Reeves Financial Solutions

The Bank of England Base Rate

2010-11-02T11:13:00.002Z

The Bank of England base rate is still at 0.5% where it has been since 5 March 2009. Will it continue to stay this low for the foreseeable future or will we start to see an increase or two in the forthcoming months? I have today read that the central bank of Australia put up rates from 4.5% to 4.75%, surprising markets with the first rise since May. India's rise, the sixth this year, was less unexpected. The Reserve Bank raised the repo rate, the rate at which it lends to banks, to 6.25% from 6%. It raised the reverse repo rate - the rate at which it borrows from banks - to 5.25% from 5%.

In the UK we have seen some interesting periods in relation to the base rate, for example between 30 June 1932 and 24 August 1939 the base rate saw no changes and was held at 2%, similarly between 26 October 1939 and 8 November 1951, the rate was unchanged at 2.5% - a 12 year period.

The highest rate on record came on 15 November 1979 when the rate was 17% and stayed there for nearly 8 months before dropping to 16% in July 1980.

It wasn't until the early 90's though that we started to see rates consistently sit below the 10% mark where they have been ever since. It's worth noting that the highest rate in recent times was 7.5% between June and October 1998, just over 12 years ago.*

What will happen next, well only time will tell, but for now my personal opinion is that even if the Bank of England Base Rate does increase, it will be a while before it gets uncomfortable for those with an existing Tracker Mortgage.

*Source: www.bankofengland.co.uk

Retirement Planning

2010-08-17T11:50:00.010+01:00

When discussing retirement planning with my clients, it is probably the topic that raises the most questions. These questions are mainly from me to my clients such as:

What are your plans for retirement?
Do you have any provision through your employer?
Have you made your own arrangements?
Do you have any provisions at all?
Do you have any existing plans or policies that you are no longer paying into?
What is the minimum level of income you feel you may need in your retirement?

Aside from that last question on the list, the main one would be 'When do you want to retire?'

If you have asked yourself these questions and you don't know exactly where you stand, then perhaps it is time to speak to an expert who can talk through your options, find out exactly where you are presently with your plans and furthermore what steps you need to take in order to get to where you need to be - it may be the case that everything is exactly where you want it be and no course of action is required at this stage, but wouldn't it be good to find out?

There are several options, regarding retirement planning and some of these involve pensions, others through building up a property portfolio, both of which require careful management and both of which can lead to a comfortable retirement if carried out with enough time, enough thought and through regular review with an expert.

For more details on the differing types of pensions, go to: http://www.reevesfinancialsolutions.com/site/services/pensions or contact us through the website.

What is an ISA (Individual Savings Account) and what are the rules?

2010-04-23T08:45:00.001+01:00

I put it to you that a lot of the general public aren't fully aware of exactly how ISAs operate including their limits, so let me explain.

Let's start with the biggest point to note - all monies within ISAs grow free of income tax and capital gains tax so they are known as tax efficient savings schemes; the downside is there are maximums you can invest.

ISAs were introduced in 1999 and were preceded by Personal Equity Plans or PEPs and there are now two types:

Cash ISAs
Stocks & Shares ISAs

Currently, anyone aged 18 or over can invest £10,200 per tax year into ISAs, the tax year running from 6 April one year to 5 April the following year.

Present rules state that you can invest the full £10,200 allowance into a Stocks & Shares ISA or a mixture between that and a Cash ISA*, however you can't invest more than £5,100 into a Cash ISA in any one tax year and no more than £10,200 in total between the two!!

I guess people assume that stocks and shares = shocks and scares, but this need not be the case at all. A Cash ISA is simply a deposit based savings account with a tax wrapper meaning that you won't have any tax to pay on the proceeds.

With a normal deposit based savings account, a basic rate tax payer would pay tax at source at 20% on the gross rate of interest being offered by the particular Bank / Building Society and a higher rate tax payer would have an additional 20% tax to pay. A non-taxpayer can fill in an IR85 form to ensure that the interest is paid gross.

Ok, so to Stocks an Shares ISAs - why invest in them?

First point would be the fact that you would be utilising the rest of the ISA allowance that is so generously given to us each tax year by the UK government ;-)

Furthermore is the potential for higher returns than a deposit based account. There is an element of risk here, but there is the ability to invest in different funds and through portfolio management and diversification some of the volatility can be reduced and over time the rewards may well be higher than those seen with Cash ISAs.

A quick mention now goes to inflation and I may write a separate article on this at another point in time, but essentially this is the rising cost of living - If inflation is running at 3% and you are getting 2.5% net on your savings, then inflation is eating away at the growth and in essence your money is not keeping pace with the rise in the cost of living and is actually get devalued!!

If you would like further detail, please do get in contact with us, we would be happy to go into more detail, but remember this about your ISA allowance - if you don't use it, you lose it!!

*Note it is permissible to save into a Cash ISA only from aged 16.

Mortgages - Understanding the current market conditions

2010-02-25T13:52:00.002Z

I have many clients struggling to understand the current mortgage markets. These concerns maybe about rates, equity or deposits, fees and even tie in periods.

OK, each lender has their own criteria or set of rules when it comes to their lending policy. These include and is not limited to the following: age of the client, term of the mortgage, employment type such as contracted worker, self employed, foreign nationals or temporary workers; income; affordability; existing commitments such as credit cards and loans; property type and not forgetting credit history.

This list is typical of the requirements that need to be satisfied before even applying for a mortgage and unfortunately are not always clear unless you use a broker or Independent Financial Adviser (IFA) to assist you.

The first thing to say is that a broker or IFA will only be able to advise a client on the best options if the client is honest from the outset and credit scoring aside, the lender will usually require proof of income in most cases and this will be in the form of 3 months bank statements and/or 3 months wage slips in any case. The only exception being Self Certification mortgages (or Self Cert) where proof of income is NOT required. We will discuss these types of mortgages in more detail another time!!

It should be clear by now that as each lender has differing criteria, should your personal circumstances not meet with one particular lenders criteria, it may not exclude you from satisfying the criteria of another lender. Some lenders are looking for a particular type of business whereas others don’t want a particular type of business, but there is usually something for everyone – it’s just a case of matching the clients requirements with a suitable lender and product and this is when searching the internet can become confusing!!

So what are the common problems?

Well in recent months here at Reeves Financial Solutions, we have found that the main reasons for a mortgage being declined have been the property type such as prefabricated buildings or properties above commercial premises – a lot of lenders won’t touch them and the second is affordability. Each lender has their own way of working out affordability and is normally based on net income(s) minus existing commitments with a multiplier and that is where some clients fail – it is simply deemed that they could not afford that mortgage. Some Lenders still use income multipliers such as 3.5 X salary, but this is just an indicator, more of a guide – so, yes it could appear that your income is sufficient to borrow the desired amount of mortgage, but in reality after the affordability is calculated, this may not be the case.

As you can see, obtaining a mortgage is more than just finding the best rate with the lowest fees, it’s a bit more detailed than that; however for most people there are no issues. That said getting a professional to check things through could save you some frustrations as well as time and money!!