Spring 2004 - Newsletter

The Budget and New Tax Year

The start of a new tax year is upon us.  There are many changes happening in the economy - some factual, some fictional and some predictions as to what will happen in the future.  In light of the recent Budget for 2004, it is important to understand how the changes will affect each and every one of us.

Mr Gordon Brown has delivered what is said to be a "vote winning" budget, and although much of what was contained within his speech was predictable (rises in the levy on cigarettes, alcohol and petrol), there is also much fine print, and generally more to it than at first glance.  In order to maximise your financial wealth this year, you should take advantage of what benefits are still available and avoid any pitfalls.

The growth forecast for the UK economy looks encouraging for 2004, despite concerns over rising interest rates.  Higher interest rates, means better news for savers, but of course worse for debtors.  With this in mind, together with forecasts that house prices are continuing to rise, it is ever more sensible to look to put constraints on household expenditure.  Mortgage interest rates, are historically at an all time low and now is just as good a time as ever to consider fixed-rate mortgages.  Many believe that a re-correction in house prices is ever looming, but with a possible shortage in supply of up to 120,000** houses per annum, the strong demand is keeping prices very buoyant.

As prices are rising, people's estates are getting bigger, and so Inheritance tax is becoming a greater issue.  With a moderate rise in the exemption to £263,000, which does not fairly correspond to the percentage increase in property prices, more and more people will come liable with inadequate preventative measures to avoid paying 40% Inheritance tax.  Furthermore, with no change in the levels of Stamp Duty, next time buyers are paying more tax to the government, and first time buyers are finding it near impossible just to get on the ladder.

Ideally, we should all be looking to reduce our debts and look to save more, as it has been clear for years now, that the savings gap continues to grow.  Wealth Matters IFA's can show you ways to re-arrange your finances to reduce your monthly outgoings and save in a tax-efficient and flexible manner.  Although equity ISA's will no longer benefit from reclaiming a 10% tax credit on dividends, they still form part of many investor portfolios.  Saving also relates to pensions, which still receive tax relief on premiums and the earlier a pension is started, the better off you will be in retirement.

As long as your attitude to risk supports it, the smart investor will have a combination of Property, ISA's and Pensions as well as monies on deposit.  To learn how the budget may affect you this year, or to understand more about how to save money, make money and preserve your current wealth, speak to your IFA at Wealth Matters.

**This figure was sourced from an independent review of housing supply investigated by Kate Barker, who was appointed by the Monetary Policy Committee to look at the issue of housing shortages in the UK (14th March 2004).

Buy to Let

Much has been written about the buy to let market in the last five years. Much of it uninformed speculation. So, what's the view of the Mortgage Professionals? Well two advisers from the company are landlords, and indeed yourself as the recipient of this email, may well be one of our many clients who have a buy to let mortgage. There are many pros and cons to being a landlord. For a summary of these, follow this link to our website. The link also has some useful references at the end, including further reading. Our first word of advice, if you are thinking of becoming a landlord, is do lots of reading and research your area, before you jump in. And remember that being a landlord, even if you use a letting agent, does take up time.

The short term housing market will always affect sentiment in the lettings market, though you should always look at your investment in the longer term. Remember that just like shares, properties can go up and down in value. In the short term interest rates may be likely to rise during 2004. However, the shortage of housing and the strength of the UK economy, allied to low unemployment growth may lead to a continuing rise in house prices. This means that growth in values may continue, but yields (rent less mortgages and other costs) will become tighter. So is it still possible to receive greater rental returns than costs, ie. run the property at a profit from day one? We believe that you can.

The best strategy to gain this profit could be achieved from one of the following strategies:
 - Look at cheaper housing, such as further north, or in less "desirable" areas.
 - Buy houses in need of renovation
 - Buy student accommodation
 - Buy houses in multiple occupation (HMO's) eg bedsits.

All these strategies carry their own inherent risks, but of course risk can equal reward. Be especially wary of local council regulations with regard to student and HMO properties.

Of course many lenders don't like lending on bedsits, student accommodation, or run down properties. One of the lenders who could be used in this case is Paragon. They allow mortgages in your own name or through limited companies (sometimes more tax efficient). They will provide mortgages on holiday homes, auction properties, student houses, bedsits and even semi-commercial property.

One of their best schemes is their limited refurbishment scheme. If you are planning to make minor changes to the property that may improve its value and rentability, this could well be the scheme for you. The work could comprise of new kitchen/bathroom, redecoration, erection of stud walls or a loft conversion. If this work is detailed on the application form along with the revised valuation, the surveyor will value it in its current condition, and put a retained value on the property once the work has been completed. This allows you to borrow 85% of the initial value and of the new value, once it has been reinspected. So the additional borrowing could effectively be used to pay for the building work, or if you get your sums right, even more.

Paragon will also allow very large property portfolios and if you take their "with options" choice, you can switch on to any of their rates, including fixed, during the first three years of the loan. Paragon have never been one of the more competitive lenders on rates, their USP (unique selling position) has always been their flexible approach towards different types of rental property. If you'd like to find out more about their mortgages, or to discuss buy to let mortgages in more detail, call The Mortgage Professionals on 08702 330 152.

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Ever Been "Mystery Shopped"?

These days, there are a wide choice of independent financial advisers (IFA) and mortgage specialists available. How do you know if they are any good?

At Wealth Matters, we are tough on business standards, and benchmark our performance in three key areas: a truly independent proposition, the quality of the advice we offer, and the service we give.

The majority of the clients we have come by way of referral, which we hope reflects our commitment to delivering the three standards above, but it is always nice to have this ratified by an outside independent body.

In October 2003, late one Friday afternoon, Wealth Matters received a call from a potential client requiring advice on self-certification mortgages. Paul Cleworth took the call, and after a 15 minute conversation said goodbye to the client and thought no more of it.

To our astonishment, published in 'Financial Advisor' (the industry magazine, dated Nov 6th 2003), were four companies all based in Bedfordshire and each had been mystery shopped and marked against each other.

Four areas of business practice were reviewed, each marked out of 5: