Mortgages: Best Buy tables...the problems

Are mortgage best buy tables you see in newspapers misleading?
Possibly

The biggest problem is Lenders know how to manipulate them, the biggest snare is usually the ones at the top have large arrangement fees. Lenders use the arrangement fee as part of the cost of the deal rather than reflecting their administration costs

There are a number of problems with mortgage best buy tables. They don't contain important information such as:

1 Miss Loan to value (how much of the property value can you borrow)
2 Loan size
3 higher Lending charges
4 Applicant's salary & profession
5 Type of property
6 How long is the rate for? 6 months?
7 Is interest calculated daily or annually?

There are 12 000 mortgage products on the market, so maybe it's worth getting advice from an independent professional.

Greed & fear

Sonja Schemmann of Schroder made a very simple but highly truthful statement recently.

"Greed drives markets higher, fear drives them lower"

Until this summer the markets were driven by greed, the global economy was was expanding, companies were buying other companies. Investors were putting their money into new areas without understanding the risks.

Result: markets reach new highs

Then this summer, problems emerge in the US banking sector, inflation rises due to high energy & food prices occurred. Consumer & business confidence falls & the markets drop.

Neil Woodford Invesco Perpetual "UK flirting with recession"

Leading fund manger Neil Woodford believes the UK may be in recession by the end of next year. he states fears that the a downturn in the housing market may affect consumer confidence in other areas of the economy.

He runs £20 billion worth of money in various funds. In the last 5 years £1000 invested in Woodford's High Income Fund has returned £2610 compared the the FTSE 100 which would have returned £2100.

Recently he has favored utility companies, the oil sector, telecoms and a number of stock specific situations such as Tesco.

He is most famous for investing significant amounts in tobacco companies , which generate huge profits.

Virgin II FTSE 100 Tracker Fund

Lawrence Gosling positively trashed Richard Branson & virgin Money with his comments in the previous post.

Would I, a Swindon based Financial adviser recommend Virgin products to my clients?

Well let's look at one.

The Virgin FTSE 100 is an investment fund which tracks the movements of the 100 biggest UK companies. This is not so great for a number of reasons.

• The FTSE 100 still contains Northern Rock
• Performance of FTSE 100 trackers is little better than breaking even over the last 7 years
• The Annual Management charge is 1%, its cheapest competitor is 0.2%

Summary
No

Would you trust Richard Branson & Virgin with your money?

“Would you rather give your pension, to get you through retirement, to a number of Scottish financial institutions that have been around for a few hundred years and are financially secure”

“Or rather give it to a group by someone who made his name selling records and has since dabbled in gyms, trains, mobiles and more recently financial services?”

“Buying a pension or life assurance is not the same as buying a plane ticket or a CD”

"I can see no reason why anyone would want to do business with the Virgin Group for financial services. It is not offering anyhting that yo cannot get better from other financial institutions"

The views of Lawrence Gosling in this week’s Investment Week (3/12/07)

Which? slams Bank Financial Advisers, IFAs better

A report by Consumer group Which? has slammed financial advisers tied to banks & building societies. 2/3rd of advisers failed to pass its benchmarks for giving good advice

Neil Fowler, editor of Which? concluded "For more complex financial products such as investments, mortgages and pensions, you should really see an adviser. On the whole, you'll get better advice from an Independent Financial Adviser"

I will be telling everybody I meet in Swindon. :)

FSA wastes consumers money?

There have been 2 instances reported in the Financial Press of consumer watchdog the Financial Services Authority (FSA) wasting tax payers’ money.

Firstly New Model Adviser reported outgoing Chief Executive John Tiner has had 2 leaving parties costing £13 000, not bad for a man on £650 000 a year.

Secondly Money Marketing noted the FSA pays more than £13 million to external consultants.

10 Largest Investment Funds in the UK

Interesting article in Fund Strategy about investment fund size & performance. Normal logic is that if a fund becomes bigger because of populariy it becomes harder to run, it is more difficult to find invest the money in good value values which are often small in size.

The one exception has been Neil Woodford at Invesco Perpetual with his Income & High Income funds, who gas managed ot maintain his performance despite huge inflows of cash.

Woodford has nealy £15 billion in money invested in his funds. Huge, but as Chris Traulsen of Morningstar pointed out, the largest US funds exceed $100 billion.

Would I invest in any of the top 10 funds? Yes, a few...however I would avoid others.

