The cost of buying a home is at an all time low – state Halifax

Halifax stated this week that the average cost of buying a home has fallen to the lowest in 15 years. They state that a typical mortgage on a new home now costs an average of 25% of take-home pay, compared to a staggering 45% at the peak, before the credit crunch.

Lowering prices and lower interest rates they say are making buying a home much more affordable, with the greatest affordability being in parts of the UK where house prices have been affected the most, such as Northern Ireland. However in the South East, an average new home buyer will need to part with slightly more of their income, as lack of properties on the market, have kept prices much the same as before the credit crunch, and buyers are having to part with 32-35% of their income to finance their new home, which is still lower than 2007 when the average home buyer had to part with 56% of their income.

Buying a home is much cheaper than renting. If you are looking to buy your first home or would like to find out more about the mortgages we have on offer at Enable why not contact us on 01279 755950, our IFA's of Bishop's Stortford have access to the whole market place, and all of our fees are completely transparent.

Clamp down on companies offering ‘no win, no claim’ on PPI’s

PPI, Payment Protection Insurance has been big news, with companies normally offering personal injury and industrial injury jumping on the PPI bandwagon, left right and centre. However this week the government has announced that as from 2013 the legal ombudsman will be responsible for complaints, meaning that consumers who have been provided poor customer service could be awarded compensation of up to £30,000.

The companies offering to make claims for miss-sold payment protection insurance, take a percentage of the compensation they receive on behalf of their customers, usually on a ‘no win, no claim’ basis, however their have been several claims that these companies have been asking for money up front and that they have been making false claims to customers.

The Ministry of Justice, MoJ’s annual report from 2011-2012, stated that it had cancelled or warned 400 claims firms in the year to March 2012, and that a staggering 93% of the complaints were about financial claims firms.

The new changes in 2013, which will be enforced by the CMRU, Claims Management Regulation Unit, will change the way in which these companies are regulated, getting rid of bad practice within the industry and protecting consumers. This is potentially great news for consumers.

Increasing wealth tax, will it drive out the rich?

There has been much talk this week about the UK economy being hampered if the coalition insists in pushing up tax for the rich, although it could be argued that most rich are already contributing far more than other people to the country.

Hollande, France’s new socialist President has also taken the same tact, to increase tax on the rich, which has met fierce opposition. But the question remains, although we have offered to lay out the ‘red carpet’ to France’s super rich, are we as a country not driving out the rich too, but just in a lesser degree, as we have already seen several hedge funds moving abroad.

George Osborne, Chancellor expressed his concerns over the new plans during his visit to Sunderland, where he stated:  "I am clear that the wealthy should pay more, which is why in the recent budget I increased the tax on very expensive property transactions. But we also have to be careful as a country we don't drive away the wealth creators and the businesses that are going to lead our economic recovery."

Nick Clegg has already agreed to cut the top tax rate from 50p to 45p and has since indicated that he intends to increase wealth tax, and we will see no more increase on income tax in the UK for the time being. The coalition sentiment is that by tax the richest in the country, with it’s proposed tax on homes of £2 million and over would help the country pay off it’s deficit and improve the economic situation for the long term. We will have to wait until September to find out what the new proposed changes are going to be at their party conference.  

NHS tries to generate funds by selling our health system abroad

News this week that the NHS ‘brand’ could be sold abroad attracted immediate criticism from the Patients Association, who are concerned that with an already stretched health system, could result in specialist hospitals concentrating on getting money from abroad rather than concentrating on its UK customers.

NHS trusts, with world-wide reputation, such as Great Ormond Street, could establish overseas clinics, increasing the revenue generated for the NHS.

Anne Milton, the Health Minster stated: "This is good news for NHS patients, who will get better services at their local hospital as a result of the work the NHS is doing abroad and the extra investment that will generate," she said.

"This is also good news for the economy, which will benefit from the extra jobs and revenue created by our highly successful life sciences industries as they trade more across the globe.

"The NHS has a world class reputation and this exciting development will make the most of that to deliver real benefits for both patients and taxpayers."

