by clicking the arrows at the side of the page, or by using the toolbar.
by clicking anywhere on the page.
by dragging the page around when zoomed in.
by clicking anywhere on the page when zoomed in.
web sites or send emails by clicking on hyperlinks.
Email this page to a friend
Search this issue
Index - jump to page or section
Archive - view past issues
Expat Investor : July August 2008
of interbank loans has risen as the supply of money in the wholesale markets has become tighter. Traditionally, wholesale money costs were generally slightly above or slightly below the UK base rate, depending on whether the market expected UK base rate to rise or fall. Recently, though, wholesale interest rates have been over 1% above UK base rate on some days, QUOTE, UNQUOTE July/August 2008 ? EXPAT INVESTOR 15 Fast Facts 66190 w www.expatinvestor.com expatinvestor.com 4 EXPAT INVESTOR ? July/August 2008 STATISTICS AND ANALYSES Brits are a nation of worriers. Research from Abbey Insurance shows that half a million stressed out Brits spend over 25 hours a week worrying. Home and possessions top the worry chart with 67% stressing that their house and its contents are at risk, and nearly half of Brits (48% are worrying about their money situation. In line with the stereotype, those in London and the South East are the biggest worriers whilst Scots appear to be the most relaxed. Women seem to be taking the bigger burden and worry more than men about property, possessions and money matters – with 49% of women stressing about their finances compared to 47% of men. The credit crunch and talk of recession has intensified the worry. Abbey Insurance has seen an increase in people taking out its mortgage repayment plan to cover mortgage payments and some additional expenses for a year if they lose their regular income through no fault of their own. Lloyd Wilson, Head of Abbey Insurance, says, “The current climate has seen more people worry about the event of job loss. While you cannot predict the future, you can at least be prepared for it. While it is natural for people to worry a bit about their property and financial security, for the people who worry for more than 25 hours a week, it’s more than just a healthy concern. People need to find ways to put their mind at rest.” One in four British motorists (26%) admit they’ve lied on an insurance application – meaning their cover could be worthless – according to new research from insurance.co.uk. The research reveals a widespread habit amongst the nation at large for fabricating details in insurance applications in an effort to cut costs – with the catalogue of lies ranging from the seemingly innocent to the more severe. One in 10 pretend their vehicle is parked in a more secure area than it actually is, while one in 20 are less than truthful about the distances they drive, the value of their car and the reasons they use it. A small, but worrying, percentage (1%) are upfront about the fact they have lied about their address, penalty points, or other serious criminal convictions. The study provides an interesting A medley of statistics and analyses revealing much about our responses to saving, investing and spending our money. A quarter of motorists lie applying for insurance insight into the nation’s moral sensibilities. Despite the fact that so many admitted to lying, almost the entire nation (98%) said they believed themselves to be honest individuals. When asked to rank the severity of various offences, almost half (44%) put insurance fraud on a par with ‘pinching a chocolate bar’ and ‘travelling without a valid ticket’. Steve Grainger, Head of insurance.co.uk says, “Lying to an insurer is often considered to be a ‘victimless crime’, but this is far from the truth. “Many motorists would never dream of illegally driving without insurance, but they seem to be blissfully unaware that entering inaccurate information on a motor insurance application could make their policy worthless, leaving themselves and those around them at considerable risk.” Half a million spend over a day a week worrying Horoscope more important than credit rating A good credit rating should be the must-have accessory of 2008, but it seems Brits are relying on their horoscopes to get them through instead. New research from moneysupermarket.com shows nearly half of Brits have never checked their credit report, and only one in six will do so this year. Tim Moss, head of debt at price comparison site moneysupermarket.com, says, “Relying on Taurus to see what’s in store for your credit card, loan, mortgage or mobile phone application is a load of bull. “It isn’t just Geminis that will fall foul of card cloning, or Pisceans that will spot something fishy. You need to see what is on your credit report so any errors