Retirement planning, pension planning, and annuity advice were by far the most popular topics during June 2010, among consumers seeking independent financial advice from financial planners online.

The changes in the June 2010 budget were undoubtedly spurring consumers to think ahead, she said, and reevaluate their financial plan with the help of independent financial advice. “Retirement planning in particular is a vastly complex area and only an independent financial adviser can look at all the factors relevant to an individual and their circumstances and recommend the best solution for them.”

A further quarter of consumers seeking help with their financial plan searched for independent financial advice on savings and investments.

In a sluggish market, mortgages accounted for just 11% of requests for independent financial advice. Within that, for those seeking independent financial advice on homebuying, first time buyer mortgages accounted for 36% of enquiries, while 32% of online enquiries targeted independent financial advice on remortgages.

The value of independent financial advice in building your financial plan was summed up by Karen Barrett, chief executive of unbiased.co.uk.: “Financial advice is an area that can be daunting for consumers, many people who may have previously relied on their bank or building society for product advice are now realising that this didn’t necessarily give them exposure to the best product for their individual circumstances.

Seeking independent financial advice on your financial plan from properly qualified financial planners was ‘an invaluable step in making sure you are getting advice from across the whole of market, with no ties to certain product providers,” she said.

Recent research by Google showed a marked increase in online searches for independent financial advice, which rose by 19% in 2009 alone.

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.

Banks and building societies in many of the 27 EU countries are now offering consumers special deals on one savings product or investment, provided that they also sign up for additional services or an additional investment at the same time. However, such “tied” deals involving 2 linked products are not always in the best interests of the consumer, according to the EU, and investments advice from an independent investment planner is essential, to evaluate the overall benefit.

In the UK and throughout the EU, the most common such deal relates to bank current accounts, offered only if a salary is lodged into the account each month. However, mortgages and loans are also widely-used as ‘gateway’ products to sign customers up for additional business. In many instances, consumers are required by their investment adviser to sign up for an extra credit card, when seeking a loan.

In the UK, one such example of a tied product is Yorkshire Building Society’s attractive rate of 6% on investments in its Combination Bond, which is available only if you simultaneously invest the same amount in a Legal & General investment bond.

Santander and Saffron Building Society also offer tied deals, but stress that this happens only in conjunction with investments advice to their customers. However, since the investment planner giving the investments advice is an employee of the lender, there is no independent aspect to the investments advice received.

The result may be that the customer sets up an investment in a bond product which they otherwise might have neither sought nor taken, and the value of which can fall as well as rise, the EU concluded.

Another potential disadvantage of tied products is that they form a double link, which limits the customer’s freedom to switch to another lender. The EU estimates that investment advice which leads customers to take on tied products has created a total of 572 million contracts which would be switched, if the customer were not tied and felt they had greater mobility.

The EU report criticised lenders offering tied products for imposing ”choice distortion” on consumers, by limiting their options in the marketplace, and called the condition of having to take an additional product or service a “coercion factor” resulting in an investment decision that otherwise might not have been made.

Independent investment advice by a qualified investment planner capable of a full market overview may help the consumer evaluate the overall benefits and risks associated with such two-part tied deals.

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.

New research by Axa reveals that those who take just an hour a month to review their tax planning and other payments, tend to be better off than those who do not. Despite this, many neglect the area of financial planning, to their cost. Following this week’s budget this could be even more crucial.

As a current example, Axa’s research has revealed that, while nearly a third of adults expect significant tax hikes after this year’s election, more than half are doing nothing to prepare for them.

Consequently, UK adults divide into two groups: those who streamline their outgoings by ‘getting proactive’ about their financial planning – and those who continue to make higher-than-necessary payments in personal tax and other outgoings.

Inertia hampers financial planning

It is inertia, lack of knowledge, and what Axa in the past has called a ‘Peter Pan’ attitude to financial advice, that are holding people back from sorting out their financial lives.

Consumers need to be more proactive about their finances, see that they stand to benefit from financial advice, and then take action to get it, Axa said.

Tax is not the only area where savings can be made. With quality financial advice, households can also slash the cost of their mortgage, credit cards, and loans, Axa said.

“Calculate what you could save by paying off any debts early – this is a huge motivator,” said an Axa spokesperson.

Savings from financial planning

Financial planning can cut costs in various areas of monthly expenditure. Here are some quite separate savings facts to show where streamlining can be achieved.

Independent financial advice saves a mortgage borrower, on average, £982 per year on their mortgage repayments**.