However the proof is in the pudding, and it will be interesting to see whether tax payers will appreciate sending our most valuable specialist service abroad, and whether as the Health minister states will increase jobs and boost the economy.

Public Pensions – Armed forces forced to retire 5 years later…

News this week that Armed forces could see their pension age rise from 55 to 60 under new government plans, has caused concerns to army personnel. 

The proposed changes will affect all service personnel under the age of 45, this is part of the government shake up to reduce the cost of public pensions.

Currently the armed forces have two main pension sections, for those who started between 1975 and 2005 and those who joined after that date. However in both sections, the retirement age was 55.

The government has stated that pension rights accrued under the exiting schemes will be protected, and the unique early retirement feature of the scheme will also remain. This is in the form of a lower level pension, and a lump sum is paid to service personnel with at least 18 years service, aged 40 or over. The length of time in service will rise to 20 years.

David Marsh secretary of the FPS stated: "This will mainly affect officers who tend to join after university rather than the other ranks who join about the age of 20," said David Marsh, pensions secretary of the FPS.

However the rest of the public sector pension ages are going to rise from 65 to 68, in line with an increased life expectancy. 

If you are in the armed forces and are concerned about the amount of pensions you will receive then get in touch with one of our IFA's. 

Which? states 'free' banking doesn't exist…

Which? the consumer group states that there are still large variations in the cost of current account charging to consumers, and the idea of ‘free’ doesn’t exist.

In its latest analysis of some of the main banks in the UK, it stated that the UK banking system ‘shatters the myth’ of free banking. Which? states the cost of going overdrawn without permission for two days could cost customers as much as between £120-£900 per annum.

However the British banking system have retaliated stating that the report is not correct as many customers could still access free banking in the UK – well as long as they don’t go overdrawn.

Which? chief executive Peter Vicary-Smith stated: "When some people are paying up to £900 a year in bank charges it completely shatters the myth that banking is free."

He added: "It's a disgrace that the very people who bailed out the banks are being asked to pay more for the most basic accounts, while the industry continues to be rocked by scandals like PPI mis-selling, Libor rate-rigging and IT failures.

"Banks must be far more transparent about their fees and charges so that people can clearly see what they already pay."

If you are unsure about your financial situation why not get in touch, we will be able to give you a review of your financial circumstances. 

So what's really happening on the job front...

The Office for National Statistics (ONS) released data this month that showed the UK unemployment level falling to 2.58 million (a reduction of 61,000 people) in the three months to May 2012. This represents a rate of 8.1% against a figure of 8.3% reported in the previous quarter.

Details reveal that the number of people now in employment rose by 181,000 to 29.35 million and, encouragingly, unemployment among 16-24 year olds fell to 1.02 million, a reduction of 10,000.

Self-employed people (both full and part time) rose by 32,000, which was an increase of 0.8% on the quarter and represented an increase of 166,000 to 4.16 million, or 4.2%, compared to the same period a year ago.

On the negative side, the number of people who have been unemployed for more than two years increased by 18,000 to a total of 441,000. This is a 15 year high. Also those claiming Jobseekers Allowance increased by 6,100 to a total of 1.6 million.

Regionally, the picture was mixed, with about 50% showing negative figures. An example of this is Wales, which saw unemployment increase from 8.8% to 9%, and Yorkshire and Humber, which saw unemployment rise from 9.3% to 9.7%.

Whilst Scotland saw their rate fall by 0.2% to 8% and the North East’s unemployment rate fell from 11.2% to 10.9%, the latter remains the region with the highest unemployment rate in the UK. The South West was the best region, reporting an unemployment rate of just 5.9%.

Commenting on these figures, Chris Grayling, the Employment Minister, said that unemployment was: “still much too high.”

He went on to say: “But, I’m at least encouraged, in what are difficult times economically, that we are seeing improvements across the board.”

Adding further encouraging prospects, the forthcoming London 2012 Olympics should further boost the short-term employment picture.

A spokesman for Commerzbank, Peter Dixon, stated that it was: “entirely possible that there will be a temporary boost due to the Olympics, possible that there will be more to come, but if this is Olympic-related temporary hiring, it is likely to be unwound again later in the year.”

