THE SOVEREIGN NEWSLETTER

MEETING THE CHALLENGES OF THE NEW YEAR

2010 saw Sovereign passing its 29^th anniversary and we look forward to celebrating our 30^th in early 2011! 2010 was certainly a year of change as we saw the General Election bring in a coalition Government for the first time in many many years. The theme of spending cuts has been the main economic focus for 2010 and will certainly continue through 2011. What is this likely to mean for the average person? Inevitably there will be job losses in the public sector as the cuts work their way through the system. Hopefully the private sector will be able to create new jobs to offset these losses. We will see taxes rise – VAT goes up immediately to 20% in 2011. Personal tax allowances are not going up which effectively means a reduction in useable income as inflation is running at over 3%. All a bit gloomy – a bit like the recent weather! So how do we deal with this? We could worry about it, but worry does not ever change anything. A better plan would be to decide to prosper and enjoy life regardless of the obstacles. It may mean some changes in the way you operate but it is far better to take hold of your own future rather than simply wait and watch things unfold much like an episode of Coronation Street.

How can Sovereign Finance help?

1)     If you are a mortgage payer, we can help ensure you have the best mortgage deal possible.

2)     We can help you plan for the future and build your savings and pension funds, or help you purchase residential investment properties.

3)     We can help ensure that your savings – whether investment or pension – are invested in the right places so as to help you get the most out of them.

4)     We can help you be prepared for the unexpected with the most cost effective life assurance, critical illness insurance, income replacement insurance, etc.

5)     If you need to raise funds or consolidate borrowings, we can advise you on the options and help you arrange a solution that fits your needs – whether that is taking pension tax-free cash, using equity release to use some of the value in your home, or arranging a remortgage to consolidate debt.

6)     We can also assist in just making financial matters easier to understand so you can confidently make important decisions. Just give us a ring.

AFTER CHRISTMAS WOES!

We will look at these options in more detail but, first, let us look at the common after-Christmas problem – overspending with credit card balances high and overdrafts being pushed. Simple solutions include a personal loan at a good interest rate to consolidate the borrowing. For the bigger challenges, there are the possibilities of raising money by means of a remortgage to consolidate the borrowing. If the problem is not going to go away with these handlings, there is still the last choice type of handlings, which could include taking some Tax-Free cash out of a pension or even Equity Release. We would be happy to discuss all of these options with you.

THE BEST MORTGAGE POSSIBLE

With the Bank of England keeping its interest rate at 0.5%, new mortgage rate offers have improved. There is a warning to sound as well, however. Those who took out mortgages several years ago, often had their ongoing rate (the interest rate that comes into effect after the end of any special fixed rate or discount) linked to the Bank of England Base Rate. Before looking for a new deal, find out what ongoing interest rate you are entitled to. You may find that it is very low and, in that case, you may wish to leave things as they are. If you are not sure, give us a ring.

MORE FLEXIBILITY

The swing of the pendulum in the last two years was far away from the easy solutions available at that time, including self-certification of income, 95% and 100% borrowing, and great flexibility in dealing with credit problems. But there does seem to be some flexibility coming back into the mortgage market. Self-certification of income is still not available but there are lenders who will consider borrowers who have had historical credit problems.  For example, one lender will provide borrowing for up to 80% of value and ignore any County

Court Judgements that are over two years old or that have been settled over a year ago. There has also been some improvement in the calculations for how much can be borrowed. Do feel free to contact us if you want to find out how this might apply to your situation.

INTEREST RATE QUESTIONS

While the economy is being sorted out, it is likely that the Bank of England will continue to keep interest rates low. However, at some point rates will inevitably begin to go up.  If you do not already have a good mortgage deal and are looking for options, it may well be a good idea to go for a fixed rate for 3 years or longer. This will ensure you are not stung by increasing costs for that period.  Those who will not be hurt by an interest rate of 0.5% to 1.0% might wish to continue to bet on the Tracker rates. We would be happy to lay out the options for you.

OFFSET – MAKING YOUR MORTGAGE WORK HARDER

If you have both a mortgage and significant cash savings (£25,000 plus), you may with to consider an offset mortgage. This allows you to have a savings account that is linked to the mortgage account. You only pay interest on the difference between the two. For example, if your mortgage is £100,000 and your savings amount to £25,000, you only pay interest on £75,000.  With savings rates being very low, this is a way of getting more out of your savings. With a mortgage rate of, say, 4.0%, it means that you are effectively getting a net 4.0% on your savings without risk. If you are interested in this possibility, give us a ring.

PENSIONS – RINGING THE CHANGES

While we are still awaiting final approval of the Finance Bill, the handwriting on the wall looks in pretty permanent ink.  75 will cease to be the age for compulsory annuities. Those reaching 75 years of age will be able to maintain their pension options, including Drawdown. Maximum pension payments will be limited to £50,000 from 6 April next year. However, it will be possible for a person to pay up to a further £50,000 for each of the past three years – if he has not already contributed that much over those three years. Taking into account some of the other fine print, in fact, a person who had made no pension contributions in the previous 3 years could conceivably contribute up to £250,000 early in the next Tax Year. We will be pleased to assist with your pension planning.

TAKING THE RIGHT RISKS

Pension policies and investments do need regular reviews to ensure that the money in the fund is being invested in the way that the person wants. All too often people leave their pension or investment funds unmonitored and that is a bit like the captain of a ship leaving no one at the helm while he goes to play shuffleboard with the passengers. It makes it uncertain as to whether the ship is going to reach its destination undamaged. We would be pleased to assist with a review of how your pensions or other investments are invested without charge.

DEATH AND INCAPACITY

Death and incapacity are unpleasant subjects but they are a reality of life. You can either ignore these matters until they affect you or your family or you can do some sensible forward planning. Unfortunately we will all die at some time. At that point our possessions will be shared out. If we have made a will, they will go to those people we have chosen. If we have not made a will, they will go to people other than those we wanted them to go to, including even the Tax Man! The simple solution is to make a will. You can do this yourself or take professional advice. We can provide recommendations if needed. With death comes a funeral. You can make it clear in your will how you want your funeral to be. Viking funerals with a burning boat could prove rather costly. However, even a simple funeral can involve considerable expense. If you are not otherwise setting aside money in some way for this, there are pre-paid funeral plans available which, once paid for, guarantee to cover the costs of a traditional cremation without any further costs – regardless of how much prices rise in the future.  (Note: Viking burials on burning ships come at a somewhat higher costs!). We can help advise on the pre-paid funeral plans. Going into care is not the sure bet that death is, but it is pretty likely that if you or one of your family beat the grim reaper past the three score and 10 on the score card, that you will have to deal with the problems of care and even mental difficulties. If you or your parents or other relatives are not able to look after their affairs for one reason or another, they will need someone to do it for them. As soon as this begins to become a possibility, we recommend that you find out about and arrange a Lasting Power of Attorney.  “Attorney” simply refers to someone with the power to act on the behalf of another. Such an arrangement can either be just for financial matters or for health care decisions, or both. And as the final point of this rather unpleasant section, there is the option of a Living Will.  This is simply an advance decision which you document about what medical treatments you do not wish to have in the future, if you are not in a condition to make an informed decision at the time.

SPRING AWAITS!

Enough of the sombre!  Having put our affairs in order we can focus on what life is really about – doing what we want to be doing, achieving our objectives, having children and seeing them grow up, and prospering. We hope to be able to be of continued help to you along the way.

Yours sincerely

Tom Shuster and Trevor Tupholme

P.S. Following last winter and the start of this one, we have to admit that the colour white has fallen close to the bottom of our favourite colours!