This week we look at how NOT to get repossessed. Here, first of all are the scary headline figures. The Council of Mortgage Lenders tells us that the number of homes repossessed in the first half of 2008 was 18,900, that’s nearly 50% up on the first six months of 2007. There’s also strong evidence that lenders are getting tougher on those in arrears. There are a number of reasons - with many people coming off fixed interest mortgages and finding new deals hard to come by. Shunted onto the lenders’ Standard Variable Rate they are pushed over the edge by a sudden hike in their monthly repayments. Add the fact that the cost of living has surged in recent months - we all know about the soaring cost of fuel and groceries - and some people have been pushed beyond their limits. Repossessions and negative equity are often talked about in almost the same breath. But though being beset by both at once is VERY bad news, it’s important to separate the two things out.

To clarify - negative equity is when the amount of your house is worth less than the mortgage on it. It’s an obvious risk with so many lenders offering mortgages that exceed the property value in recent years. The gifted deposit racket was one face of this, though Northern Rock’s infamous 125% ‘Together’ mortgages weren’t much smarter … being an instant turnkey introduction to negative equity. The insanity of these deals was easy to hide when prices were rising, but come the fall it all starts to look less clever.

But actually, negative equity doesn’t really matter unless it coincides with a need to sell. You may be left rueing the fact that you overpaid for a property that’s now fallen 10% in price … but unless you put it on the market, it’s irrelevant. Give it five or ten years and the surges and dips in house prices are forgotten. In fact, forget all about the putative market value of your home - it’s somewhere to live in, not a piggy bank.

But what if you ARE forced to sell. That could arise if you start missing mortgage payments, and some lenders are turning the screw after just a couple of missed payments. That’s because they know that things don’t miraculously just get better - the first missed payment is just the top of a very slippery slope.

So what should you do if you start getting into problems? Contact your lender before it gets out of hand. Although we all love to bash the banks, they generally don’t want to repossess homes - it’s not that they are softhearted, it’s simply an expensive business. The first month you THINK you may miss a payment, let them know first. It may be that they can offer a payment holiday, or put you temporarily on an interest only deal … though bear in mind these make the mortgage more expensive in the long run. Have a plan for repayment when you approach your lender - Financial Services Authority guidelines say that they SHOULD listen.

If things get really bad, you may have to sell. Better if you initiate the sale then have your home repossessed and lose the lot. But however you slice it, selling now could see you in negative equity … so take our preventative measures first. Type ‘avoid repossession’ or the like into Google just now, and you’ll find dozens of companies offering to solve your problem by taking your house off your hands for cash. Be VERY careful here - you are far better turning to Citizens Advice first. Short term cash fixes are unlikely to get you anything but a rock bottom price.

Assuming you’re not at this desperate pass yet … What pre emptive measures can you take? Good mortgage deals are hard to come by just now of course, but that shouldn’t stop you searching for the best possible deal. Amid all the angst about borrowers coming to the end of their fixed deals and having to go onto lenders’ Standard Variable Rates, many observers have ignored the fact that a lot of borrowers are on Standard Variable Rates anyway. Many of us are incredibly cavalier about overpaying for our mortgages, loans, credit cards and the rest. If you have a £100,000 mortgage at 6%, and you re mortgage at 5.5%, you’ll save £500 a year.

And don’t pay for mortgage advice. There is great free advice from brokers such as John Charcol and London & Country, and the web is full of best buy advice - see moneysupermarket.com or moneyfacts.co.uk for current best buy mortgages. Indeed, you may not even HAVE to re mortgage. Try your lender first, asking them what is the best deal they can offer you … it’s always worth a try. If you DO have any spare cash, overpay your mortgage as much as possible. You may have cash on deposit in savings accounts earning miserable rates of interest. Put it to work reducing your mortgage and getting you out of negative equity and into the black. People usually don’t realise how much they can save over time by doing this. For instance, overpay by £100 a month on a £150,000, 25-year mortgage and you’ll save more than £38,000 over the term. You’ll also pay it off nearly five years early.

And when you re mortgage, switch to a repayment from an interest-only mortgage if you can. Interest only become very popular when house prices were rising in double digits each year - after all, why worry about a debt that never went down if the equity was constantly rising? But stick with interest only in a flat market and you’ll just be servicing debt that never goes away - get it paid off. There’s another point about these hitherto unfashionable ideas of paying more each month. It’s the old saving principle of ‘paying yourself first’. Reduce your mortgage by £200 each month and you’re effectively saving that £200. After a month or two of higher payments you probably won’t even notice that you have less spending money after the mortgage is paid.