can be corrected and to see if someone else is perhaps trying to take your identity. “It will also highlight any tiny debts that might be there, but are having a huge impact on the success or failure of credit applications. An error on your report could typically lead to mortgages being rejected, or you being offered a product but at a much higher interest rate.” The weather in a foreign country tops the list of things Brits are likely to check most often, with horoscopes not far behind. The poll found people are just as likely to see if their name comes up on Google as they are to look at their credit rating. Of most concern is that 13% of Brits don’t know how to check their credit report. “These are the type of people who are most likely to fall victim to identity theft – and who should be making a beeline for annualcreditreport.co.uk, which is free and simple,” adds Mr Moss. “You might feel what you don’t know can’t hurt you, but a higher interest rate could cost you thousands, and ID fraud can take years to sort out. It’s far better to check your record than live in ignorant poverty. “Everyone in Britain should be looking at their credit report at least annually – particularly with so much data about us being lost by big Government departments and banks,” advises Mr Moss. To register for the digital edition, go to EXP A T Serving expats for more than 16 years expatinvestor@ipg online.cc June 2005 £4.95/€7.50 /US$7.50 In this issue Property sales ma y fall by 40% this year because of the credit crunc h, warns the R oyal Institution of Charter ed Surv eyors (Rics). Such a property sales decline w ould represent the lar gest shrinkage in the housing mar ket since moder n records beg an and could cut consumer spending b y eight per cent. Wha t’s more, in its upda ted forecast f or the housing mar ket in 2008, Rics has pr edicated tha t overall prices will fall b y as much as five per cent. Rics’ Chief Economist is Simon Rubinsohn, who admits the outlook is worrying . “Mone y looks set to remain tight and man y will contin ue to find tha t access to the mar ket is restricted b y cautious lender s.” He believes suc h an outcome will ha ve important ramifica tions for the wider econom y. Were Rics’ predictions to come about, there will be around 700,000 few er residential and commer cial property sales in this year than ther e were in 2007. Recent mar ket indica tors support Rics’ forecasts . UK property rises fell by 1.1% in A pril, the sixth monthly decline in a r ow, and w ere down 1% fr om the le vels seen in April 2007, reports Na tionwide . The building society sa ys such price falls reflect a w eakening mar ket which had been hit b y “poor af fordability and tighter financial mar ket conditions”. The latest fall means that the average UK home no w costs £178,555, which is £1,759 lower than A pril 2007. This gloom y prospect has been UK house prices first f all for 12 years Investor EXP A T Serving expats for mor e than 1 7 years £4.95/ €7.5 0/US$7.50 July/Aug 2008 Bringing a dvisers an d investo rs together Investor E X P A T Serving expats for more than 17 years £4.95/ €7.50 /US$7.50 Offshore savings Who’s offering the best ra tes for expat savers. Money management How to regain contr ol through careful debt management procedur es. Credit crunc h manoevr es Skipton Guer nsey guides e xpats through the causes of the credit crunch and its impact on their savings. Healthcar e Check out new de velopments in the international healthcar e insurance market. Retirement HSBC e xplains w hy 2 million women ar e losing out on a potential pension income . Regulars 10 Offshore funds 11 Offshore sa vings accounts 21 Property in vestments 22 Offshore mortg age mar ket 6 16 www.expatinvestor .com As figur es confir m that UK proper ty prices ar e now falling , it’s mor e necessar y than e ver that proper ty investors kee p watch on this mar ket and their inv estment in it. For more informatio n from our advertis ers or about produ cts featured in Expa t Investor enter the Fast Facts number onto the R eader Reply Service coupon on page 20 or go to: expatinv estor.com www.expatinvestor.com “There are those that you kno w you should r ead, and then ther e’s the ma gazine you will r ead.” To register for Expat Inv estor digital edition, visit the w ebsite at www .expatinv estor .com Serving expats for mor e than 19 years 9 20 confirmed b y Halifax’ s price surv ey, prompting the f orecast of a “modest (low sing le digit) decline in UK house prices this y ear”. The Halifax adds tha t any declines m ust be view ed in the context of the significant price rises over recent y ears. “UK prices ha ve increased b y 171% o ver the past 10 years and b y 51% o ver the last fiv e years.” Accor ding to the Halifax, the average UK pr