plonkee money an english-er's thoughts on personal finance

September 16, 2008

weathering the current financial storms

Filed under: credit and debt — Tags: , , , , , — plonkee @ 7:53 pm

I think we can safely say that there is a minor financial crisis going on, as a big American investment bank went under yesterday. This is compounding in the UK the natural cycle of the housing market, which was overdue another collapse and is now definitely heading down.

But, what does this mean for the people like us?

Well, I think if you’re being sensible financially, then it will probably turn out ok.

If you work in the finance or property industries then you might want to polish up your cv. On the other hand, it won’t hurt anyone to polish up their cvs as long as they don’t do it on works time. I’m keeping an eye on what’s going on in my industry, which I think should be pretty much ok for the time being, you might want to do the same.

If, like me, you bought at what I’m now certain was the top of the property boom then the chances are that you are stuck with the house for a while. I hope you like it. My tactic is to maintain sensible-ness. The house I bought needed cosmetic work which I’m slowly doing as I can afford to. I’m not paying extra on the mortgage at the moment as I can get a better rate on my cash ISA, but if and when that changes, I’ll consider paying down the mortgage further to try and stave off the risks of negative equity.

If you need to sell your house, then be prepared not to get the amount that it was with a year or two ago. Take the best offer you can actually get, not the one that you think you should get. It’s eminently possible that you won’t get enough to cover the mortgage, particularly if you bought recently. If that’s the case, you have my deepest sympathy, but I’m afraid that the mortgage you took out bears no relation to what the house is actually worth now.

If you haven’t bought, but you would like to in the next couple of years, the biggest problem you have currently is that it has become much harder to qualify for a mortgage. This will affect you the most if you are self-employed, and you may well need to produce tax returns and accounts. But, everyone thinking about buying soon should be saving as large a deposit as possible (reduce your loan-to-value number) and maintaining an impeccable credit score. Once you’ve got a mortgage arranged, hold out for a good deal, buyers are like hen’s teeth at the moment.

In a similar vein, it’s much harder to get a loan than it used to be. Fortunately you’re all sensible people, and you don’t need a loan, except maybe a student loan (which is not subject to commercial rules) or a loan for a car if you must. Anyway, keep on top of your credit record and credit score, make sure your cards are paid off and that you generally look in excellent financial shape.

Most of us should be savers and investors. You are saving and investing, right? Well, the stock market isn’t doing so well at the moment, but that’s ok because we are not day traders, we are in it for the long haul. I’ve set up my regular investing plan and I’m sticking to it. I suggest you do the same – if you want help understanding stocks and shares ISAs, you could check out my basic guide to stocks and shares ISAs. If there’s any requests, I’ll try and do something similar for pensions at some point.

As for your savings, if you have any spare cash in your budget you might want to add it in to your savings account, which should really be on auto-magical. The only important thing to remember is the insured limit. If a bank goes under, then all your money below the insured limit is protected and safe, otherwise you have to take your chances. Currently, in the UK the insured limit is £35k per bank.

Finally, review your insurance provisions. Do you need unemployment insurance? Have you got enough household contents cover? What would happen if your car was stolen, or you were burgled? Do you need to bump up your emergency fund to cover the excess/deductible?

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