On average, lack of knowledge of tax incentives, reliefs and credits results in annual unclaimed tax benefits equivalent to £186 for every UK taxpayer*.

Older workers are often unaware of their higher tax entitlements, and may fail to check that they are getting their higher allowances from the taxman. Those over 65 are entitled to earn £9,490 tax-free, and over-75s £9,640, compared with the standard allowance of £6,475.

*Source: Unbiased.co.uk
**Source: Assocation of Mortgage Intermediaries AMI

Some lenders are already making upwards revisions to their standard variable rate (SVR), which is the interest rate customers move to by default, if they do not switch to a different mortgage deal at the end of their initial tie-in period.

Shopping around with mortgage advice from an independent financial advisor can result in a mortgage or remortgage deal that, on average, will cut nearly £1,000 a year off mortgage repayments*. At Principle First we have recently located mortgage deals with rates less than 2% for our customers.

Some lenders are reported to be basing their affordability calculations on a possible SVR much higher than the current average of 4.75%.

One lender making upward revisions to its SVR now, to factor in a possible rise in the Bank of England base rate, is the Yorkshire Building Society.

The Yorkshire Building Society said that its policy on affordability for the customer takes into account his ability to meet “both initial and future mortgage repayments”, which has been seen as an acknowledgement that mortgage repayments may rise considerably in the near future.

For first time buyer mortgages, these are increasingly restricted to the amount of a couple’s joint annual salary, where previously, lenders would have offered a multiple of this figure.

The Council of Mortgage Lenders confirmed that, while lenders assess affordability in different ways, “some are taking the view that it is prudent and sensible to assess how affordability would be affected by a change of circumstances.”

During 2009, banks were criticised for taking advantage of the historically low base rate of 0.5% with massive profit margins from SVRs of 4-5%, while, on the other side, offering savers average interest rates of just 0.58%.

*Source: Association of Mortgage Intermediaries (AMI)

However, a drop in lending and demand for mortgage deals is a normal seasonal feature at the end of every year, and this year the drop was greater than usual due to the number of buyers who rushed through their mortgage deal to qualify for the favourable rates of stamp duty, which ended on December 31^st. The stamp duty holiday was particularly relevant to first time mortgage buyers.

The CML commented that demand for mortgage deals and general activity in the housing market is likely to be sluggish in the coming weeks, following the December rush, but that the mortgages market is still more buoyant than they would have predicted 12 months ago.

While consumer demand for mortgages may be quiet at present, the availability of mortgage offers has shown a marked improvement. The range of available mortgages is greater than at any time during the last year, as lenders begin to compete for market share.

Mortgage borrowers should act quickly, rather than take the current low interest rates for granted, however. Levels of inflation in the final quarter of 2009 have led many mortgage advice experts to predict that an interest rate increase could now be possible in the second half of this year, increasing the cost of mortgage deals.

It really is ‘horses for courses’, when considering the various types of mortgage!

The tracker mortgage

In a tracker mortgage, the mortgage is anchored to the Bank of England base rate, plus your lender’s margin on top. This means that with mortgage interest rates currently at 0.5% and a typical lender’s margin of 3%, a tracker product might offer you a mortgage with a 3.5% interest rate.

Many tracker deals come with a tie-in period of 2,3 or 5 years, during which your lender cannot change their margin and your mortgage can rise only as and when the Bank of England raises the base rate.

Rises in the base rate happen in 0.25% increments, and experts are predicting that it is very unlikely that mortgage rates will rise significantly before the closing months of 2010 at the earliest, and that they will rise slowly even then.

Currently the best trackers are, on average, 1.5% lower than the best fixed rates. It would take a substantial rise in bank rates for a borrower who takes a tracker to be worse off than one who opts for a fixed rate.

The drawback to buying into a tracker deal is the set-up fee, and also the exit fees if you decide to change.

Furthermore, during your tie-in period with a tracker mortgage, it is the Bank of England and not your lender who controls your mortgage repayment.

Another consideration is that, while a shorter-term 2-year tracker may seem attractive in the current low-interest climate, a longer-term tracker of 5 years could leave your mortgage repayment sailing upwards if bank rates nudge back towards previous levels of around 5% by 2015.

SVR and fixed-rate mortgages

The other types of mortgage, such as SVR mortgages and fixed-rate mortgages, each offer particular characteristics that may be valued by some mortgage borrowers.

For those who wish to avoid the tracker mortgage’s set-up and exit fees, for example, opting for their lender’s Standard Variable Rate (SVR) mortgage involves no set-up charges or exit charges. This is because you come to the end of your tie-in period and default on to your lender’s SVR, rather than ‘buy into’ it as a new deal. The SVR mortgage also leaves you free to make a low-cost switch to another product in the coming years.