Cut the contingent costs of your home. Shop around (moneysupermarket.com again) for the best deals on buildings and contents insurance. Most of us just take the same deal from the same lender year after year. It goes without saying that you should slice any unnecessary fat from your monthly expenditure … do a budget now! But also consider making some money from your house. The ‘Rent a Room’ scheme lets you earn £4250 a year tax free for doing just that.

Related: Money Supermarket, Council of Mortgage Lenders, Rent a Room scheme, Financial Services Authority, Citizens Advice, John Charcol, London & Country

Tags: Negative equity and avoiding repossession, Negative equity, avoid repossession, repossession, mortgage, housing

This week we look at the shocking recent hikes in gas prices and what you can do to minimise the damage to your bank account. Unless you live on the moon (in which case you won’t be a customer of British Gas anyway) it won’t have escaped your notice that the company last week unveiled one of the price rise shockers of all time - a 35 per cent jump in gas prices.

So big is the increase that everybody missed the fact they also put up electricity by 9.4 per cent … which at any other time would have been headline news. It means anyone on a dual fuel deal will see prices rise by 25 per cent. And this comes just six months after BG raised dual fuel prices by 16 per cent. Fuel prices have now more than doubled over the last four years, and there’s more to come. Analysts reckon there is likely to be another 20 per cent rise at the beginning of 2009. And while British Gas are the current villains, they are likely only to be the first of many this summer. EDF Energy has already announced rises of 22 per cent, and there is sure to be more.

Okay, that’s the bad news … so what can you do about it. Well there’s not much point switching just now - though that would be our usual advice. As the other companies are going to be upping their prices you could end up with a worse deal. Far better to go for a fixed or capped deal. It may well cost you more in the short term but long term you are protected against further price rises. Head to uswitch.com where you can compare the best of the fixed and capped fuel deals. But we’d advise you to hurry as the relatively cheap fixes are starting to disappear as the companies anticipate future rises in the price of wholesale gas.

At time of writing, the cheapest fixed tariff on the market was from EDF, though this is likely to change fast. This fixes the price you pay for electricity and gas until October 2009. British Gas, meanwhile, is offering a fix until 2011, though at a slightly higher per unit rate.

It’s also worth looking at switching to a dual fuel deal if you don’t currently have one, as some suppliers offer incentives to switch. Moneysupermarket.com pays you £30 to switch to dual fuel and Energyhelpline.com pays £15. Bear in mind though that these discounts will be dwarfed by the actual size of your bill - it’s important that you look at the overall cost, rather than being seduced by signup incentives.

The other side, of course, is simply to use less of the stuff. We’re horribly wasteful of domestic energy in Britain - all those twinkling LEDs on your TVs and computers at night represent energy being burnt away. Turn off all those standby lights and you could save around 5 per cent a year on your electricity bill.

Remember to run the washing machine at 40deg rather than 60deg. And to save on gas heating bills, turn the thermostat down. Knocking it down 1 degree C can save an astonishing 10 per cent on your bills. Set the heating to come on later in the morning and click off earlier at night. Ensure your loft is adequately insulated, and investigate grants for cavity wall insulation. And finally, to take my old mum’s advice. Don’t turn on the fire, put on a jumper! It could be the easiest way to save money you’ll find all year!

Tags: Protect yourself against rising energy prices, Energy prices, rising energy prices, how to save energy costs, lowering energy costs

It’s a good time to go shopping. Yes, we’re all suffering from the highest inflation in years, our mortgages are spiralling upwards and the credit crunch is making many of us twitchy about our employment prospects. But if you have a little cash to spend, you’ll get bargains like never before. It’s all because the shops are suffering too. We’re not spending (June 2008 retail sales were the worst in 22 years) so there are some great deals out there. But let’s see how we can do even better … and get more for less. Here’s my six point plan for saving hundreds on your shopping.

