Bank of England minutes

During the dubious ‘I’m a celebrity’ program – Ant and Dec are great, the rest of them are in supporting roles I – I snatched a few minutes to read through the Bank of England’s Monetry Policy Committee minutes from earlier this month.

Ordinarily they are pretty dull and I barely scan through them – remember we went 3 years when the interest varied 0.25% at 12 month intervals, so this is usually a pretty slow moving read.

The current state of the nation makes the minutes relatively gripping, I guess in the hope of knowledge and insight that is above the level the …I nearly said tabloids, but the broadsheets and broadcast media are all tabloidy these days.

They think the measures to boost liquidity worked – I hope they’re not being optimistic there, the difference between interbank lending rates and the Bank rate is reducing, but slowly and aI guess is you measure ‘worked’ against ‘total seizure’ then it did work, but the liquid is more like ketchup in a  glass bottle than the free flowing money market we are used to.

The trouble here is that there is still potential for another bank or 2 to get into trouble and the other banks don’t want to catch a cold so they are keeping their cash in house.

There is a note that fewer people are buying cars – I hear today that Honda are closing their Swindon plants for February and March – that is bad at face value, but also means that Honda see this slowdown lasting until the middle of next year at least.

They expect house prices to continue falling – and my experience is that surveyors are extremely pessimistic about the true value of properties at the moment.

They comment that inflation is starting to fall – I ahve the benefit of 2 weeks more knowledge than they did when they had their meeting – Inflation did fall last month, quite alot.

Which explains why they dropped interest rates by 1.5%, and they discussed a 2% drop. More importantly, the bit I was interested in – the score of the vote for the drop – it was unanimous. To my mind that means there is scope for more drops – if they were dropping the maximum amount there would have been votes against by the more cautious committee members.

They make projections that show recovery in Q3 & Q4 next year. This shows they have confidence in their actions so far – but I have a little feeling that they would – they act on what they think would be effective and factor that effectiveness into their predictions. I find myself thinking that sounds optimistic – I wonder if they’ll be more pessimistic next month.

I’m looking forward to next months minutes already!

Housing Market

John Wrigglesworth, a housing/economics expert who is quite popular in the media gave a talk at Mortgage expo.

He has some interesting thoughts on the housing market, which kind of awakened an instinct that I had been having, but hadn’t crystalised yet.

He talked about 3 sets of people.

People in negative equity.

People who aren’t in negative equity, but are close enough to mean they don’t have the cash to move house.

And people who fear redundancy.

As far as I understand he spoke about these people having a negative impact on the housing market – they are people who may want to move, but can’t. For the housing market to become bouyant we need as many people interested and able to move as possible.

I can’t decide exactly how this balance works  -  I  wonder if that also means those people, while not contributing to demand, they are also not contributing to supply, and that should be a real help – over supply leads to reduced house prices.

There will also be an inpact in the stats from Buy to let investers – many of the house in negetive equity, or close, will be highly leveraged landlords – 85% BLT mortgages were available for quite a while. These investers will be keeping thier houses, as rentals seem to be improving, especially if they are on variable rates.

So, I think the poeple who can’t move, may have a small impact on the market, but my gut reaction, is that the reduction in supply is more important that the reduction in demand, so (ignoring their circumtances)  in terms of the potential for house prices, it’s a good thing. They are not contributing to their own demise.

On a more positive note, a significant drop in house prices will help many first time buyers get their foot onto the ladder. Affordability will ease up for many and bring in a new generation of home buyers, probably from 2010 onwards. A new cycle will begin…

Independent advice makes you money

How can Independent advice make you money?

Well, if we assume you have a fixed amount to invest, whether it be monthly, or a a lump sum, you want to do the best for it.

Simplistically, this may be investing in the place with the lowest charging structure, or the highest interest rate.

But for a stock market based investment, say an ISA, there is a huge variety of places to invest and you’d want to take advantage of that variety. Most ISA’s are limited in the places you invest, to the portfolio of that particular company. But most companies are not top performers, by definition.

Some ISA’s have access to a vast range of investment managers, including all or most of the ’stars’ of the investment world. This is handy in when, as in these strange times, you may want to change the profile of your investment to be a bit more cautious. Or indeed, a bit more adventurous. With the right ISA this is a matter of a phone call. With the wrong one, it’s impossible..

Obviously, you still need to be able to predict the future to get it absolutely right, so it’s still not a dead cert, but you are moving the odds in your favour a bit.

The same applies with pensions.

Independent advice – gives you more variety.

Independent advice protects your money

This is an interesting area and subject to individual advice, especially to fit with ’saves your money’ blog.

First priority – you have a salary, on which everything relies. You insure your car, for what £30 per month? You insure your house for what £30pm as well? Your TV is insured, your dog is insured. Your plumbing is insured. everything is insured and it’s all paid for by your salary.

But your salary could stop. It could stop owing to redundancy, or it could stop owing to illness or accident. Redundancy is temporary, hopefully and can be resolved by you finding yourself a job quite quickly and having redundancy insurance.