Is the state going to guarantee your pension pot?

In an unexpected, but gratefully received, message from the pensions minister, Steve Webb, the Government announced an intended ground-breaking policy to protect future pensioners’ investment funds from falling equity prices saw a rise of 8.8%.

Because of the delayed bank holiday in May (to accommodate the longer Queens Jubilee weekend), that month had an extra working day, which resulted in manufacturing output increasing unexpectedly by 1.2%.

The counter to this good news was that pharmaceutical preparations and products saw a fall of 13.2% and food, drink and tobacco were down year-on-year by 3.9%.

Howard Archer, an economist at IHS Global Insight said of these figures: “A double dose of good news on the UK economy with industrial production unexpectedly rising in May and the trade deficit narrowing more than expected.”

“However, the news is not quite as good as first appears, and there will be payback in June on the industrial production front.”

At the same time the chief economist of The British Chambers of Commerce (BCC), David Kern, was quoted as saying: “Unusually, UK exports to non-EU countries were higher than exports to the EU.”

He went on to add that UK exporters have “huge untapped potential.” And that: “This shows that exporters are adjusting to global reality, as growth in the Eurozone will continue to stagnate, and the main opportunities for our exporters will remain outside Europe.”

Inflation continues to fall ...

Continuing on the good news front, the Office for National Statistics (ONS) has reported the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) inflation rates fell in June to 2.4% and 2.8% respectively.

This represents the slowest rate of increase in UK prices since the latter half of 2009 and the third month in a row that the rate of increase in CPI has fallen.

Reasons behind this decrease were a drop in clothing and footwear costs - with a reduction of 4.2% seen in these sectors - probably due to retailers bringing forward their summer sale promotions.

Whilst a drop in prices here was anticipated, due to aggressive price reductions by those retailers, a fall of this scale was not forecast.

We also saw a reduction in alcohol and transport costs, which were down by 0.5% and food prices, particularly meat, down by 0.1%. The ONS cited the lack of domestic barbecues, due to the inclement ‘summer’ weather we have experienced as one reason for this decline.

Fuel costs were an important element of this overall reduction, with petrol seeing a fall of 4.3 pence per litre, to an average price of £1.33 a litre and diesel falling 4.7 pence to an average of £1.39 a litre.

Echoing this good news, Neil Saunders, retail analyst at Columino stated: “However, if inflation continues to drop back at this pace, wage settlements will outstrip inflationary growth by the fourth quarter, meaning we will see a return to growth in real disposable income.”

With regard to the reduction in fuel costs, he went on to say: “This has benefited most households although, in our view, it will take time for this to drive tangible changes in behaviour in terms of shopping and spending habits.”

Representing a welcome continuing decline in inflationary pressure and a move nearer to the Bank of England’s CPI target rate of 2%, these latest figures will reassure the Bank that its Quantitative Easing (QE) programme (totaling £375bn so far) has not stoked the inflationary fires in the UK economy as some members of the bank’s Monetary Policy Committee

A mixed forecast predicted for the UK economy...

The Ernst & Young Item Club, which is one of the most respected independent economic forecasting groups that uses the same economic model as the UK’s Office for Budget Responsibility (OBR) and The Treasury, has good news in its latest quarterly forecast for the UK economy.

They believe - although the latest GDP figures (released on July 25th) for Q2 paint a far gloomier picture and some forecasters are much less positive - that it will enjoy an “Indian summer” following its dire performance in the first half of the year.

Whilst they predict the rate of inflation to continue to decline to 1.7% by year-end and see growth for the whole of 2012 remaining flat, they go on to forecast growth in 2013 to reach 1.6% and by the end of 2014 to see a rate of 2.6%.

In addition, real disposable incomes should rise by 0.4% in 2012 and in 2013 by 1.5%.

The chief economic adviser to the Item Club, Peter Spencer, was quoted as saying: “Spiralling inflation has cut real wages by 7.5% over the last four years, but the squeeze is almost over.

“Inflation is now coming back to heel, helped by the Chancellor’s decision to postpone the increase in fuel duty, falling energy and commodity prices, plus tax changes dropping out of the calculation.”

