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Banking on ‘No’

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WHAT DO YOU WANT FROM YOUR INDEPENDENT FINANCIAL ADVISER (IFA)?

ww22Independent financial advice is the obvious answer, but everyone’s circumstances, character and aims are different. Some are more concerned about protecting what they have than increasing the size of their ‘pot’.

Others like to take risks and speculate. The IFA will point out the benefit and downside of “standing still” or trying to go too fast. “Speculate to accumulate” is not for everyone.

It can have its rewards. One punter placed £900,000 on a Scotland referendum “No” vote – and received a cheque for £1,093,333.33, a profit of £193,333.33 (and no tax to pay).

“This was not a reckless gamble. Losing this money would have seriously hurt. But I wouldn’t have lost my house – although maybe my wife would have had something to say about it,” explained the anonymous winner.

“I’d call it responsible gambling. And my main advice would be ’don’t try this at home’. But I’d prefer to call this a reasoned wager. For me, it was almost an investment.

“I’ve had a career in finance in which I have had to make projections and limit risk as much as possible. These were my savings, my money, but I felt I’d done enough research to be sure of the outcome. This is not something I have done before.”

He admitted to being slightly nervous when the “Yes” vote went ahead in some polls, but claimed to be completely confident on the day of the vote, after David Cameron’s promises of more power and the “unleashing” of Gordon Brown.

It takes a certain and special sort of person who can build up fortunes, lose them and start again. For those with responsibilities, i.e. a family, those options are extremely limited and not advisable, even if they felt the urge to take a chance.

The cynics and pessimists claim we are a nation of gamblers when it comes to property. There are many still living with the consequences of the “boom” that came to a dramatic end with the banking crisis of 2008.

Many did not see buying their first home as a “gamble”, a risky investment. Lenders were only too happy to go that extra multiple to make the dream become a reality, as well as advancing more money than the property was worth.

Such was the buying frenzy at the time that the borrowing of more money than the house (asset) was worth did not ring alarm bells that the property market was out of control and heading for an almighty crash.

Hindsight is a wonderful thing; hindsight is the best sight. There are those who are warning that history could be repeating itself, that house prices and rises are unsustainable.

London certainly looks out of control with 20%-plus annual rises, but London has always set its own rules when it comes to property. Many of the transactions are “cash”; many of the buyers are foreign. Those from abroad regard London as a safe haven to make an investment.

Many of the regulations that allowed foreigners to take all the profit from a second property in London have changed, such as paying capital gains tax (CGT). And Labour’s threatened mansion tax of homes worth £2m or over is certainly a factor to consider now.

Most think the property market will slow, some believe there could be a correction, but few anticipate a collapse.

Since 2008, lenders have shown far greater responsibility and this was confirmed by the Mortgage Market Review (MMR), which came into force in April – and there is a never-ending demand for homes that house builders never seem able to satisfy.

It’s clear, too, that finally consumers are feeling more confident. The British Bankers Association (BBA) recently published data that showed new borrowing through personal loans outmatched repayments every month in 2014. Such a consistent rise was last seen in 2007.

It may be that those loans are cheaper; the data re overdrafts (normally more expensive) shows more being repaid than taken out. Once again, the British consumer is demonstrating financial sense.

“I was particularly struck that, after years of decline, demand for unsecured personal loans is rising quite strongly again.” was the view of David Dooks, statistics director at the BBA.

“Those products are often used to finance bigger purchases such as cars or major home improvements – the sort of spending we often put off until we feel confident about our financial circumstances.”

Data from the BBA shows there was £175m net borrowing in personal loans, and £346m in net borrowing in credit cards in the month of August. But overdraft repayments were £286m higher than all net borrowing.

Many of the older generation are currently in a position to clear or reduce their long-term debts because of the equity built up in their homes over many years. And downsizing can serve other financial purposes.

Figures from HM Revenue and Customs (HMRC) reveal that homes sold in August dipped under 100,000 for the first time this year. The figure for July was 112,480, while last August saw sales of 105,580.

Just as with the Scottish Referendum, politics is about to have an increasing impact on the uncertainty of the financial markets as we head towards next May’s General Election.

The Coalition planned to balance the UK’s books by 2018-19, but only if they remain in power. You’d get pretty long odds on that happening if you fancied a punt!

So finances and risk mean different things to different people. That is where your Independent Financial Adviser comes in as he is able to help you understand what your attitude to risk is and prepare appropriate financial decisions to meet your individual needs with this in mind.

For a free, no obligation initial chat about your individual finances call us on 0800 0112825 or e-mail info@wwfp.net.

The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage.

Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Conduct Authority. ‘The FCA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.’
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
All information is based on our understanding of current tax practices, which are subject to change.
The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage.


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