Regardless of the recent state of the market, purchasing property to live in remains a sensible financial investment for most people.

The property market is generally flat despite the low interest rates. Any significant increases have largely been down to investors buying properties to let out. With a shortage of properties to let, the level of rental income has been rising.

While investors are benefiting, it does not help First-Time Buyers and those who are looking to move. Most First-Time Buyers are having to either borrow deposits from their parents or look to take advantage of the assistance being provided by several schemes for purchasing newly built properties.

The Bank of England’s holding down of interest rates has been a saving grace for many people with a mortgage, particularly for those whose mortgage is directly linked to the Bank of England’s Base Rate – still currently 0.5%.

Actions to take:

1. Find out what your interest rate is. If it is 3.0% or less, you are likely to be best off by staying as you are. However, if you find that you are paying 4.5% or more, then you are likely to be on the lender’s Standard Variable Rate (SVR). If this is the case, you should contact us to make enquiries on your behalf. Mortgage rates are particularly low at this time, and it is possible to move over to a better rate and also fix it – against the time when interest rates do go up. Such changes can often be done for very little cost and produce a significant saving in monthly payments.
2. Check if your mortgage is on an interest-only or a repayment (capital and interest) basis. If you have an interest-only mortgage, you should look at your options as regards moving on to a repayment basis. This can be done with your present lender. The mortgage will have to be repaid at some time and unless you have another strategy, you should make these enquiries. We will be happy to assist.

Interest rates on Buy-to-Let mortgages are going down and even the high completion fees, which most lenders have been charging, have started to reduce. Here, too, the higher your deposit, the better the interest rate. For those with the necessary funds the purchase of an investment property can provide a useful alternative to a pension, or a top-up. Do give us ring and we can make enquiries for you.

We are in a time of change as regards pensions. Those retiring in the next 5 or 10 years will benefit from something of a Golden Age of works pensions and State benefits. Those who are younger face an uphill battle to acquire sufficient monies to give them a meaningful income when they hit retirement age. Pensions require forward thinking now, as for most of us they are not automatically part of our jobs, as they used to be. Factually those in their 20s and 30s should already be putting at least 15% of their earnings into long range savings like pensions. Even that is only really a very basic level of savings. It is particularly hard with the extra pressures of rising costs and the goal of buying a property. Take advice and ensure you are looking ahead as well as coping with present situations.

For many years people who were employed had the option to take an annual payment into their pension instead of notching up qualifying years in what was called SERPS (State Earning Related Pension Scheme) and is now called the State Second Pension. This payment represented a return of some of their National Insurance contributions for the year in question, so it was not a gift from the Government. From the 6^th of April 2012 the Government is ending this option. From that date forward the only option for the employed will be to build up entitlement year by year for the State Second Pension. The self-employed never had this option. The self-employed and employer alike are entitled to the full Basic State Pension if they pay the required number of years of National Contributions. The Basic State Pension has nothing to do with Contracting Out.

Pension rules are changing regularly as regards how and when you can take your pension benefits. Currently the earliest you can take pension benefits is age 55. Because we are now living longer, we need to consider how best to take the benefits to service us for a long retirement. Living longer and the current economic conditions are combining to give us less pension income than in the past. Here too it is important to take advice.

In the past there used to be only one choice – to take the income offered by the pension provider you had saved with. Now there are many more choices:

1. You can shop around for the best income (annuity).
2. You can take your Tax Free Cash and leave the rest invested until later with the option to take an income from the pension fund.
3. And, most recently, there are Fixed Term Annuities. These allow you to take one’s Tax Free Cash and take a guaranteed income for a specified term, with the certainty of a cash sum waiting at the end of the fixed term which you can then use to set up another Fixed Term Annuity or a Lifetime Guaranteed Income. Since the rates on offer for pensions (annuity rates) have been poor and have continued to fall, this approach keeps your options open.

It is important to make the right choices when you take your benefits, as they will affect your income for the rest of your life. We will be pleased to help advise on all the retirement options open to you.

Equity Release is a term referring to a set of options for taking a lump sum or an income from your property if the pension income needs to be supplemented. Options are available as early as age 55 but these options are really only available for those with little or no mortgage commitment on their property. We can quickly advise you on what your options are.

In order to avoid problems after you have gone, do get a will done. This will make a difficult time much easier to deal with for those you leave behind. If you have had to deal with a death, you will be aware of the possible complications. For those who have not had to do that, it is worth knowing that to deal with any financial or legal matters, copies of the Death Certificate will be needed. A doctor will issue a Certificate of Cause of Death and then, with this, the death is registered with a branch of the Registry of Births, Marriages and Deaths. At that point the Registrar will issue several important documents including a copy of the Death Certificate.

Extra copies of the Death Certificate can be obtained for a nominal price at that point and we recommend getting at least 6 or so, since each Bank or other institution will require sight of an original copy.

Life assurance is generally an inexpensive way to cover your commitments – whether that be a young family or business associates. Like Buildings Insurance or Car Insurance, it is a vital way of protecting assets (what more important asset is there than you yourself!). We can search the market for you to find the most inexpensive options available. Just give us a ring.

Saving and investing money is a very important part of personal finances. Here are some tips:

1. For money you hold on cash deposits, keep watch over the interest rate. Banks and Building Societies, unfortunately, will not necessarily remind you when that lovely introductory rate that attracted you in the first place, drops considerably.
2. Take advantage of tax efficient savings. Your cash savings generally should be in Cash ISAs (Individual Savings Accounts) for both a good rate and so you do not lose part of the interest to the Tax Man.
3. Don’t use credit cards for long term borrowing. Take out a personal loan instead.
4. If you are saving for your children (or grandchildren), find out about the Junior ISA, and also look at the selection for children at the National Savings and Investment website.

In general our view is that the Stock Market growth in the coming next few years is not likely to be from the UK or Europe. If you are willing to take a risk with your investments we suggest looking at Eastern Markets like India and China and even Emerging Markets.

Some general tips:

1. Diversify (Don’t put all of your eggs in one basket).
2. Invest for the long term (5 years plus).
3. Keep track of your investments and don’t be ashamed to take a profit.
4. Never buy what you do not understand.
5. Be your own person – don’t follow the herd.
6. Review your investments regularly (at least once or twice a year).

One of the fundamental principles for us all – whether a Government, a business, a family, or an individual – is that we need to make more money than we spend. It is vital to have controls in place to know what income has been made and also all of the expenditures that are being made. Per Dickens, Happiness is having one more penny in than going out!

Yours sincerely

P.S. This will be our last newsletter before Christmas, and we would like to take this opportunity to wish you all a happy Christmas and New Year!

11A FOREST VIEW ROAD, EAST GRINSTEAD , WEST SUSSEX RH19 4AW Tel: (01342) 313302 Fax: (01342) 315435 

Email:mail@sovereignfinance.org

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