It is widely believed that any growth in the UK economy will be export-led, as most households appear determined to pay down personal debt, rather than to consume goods.

Having said this, UK unemployment will remain high, possibly reaching 8.6% by the end of 2012 and increasing to 8.7% in 2013.

On the positive side, the report believes that business spending will increase by 3.4% in 2012, although it is unlikely to reach the levels achieved pre-recession till at least 2015.

Mr Spencer went on to conclude: “However, a resolution of uncertainty about the euro could transform the outlook, pushing company spending up much faster than forecast.”

Private Pension costs

Private pension firms have also been accused of hiding some of the costs they levy on customers' investment funds. The RSA recommended that the UK copy the example of Denmark where people taking out a personal pension are given annual statements, like a bank account, revealing the full impact each year on their investments of all charges and costs.

About six million people contribute to personal pension plans, according to recent figures from the Office for National Statistics (ONS). Ros Altmann, the director general of Saga, said: "Pension charges are too high and too complex. If your car is serviced in a garage you get an itemised bill explaining what each charge is for, which part was replaced and what the labour charges are, all in pounds and pence. No one would quote the fee as a percentage of the value of your car, which would be meaningless. But this is what happens with pensions, drawdown plans and annuities."

But the Investment Management Association criticised the report, describing it as "sensationalist headline-seeking". "It does itself no favours by quoting discredited research which exaggerates the cost of managing pension investments many times over," said Richard Saunders, chief executive of the IMA.

"For retail funds there is already a gold standard of charges disclosure, mandated under EU rules put together after extensive consultation and consumer research. "We need that standard rolled out across the whole pensions and long-term savings market," he added. Our experienced IFA’s at Enable agree.

The cost of a pension...

Since a report by the Royal Society for Arts (RSA) said 21 out of a sample of 23 firms failed to disclose the full investment costs of pensions when asked there has been much debate about pension charges. The Association of British Insurers responded that its members revealed all costs, as required by the regulator." All employees who have contract-based defined contribution pensions have their charges disclosed in their key facts information when they purchase a pension," said Otto Thoresen of the ABI. "This is required by FSA rules," he added.

When the RSA questioned the 23 pension firms, all of them said that customers' accounts had to pay an annual charge, and other normal overhead costs for administration, legal and accountancy services.  But only two firms acknowledged that there would be other one-off or variable fees, such as the costs of stamp duty on share purchases, or the stockbroking fees associated with share and bond trading.

The RSA said its report uncovered, "how those selling pensions fail to reveal what is charged for such items as audit and custodial costs, and other hidden costs including taxes, stock lending fees and broking commissions".

"Furthermore, even when costs are declared, it is not done in a way in which typical pension savers are likely to understand. "The enormous impact of fees, where an extra 2% annual charge can, over the lifetime of a pension, result in a halving of pension benefit, is not understood by individual consumers or by small employers," the RSA added. IFA’s from Enable can help you understand the cost of your pension.

Which Pension? As bond bubble hits pension savers

About four million employees are members of DC defined contribution pensions such schemes, and 86% of them are paying their money into so-called "default" funds. These tend to be partly invested in UK government bonds, in some cases heavily so if an individual is close to retirement.

In recent years the price of UK government bonds has had its very own bubble. "There has been a big inflation of government bond prices, which may not be over, and it may be some considerable time until they deflate, but at some point they will have to come back down to earth," says Laith Khalaf, pension investment manager at fund supermarket Hargreaves Lansdown.

"Gilts are seen as a very safe asset, but actually at their current prices there is a potential for capital losses."

There are three related reasons bond prices have risen. Both here and abroad, governments have cut interest rates to try to stave off recession. This has had a knock-on effect on UK government bonds, known as gilts. As the Bank of England base rate has fallen to 0.5%, the fixed rate of interest paid by the gilts has become correspondingly more valuable and their prices have risen.
Gilts have also been seen as a "safe haven" by foreign investors who have been buying them during the turmoil in the finances of the Eurozone.

If you are trying to make sense of your pension our experienced Independent Financial Advisor's at Enable would be able to talk you through your options.