operty price has risen by £120,860 during the past decade , from £70,696 to £191,556. More detailed scrutin y of Halifax’ s survey sho ws that ther e were house price falls in six r egions with the big gest falls in W est Midlands (–5.0%) and W ales (–4.7%). Homebuyer s in a stronger position Buyers have been putting do wn bigger de posits than in pr evious cycles. The Halifax f ound tha t 82% of all new bor rowers put do wn a deposit of more than 10% of the house price during the final quarter of 2007. By contrast, 56% of new borrowers put do wn a de posit of more than 10% in 1989 and 1990. The average de posit put do wn by a first-time b uyer (FTB) in 2007 (£34,381) r epresented 20% of the purchaser price , compar ed with 12% in 1989. Only 5% of FTBs took out a loan of 100% or mor e of the purchase price in 2007, compar ed with 35% in 1990. More than a thir d (35%) of owner-occupier s in Britain o wn their home outright. (There are 11.8 million households with a mortg age and 6.3 million households o wning outright.) In addition, nearly one in four (25%) of properties bought each year ar e bought with cash. Total house sales ha ve been much lower in the last few y ears compar ed with the height of the 1980s boom. There were, o n average, 1.15 million transactions in England and W ales in the last thr ee years (2005–2007). This was a thir d – 560,000 – lo wer than in 1988, when ther e were an estima ted 1.71 million transactions . First-time b uyers also account for a significantly smaller pr oportion of new mortg age bor rowers: 30% against near ly 50% in the la te 1980s . The interest ra te quoted is v ariable, gross and effective from 3 July 2 008. Monthly i nterest availa ble at 6.30% g ross p.a. (AER 6 .49%). This ac count is only a vailable onlin e to individua ls aged 18 or o ver and is not available to U K residents. Bradford & Bing ley Internationa l Limited, Intern ational eSaving s Unit, PO Box 2 63, Douglas, Isle of Man IM99 2 JJ British Isles. R egistered in the Isle of Man No . 052221C. Reg istered Office: 3 0 Ridgeway Stre et, Douglas, Isle of Man, IM1 1T A. Copies of ou r most recently a udited accounts are available o n request. Brad ford & Bingley p lc undertakes to discharge the lia bilities of Bradfo rd & Bingley In ternational Lim ited in so far as the latter is una ble to discharg e them and rem ains a subsidia ry of Bradford & Bingley plc. U nder Isle of Ma n legislation, elig ible deposits m ade with an Isle of Man office o f Bradford & B ingley Internatio nal Limited are covered by the Depositors Com pensation Sche me contained in the Banking Bu siness (Compe nsation of Dep ositors) Regula tions 1991 (as a mended). AER stands for Ann ual Equivalent R ate and illustra tes what the in terest rate wou ld be if interest w as paid to the a ccount once a y ear.This advertis ement does no t constitute an in vitation to make deposits in any jurisdiction to a ny person to w hom it is unlaw ful to make suc h an invitation o r offer in such ju risdiction. Intere st rates are varia ble. Your tax po sition will depe nd on your pers onal circumsta nces and you m ay wish to seek guidance from your tax advis er. It is the resp onsibility of the depositor to de clare any intere st received to th eir relevant tax authority. EU re sidents who are subject to rete ntion tax by wa y of the EU Savin gs Tax Directive will need to co nsider the effec t of the retentio n tax that will b e applied to their accounts. Licensed by th e Isle of Man F inancial Supe rvision Comm ission to cond uct Banking B usiness. Apply online no w at www .bbi.co.im me& my easy op tion Enjoy a great rate and easy access. 6.50 % Gross/p.a. eAccess2 Offshore inte rnet banking fo r expatriates . Internet Savin gs Account . Interest availab le Annually, M onthly or Deferr ed . Minimum bala nce only £1,000 . Great for regula r savings . Deferred intere st for tax plann ing Fast Facts 66000 14 Figures from the Council of Mortgage Lender s have shown an increase in the n umber of loans taken out b y buy-to-let landlor ds in 2007. With first-time b uyers finding it increasing ly difficult to get onto the property ladder , it might be expected tha t private landlor ds are having it easy . Alan Har per, Senior Analyst a t Moneyfacts .co.uk, has researched the a vailability of buy-to- let mortg ages and r eports, “Moneyfacts .co.uk resear ch shows that landlor ds have not escaped the fallout fr om the cr edit crunc h. As in the residential mar ket maxim um loan to v alue limits ha ve fallen during the second half of 2007. “Moneyfacts .co.uk calcula tes that, this time last y ear, the average b uy- to-let LTV (loan to v alue) acr oss all prime pr oducts was 82.8%: today it is 80.1%. Based on taking an average L TV on an ‘a verage’ house