Investors in ethical funds have been happy to open their morning newspaper over the past 4 months. What is the reason?

Because most ethical investments seek to avoid the oil and gas business, and have been untouched by the great black slick of misfortune that has befallen BP, since the Deepwater Horizon rig exploded on to the front pages on 20th April.

The oil slick ran to 1,000 barrels a day by 26th April and had reached 5,000 barrels a day 3 days later, reaching the Louisiana shoreline with a spill surface of 4,000 square miles, on 30th April.

The Deepwater Horizon slick was finally capped after 38m gallons had spilled into the Gulf of Mexico, dwarfing the 11m-gallon slick from the Exxon Valdez in Alaska’s Prince William Sound in 1989.

A better advertisement for ethical investment was scarcely imaginable.

Any investment funds with exposure to BP were hit hard, as the company’s share price sank to the bottom of the Gulf of Mexico. Pensions experts calculated, in fact, that a UK pensioner with a potential annual pension income of £15,000 would have seen £400 of that wiped out by the slump in BP’s share price, which tumbled from around £6.50 in April to almost £3 in July, wiping £50bn off the value of the company.

Ethical Funds Investments became possible in 1971 with the launch of the PAX fund in the US, which avoided any companies benefiting directly or indirectly from the Vietnam War.

With their ethical policy, many ethical funds investments were bypassed by the banking crisis of the last five years, due to their low exposure to financial companies, while other ethical funds investments were sheltered from BP and have also been enriched by the recent news that renewable energies – one of the focal points for ethical funds – delivered over 10% of all energy in the EU for the first time.

Ethical investments target only stocks and companies which meet various criteria relating to ethical behaviour. Some ethical funds have an ethical policy based on negative screening, defining the activities, products and companies they exclude. These might include animal testing, deforestation, meat, nuclear power, pollution, tobacco, military and weapons, genetic engineering, exploitation of workers, and oppressive regimes.

Other ethical investments use positive screening, to invest in biodiversity, sustainable forestry, environmental products, green transport, charity work, renewable energies, and water management.

This figure is set to rise further, continuing to boost ethical funds investments as we proceed through the next decade. Following the 2009 Directive on Renewable Energy, which set targets for using renewable energies for all EU member states, the EU has pledged to take 20% of all its energy from renewable sources by 2020.

Individual consumptions of renewables vary wildly, however, ranging from Sweden, which takes 44% of its energy from renewables, to the lowest consumers Netherlands (3.2%), UK (2.2%), and lowest of all Malta (0.2%).

UK investors can now vote positively to support the use of renewable energies by investing in ethical funds.  Funds such as the Jupiter Ecology Fund seek out and support companies which have a positive impact on the environment, and Jupiter features renewable energies prominently in its portfolio.

According to the latest available figures, at 31 December 2008 there was approximately £6.8 billion invested in Britain’s green and ethical retail funds. This estimate is based on 81 UK domiciled green and ethical retail funds. It does not include UK money invested in ethical funds domiciled outside of the UK, or in off-shore funds.

Ethical funds can use ’positive screening’ to include companies that are strongly pro-environment. These include companies which manufacture environmental products, encourage biodiversity, or promote renewable energies.

Other ethical funds use ‘negative screening’ to exclude companies involved in various ‘unethical’ industrial sectors such as tobacco, alcohol, meat, nuclear power, defence, or intensive farming. Activities that can be avoided include deforestation, exploitation of workers, or animal testing.

The negative screening approach was the ethical policy behind the PAX fund, the world’s first ethical fund set up in 1971 to enable investors to avoid all companies benefiting from the Vietnam War.

*Source: European statistics office Eurostat

The stamp duty break for those taking first time buyers mortgages may go, following the June 2010 budget report published this week.

The June 2010 budget report states: “As announced in the Coalition Agreement, the Government will review the stamp duty land tax relief for first time buyers, taking into account its impact on affordability and value for money.”

The stamp duty break means that the 1% stamp duty levy does not apply to properties valued at less than £250,000. It therefore saves first time buyers up to £2,500 in stamp duty.