But what if you are ill and can’t work? The type of insurance that normally helps here is the Accident and Sickness bit of your redundancy cover, but it only pays out for 12 months (some do 24) and usually covers just your mortgage payment. But some illnesses last longer than that, so this only delays a problem

You can have salary insurance. It’s has a tax free payout and is designed to cover your take home pay, not just the mortgage payment, and it covers until age 65, not jsut 12 months.

For alot of people it is cheaper than you would expect. For me it is cheaper than insuring my mountain bike.

Protect your salary. Insure it.

If you have a family and are concerned about their wellbeing in the event of your death it is very cheap to get a life insurance that pays out an income, say until your youngest child is 21.

Inheritance Tax

Just quickly tot up the value of your house (or houses), your main assetts and any life insurance you have. If ‘you are married and it comes to over £650k (the amount of married couples allowance) or single and it’s more than £325k you should worry about inheritance tax – not a bill for you, a bill for whoever you leave all your stuff to. Your kids I daresay.

Lets say your estate is £950,000. Take off the £650,000 and you are left with £300k. Inheritance tax is 40% so your kids would have to find £120k for the tax man. Or you could arrange it so that this unpleasant bill is paid for by an insurance. It’s quite a cheap problem to solve. Mind you, you should have a will too, so maybe budget for a bill from a willwriter or solicitor.

Protect your wealth for your kids – insure for the tax bill.

Pensions – there are ways of dealing with pensions that solve, or at least largely solve the problems of losing the ‘pot’ in the event of an untimely death – they are varied and sometimes need specialist advice, but easy to explore.

Independent Advice saves you money

There are many ways an Independent Financial Adviser can reduce someone’s outgoings.

We can start with what is probably your largest outgoing – your mortgage.  There are several ways of saving money on a mortgage – getting the best interest rate is one. However, shortening the term will reduce the overall cost, although increase the monthly payment. Or, if the priority is low costs now, lengthening the term or a period on interest only may be in order. As an independent adviser I have access to a wider range of mortgages than a normal mortgage adviser and have no links to particular lenders.

The next outgoing (ignoring council tax, we are all burdened with that) is your utility bills – for alot of people these total over £100pm and the right package can reduce the total considerably. I recommend Utility Warehouse – they come up well in the latest Which surveys and have cast iron cost guarantees and no significant ‘tie in’ contracts. The most I have saved a customer is about £50pm. It’s common to save £15 – £20pm. It’s possible to save even more if it is convenient to swap your weekly supermarket shop to Sainsbury’s – I spend about £400pm at Sainsbury’s and save an extra £20pm on my utilities as a consequence.

Then we must look at your insurances.

Life insurance has been getting cheaper so often there is room to save money on life insurance -  especially if it was arranged by your building society or a broker who wasn’t independent.

Redundancy insurance is the next – commonly lenders charge over £6 per £100 of cover, yet it is available much cheaper than that to an Independent Adviser.

Buildings and Contents Insurance – for a standard basis of cover the direct companies often offer good deals, but now we associate anything with the word ‘Direct’ in the title as cheapest. It’s not necessarily so. As an Independent Financial Adviser I am in a position to check.

These are all areas in which Independent Financial Advice can save you money

Things an IFA can do.

There are 3 categories to my work and I have created a blog for each.

Independent advice will save you money

Independent advice will protect your money

Independent advice will make you money

I hope you find them useful.

Adrian

IFA, IFA Southampton, Utility Bills, IFA Hedge End, Utility Warehouse, IFA ISA, IFA income protection, redundancy insurance

Lenders interest rates

Well, it seems that most lenders are doing the right thing on interest rates – 4.99% seems to be ‘about right’.

Abbey have influenced this, although we are all forgetting that they put their rates up by 0.5% earlier this week and also didn’t pass on the earlier 0.5% drop, so they had 1% in hand – obviously OK for them to drop the ‘full 1.5% to be fair to their customer’ Forgive me if I seem a bit cynical.

Looking back through by business register, I am pleased that many customers have tracker products, although if you look on a longer view I don’t think fixed rates will be all bad – there are going to be problems after the recession is averted over and they may be well be cured with higher interest rates.

And, in other news – I had a letter today from one of my credit cards saying they were going to put my interest rate up to something ridiculous. I was annoyed and threw away the letter. I then got very annoyed and got the letter to phone them and winge – I read the letter while I was on hold, it turns out that they were putting the interest rate wup within the terms of clause such and such and carried on like so for several paragraphs.

Tucked away in the final paragraph – “if you do not consent to this, please phone us within 30 days”.

Hmmm – wonder how many more of those letters I’ve missed over the years…

1.5% cut in B of E base rate – shock!

Well, that was a surprised and it’s being talked about everywhere.

I’ve had e-mails this afternoon from almost every lender stating that they are withdrawing all their tracker products, although I did swap one lucky client onto the outgoing products with minutes to spare – most lenders gave an hour or so’s warning to act, with TMW the worst at 9 minutes and Woolwich second worst at 20 minutes.

I’m on a fixed rate  oh well, it was the right thing to choose when I chose it.

What does this mean for people?

Well, savers will suffer more, although ISA’s still offer some good rates and stock market based ISA’s will be exciting for those with an appetite for risk – in the future I bet people will consider this period as a great buying opportunity.

Borrowers on fixed rates – no chnage

Borrowers on variable rates – no news yet, although C & G sent an e-mail out yesterday saying they’d honor the drop.

Borrowers choosing a new mortgage now – well, no answers, after todays list of product withdrawals, it’ll be better to wait a week or so. But, there are decent fixed rates available, but they are decent by last weeks’ standards.

The people who will really benefit are existing tracker mortgage customers and businesses – commercial finance is often set up as a margin over BBR. That will aid ongoing employment and will help many more people stay in jobs – and that is the real benefit. Sadly, no employer is goin to say ‘John, you’d be redundant if it wasn’t for my business finance getting cheaper’ so in general we’ll carry on being a bit disatisfied about rate cuts not being passed on properly and never know the true benefit.

The other aspect to this is that amongst the chatter is an overwhelming view that the cuts won’t be passed on – so the banks will know it’s kind of expected, so they will be judging how much they can get away with – and we’re all saying ‘they’ll only pass on a bit of it, that’s what they’ll judge is OK – a self fulfilling prophesy.

Fingers crossed it starts working out soon!

Changes to State Benefits for ill people

So, obviously you are strong, maybe even immortal.  So am I.

So are most people. I’ve just turned 40, and do you know – I’ve started to get a few aches and pains and I cant’ throw off a cold like I used to.

So, unless I am lucky I’ll probably have time off work for health reasons – actually, i know I will, I have a nose operation and a foot operation. The nose op will put me off work for 2 weeks. That’s handleable. The foot op will put me off work for 2 weeks…’if thingsgo well’. Three months is the downside. That’s awkward.

So, clearly the credit crunch isn’t the only thing that could have an impact on my earnings and it’s the same for you.

But, the state will help you if anything long term happens. Right?  Well, possibly, but not as much as you’d hope.

The new Employment and Support Allowance (ESA) replaced Incapacity Benefit last month. That’s the state benefit you need if you are unable to work owing to accident or sickness.

It’s a bit rubbish though – much rubbishier than you need although better than nothing. Just. There is a real ablancing act for all state benefits – they don’t want them to be so good they encourage you to be ill and discourage you from going back to work, so the ESA is very basic.

For some employed people, you may get actual sick pay – maybe 3 months full, followed by 3 months half pay. These are generally large companies and you should check what you do recieve, it can be quite sobering. But, more than likely, you won’t have any sick pay benefit so what happens then?

Well,  you will be eligible to receive Statutory Sick Pay after four days of illness. Your employer has to provide you with a minimum of £75.40 per week for 28 weeks.  As an employee you are able to apply for ESA after 28 weeks.

If you are self-employed then you can apply to be assessed for ESA after the first four days of any illness.

If you apply for ESA you will be tested for eligibility during the 1st 13 weeks.  During this period, you will receive a benefit of £60.50 per week (or £47.95 if you are under 25 years old). This assessment is based on your ability to work rather than the extent of your illness or injury. If you fail the assessment, the benefits stop and you will have to be considered for Income Support instead.

In addition to qualifying for ESA benefit payments from the state, this assessment will also place you in one of two categories which will determine the level of benefits you receive.

If you are placed in category one, there is a reasonable expectation that you will be able to return to work again. The basic allowance in this category is £60.50 per week and there is also a further allowance, known as a Work Related Activity Component (WRAC), of £24 a week. Payment of the WRAC is conditional on you attending regular back-to-work interviews which aim to measure your progress against a back-to-work programme.

If you are placed in category two then you are severely incapacitated and not expected to return to work again in the future. The basic allowance for this category is also £60.50 per week and there is also an additional Support Component of £29 per week. You might also qualify for other state benefits, such as Disability Living Allowance.

Regardless of the category, benefits continue to be paid for the full duration that you are unable to work. This could last to state retirement age, if necessary.

With the ESA being introduced, you need to think about how much income you would need to meet your committed expenditure if you were unable to work.

Take a look at your monthly budget and remove the discretionary expenditure to come up with a realistic figure. It is the shortfall between the ESA payments and this figure that you need to plan for – either with sufficient savings that will last for a sufficient period of time, or through insurance.

Income replacement Insurance is often cheaper than you’d expect. Actually, it’s often so cheap it’s a no brainer. Not many people have it, but that’s not because it’s expensive – it’s for other reasons!

So, it’s work talking to and Independent Financial Adviser and asking about income protection. If you have accident sickness and unemployment insurance with your mortgage, it’s worth getting a comparison of removing the accident/sickness part and replacing it with income replacement insurance.