Nationwide withdraws Payment Protection Insurance (PPI)

Nationwide has stopped selling payment protection insurance after it admitted uncovering problems in mystery shopper exercises. They are now retraining their staff, a large percentage based in Swindon.

Payment Protection Insurance covers you against missed payments due to unemployment and other reasons on credit cards

They have advised customers to contact IFAs (Independent Financial Advisers).

Earlier in the the year loans.co.uk were fined by the Financial Services Authority (FSA) for misselling.

US Sub Prime Mortgages

I've written abut the US Sub prime mortgage crisis previously and more generally about sub prime mortgages. Now as the current financial correction is being blamed on it, it is time to revisit it.

What happened?

US banks lent money when interest rates were very low to people who would maybe not normally get mortgages. Some sections of the press have dubbed them "trailer trash" hinting that the relatives of Britney Spears could cause economic meltdown.

Ok, some US banks have bad debts...how does this affect the UK & Swindon?

Banks buy debts form each other, some UK & European banks have taken on these debts. UK Bamks are being coy about how much of these problem debts they took on.

Stock markets are jumpy at the best of times, during August many dealers are away on holiday so small scale sell offs have had a larger impact.

What now?

The US federal Reserve stepped in to help US banks which calmed the fears.

What should I do?

1 Sit tight, corrections happen all the time. Banks like HBos (Halifax bank of Scotland) are sniffing aroung the US mortgage market looking to pick up bad debts and make a killing. Derive your own conclusions

2 Speak to your financial adviser, they should know more than the Sun or Daily Mail. I have one or 2 recommendations myself...

What next for interest rates?

In the last 2 years the Bank of England's Base rate has risen from 3.5% to 5.75%, with products like mortgages & loans being linked to it.

The main reason for the rise was to control inflation and partly tot try to control the housing market.

Things have taken an unexpected twist recently with the sub prime mortgage problems in the US. To deal with this the US Federal reserve (the equivalent of the Bank of England) has lowered the rate at which it lends money to banks.

What does this mean for the UK, financial advisers & their clients in Swindon?

The rise in interest rates [& the forecasedt end of the world :)] is likely to stop for the time being. Tracker /discounted mortgages could become more attractive again as arrangement fees for Fixed Rate mortgages are now rather high.

Worst product provider for Customer Service

The Worst Product provider in my experience.

By far, Scottish Provident. I sent in an insurance application in April. It has still not been underwritten. I asked to speak to managers twice, my number was taken, no phone calls received.

2 complaint letters written & still not resolved

Conclusion: Atrocious

Stock Market Crisis? No, a correction.

Stock markets have been very volatile in recent weeks. In August many traders are on holiday and relatively small changes can cause huge swings in prices. The jargon used in such a situation is "a correction", typically there might be 2 or 3 corrections in any year.

In the long term markets should recover. The BBC noted yesterday that the FTSE 100 had merely returned to the values of October 2006.

Over the last 5 years markets have been relatively un-volatile historically.

There is an upside to the current volatility, now is a good time to buy. It is also a good time for clients with regular savings plans as their regular £50/100 buys more units.

14 000 homes repossessed in last 3 months

Repossessions have risen by 30% since last year according to the Council Of Mortgage lenders (CML). 14 000 alone in the last 3 months

Additionally 125 000 borrowers have mortgage arrears.

Things can only get worse as around 1.5 million borrowers will experience a 2% rise in interest rates in the next 6 months when their fixed interest deals end.

Who are Anthony Bolton & Fidelity Special Situations?

Anthony Bolton is one of the most famous fund managers in the UK. He's been in charge of the Fidelity Special Situations Fund since 1979. He has fantastic performance figures of 19.9% a year on average. His strategy is to find unloved out of favour shares in smaller companies

The fund has been in the news because Bolton is retiring at the end of the year. His replacement Sanjeev Shah is gradually taking over the reins.

The key question is...can Shah continue the track record of the fund?

1 At £3 billion the fund is huge, so finding bargain stocks & using the money becomes increasinlgy hard.

2 he has had mixed records in the 2 funds he has manged, one beating the market the other tracking it.

3 Fidelity's fund record has been a bit patchy recently & 3 fund managers recently left to set up their own investment boutique (small fund house).

Conclusion
There are plenty of decent alternatives to the fund with established fund managers. Have a word with your financial adviser.

See also Christpher Traulsen's article at Morningstar

Diary of Swindon Financial Adviser

What does a financial adviser do during the course of a day?
Well...today...

