LESS PROTECTION

Cash held in banks and Building Societies have been protected by the Government through the FSCS (Financial Services Compensation Scheme) for up to £85,000 for each banking group.

From the end of the year, however, the level of this protection will be reduced to £75,000. This is a reflection of the increase in the value of the pound against the euro. The underlying European legislation stipulates protection in euros - 100,000 euros. There is a five yearly review. In 2010 the value of 100,000 euros was £85,000. When the review was done earlier this year, 100,000 euros were determined to be worth £75,000, hence the need for the change. If you have arranged your finances based on the £85,000 rule, you will need to review your deposits and bring them down to the new £75,000 level which is the maximum protection in case the banking institution

the money is with goes under.

EFFECTS OF THE MMR (Mortgage Market Review)

The Mortgage Market Review has resulted in new rules being introduced which have put extra requirements on lenders from April 2014. This is already resulting in major slows in processing applications and also is resulting in many lenders starting to raise interest rates on the new mortgages they are offering because of the extra costs resulting from having to implement these rules.

What we are also seeing is generally a tightening up in lending. Cases which would have gone through smoothly in previous years are hitting major obstacles which, in some cases, have resulted in the mortgage being declined. There is also an even greater reluctance to provide new interest only

mortgages. This is bound to impact on the many who still have an interest-only mortgage which is reaching its end.

We will be happy to assist wherever possible with new mortgage arrangements and we are still recommending that those with mortgages on the lender’s standard variable rate should seriously

consider moving to a rate fixed for 3 to 5 years, or longer. We are of the view that interest rates are likely to start creeping up within the next year or so.

ACT TODAY - MAKE SURE YOU USE YOUR TAX ALLOWANCES

In the run up to the end of the tax year, it's important that you consider all the tax-relief/exemptions and allowances that the Government offer. Please remember, many of these will be lost if you don't act before the tax year ends, on 5th April 2014.


You can manage your finances in a more tax-efficient way through:


- Savings - using tax efficient ISAs;
- Pensions - carrying forward any unused allowances;
- Investments - using up capital gains tax (CGT) exemptions and income tax personal allowances;
- Estate planning - inheritance tax (IHT) allowances and exemptions.


Do get in touch with us.

Attack the Plastic

One of the unhappy after-Christmas and New Year “surprises” is the arrival of the credit card bills for the Christmas spending. Of the various financial tools available, the one we find most misused and most destructive are the credit card and store cards. A credit card used properly can be a very useful way to make purchases on-line, or when you are abroad, or to take advantage of a special offer. If you then pay the credit card balance off in full, you will have had 4 to 6 weeks free credit and will have avoided the “honey trap”. If you do not pay it off in full, it is all too easy to fall into the habit of just paying minimum payments. Paying minimum payments of 2% or 3% of the balance is an invitation into NeverNeverLand, as it will not pay off the debt and you will end up having paid an enormous amount of interest, while the credit card balances remain unpaid. If you need credit and are not going to be able to pay it off in full, use a loan. They are structured to ensure that the amount owed does really get paid off.

THE AUTUMN STATEMENT

If we focus on the changes taking place in April 2014, we have the following tax changes: 1. Personal Tax Allowance increased from £9,440 to £10,000 2. Basic Rate Tax Band down from £32,010 to £31,865 (meaning that with the first £10,000 earned being subject to nil tax, you will not start paying 40% tax on earnings until they exceed £41,865 – marginally better than last year’s £41,450). 3. Individual Savings Accounts (ISAs) go up to £11,880 (last year £11,520) with half of this(£5940) able to be put in a Cash-ISA. 4. The main rate of corporation tax will be cut from 23% to 21% from April 2014. 5. A £1000 business rates discount in 2014/15 will apply to retail properties including pubs,cafes, restaurants and charity shops; and a 50% business reoccupation relief for businesses that move into retail premises that have been empty for a year or more. There is no change in the Property Stamp Duty Tax (still nil on purchase prices up to £125,000, 1% up to £250,000, 3% up to £500,000, 4% up to £1 million, 5% up to £2 million and 7% for over £2 million). The threshold for Inheritance Tax also remains unchanged at £325,000. The Capital Gains Tax Exemption is another tax allowance that is not changed this year –remaining at £11,000. And for those with significant pension savings, there is actually a reduction in the amount of pension they are entitled to accumulate in their lifetime (Lifetime Allowance) from £1.5 million to £1.25 million. The future carrots being dangled include: 1. From April 2015 no employer’s National Insurance tax on employees under the age of 21. 2. From 2015/16 married couples who are not higher rate taxpayers being able to possibly benefit when one spouse is not earning enough to use up all of their Personal Tax Allowance. Effectively this will be worth up to about £200 a year less tax for the couple to pay. 3. The Capital Gains Tax Exemption is promised to go up to £11,100 from April 2015. And then there is the contentious issue of an 11% pay rise for Members of Parliament from April 2015!

