The economy is a bit scary for some of us right now. We’re not all in the same financial situation but almost everyone’s finances are affected by this downturn.
Let’s look at how the crunch is affecting those in their 20s, 30s and 40s.
Central London has become too expensive for most first-time buyers, especially over the last five years. However, housing prices have fallen by about 20 per cent since this time last year, so property is becoming cheaper. Those with a deposit may get a good deal on properties and the government is no longer charging stamp duty on properties of up to £175 000 until September 2009.
A Buckinghamshire estate agent believes homeowners are realising they have to adjust their prices slightly to fit the current climate of the housing market. New-build developers are lowering their prices and this could allow first-timer buyers to get on the property ladder.
Do you have a deposit of at least 10 per cent? Now that property prices are falling you want to ensure your application will be approved. Having a deposit of at least 10 per cent should help to get approved. By saving regularly you’ll soon have a deposit to help you buy property.
Consider getting a tax-free Isa that pays a good rate or get a notice account, which has a higher rate of interest. Fixed-rate bonds can earn more than 7 per cent.
Also look at your credit history before applying. Are all your bank account mail sent to the same address, and do you pay your mobile bill on time? By being registered on the electoral roll and paying bills on time, you will be a low risk to banks. This should make it easier to get credit.
Pensions and investments
Now is the best time to invest in the stock market, especially for people in their 20s. This age group can take risks that most 50-somethings shouldn’t take: they’re young and can recover from big losses.
What are you doing about a pension? Perhaps it is better to choose where your money goes to; therefore, you might not want the default pension scheme. Your cash benefits from being exposed to risk; low-risk or cash funds are for those in their 80s. Pension funds require planning and hard work; you need some sort of plan for long-term finances. Whatever you decide to do, making an investment is a serious matter and should only be considered with the advice and help of an investment specialist.
High-paying jobs in the banking sector may not happen for a while longer. Companies are no longer doing as many recruitment drives this year. Graduates who were hoping for a job with a top company will have to add value, or not be recruited. Some companies do not want to recruit for 2009, or will cut down on the number of graduates they hire. This means the next round will get tougher and more competitive.
Thirties and forties
One of the biggest challenges this group faces is whether they qualify for a remortgage. Properties that were bought just a few years ago might be worth less than the mortgage. This means there is no equity in the mortgage and property owners may struggle to get secured loans. Homeowners who bought with friends might have to remortgage. This could be problematic when one of the owners wants to move on.
Applicants who apply for a single loan are ‘jointly and severally liable’: each of them is liable to repay the entire mortgage should the others be unable or unwilling to do so. Avoid friction by drawing up a legally binding agreement to outline solutions for possible scenarios.
Or you could switch the names on the mortgage, as some people have been doing.
Some 30-somethings may want to start a family, so they plan for this for a while. It might be better to move to an area with a good state school because private education is expensive. Ever wondered what 14 years of day schooling could cost? A conservative figure is £140 000; however, boarding school can set you back by £20 000 a year.
Private school fees have risen by about 20 per cent since 2003. The average yearly fee is about £10 239, which means there are now only 18 occupations that afford workers’ children to attend private schools. This is down from 30 occupations in 2003, just 5 years ago.
By starting to save now you should be able to afford paying £18 000 a year in 10 years’ time. but this means you should save at least £530 a month at an interest rate of 8 per cent for 10 years to get £98 000 for private school tuition.
The markets are being hit hard, perhaps as hard as during the Great Depression. This could mean they might take up to 20 years to recover, though 10 years is more probable. So a 40-year-old might only get a stable pension fund upon retirement. People in their late 40s should take extra measures to preserve their retirement funds.
People in their early 30s, however, are still a long way from retirement and do not have to worry much. De-risking retirement funds is the new buzzword for investors. Protect your investments by moving away from equities and investing instead in fixed-interest products and cash. Those with a company pension should increase their contributions if they can afford to.
Having 3 months’ worth of cash in a separate account is admirable, but it’s even better to pay off debts sooner. Paying extra money into a mortgage benefits new homeowners who may want to remortgage the property in the New Year.
Now that property prices are falling, your loan should be in relation to the value of the property.