1. Price comparison sites
   Of course you don’t have to rush round comparing prices yourself. That’s what price comparison websites such as pricechecker.co.uk, kelkoo.co.uk and pricegrabber.co.uk are for. The way to use them is this. Find the product you want to buy and be specific about what you’re looking for - it’s crucial that you’re comparing like for like - prices of Duracell AA four-packs, or the iPod nano in baby blue. If you’re looking for the Pirates of the Caribbean two-disc set you don’t end up with the one-disc set. Then type your spec into the comparison site and let the clever robot go off and search for you.
2. Be a late adopter
   Of course early adopters aren’t bothered about saving money, they want the new Playstation or the latest iPhone before everyone else … that’s the point for them. It does mean they occasionally end up with a LaserDisc system or a Betamax video, but hey. But for the rest of us it pays to wait. In fact, you don’t even have to wait these days. Technological change is so quick and so relentless, that you can simply buy the state of the art product from six months ago … and you’ll get a hefty discount.

   Take the example of the Canon EOS400 digital SLR camera, the market’s best seller. In July 07 it was selling for £700; this summer it’s literally half the price. There ARE newer and more expensive SLRs now of course … but ask yourself. How much SLR do you need to pay for?

3. Always haggle
   Brits hate doing it but haggling works - another reason to buy instore rather than online of course. I’ve got to admit I’m terrible at this, but I have an indefatigable sister in law who argues the price of everything … and she invariably gets a deal. Cars, electrical goods and other consumer durables are prime targets. In fact the salespeople are often given permission to knock 5% or 10% off without even speaking to their manager. Give it a go.
4. Travel to the shops
   And barmy as it may sound to fly halfway round the world to do your shopping, consider this. Americans generally pay less for jeans, cameras, iPods … in fact just about anything. Factor in the current strength of sterling against the dollar and the US is one big bargain bin just now.

   A great idea is to combine a shopping trip with a holiday - because your hotel room and eating out will be cheaper too of course. By the same token, we wouldn’t advise anyone to go shopping in the eurozone just now, as the euro is horribly expensive against the pound. In fact if you can avoid going ANYWHERE that uses the euro in the next few months you’ll do your wallet a favour.

5. Buy online … with care
   You can’t haggle on the internet of course, but the other side of the coin is that online shopping means you’re under no pressure to buy, with no pestering sales people. Compare prices, go away, have a cup of tea, come back to the screen and then push the ‘buy’ button. But do watch out for the online tempters. I’m not Amazon bashing here - they’re brilliant at what they do. But their little buying hints, the ‘if you liked that why not buy this’ are deadly to your bank balance. Again, buy at leisure, never on impulse.

   It might surprise regular listeners to know I have my reservations about online shopping. For CDs it’s great … for cauliflowers not so good. I know what I’m getting if I order the new Bob Dylan album or the Wall-E DVD, but I don’t know if those tomatoes are ripe when I order from Sainsbury’s. There are other downsides too. Delivery charges can rack a huge amount onto an online ‘bargain‘. Check that prices aren’t quoted net, with tax then added on (a killer with airfares of course).

   And if time IS money, then I’ve spent a fortune waiting in the house for deliveries to arrive - not to mention having to head off to the UPS depot to reclaim my stuff because I nipped out to the shops. Sometimes it’s just cheaper to get stuff at the store.

6. Voucher codes
   We had to mention them eventually. No matter how good a deal you’ve already snared for yourself, you can frequently get an extra 10% off, perhaps free delivery, or extra freebies, by tapping in a voucher code at checkout. A huge variety of retailers are using voucher codes now. The trick is to go to Google and do a search for the product you want, add a PLUS sign and then type in the phrase ‘voucher code’. You’ll be pleasantly surprised.

Tags: How to save money on shopping,  save money shopping, save money online, smarter shopping

This week I look at the best broadband deals around just now. It seems extraordinary now that we used to put up with dialup internet connections. Disconnecting the phone everytime we wanted to go online and putting up with painfully slow connection and download rates. But broadband is no longer a luxury, with prices coming down all the time. What you get for your money, in terms of service, reliability and download speeds, varies dramatically too.

If you haven’t changed providers for a while, you could almost certainly save money. But first you need to figure out what you want from your internet connection. Remember, there’s very little point paying more for superfast download speeds if you only use the net to check your emails once a day. Similarly, there will be no point paying more for a larger download limit. If you’re a light user you should, with some reservations, go for one of the cheaper deals.

Conversely, if you’re a keen user, and love downloading movie clips or music, then it’s worth paying more for one of the mid range deals. And if you’re never off the net, and download loads of movies and music, then you don’t want to be worrying about your monthly bill. You also don’t want to be sitting there watching stuff download painfully slowly. So consider going for one of the unlimited download deals, and with a speed that allows you to download stuff as fast as you can.