Many mortgage borrowers, and first-time buyers in particular, value the security of knowing that their mortgage repayments cannot rise beyond a certain maximum level.

For those wishing to cap their potential mortgage repayments and have the security of knowing they have a payment they can afford, no matter what the Bank of England does next year and beyond, then a fixed-rate may be the mortgage of choice.

Be sure of better life insurance

Insurance researcher LifeSearch said that in the last decade, the cost of term life insurance has fallen by up to 50%. It now makes sense to seek insurance advice in order to review your existing policies - you may get a cheaper deal, even though you are older!

Furthermore, 76% of clients who take financial advice buy an insurance deal more suited to their needs than the one originally sought, LifeSearch said.

A principal service offered by an independent financial adviser is finding the client a policy that offers better benefits than the policies they already have, but at a lower cost, LifeSearch said.

Safe as houses: independent mortgage advice

Recent data from the Association of Mortgage Intermediaries (AIMI)* states that by taking independent advice, you will, on average, knock almost £1,000 per year off the cost of your mortgage.

AIMI stated that such clients save, on average, £963 on their annual mortgage repayment, and that literally nine times out of ten an independent financial adviser beats a tied adviser hands down, in finding a better mortgage deal for his client.

Half of mortgage buyers fail to shop around

Despite this, the alarming fact is that almost half of mortgage buyers (49%) still buy their mortgage direct from their building society, without considering any other option.

Even among those who did some preliminary ‘shopping around’, 39% contacted no more than 3 lenders.*

AIMI has pointed out that an independent financial adviser has access to almost 15 times the number of financial products accessible direct from lenders, with a typical bank adviser looking at an average of just 20 products.

The total mortgages market in the UK is nearly 15 times larger than the 1,300 products available direct from lenders, AIMI said.

With over 96% of advisers offering a ‘whole of market’ approach, the advantages of taking independent advice are clear – and those seeking first time buyer mortgages in particular stand to benefit.

Take the tax out of your savings with ISAs

If you have cash resting in a bank or building society account, then ‘resting’ is the operative word, because your money is simply not sweating to provide you with a best return.

This is because the interest on deposit account savings is subject to tax at source. You are needlessly giving more of your cash to the taxman, having paid income tax on that money once already!

Savings advice from an independent financial adviser can clue you in on savings deals that keep the taxman’s fingers away from your stash of cash.

You can, for example, invest up to £3,600 today in a cash Individual Savings Account or ISA (£5,200 if you are over 50), which combines the security of the bank account with tax-free growth.

If you prefer the slightly more risky, but potentially more profitable strategy of putting your funds into stocks and shares, then the tax-advantaged savings option of the stocks and shares ISA may be for you.

You can access both ISA types, investing up to £3,600 this tax year in each (i.e. by April 5^th), or use the stocks and shares ISA to invest your full allowance of £7,200.

The total ISA allowance has already risen to £!0,200 for over-50s, and will switch to that level for everyone on April 6^th. 

*AIMI Association of Mortgage Intermediaries / YouGov survey / 2009

More than 1m householders have had to use a credit card for rent payments or mortgage repayments in the last 12 months, according to the data published today by housing charity Shelter*.

Shelter found that a credit card had been used by 6% of all UK residents making regular housing or mortgage payments. As there are approximately 17.3m householders in the UK paying rent or mortgage repayments**, Shelter has concluded that just over 1m is the relevant national figure.

This expensive payment method is likely to have been a last resort for most mortgage holders, which also indicates that they may already be struggling with their personal finances.

In that case, making mortgage repayments ‘on the plastic’ is extremely risky, as credit card companies are not subject to the same rules as mortgage lenders, and can obtain a ‘charging order’ from the courts to force defaulters to sell their home.

A ‘charging order’ transforms credit card debt, which is an unsecured loan not attached to any concrete asset or property, into a secured loan with your home as the security.

Once the charging order is obtained, a credit card company can than move on to obtain a possession order that forces a homeowner to sell their home and repay their credit card debt.

While cases of actual repossessions are still relatively rare, data from Citizens Advice showed that in the period from 2000 to 2008, the use of charging orders to recover debt increased by over 7 times, and that around three-quarters of applications for charging orders are approved by the courts.

*Source: YouGov poll for Shelter published January 2010 covered 2022 adults in the UK
**Source: Survey of English Housing/Scottish House Condition Survey/Living in Wales (Welsh Assembly)