9am-1pm
Presentations & meetings with product providers and other financial advisers in Wootton Bassett (near Swindon).
Some are interesting, others...less so (meetings & financial advisers)

1-2pm
Lunch

2pm-5pm
Chase up tardy mortgage lenders & insurance companies. The culprits? Royal Bank of Scotland & Norwich Union.
Sort out details of client's pension & annuity
Reply to client emails.
Speak to the lovely L2, mortgage guru in Leicester.

7pm meet a client to discuss pensions in North Swindon

8pm plus: possibly catch a bit of Chelsea vs Man Utd

HSBC the World's Bank? Not in Swindon

HSBC made a profit of £11 000 000 000 (11 billion) last year.
Does this mean HSBC aren't offering customers competitive rates?
I can't comment.

Ex HSBC customers are probably the biggest source of my remortgages.
The World's Bank? Not in Swindon.

Abbey, HSBC: No arrangement fees....Misleading & Nothing New

Both Abbey & HSBC are advertising mortgages with no arrangement fee. All lenders offer such a deal, it's called the Standard Variable Rate.

When remortgaging, it's normal to look for a deal with no arrangement, legal or valuation fees. In fact I've just done one for a client today.

Interested? Give me call on Tel :01793 524806.

Why become a Financial Adviser...in Swindon?

Financial Adviser? (IFA)

I had a long term interest in saving & earning money for myself and friends.
Correct use of financial products means you can increase your standard of living without changing jobs. It's something I've always enjoyed and it's great job. Whether it's finding propel a cheaper mortgage than their bank or finding good investments for clients, it gives you a good feeling. Being a financial adviser gives me the opportunity to do this.

Why Swindon?

I live here, it has it's plusses & minuses. I am fortunate to know a few good people

What is a Sub Prime Mortgage? Exist in Swindon?

During the stock market correction in February, there was much talk of sub prime mortgages in the US.

It raises the question...what is a sub prime mortgage?
Do they exist in places like Swindon?...Yes

It is a mortgage for somebody who can't get a mortgage in the normal ways
The person could

1 be self employed & doesn't have a long term track record
2 have had some debt problems (IVAs, bankruptcies).

The rates & arrangement fees are higher as the lender is taking a bigger risk and more people default (don't pay the money back).

Spanish Property...in Crisis

Over the last week, there has been a tremendous loss in confidence in Spanish property market. One leading property firm Astroc lost 60% of its share value. .

In January the Organisation for Economic Cooperation & Development warned Spanish house prices were overvalued by up to 30%. Since 1999 prices have risen by 15% a year.

These prices have encouraged over investment and consequently over supply.

One widely held belief in recent years, was when the Euro was introduced in 2002, may criminal organisation invested illicit cash into Spanish property before the pesata became defunct.

What does it mean?
Prices will stabilize, possibly falling until market values reach more reasonable values.

Financial Advisers slam "cheap" mortgages from Abbey

Financial Advisers have slammed cheap "stepped" mortgages. Abbey recently introduced a product where rates start at 2.99%, then shoot up to 6.2% then 6.35% over 5 years.

There is also a £799 arrangement fee.
People might be able to afford the payment in year 1 but the the huge increases mean first time buyers face a huge payment shock. You're locked into using the product for 5 years, if you try to get out, you will face a redemption penalty

Avoid

Consumers don't trust Big Banks..especially Barclays.

Interesting article in Money Marketing. A survey of nearly 4000 consumers revealed 2/3rds of Barclays, HSBC, Halifax/Bank of Scotland, Lloyds TSB and Royal Bank of Scotland/NatWest customers do not trust them to sell the right products.

1 in 8 Customers claimed to have been missold a financial product.
1 in 5 Barclays customers said that money had gone astray from their accounts.

The survey was conducted by Motley Fool.

Mortgage Advisers in Swindon

Like any town, in Swindon you have a choice of people who can help you buy your Home.

Independent Financial Advisers (IFA): Whole of Market advice on mortgages & insurance, think of them as Mortgage Advisers offering a greater range of services.

Estate Agents: Typically a panel of 10-15 lenders. Not whole of Market Insurance, tied to one company. Sold to you by a youth with gelled hair & a large knot in his tie.

Mortgage Broker: Check if independent, whole of market. Offers insurance from one insurer or limited range

Banks/Building Society: only offer their own limited range of products for mortgages and insurance.

Hope the differences betweeen various kinds of mortgage advisers is clearer.

Financial Advisers in Swindon II

Before setting up in business 2 years ago, I decided to do some market research and look at the quality of financial advice available on the High Street in Swindon.