Finally, check on the customer service from the various providers. It’s all very well boasting loads of features, but that’s no use to you if your connections down for most of the day. Talk Talk may have made a great success of telephone services, but they’ve found being an ISP a lot tougher. They’ve got some rotten reviews from users. They have a deal costing £3.25 a month, but I reckon it’s expensive at the price. In fact, beware the rock bottom deals out there. Tiscali are among the cheapest on the market at £4.49, Virgin have a deal offering free set up and unlimited use for £3.50. But you really do get what you pay for. It’s value for money you should go for, not simply saving the price of a couple of pints each month! So here are the deals we think you should go for.

One of the deals we really like at the moment comes from O2, which has managed to move from phones to computers with few apparent problems. They have three packages, for light, medium and heavy users, and have been getting good write ups for service and reliability. These packages are particularly good value for existing O2 customers. There are no usage or download limits or setup fees. The 8Mbit deal is £12.50 a month, or £7.50 for existing O2 customers. The 16Mbit deal is £15, or £10 for O2 users. The 20Mbit deal is £20 or £15 for O2 customers.

And you may not have heard of PlusNet but their customers seem to love them. Setup is free, download speeds are a standard 8Mbit, and you pay £9.99 for a monthly download limit of one gigabyte, £14.99 for 15 gigs, which should be something to keep everyone happy.

Tags: Broadband best deals, how to shop for broadband, best deals with broadband

As the poor UK consumer (and I use the word advisedly) stands amid the tempest of the UK economy in summer 2008, I look at what we should all be doing now. In my main piece this week I look at the fabled safe havens for your cash … and try to take the long view. And which investments will emerge stronger from this storm.

I always think optimism is the best approach but there’s a difference between optimism and wishful thinking. I must have spoken to half a dozen people (mainly estate agents) over the last month who’ve said ‘I wish journalists would stop talking up this so called credit crunch‘. Optimism? That’s more like a child sticking his fingers in his ears and talking loudly so he can’t hear you telling him it’s time for bed. Denial in other words. So let’s remove our digits, look coolly at where we stand with our money, and how we can prepare to survive the downturn.

First the bad news. We’re being hit by a horrible combination of economic blows.

Number one: there’s excessive debt in the form of credit. Loans, overdr afts, credit card balances - Mr and Mrs UK have been living beyond their means for a decade, and that was always going to have to stop sometime. The credit crunch hasn’t changed this, it’s merely been the catalyst that’s sent many of us over the edge.

Number two: collapsing house prices you know all about. It’s real and contrary to what you might read, it’s been happening for years. Ask any property investor in London, and they’ll tell you that prices began stalling a few years ago now … that’s why a lot of smart investors stopped buying around 2003. Unfortunately a lot of us have used easy credit to buy property at inflated prices. Not so bad if it’s a house you’re going to live in for years to come … pretty awful if you saw it as a solid, capital growth investment.

Which leads us to number three, the turning off of credit. The catalyst for the big turnoff was a rise in defaults on US ’sub prime’ mortgages. This tipped a panic in the markets about the number of these high risk mortgages on the banks’ mortgage books.

Lots of grief for the banks here, but you don’t really care about that. The problem for the consumer is that confidence falls and the banks stop lending each other money. Which means they stop lending you money. So it’s hard to remortgage, and when you do, rates have soared.

So to the horror of Number Four. Inflation. Just as the mortgage on our overpriced house goes through the roof, the price of our groceries and our petrol soars. It’s partly down to increased demand from China, India and the rest. And that’s largely because their economies have grown strong on exports. Exports of all the stuff WE’RE buying with that credit and equity release. And it’s also down to traders piling into oil and commodities because other stocks look so weak. The global economy is all connected you see.

Oh, and the final whammy … inflation is eating away at your savings. Enough bad news? I thought so. But it’s never unreservedly bad. What you need to do now is look at how you protect what you have, and put investments in place that will emerge stronger. First the safe bets:

Reduce your spending: do a household budget now, and cut any you don’t need. A day spent doing this could save you hundreds a year.

Cash: It’s a tricky one, because inflation is the silent killer, eating away at your cash reserves. You need a savings account that exceeds inflation at least, so we’re talking tying up your money in a long notice account. Halifax’s Regular Savings Account is offering a whopping 10% just now - keep searching the web for best deals.

