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Thursday December 7th, 2023 

News Archive - April 2008

Mortgage Mayhem


There is another news story every day about mortgages and interest rates. Everyone has their own opinion on what is going to happen to house prices.

The problem for borrowers is that the Bank of England's cuts in the base rate are not being passed on to consumers in the form of lower mortgage lending rates. The banks and building societies have decided that they want to reduce their exposure to debt, so they are being much more choosy about who they lend to and the amount they lend. House prices are falling, which means that 'negative equity' is a possibility if the loan is a high percentage of the value of the property. Those who can re-mortgage may find themselves paying a higher interest rate than those that were available a few years ago.

What you should NOT do in these circumstances is put your head in the sand. This IS happening, so you need to address the situation. Do a check on your levels of outgoings and see how much more you can afford to pay on your mortgage if you cut some of your other expenses. If you have any savings or investments, it might be worth using them to repay some of your loan. If the loan-to-value ratio is lower, you might get a better deal from your lender.

One or two more rate cuts are expected from the Bank of England before the end of the year. If your fixed rate is coming to an end, there is a tough decision to make on whether or not to get a new fixed rate, or use a tracker or discounted rate to get the benefit of future rate reductions. The best idea is to get professional advice. Mulberry Financial does not advise on mortgages, but we can pass you on to an experienced local mortgage broker who deals with the whole of the market and does not charge a fee for his services.


"No Risk?"


It is very important for advisers to discuss investment risk with clients before making recommendations.

Risk can seem very complicated, but in fact it boils down to a very simple equation.

The more potential risk there is (ie the higher the chance of you losing some of your investment), the higher the potential returns will be.

An important word in the previous sentence is 'potential' . In the short term (ie over 1-3 years), a low risk cash investment can out-perform the stock market. People who have lost money as a result of stock market turmoil sometimes say "I may as well have left it in the bank"'. With the benefit of hindsight, this is obviously true, but nobody knows which way the markets will move from day to day. All we can say with certainty is that over the long term (15 years plus), stock market investments have historically outperformed cash. This is why pension investments (where the investment term could be 40 years or more) usually have some equity exposure unless the client is nearing retirement.

There are some stockmarket linked investments available at the moment where the investor is guaranteed a percentage of the growth in the FTSE index over a fixed timescale. If the FTSE falls, then the investor is guaranteed the return of their original capital. These products are often marketed as having 'no risk'.

In reality, the investor is risking the guaranteed return that they could obtain from a cash investment. With cash savings rates looking quite attractive at present, you really need to do the maths on these investments to see what you are giving up in return for possibly getting no growth on your money for 5 years.

These 'guaranteed equity' products are usually very complicated and difficult to compare with each other. As another general rule, any product with terms and conditions too complicated for you to understand is worth avoiding.

At Mulberry Financial we understand that financial terminology can be baffling to the outsider. We take great care in making everything clear to our clients, avoiding jargon wherever possible to help you to grasp the concepts. We love helping people to plan their future.


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The material here is for general information only and is not intended to be relied upon for individual investment decisions. Appropriate independent advice should be obtained before making any such decisions. Mulberry Financial Ltd does not accept any liability for any loss suffered by any user as a result of any such decision.
The information is based on our understanding of current HMRC rules and practices (as at the news article date) which are always subject to change. Taxation and trust advice and Cash ISAs are not regulated by the Financial Conduct Authority. This site is aimed at UK residents only.
Please remember that the prices of shares and other investments can fall sharply. You may not get back the money you originally invested. Past performance is not necessarily a guide to the future.

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