The stamp duty exemption was contained in the last budget of the previous government, and fixed for 2 years from March 2010. The Labour government had calculated that the break would cost the government £550m in lost revenues over the two years.

For properties over £250,000, stamp duty is phased in according to three tax bands. For properties from £250,001 to £500,000 stamp duty is 3%. From £500,001 to £1m the stamp duty is 4%. From £1m upwards, a new rate of 5% comes onstream in April 2011.

This means that first time buyers purchasing a property for £249,000 pay nothing (i.e. is currently exempt from paying duty which would have been 1%). However, someone taking a first time buyer mortgage for £250,001 is immediately hit with a 3% stamp duty bill of £7500.03.

Who is a first time buyer?

The definition of a first time buyer is someone who has never owned a property before – not just in the UK, but anywhere in the world. In terms of mortgages, therefore, the stamp duty exemption is available only to those taking first time buyers mortgages.  For couples, both must fit the bill – i.e. you lose your status as a first time buyer mortgage customer, and must pay your stamp duty, if your partner has owned a property before.

The Revenue (HMRC) has recently replaced its simple Particulars Delivered form to make it more difficult for first time buyers to avoid stamp duty. While the Particulars Delivered form was a single sheet reporting names of buyer and seller and price paid, the new form is 6 pages long and records details of all elements of the sale.

This is because some buyers were reporting the price of the property at below the £250,000 threshold but then using a dubious excessive amount for  ’additional cost for fixtures and fittings’ to make the real cost of the property much higher. First time buyers deals with an excessive charge for fixtures and fittings or other add-ons are likely to attract the attentions of the taxman, who can investigate a sale for up to 9 months after the deal is complete.

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Government plans to restrict mortgage lending in this week’s round of budget changes could make first time buyer mortgages more difficult to obtain.

Experts believe that the Bank of England may be given new powers to cap loan-to-value offers from lenders. This could mean higher deposits needed for first time buyer mortgages, with possible restrictions on offering mortgages of over 90% of property value.

Reductions in the availability of high loan-to-value first time buyers mortgages have been a trend for some time. There are currently 174 first time buyers mortgage deals offering 90% loan-to-value, compared with 763 such first time buyers mortgages in 2007.

The Council of Mortgage Lenders (CML) has already warned that building a mortgage cap into the budget changes would hinder growth in the market, and not only for those seeking a first time buyers mortgage.

“We need to remember that what is currently bothering most people about the mortgage market isn’t high-risk lending, but the fact that lending is so constrained into low-risk borrowers that it may be making it more difficult for the economy to grow,” said CML director general Michael Coogan.

The effects of a mortgage cap in the budget changes could be equally serious for existing homeowners. The budget changes could leave existing borrowers trapped in expensive mortgage deals which they were unable to refinance. Consequently their flexibility to switch mortgage lender would be impaired, leaving them with no choice other than to accept the pricing policies of their existing lender.

The budget changes and government cuts will be announced by the Chancellor in the budget tomorrow, 22nd June.

First time buyer mortgages accounted for just 35% of total mortgages sold in April, down rather than up on 38% in the previous April, the Council for Mortgage Lenders CML said in its monthly report this week.

This gives the first time buyer mortgage category its lowest proportion of the total market since September 2007.

The conclusion is of a continuing shortage of easily accessible first time buyer mortgage deals, according to the CML. “The low share of the market shows that getting a mortgage remains problematic for first time buyers, who tend not to have a substantial deposit,” said the CML’s statement.

There were a total of 40,000 UK mortgage deals advanced in April, of a total value of £5.7bn, compared with 45,000 in March and and 35,000 the previous April. However, April generally shows a seasonal dip due to the Easter break, and the underlying trend is of a gradual recovery in mortgage lending, said the Council for Mortgage Lenders CML.

The dip was more strongly felt in remortgage activity, with 24,000 remortgage loans in April, down by 16% on March and down 26% on a year ago.

The CML expects rates to remain low for the immediate future and, with lending criteria still tight, remortgaging is likely to remain muted.

