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Expat Investor : December 2008
Continued from page 1 the plastic and end up having to make regular interest payments it is essential that you avoid paying more interest than is strictly necessary. And after you’ve pored over interest rates in the comparison tables, turn your attention to the running costs of your cards. Over the last two years, card providers have pushed up balance transfer fees nearly fivefold. Even the smallest tweak to a term or condition could end up costing the cardholder hundreds of extra pounds over the course of year. Rates for personal loans have risen just as furiously over the past few years, and notably over the last few months. By and large, borrowers of larger sums can still choose from a number of competitive rate lenders, but as more lenders withdraw from the market only the most diligent loan checker can expect to successfully sniff out a reasonable deal. It is imperative not to financially overstretch yourself during the credit crunch. Your credit rating will suffer, which means so will your chances to borrow in the future. Those with a sound credit rating can expect to secure the most competitive credit rates. Check your credit rating on a regular basis if borrowing features in your overall financial plan as your borrowing history will be used by lenders to assess your credit worthiness. Personal credit ratings can be obtained for a small fee from credit reference agencies such as Experian, Call Credit and Equifax. The Consumer Credit Counselling Service (CCCS) can be contacted at www.cccs.co.uk Property markets The days of 100% mortgages are over… may be for quite some time. While first-time buyers need at least five per cent (and more probably closer to 10%) of a property’s value to place as a deposit, mortgage providers to expatriates buying a UK home have to stump up between 20% and 25%. Borrowers must also contend with lowering amounts offered by lenders. Solo purchasers must calculate on achieving a loan of no more than 3.5 times annual salary (three times joint income if buying with a partner). There’s still some choice as to the type of mortgage available to expatriates, but in these days of falling base rates, borrowers are recommended to opt for tracker mortgages, rather than standard variable or fixed rate products. Over the past few months, the price of a mortgage has risen considerably – confirming once again borrowing is no longer cheap, nor will be again for some considerable time, if ever in our credit-seeking life-times. Borrowers on standard variable rates, or those coming off fixed rates and into standard variable, CREDIT CRUNCH Month 1 2 3 4 5 6 Total Investment sum 500 250 500 1,000 667 500 Pound-cost averaging (Saver B) Unit price £500 £500 £500 £500 £500 £500 3,417 Saver B ends up with 3,417 units. have found recent rate increases at best painful, at worst impossible to meet. Buy-to-let borrowers with mortgages linked to the inter-bank wholesale lending rates, LIBOR, face particular difficulties. Many lenders have hiked their LIBOR loan rates to a barely tolerable level and there’s no sign, yet, of any market reduction. Fixed rates, on the other hand, are priced according to swap rates which reflect the market’s view of the direction of base rate. As the likelihood of a falling base rate becomes stronger, swap rates will fall and so fixed rate mortgages should become cheaper. Every cloud has a silver lining, however, and property investors with cash to spare have plenty to Expat Money– the definitive personal finance manual for Brits abroad THIS BOOK COULD SAVE YOU THOUSANDS OF POUNDS EXPAT MONEY is the unique personal finance guide for Brits abroad. It explains simply and clearly how to make the most of your money whenever and wherever you want. THIS BOOK COULD SAVE YOU MANY THOUSANDS OF POUNDS. EXP EXPAT MONEY The Definitive Personal Finance Manual for Brits Abroad HANNAH BEECHAM & JOHN O’MAHONY Topics covered include: ? currency exchange ? offshore banking ? banking abroad ? best buy savings products ? offshore mortgages ? expat investment opportunities ? insurance and health cover ? non-resident status – the expat’s best-kept secret ? dealing with the tax authorities - home and away EXPAT MONEY offers a comprehensive introduction to all aspects of expatriate personal finance and answers those essential money questions you’re sure to encounter. Whether you’re leaving to work, to retire or buying a second home, don’t leave the UK without it! About the author Hannah Beecham – the expat expert – is the most experienced and longest- serving journalist and editor in the expatriate finance sector. She was a founding member of the Financial Times magazine, The International, and for 11 years has been the editor of Expat Investor, as well as offshore finance editor of the International Express. EXPAT MONEY – the only guide to expatriate personal finance matters is published by Summersdale (paperback, £8.99) and available through all good bookshops and internet booksellers or through www.summersdale.com 2 EXPAT INVESTOR ? December 2008 expatinvestor.com smile about. Property prices have fallen. If you’re thinking of buying (and have the means to do so) and you’re prepared to put in the necessary legwork you’re sure to find a bargain. Now is the time to make a cheeky offer as sellers are being urged by agents to lower their prices if they want to secure a sale. Be aware that while house prices have fallen over the last year, they remain high by historic standards (still 60% up on 2000). Forecasts indicate that house prices still have some way to fall – a further 10- 20% is suggested – so if you can afford to wait to find your bargain, do so whilst keeping a close eye on developments as they pan out over the next 12 months. Expats managing existing mortgages might gain from making overpayments on their loans to cut both interest costs and the overall term. First, read the small print looking out for early redemption penalties. Position your portfolio Not one stock market across the globe has escaped the fall-out from America’s toxic debt scenario. Whilst an element of recovery may be expected as a result of co- ordinated government action, volatility is here to stay and investors have to get used to big dipper-style stock price movements. Investors repositioning their portfolios must go back to basics. Ask yourself why are you invested in equities in the first place? Your answer will reveal the length of time your investments need. Long term investors should really be looking beyond the horizon. Do not be panicked into selling stock by headlines screaming about “share free falls”. If you’re investing for the long-term, three years or more, it means you needn’t be frightened of volatility. The long-term investor sees beyond the white-knuckle rides and free falls, because over time capital gains accrue allowing optimum selling decisions to made. While a more measured market view is recommended, this does not mean investors should be complacent. Now is the time to discuss all your holdings with a professional adviser.Will your investments meet your wealth aspirations? Is your portfolio well balanced with different risk instruments – check out equities versus bond holdings, cash savings, proportion of property and other assets. Are there any unnecessary areas of exposure that need to be redressed? A vital question to be addressed now by all investors is, “Should I be buying?” If Anthony Bolton, the UK’s most successful stock picker and President of Investments at Fidelity International, reports that he has begun to put his own money into the equity market because he has never seen retailing and media shares look so cheap, who are we to argue? Find out more from your financial adviser about how you can snap up some bargain basement stock holdings and take advice on which sectors to consider and which to reject. For the record, Mr Bolton favours developed markets. He is not recommending emerging markets for the time being. Fund investors will want to re- examine index tracking funds as they offer diversity in any portfolio with their spread of banking, drug, telecoms, oil and gas, and mining sectors. Investors who are building up share portfolios with regular drip- feed sums paid into funds, in the form of pension contributions, for example, will fare better in the present climate from gaining an increased number of shares for every pound they invest. Pound cost averaging – how it works in your favour If you invest regularly over a period of time your money should be less at risk than if you invest it all at once in a lump sum. This practical approach to minimising risk is called pound-cost averaging. By way of example, two savers, A and B invest £3,000 each in the same fund. Saver A buys his in a lump for £1 per unit. He ends up with 3,000 units. Saver B invests £500 every month over a six month period. The pound-cost averaging method works particularly well in volatile markets. To find an independent financial adviser skilled in expatriate money matters, contact IFA Promotion at www.unbiased.co.uk or the Offshore Financial Trade Association at www.ofta.org £3,000 Number of units bought 1 2 1 0.5 0.75 1 EXPATEXP MONEY HANNAH BEECHAM & JOHN O’MAHONY
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