price in F ebruary 2007 of £189,197, a borrower w ould have required a contrib ution of £32,542. On toda y’s figures, the y would need to find £38,063. “Despite the r ecent tail of f in house prices , the average new b uy- to-let landlor d needs to find ar ound £5,500 mor e now than a y ear ago to buy their fir st rented pr operty. Go back fiv e years and the same calculation (based on an a verage LTV, resear ched by Moneyfacts .co.uk, of 79.2%) and the Halifax a verage house price average of £123,686, equates to a contribution of £25,727, nearly £12,500 less than toda y. “In May 2007, when property prices w ere rising and the mar ket was booming , 13 buy-to-let lender s were prepared to of fer 90% L TV, the highest L TV ever of fered on a buy-to-let mortg age. Now this number has dr opped to fiv e.” First time landlor ds feeling the pinc h M Page 1 July/Aug ust 2008 ? EXPAT IN VESTOR 21 PROPERTY Fast Fact s 66440 the differ ence with the v endor and pay £187,143 f or the pr operty to do the deal. 2) Fix the ex change rate Fix the price of the property b y fixing the e xchange ra te using a forward contract. In essence , a forward contract means tha t individuals can b uy the cur rency now, and pa y for it la ter (when they need to make the individual stage payments). Buyers will be required to pa y a 10% de posit now and the 90% balance upon the maturity of the contract. We always r emind clients tha t they'd ne ver agree to b uy a property in the UK without knowing the final cost. If you agree to b uy an over seas property without fixing the e xchange ra te at the start tha t’s exactly the g amble you’re taking . But some people become g reedy and despite our advice the y think they’ll hold out f or a better ra te. While ex change ra tes could go in your favour , they are just as likely to go against y ou and w e strongly recommend tha t people w ho are working to a tight b udget fix the rates at the outset to pr otect themselv es and ensur e they can afford the pr operty w hen it comes to completion. 3) Get the exper ts in Using a cur rency broker to transfer the mone y to buy the pr operty and not a high str eet bank will sa ve consumer s thousands of pounds. O n average, mystery shops sho w that using a high str eet bank will cost up to 4% mor e on the e xchange ra te alone. Four per cent ma y not sound like a lot b ut this means if an individual is c hanging £100,000 into euro s, for example , they’d pa y around £4,000 mor e than if they’d used a compan y like HiFX. Using a high street bank also means being subject to a n umber of additional bank char ges which include commission fees (up to another 2% of the amount transfer red and transfer c harges (usually £25 f or each and e very transfer) and finally depending on w here the mone y is being sent, up to another half a percent bank r eceiving fees . Currency specialists like HiFX will transfer mone y abroad completely fr ee of char ge. 4) Sort out ong oing pa yments Once someone has bought their overseas pr operty or mo ved to their new life abr oad, they will still need to make r egular cur rency transfer s for a wide v ariety of reasons the most common of which ar e: overseas mortg age payments , pension transfer s, the repa triation of rental income , salary transfer s and school fees . Howeve r, buying currency on a r egular basis is time consuming and cur rency fluctuations can make b udgeting impossib le. Also the inter national transfer fees and commission c harged b y the banks can soon add up to a tid y sum. A Regular P ayments Abr oad Service allo ws customer s to automate their pa yments via dir ect debit and fix the e xchange ra tes for up to two y ears ahead so the y know exactly ho w much is being transferre d every month. The HiFX RPA service is cur rently used to make over 20,000 pa yments e very year. Four tips for the ov erseas proper ty purchase that a drop in demand will mean vendors ar e also feeling the pinc h. This leav es buyers in a position to negotiate prices . If buying a Eur opean pr operty from a Brit, use the ra te fluctuations to r enegotiate the price of the pr operty. Example: If a British v endor fir st put the property up f or sale in October 2007 for € 200,000, they would have been e xpecting to r eceive £137,931. If the vendor had managed to sell the pr operty in Mar ch this year, due to the e xchange ra te they would receiv e an unexpected windfall (additional mone y from the sale) of £20,346.91. However , buyers ar e now holding of f buying as the prices have risen to high so demand has dropped. In order to tr y to do a deal, buyers should, therefore , point out that the seller can af ford to dr op the asking price to €174,290 and still receiv e £137,931. Alternativ ely, in the spirit of negotiation, the buyer