“Easter traditionally causes a dampening of lending levels and this year was no exception. First time buyers were particularly affected, perhaps because of the alteration of stamp duty, and in anticipation of the changes arising from the economic and political uncertainty of recent months,” said Michael Coogan, director general of the Council for Mortgage Lenders CML.

The Council for Mortgage Lenders represents banks, building societies and lenders who account for 94% of all residential mortgage lending in the UK.

There are currently 11.4 million mortgages in the UK, with loans worth over £1.2 trillion, according to the CML.

The Government Global Pension Fund, which is the state pension investment fund of Norway, had made news at the beginning of the year, when it pulled out of investments in certain companies due to their connections to the tobacco industry.

The criticism, by leading Oxford ethical fund researchers, described the exclusive ethical investment strategy of the Norwegian investment fund as ‘self-defeating’.

Speaking for the managers of the ethical fund, special adviser Trude Myklebust said the investment fund will continue to refine its approach to ethical investments, moving from evaluating companies on a simple ‘do no harm’ basis to demanding a more proactively ethical stance.

The investment fund has, however, declined to exclude Israeli companies from its portfolio, following the recent attacks on ships carrying aid to Gaza, according to the Norwegian Finance Ministry.

Ethical Funds Investments

Ethical funds investments are a relatively new area of the funds industry, but offer investors a great opportunity to combine their ‘green’ investment philosophy with ethical investments that represent a real vote for more responsible environmental practices.

Interest in ethical investment is growing extremely rapidly in the UK. The ethical investment fund watchdog EIRiS reveals there is currently £7bn invested in ethical funds in Britain, compared to £1.5bn ten years ago.

Seventy per cent of people in Great Britain strive towards ideals that are green and ethical, and 49% of people with savings and investments would like to make a difference with their money, according to EIRIS.

Principle First offers  a range of ethical funds investments, including an ethical investment in cleantech, alternative energies and wind power through the IMPAX Environmental Leaders Fund, or the ‘greenest’ ethical fund of all, a direct ethical investment in the forestry sector through the Quadris Environmental Fund.

Are you interested in ethical investments or in learning more about our ethical portfolios? Make an investment fund enquiry now or ring 0800 678 5929

When planning your first time buyers mortgage, it is worth considering that prices have risen modestly in 12 of the last 13 months – and are likely to continue to do so, Nationwide predicts.

This pushes house prices up by £15,000 in the past year, Nationwide said. However, it was not all bad news for those of us considering a first time buyer mortgage, as the rate of year-on-year house price inflation is actually down to 9.8%, compared with 10.5% in May last year.

“Housing market conditions remain characterised by thin transaction volumes and a relative scarcity of properties for sale, despite a slow return of more sellers in recent months,” said Martin Gahbauer, chief economist at Nationwide.

Experts speculate that many potential takers of first time buyer mortgages may be holding back on a decision, and waiting to see how they will be affected by the government’s Budget on 22nd June.

The amount of mortgage lending was up in April by 2%, according to figures from the Bank of England.

Nonetheless, the Council of Mortgage Lenders (CML), has commented on what it sees as a low level of mortgage deals, due to the continued reluctance of lenders to release funding, particularly for first time buyer mortgages deals.

The process of finding a first time buyers mortgage could be blighted by ‘prolonged mortgage rationing and higher borrowing costs’ as a result of current lender policies, said the CML.

Addressing members of the credit industry, Malcom Hurlston of the Consumer Credit Counselling Service emphasised the need for those seeking first time buyer mortgages to fully inform themselves of the financial burden that comes with first time buyer mortgage deals.

First time buyer mortgages should be sold with a health warning, not tax breaks, and those taking on first time buyer mortgages too soon were those most likely to have difficulty and fall behind with payments, he said. Mr. Hurslton pointed to pre-buying education available to those seeking first time buyer mortgages in the US.

Mortgage advice and the services of an independent financial adviser were particularly crucial to those taking on first time buyer mortgages who were also on low incomes. He pointed to Northern Rock as an example. “Was it not apparent to everybody here that 100/120% mortgages, some partially disguised as unsecured, was dangerous madness?” he said.

First time buyer mortgages should be sold “like driving licences, after study and an exam,” he said.