Start of 2014

With the start of 2014 Sovereign enters its 33rd year of trading. As always there were challenges to overcome in 2013 and more coming up in 2014. 2014 starts with an economy which looks to be on the road to recovery and with that cautious optimism comes an improving property market. The market will continue to benefit from the Government’s Help-to-Buy schemes as more first-time buyers and property movers now can buy with as little as a 5% deposit. In 2014 more employers will face having to move over to Compulsory Enrolment whereby they have to bring all of their staff into a company pension scheme and start paying something into the employee’s pension as well. While it represents a worthwhile effort to get people to start saving for retirement, it represents a large new administrative burden on employers. Those with 50 employees or less are not in the firing line until 2015/16. 2013 certainly had Great Britain fully on display with the Queen’s Diamond Jubilee, the Olympics and Para-Olympics, and a Brit winning the Wimbledon Men’s Finals for the first time in a very long time. 2014 may not be as full of spectacular presentations. There are the Winter Olympics in Russia and the World Cup in Brazil, but predictions of great results in either of these are a bit hard to find. 2014 will probably see politicians making many promises in advance of the next General Election in 2015. This was already visible in the Government’s Autumn Budget Statement. The Chancellor made a number of promises not due to start until April 2015 while the General Election is due to take place on 7 May 2015 and he might not be around afterwards!

Will Interest Rates Increase?

Think Ahead ! Improvements in the UK economy are good news but are also warning lights for an increase in interest rates. The Governor of the Bank of England's target for unemployment is getting close. It is a good time to lock into fixed rates with your residential mortgage to avoid hikes in your monthly outgoings. We recommend looking at five year deals.

ARE YOUR SAVINGS SAFE?

Remember that your cash savings are protected by the Financial Services Compensation Account, but only up to £85,000 for each saver for each of his accounts with different financial institutions. The thing to be aware of is that some savings institutions are part of the same banking group, and your protection is limited to £85,000 for all of your accounts with that group. It is a good idea to check and make sure. And remember that accounts held jointly with a spouse are entitled to twice the £85,000 protection, i.e. £170,000.

The Value of Experience and Expertise!

By survey what you want from us is our advice on financial matters, utilising our extensive knowledge and long experience going back over 30 years. We enjoy helping in this way and continuing to assist our clients and their friends and their children. Those that have used us do know they can rely on us again and again. In recent service questionnaires when asked why they chose to use Sovereign Finance we received answers such as the following: “We dealt with Sovereign Finance before and found them of good service, reliable and honest. Always.” Mr GS of Ashford “Thank you so much for making it all happen so fast. Brilliant!” Mrs SR of London “Mr Shuster is dedicated to getting the right result.” Mrs HT of West Sussex “We had previously used Sovereign and had confidence in the advice given. We expected a good service and that’s what we got.” Mr KH of Eastbourne “The service I received was excellent with regular correspondence and home visits. Good work. Keep it up”! Mr MB of Pembury

Savings/Investment Tips

1. Don’t put all your eggs in one basket. 2. Do your homework. 3. Don’t gamble with money you can’t afford to lose. 4. Don’t be greedy. Expecting very high returns can expose you to very high risks. 5. Invest for the Long-Term. 6. Include tax planning in working out your savings and investments.

Review your mortgage arrangements

If you are on your lender’s Standard Variable Rate and paying more than 4.5%, find out what other options your lender can offer and then contact us. We can look at what is available in the marketplace so you have some basis of comparison. It can save you thousands of pounds over the term of the mortgage.

THE PROPERTY MARKET

The property market generally does not look to be rising or falling to any great degree. It has largely been Landlords buying and selling buy-to-let properties that have kept some life in the market. In the first quarter of 2012 there was an increase in mortgages completing due to the March deadline for the Stamp Duty reduction for First Time Buyers. The Government and builders are seeking to continue to encourage First Time Buyers with a number of options for buying new-build properties. There are also still some part-buy/part-let solutions. However, the real problem with the property market is that segment who are locked into their present mortgage arrangements due to the changes in the mortgage market over the past several years. We have seen various options virtually disappear, including 95% and 100% mortgage, self-certification mortgages for the self-employed, and mortgage options for those with past credit problems. However, the mortgage market is starting to become a bit more flexible and it is worth staying in touch in case options open up.

Interest rate update

Uncertainty appears to be the watchword among policymakers at the Bank of England (BoE). Recent events have provided few hints on the possible direction of interest rates and the timing of any potential movements, and the Monetary Policy Committee (MPC) remains divided on future strategy.

Rates were kept on hold for the 24th month in a row in March. However, minutes of both the February and March meetings show a split has begun in the Committee. Three members have twice voted for an increase of at least 0.25 percentage points, while another continues to vote for an expansion to the currently dormant quantitative easing programme.

Despite that, external speculation about further quantitative easing measures appears to have abated, at least for the time being. Current inflationary pressures reduce the scope for injecting more money into the economy, as this would likely fuel prices. The Consumer Price Index remains stubbornly high, well above the BoE’s target of 2%, and registered a further rise during February, to over double that target, ie: 4.4%.

Nevertheless, the MPC is limited in how much it cool inflation by raising interest rates; although they remain at their lowest level since records began more than 300 years ago, it is difficult to increase them without impacting the UK’s fragile economic position. The economy shrank by 0.6% in the final quarter of 2010 and government spending cuts, coupled with the increase in VAT from January, are likely to further impact any prospects for economic expansion, particularly in the construction sector, and the full effects of these are yet to be seen.

Although inflation remains significantly above target, the MPC’s expectations for inflation in the medium term remain "anchored". It is not until 2013 that they expect it to fall back below 2%. With the lack of any other clear signal, the path of interest rates is therefore likely to be influenced by other events in the world economy albeit with one eye on what happens once the government spending cuts properly take hold.

For the moment then, low interest rates continue. Such a strategy will continue to be welcomed by borrowers; however, it will prolong the headache for savers, particularly those who are looking for a low-risk home for their money. Whilst the rest benefit from lower repayments on borrowing, those who focus on deposit accounts are getting little return on their money and inflation continues to eat away at its real value.