I looked at 2 of the biggest financial institutions: Halifax & Nationwide.

In the Halifax, the adviser wasn't expecting me. He advised me to have a look at Halifax's Unit Trusts & Life funds on their website and to choose the funds myself!

In the Nationwide, I quizzed the adviser and was told he much preferred doing mortgages. He added his own money was invested in a Tracker fund which had lost significant amounts of money!

Conclusion on the Financial Advice at the Halifax & Nationwide in Swindon: Steer clear.

Financial Advisers in Swindon: A survey

Recently a client approached me for financial advice. The client is moving abroad & wants to take an income from their capital.

They approached their bank and another Independent Financial Adviser (IFA). The advice they got was rather worrying. My client wouldn't be regarded as tax payer in the UK, however strangely neither the bank or IFA picked up on this.

I recommended to the client using his ISA allowance and investing in Unit Trusts/OEICs. The client wouldn't need to pay income or capital gains tax on gains.

The Bank and other IFA suggested the client invest in Investment Bonds. You pay 20% tax on any gains immediately at source...also interestingly a high commission is generated.

Conclusion: Hmmm

PS Investment Bonds can be extremely useful for Higher Rate Tax payers. Basic tax payers..no.

Interest Rate Rise likely to control Inflation

An increase in interest rates is increasingly likely after inflation figures rose to 3.1%.

Philip Shaw, chief economist at Investec Securities, said: "Today's figures mean that a May hike is now even more of a cast-iron certainty than previously. Our forecast that rates will peak at 5.5% is under review."

Richard Woolnough of M&G expects a rise in May & one in the autumn & winter to bring rates up to 5.75%.

Conclusion: If you are buying a house or remortgaging, opt for a fixed rate option.

Buy to Let: a Goldmine?

For many years private investors have had Buy to Let Properties in their portfolios. However there are some drawbacks. You are liable to income tax on the income & capital gains tax on the profits.

Factor in maintenance & insuring the property and the returns decrease further.

Rising interest rates have eroded profits too, plus the fact you can only get an interest only mortgage because of rental incomes is a further hindrance.

If you're looking for a property based investment, try a Commercial Property Fund.....to be continued

Best fund for your ISAs?: Part II Cautious Managed

In the 1990s, the bog standard fund for Investments was the With Profits fund. However they have died a death a combination of poor performance & mysterious charhes called Market value reductions.

What has replaced With profits?

One of the options is the Cautious Managed Fund.
It invests in Gilts (loans to the government), corporate bonds (loans to companies) and shares.
The fund manager has the ability to switch between these types of assets as market conditions change.

Who has the best funds?

You know the answer...take proper advice.

Best fund for your ISAs?: Part I Equity Income

Equity income funds usually to invest in larger more stable companies which have usually stopped growing quickly. These companies tend to be large and established, which in itself is a benefit eg BP, Vodafone, the big banks

They pay dividends to their shareholders as a means of creating loyalty; why sell your shares if they provide you with a steady income?

Which funds are best?
There are 83 UK Equity Income.
The best fund grew by 18.47% in 2006, the worst 0.1%
Over 10 years 257.59%, the worst 0.64%.

Take independent advice & don’t rely on hearsay.

Offset Buy to Let Mortgages

What are they?
They are Buy to Let Mortgages, where you rent the house to a tenant to pay the mortgage.

What about offsetting?
You trade (offset) your savings against the amount remaining on your mortgage (the mortgage balance)
eg £20 000 of savings offestagainst a mortgage balance of £100 000
You only pay interest on £80 000.

Usually lending rates are higher than savings rates, so you save money This works especially well for higher rate tax payers, who will pay more 40% tax on savings.

Early repayment charges are uncommon on offset mortgages…useful if better products become available & you can make unlimited overpayments.

For sole traders & partnerships the Yorkshire Bank also allows to offset business balances against residential mortgages.

The one disadvantage of offset mortgages has been higher rates than traditional repayment mortgages, however as offset mortgages have become more popular, the differential has grown smaller.

5 Common Investment Mistakes

1 Buying what you don’t understand.
What is a BRIC fund?

2 Focusing on Short Term performance.

3 Getting sucked into panic buying or selling.
Markets go & up down over time
Companies go in & out of favour

4 Believing the financial press
Financial Journalists have no obligations to Investors.
Financial advisers do have obligations.

5 Not diversifying your portfolio
All your eggs in one basket.

Based on article in “UK Investment Guide” David Berger.