The Council of Mortgage Lenders issued a response to Mr. Hurlston’s comments by pointing out that most of those with first time buyer mortgages who got into trouble did so because of a change in their circumstances, such as being made redundant.

A recent report from the Association of Independent Mortgage Advisers (AIMI) showed that taking independent mortgage advice results in finding better first time buyer mortgage deals in 9 out of 10 cases, and will save on average almost £1,000 per year in repayments on a first time buyer mortgage, and on most UK mortgage deals.

Is it acceptable to include major oil companies such as BP in an Ethical/Sustainable fund?

In the aftermath of BP’s Deepwater Horizon rig explosion, America’s southern states and coastal communities are now facing an economic and environmental disaster. With the scale of devastation and economic loss, particularly to the valuable shrimp industry, it is very difficult to justify an oil company’s inclusion in any investment fund categorised as Ethical/Sustainable.

Although you may be investing in a fund, which advertises itself as Ethical/Sustainable, the chances are it includes major holdings in some of the world’s major energy and oil companies such as BP, Shell, Statoil and Petrobras.

BP, the company currently at the heart of one of the worst ecological disasters to date, could be at the heart of your Ethical/Sustainable fund.

Oil and gas companies are often justified for inclusion in sustainable investment funds due to their mitigation efforts, they may be some of the largest polluting contributors in the world, but develop a few environmental initiatives and some spin and suddenly they are ‘sustainable’.

With a potential 19m gallons of oil that could continue to pump into the Gulf of Mexico from the Deepwater Horizon rig, it underlines the question of what exactly constitutes a Sustainable Investment Fund?

There is no doubt oil will continue to play an important role in our future but that doesn’t mean it should get elevated to Ethical/Sustainable status.

It is our view that when green investors decide they want to make a difference with their investment, it is with a view to making a real difference and helping to encourage companies who are working in what we call Primary Sustainovation industries.

Principle First’s investment advice experts, have devised a unique ‘Sustainovation’ Ranking Index to assist ‘Green-minded’ investors to identify the funds that live up to their investment ideals. Funds categorized as having the top ‘Primary Sustainovation’ ranking are those that are investing almost entirely in companies and sectors that directly influence future sustainable energy, energy efficiency and resource management.

The Ethical/Sustainable investment funds with the Primary Sustainovation ranking are:

Allianz RCM Global Eco Trends Fund
Henderson Global Care Growth Fund
Henderson Industries of the Future Fund
IFSL Impax Environmental Leaders Fund
IM WHEB Sustainability Fund
Jupiter Ecology Fund
Quadris Environmental Fund

Investors should note that these are not necessarily the highest or best performing funds in the Ethical/Sustainable sector, but in our opinion they are the ones which provide the best fit for living up to the high investment ideals of the ‘Greenward’ investor.

Speak to one of our investment advisers on 0800 678 5929 or make an investment enquiry

One first time buyer in 10 believes that cost extras will amount to just £1,000 on their first home, when in fact conveyancing payments alone can amount to this much, according to the financial website unbiased.co.uk.

At the extreme end of the scale, 4% of first time buyers admitted they were completely unaware that any additional costs would arise at all, the research revealed. The data indicates the urgent need for quality independent first time buyer mortgage advice.

In order to cover the additional costs of homebuying, over two-fifths (41%) of first time buyers said they would break into their savings, while 18% said they would seek to roll these costs into their mortgage deal.

The principle costs associated with most mortgages deals include a survey of the home you wish to buy. Depending on the level of detail you require, the costs of a survey can range from £50 to £1,000.

Solicitor’s fees will range between £600 to £1,000 for a standard process, but if complications arise additional work may be required, at additional cost.

A local, environmental and water search will also be needed, and this will be charged to you by your solicitor, a cost of up to £300 depending on your local council.

If you are not a first time buyer, then you will not enjoy the current stamp duty holiday on all homes up to £250,000. If you are liable to pay stamp duty then this will apply at 1% of the cost of your home. For example, when purchasing a home valued at £200,000, as a second time buyer, you would have to pay £2,000 to the government.