Bonds: they don’t offer spectacular returns, but they’re designed to give solid long term protection as markets and currencies wobble.

Next the medium risk:

Gold: the classic defensive buy down the ages. I’m not suggesting you go out and buy an ingot of the stuff, but there are exchange traded funds or ETFs that let investors buy into this market collectively … rather like the investment funds you might own.

Stocks and shares: they’ve dropped and they’ll probably fall further, but DON’T try to time your purchases unless you’re an expert. Dripfeed money into a shares ISA, as much as you can each month up to your £7200 yearly limit.

This fixed spend means you buy fewer shares when they’re expensive, but more when they’re cheap (like now). It reduces the risk of buying overpriced stocks, and means you buy more with potential to grow. It’s called pound-cost averaging.

Finally, the most risky:

Property: If you’re a potential first time buyer, frustrated by ever rising property prices, then step back … for once the market is on your side.

Be grateful you DON’T own a rapidly depreciating asset. If you can, start squirreling away cash for the bargains that will emerge in the next months. My bet would be those overpriced city centre developments on the books of the big UK builders - you know, the ones who are laying off staff and ceasing building. I wouldn’t think of buying during 2008 though. I’ll be looking at some likely developments in the weeks to come.

Value shares: a lot of share traders would say there is value in shares right across the board now. It might not be a brilliant time to buy Bradford and Bingley, but some of the bigger and more solid banks, such as Barclays, have seen their share prices halve in a year. They will still be around in a decade and their share price will be right up their again.

Related: All about ETFs, Halifax, ISAs

Tags: Safe havens for cash, Value shares, Stocks and shares, property investing, Halifax, Bonds, Gold, credit crunch, credit, safe cash havens, safe havens for cash, recession proof savings, personal financial advice

To most of us, it seems, the real cost of our mobile phones is a complete mystery and finding the best contract deal for mobile phone is very confusing. In our main piece this week, I look at the real price… and how you can bring it down. Price comparison website moneysupermarket.com recently ran a survey and found, surprise surprise, that many of us have no idea what our monthly charges are, or how many free texts or minutes of call time are in our call plan.

And that means many of us are paying big extra charges as we go over our pre agreed limits. And many of us change our phones way to often. But instead of simply going for the latest model, stop and think how you could save money.

Don’t just upgrade your phone, there are some fancy new models coming out this year, including the new Apple 2.0 3G iPhone. But rather than buying the model on a 12-month or 18 month think about buying a cheap contract mobile phone in the UK, very frequently you’ll be better simply buying the handset as a standalone purchase and then buying a SIM card only contract.

That will invariably make the contract cheaper, as it’s based just on the SIM (of course) rather than on the inflated cost of a new phone. SIM only contracts exists on all the big networks, and you can still get your free talktime and text deals… but your notice period is likely to only be 30 days rather than the whole 18 months or whatever.

Ask your provider for details. Even better if you don’t want a new handset - you can slot the new SIM into your old phone. What’s the point of that you ask? Well the advantage is that there are appealing new contracts appearing all the time. For example, T-Mobile, has a £20 a month deal, giving users 500 minutes talktime plus unlimited texts. All you have to do is buy the SIM card. And as well as the SIM only deals, there are lots of other ways to save money on mobiles. If you ARE changing handsets, then don’t just throw away the old phone.

We’ve talked before about getting cash for phones. The Carphone Warehouse offers trade ins against new purchases, while mobilephoneexchange.co.uk will buy your old mobile off you. Alternatively, you can donate your phone to charity, where it will be recycled and sent to a developing country.

If you buy a contract mobile phone online it is often cheaper than in the shops - look out for contract mobile phone sales on those sites too. Find out about family call plans, as all the big providers now offer these. You’ll save money and you can ensure you always have a tab on the kids… as you’ve got their number. Ask to change your contract mobile phone tariff. Say you’re going to move unless they switch you to a cheaper plan. Just like banks, mobile companies entice you in with a plan and then leave you languishing as better deals arise… demand to be switched. Consider whether you’d be better switching to pay as you go. If you are one of those people who just want a mobile to be contactable .. and make very few calls yourself, then it’s almost certainly a waste of money having a contract. Buy the most basic phone. Because even the most basic phone - and I’m looking at my sad and b attered four year old Nokia now, has a camera, and a video camera and, for all I know, a teasmade.

