2013 – The Year Of Recovery
We wish all our clients and contacts a very Happy Christmas and look forward to being of service to you in the New Year. Thank you for entrusting Marchwood IFA with your – or your clients’ – financial affairs. We never forget that you have a choice of who to consult for financial planning advice and will always try to repay your trust in us by exceeding your expectations.
Turning the corner
In the years to come, people will look back on 2013 as a pivotal year in economic and financial terms. Earlier in the year, pessimists were talking about a ‘triple dip recession’ and mention of recovery was nowhere to be seen. Yet in the last month or two Mark Carney, the new Governor of the Bank of England, has made numerous comments to the effect that the UK economy has ‘turned the corner’. Consumer confidence is growing again, business investment is increasing and there is clear evidence of sustainable economic recovery; UK GDP grew by 0.8% between July and September, the best quarterly growth for 3 years.
Increased housing market activity
There has been a significant recovery in the UK housing market outside London (whose property market, acting as a ‘safe haven’ for international investors, has never been typical of the whole country). Residential housing transactions increased by 24.4% from October 2012 to October 2013 (Source: HMRC UK Property Transactions Statistics, October 2013) and gross mortgage lending rose to £17.6 billion in October 2013, its highest level in 5 years and up by 37% on the same month in 2012. (Source: Council of Mortgage Lenders)
Government support for mortgage lending
The Government’s policies to boost the mortgage sector in 2013 seem to have worked. The Funding for Lending Scheme started the ball rolling, joined by the Help to Buy Equity Loan scheme in April 2013, since when it has had a positive impact on house building and has allowed more than 42,000 people to buy newly built homes (Source: Gov.uk). Then, at the beginning of October, the second stage of Help to Buy, the Mortgage Guarantee scheme, launched 3 months early. In the first 4 weeks after its launch, more than 2,000 people put in offers on new and ‘second-hand’ homes under the scheme, totalling £365 million of new mortgage lending. (Source: Gov.uk) In fact, the combined measures introduced by the Government have been so successful that Funding for Lending is now being withdrawn for mortgage lending (to focus on small businesses) amidst fears that too much funding might create excess demand for a limited supply of housing, in turn creating a house price inflation ‘bubble’. The Bank of England has a remit to stop that happening, though, and an increase in the Bank of England Bank Rate (also known as the Base Rate) would be one of the measures they could use to make borrowing less attractive.
Savings and Investments
At the same time, savers are desperately hoping for an interest rate rise in 2014. The Office for Budget Responsibility has said that Britain’s unemployment rate could fall below 7% as early as the last quarter of 2014. The reason that is important to savers is because the Bank of England said in August this year that – as long as inflation remains relatively low – it would not consider raising the Bank Rate from its historic low of 0.5% until the jobless rate fell below 7%.
As we have pointed out in previous blogs, savers have found it increasingly difficult in the last year or two to get a return on their investments in a continuing low interest rate environment and are suffering a negative real rate of return, thanks to inflation. Cash should always be part of your investment portfolio, but is it time to look at other ways of getting a return on your savings? There are products available where you can benefit from rises in the stock market without risking the loss of any of your capital invested. Such accounts are known as ‘Structured Products’ and they combine capital protection with the opportunity to receive returns which are linked to the performance of the stock market, usually the FTSE 100 Index. If you would like to know more about Structured Products or any other savings product that can beat the lowly returns currently being earned by cash, please contact us.
Annuities have been in the news recently, with the Financial Services Consumer Panel stating that millions of older people may be losing out as a result of not realising that they can buy their annuity from any insurer, not just the company with whom they saved their pension. Purchasing an annuity allows you to convert your pension ‘pot’ into a regular income for the rest of your life, giving you peace of mind. But you don’t have to accept the annuity offered by your pension company and have the right to buy the annuity from another provider who offers better rates or different ways to generate retirement income. Make sure you shop around for the best deal so you get the highest annuity rate you can. This is known as the ‘Open Market Option’. A specialist pension adviser such as Marchwood IFA can explain how this can work to your advantage.
In addition, make sure you are aware of your potential Enhanced Annuity and Impaired Life Annuity options or the relative merits of Annuities versus Income Drawdown by reading our blogs on the subject or asking us for further advice.