended. 

For the cautious and those with short horizons, then the markets still represents a significant risk and, whilst cash now offers little return, safety, not return, has been the main virtue of cash, so cash remains the safest way to preserve capital. 

For all investors: 

• Reassess you risk tolerance and investment needs.
• Consider tactical repositioning of your portfolio to take advantage of the asset classes that are expected to lead the recovery when it comes.
• Active management of the cash element of your portfolio, savings accounts or ISA's, should be a priority. Interest rates range from below 0.5% to above 3.5% - so chasing the best rate is particularly worthwhile. 

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information. 21/03/2009.

It is certainly fair to say that the mortgage market has changed dramatically over the last 12 months. With Banks running out of money due to their risky lending practices of recent years, it was only a matter of time before they tightened up their rules on who, or what makes a suitable mortgage applicant. 

Whilst the banks have only made minor changes to the income multiples/affordability calculations they use, they have made massive changes when it comes to the size of deposit you require. The likes of the 100%,95% residential mortgage or 15% deposit buy to let mortgage appear to have been consigned to history. Currently only 10 lenders are offering mortgages of 90% of the property value. Putting it another way, only 10 lenders feel they can take the risk of lending you money with a 10% deposit.

Lenders have always priced the mortgage rates they offer on the risk they feel they are taking. Up until 2008 a 10% deposit was considered a low risk mortgage to the lender, 15% even lower and 25% or more, lowest risk of all. Lenders always asses the risk they face in lending money according to their worst case scenario, which is a property being repossessed. In setting their mortgage rates lenders have to take a view on the likelihood of the mortgage not being fully repaid should they have to repossess the property. 12-24, months ago lenders felt that a 10% fall in house prices was unlikely, 15% very unlikely and a 25% fall bordering on impossible. As a result of this, clients who could raise higher deposits benefited from lower rates, those with 25% deposit receiving the very best rates on the market. 

As we have seen a slow down in the housing market coupled with house prices falling, lenders now feel that lending to people with less than a 10% deposit is just too high risk. Only 10 lenders currently feeling a 10% deposit provides sufficient protection for them in the event of repossession. As a result of this, we have seen lenders alter how they band the risk they are taking with mortgages. Deposits are now banded into 4 main groups, 10%, 15%, 25% and 40% with the mortgage deals available reflecting these deposit bandings. The difference in interest rates between the costs of a mortgage for an individual with a 10% deposit over someone with a 40% deposit can be as high a 3%. 

So how much is the right deposit? 

Generally it is a balancing act between getting as much saved as possible and securing the house you want. If a few extra months savings could mean you having a 15% deposit instead of a 10% its probably worth waiting. If it will take you a year or more of saving whilst paying rent, it's probably better to work with the 10% deposit you have saved already. 

Due to the way lenders price their mortgage deals, a client with a 14.99% deposit (not 15%) will end up getting the same mortgage deal as a client with a 10% deposit. So if you can't make it into the next deposit band it will have little beneficial effect in terms of the mortgage deal you get. Although you will not benefit from a lower cost mortgage deal, if you opted to put down a larger deposit you will need a smaller mortgage, so have lower monthly repayments.

02/03/09

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information.

A widening gap between the best and worst annuity rates available has highlighted the importance of consumers shopping around for the best deal, according to Investment Life & Pensions Moneyfacts. The difference between the best and worst standard open market rates currently range between 11% and 17%, depending on age and sex, for a £10K purchase price, while the gap rises to between 16% and 22% at the £50K price point.  

The uplift available from an enhanced rate as a result of either health or lifestyle considerations could also radically improve the income payable. "The variance between the best and worst rates plus the wider introduction of postcoded annuities and the growth in enhanced options has produced a more complex annuity market than we have seen previously," said Suzanne Greener, deputy editor of Investment Life & Pensions Moneyfacts. "As a result, pensioners could lose out significantly if they don't take the time to research the best deal for their individual circumstances or take advantage of an adviser's expertise."  

Source: eMoneyfacts 02 Feb 2009

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information.

The financial market has seen and may well still be in the midst of the most significant event for generations. Every one is analysing the reasons, everyone has been hit by it in one way or another. You, like everyone else will have been shocked by it and be uncertain about what to do next. 

So, here are our thoughts: 

We are where we are and in getting there we used the only tools available: 

• Past performance
• Industry standards
• Research
• Experience
• Judgement
• And not least, your investment needs 

To have achieved significantly better returns (or much worse) would have been gambling, pure and simple. 

These tools remain all we have available for planning the future - we have no crystal ball. 

So, using these tools, we have avoided one of the most common mistakes, panic selling after the event. Yet this is not without risks as further falls are possible. 

Therefore what next: 

As you are already "in the market", it is questionable whether you should risk more by investing more now or until we are reasonably certain that the market has bottomed. 

Wait and see. The recent rally should not yet be trusted as a "recovery". 

People fear that they will "miss the bottom" by waiting - you can't, you are already in the market - so the question is, do you wish to risk more until we are certain that a recovery is underway? At this early stage, wait and see seems sound. 

How long should you wait for? At least six months seems sound, we can always review if things change. 

Over the next six months we will: 

• Enjoy the remaining period of good cash returns
• Preserve your cash or have grown it for future "ammunition" if appropriate
• Avoid increasing exposure to any further falls
• Have a much clearer picture than we have today
• Prepare a full plan. 

10/11/2008

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information.