Fact is you don’t use most of the extras… So don’t buy them. And the fewer fripperies there are on a phone, the less there is to go wrong. And don’t go for the free gifts… the only thing that matters is how much your contract will cost you each year. Refer a pal and get a bonus. 3Mobile offer £30 to both you and a friend if you refer them and they sign up. Find out how much various things are costing you. How much are texts. Are calls to landlines ludicrously expensive. Is it cheaper for you to ring other people on the 02 network for example. How much are you going to get stung for ringing home from abroad… people get VERY nasty shocks on this one.

And check that tariff. Some of the cashback monthly tariffs are hellishly complicated. The lender quotes £25, but you have to pay £35 and then you claim it back at the end of the contract, and so on. They could have been designed to confuse us… or am I just being a sceptic?

Related: www.moneysupermarket.com, www.mobilephoneexchange.co.uk

Tags: mobile phone, contract mobile phone sale, best contract deal for mobile phone, contract mobile phone tariff, personal financial advice

This week I look at inflation, why it’s bad news for your savings, the cause effect of inflation, and how you can try to protect yourself against it with methods of fighting inflation.

But first, let’s be clear what inflation is. We define inflation as a rise in prices of goods or, to put it another way, a decline in the value of the pound.

What was the inflation rate last year? Last year your £1 bought you a half pound of butter, but this year butter’s gone up to £1.50… the current inflation rate price has lowered the value of the pound in your pocket.

Why does inflation occur and what are the causes of economic inflation? There are lots of reasons for this - too much demand chasing too little supply, a rise in the cost of raw materials, even the Government printing too many banknotes.

But what it means to you is prices have gone up. The Government has measured this for years, rather quaintly taking a basket of goods, including staples such as shoes, bread and eggs, heating and lighting, and seeing how much it increases each month. They used to call this the Retail Price Index or RPI.

This though is where we get into murky waters. A few years back the Government switched from the RPI to the Consumer Price Index, the CPI - changing thee definition types of inflation.

This supposedly representative measure of inflation inexplicably excludes council tax, mortgage interest payments, the cost of buying property… a huge part of what we spend our money on in other words. Perhaps more tellingly, it’s a lot lower than the RPI, currently nudging 3.3% to the RPI’s 4%.

How does inflation affect the economy and what are the effects of inflation on money? The Government trumpets that this is a good, wide ranging measure of inflation across the economy (though omitting housing costs as we’ve seen) but that’s partly the problem.

The vast majority of our spending goes on a smaller number of core goods - petrol, butter, bread, heating the house - and we all know that these have risen a lot more than 3.3% this year.

A consultancy, Capital Economics has calculated that the average middle class family in the UK is seeing inflation of 6.3%. A higher rate taxpayer would need a pay rise of 10.5% this year just to keep pace.

And it gets worse for lower income families. They spend a higher chunk of their disposal cash on food and power - the very commodities that have seen the biggest inflation. Some newspapers have estimated this ‘REAL‘ national inflation rates at closer to 10%.

So inflation limits your spending power, but its more quietly destructive effect is upon your savings.

You may think you’re being prudent tucking away your money in a high interest account, but with inflation at 3.3%, a higher rate taxpayer needs to earn 5% gross before they break even. And as we’ve seen, inflation’s a lot higher than that.

Okay, now I’ve got you thoroughly depressed, let’s look at a little damage limitation. The big risers are going to be gas and electric bills, soaring again this winter.

The best methods of fighting inflation are disappearing fast but, if you haven’t changed already, go to uswitch.com to find a cheaper tariff and switch now. Capped deals are a good bet, as though you may pay more short term you’ll save long term.

Conversely, phone and broadband are among the few costs actually to have fallen over the last year, so looking for a switch there should save you money straightaway on your current tariff.

As I noted at the start of the show - fuel stocks are one of the few actually performing well just now. If you must pay a fortune to fill the car or heat the house you might as well take a share of the profits at least!

And if you are firmly risk averse, then an index linked Bond from National Savings and Investments will at least protect your savings’ real value. Their five year bond pays a guaranteed rate of RPI plus .35%… not spectacular but safe.

However you do it, these methods of fighting inflation are damage limitation. We can at least be glad we don’t live in 1975. Recent additions to the Retail Price Index then included coffee powder, dried mashed potato, cod in butter sauce and hardboard. Ah how we lived in the seventies! Oh, and the rate of inflation? 27.9%. With real coffee, real spuds and inflation at below 10%, things don’t look so bad after all.