could split With the mar kets in tur moil, property prices in f lux and ster ling falling ag ainst the eur o, but still riding high ag ainst the dollar , anyone intending to b uy property overseas w ould be f orgiven f or getting the jitter s. In the last eight months a Eur opean pr operty priced at €200,000 has become £24,677.40 mor e expensiv e to a British bu yer due to f luctuating exchange ra tes. However , HiFX is ur ging prospectiv e buyers not to abandon their plans b ut to seek advice on how they can use cur rent exchange rates to ensur e they get a g reat deal on a property abr oad. Director Mark Bodeg a presents these f our tips. 1) Use the ex change rate to negotiate har d Most buy ers work to a b udget and changes in the eur o/sterling exchange ra te has ther efore led to people re viewing w hat properties they can af ford. Rather than assuming tha t because costs ha ve gone up , preferred pr operties ar e out of reach, bu yers should r emember HIFX presents its g olden tips f or jittery b uyers ner vous about f luctuating o verseas proper ty prices . Exed20 0807p2 1.qxd 26/6/ 08 6 :40 PM Pag e 21 so the cost of this source of finance has gone up dramatically. The reliability and volume of this flow of money is important for the banks – historically, they will aim to raise funding at a low rate in the wholesale markets and then lend this as mortgages and other loans at a higher rate to their customers. If they cannot access funding in the wholesale markets, or if the cost is too high, the whole market machinery slows down, and there will be fewer takers for mortgages and loans at these new, higher costs. This credit crunch is often blamed on the US sub-prime crisis, and whilst the packaging of US mortgages of questionable quality into complex financial instruments which have then been widely traded is certainly a factor, it is probably not the only reason for the crisis. Fear is also now stalking the markets, as these securities have been so widely traded that many organisations are struggling to calculate accurately their exposure to any risks, so the general air of suspicion and uncertainly becomes ever more widespread. This, in turn, has undermined market confidence. Savers though, should not be affected by banks reining in their borrowing clients, and many have, indeed, seen an upside to the credit crunch. A quick look at the savings rates on offer from leading offshore banks, confirms all are paying over UK base rate, which is currently 5%. Historically, the majority of variable rate based savings accounts would have offered savers an interest rate below UK base rate or one equal to UK base rate for larger balances. As the cost of raising money in the wholesale markets has risen for both banks and building societies, so many are now turning again to their core retail savings clients to raise funds, with the result that savers can now find interest rates on good quality savings accounts offering a full 1% above UK base rate. For the specialist offshore savings institutions, then, this is an opportunity to pass on the benefits of high wholesale money market rates to their savings customers. But should savers simply chase the highest rates on offer, or do they need to tread carefully with some of the more extreme products available? The answer is, buyer beware. If the main reason why you have opted for an offshore deposit account is safety and security, you will probably be more at home with an organisation with a long track record of offering consistently attractive interest rates, rather than one which is trying to top the best buy tables for a few weeks. Most of the savings accounts available today are unlikely to be offering the highest rate in 18 months time, so personal choice will play a role – if you are the kind of saver who is happy to watch the interest rate and constantly switch funds between accounts, there are products that will suit you The credit crunch, then, has been generally bad news for borrowers, but for savers the picture is altogether brighter, as savings accounts offering higher than usual returns look like they will be available for some time. Choosing the right organisation will still require care, though. “The so-called credit crunch is often blamed on the fact that the big banks and finance institutions have apparently stopped lending to each other in the wholesale markets, or at least they have become far more cautious in their approach.” “As the cost of raising money in the wholesale markets has risen for both banks and building societies, so many are now turning again to their core retail savings clients to raise funds, with the result that savers can now find interest rates on good quality savings accounts offering a full 1% above UK base rate.”
May June 2008