Related articles: Britons living standards will fall

Related links: National Savings and Investments, Best buy credit cards, Price comparisons, Capital Economics, RPI and CPI

Tags: inflation, methods of fighting inflation, protect against inflation, why does inflation occur, effects of inflation on money,  inflation rates

Following up on an email from Jon Mason last week, I’m going to be looking at BRIC shares this time round. No, nothing to do with building houses … that whole industry’s about as close to stockmarket poison as you’ll get right now, with Persimmon dipping out of the FTSE 100 index, and Barratt sitting on a mountain of debt and unsold houses.

No, we’re heading far away from UK stocks in search of growth, to the markets in Brazil, Russia, India and China - BRIC for short. Now this may sound a bit exotic for many of us, but many investors, spooked by the relentless downward march of the London and New York stockmarkets, have been quietly salting away funds in Sao Paolo, Moscow, Bombay and Shanghai. These are four very different countries (and indeed are very diverse within their borders) but they are also very different from the currently faltering UK and US markets. There are a number of reasons why professional investors think the BRIC countries offer greater potential.

Firstly, these are swiftly growing economies. We all know about the retreat from state socialism of Russia and China in their different ways, while India and Brazil have huge amounts of investment going in. They are giant countries, with giant populations, and so companies doing well in one of the BRIC nations have huge markets for their products and services. Think about a mobile phone company becoming a market leader in India, or an oil pipeline manufacturer winning state contracts in Russia.

Secondly, these countries tend to have what we can politely refer to as flexible labour laws, meaning they can drive down the cost of production - one of the reasons we in the west have enjoyed ever cheaper consumer goods in the past few years. Gordon Brown might be more honest if he took less credit for his ten years of low inflation and admitted that much of it was down to imported cheap goods from China, India and the rest. The less palatable side of this is that somebody’s paying for your cheap Primark sweater … and there is strong evidence of exploitation not just of adult workers but of children too.

But most of all, these countries are growing and growing fast, the Chinese racing to fast track 200 years of industrial revolution, and that means companies, and their share price, will grow alongside. But of course there are risks. Huge winners and big losers. You may back the pipeline company that wins the big deal … or it may go bust. How do you know that Rio company is well or even honestly run? And though there is much talk of these economies being ‘uncoupled’ from the woes of the UK and US retail and stockmarkets, they depend on us to sell many of those cheap goods … PLUS they are building up inflationary problems of their own.

And you’re buying in a foreign currency, with exchange rate fluctuations, greater charges, it may be difficult to sell your shares.

Okay, stop right there. The way to get exposure to emerging markets (should you wish to take that risk) is not to directly buy shares at all. Arguably the best way in is an exchange traded fund or ETF. They came about in America in the mid-nineties as a way of tracking an index without having to individually buy stocks. The fund buys the stocks and you, effectively, buy shares in the fund so, in theory, you’re getting a tiny piece of all the shares on the Beijing or Moscow stockmarket. ETFs have been set up to track individual sectors, commodities and currencies too.

The advantage of this tracker fund approach is that charges are lower. Put bluntly there isn’t so much work involved in a fund manager simply buying across the sector as there is in investing in individual companies. So you’ll probably pay closer to 0.1% in charges than the usual 1.5% or 2% per year. There are disadvantages too of course. Because they aren’t looking for high performers, you’re unlikely to do better than the index you’re tracking. The upside, of course, is that you also shouldn’t do worse.

And not all ETFs are equal. There are hundreds of these things now, and some may concentrate their buys on the bigger companies in the market, or they may cut out the tiddlers. So there will always be a slight divergence from the average performance of the main Brazil Bovespa Exchange, the Shanghai Stock Exchange or whatever.

So what’s on offer if you want to get into BRICs? Big players include the iShares FTSE BRIC 50, which as the name suggests is quoted on the London Stock Exchange.

Related links: Best performing BRIC ETFs, Main BRIC ETF quoted on the London Stock Exchange

Tags: BRIC markets, BRIC markets article, BRIC markets article, BRIC, markets, stock markets, shares

A shortage of credit, interest rates going up even as the Bank of England base rate goes down, and a collapse in house prices. All in all, it’s not the ideal background for going out to get yourself a mortgage. This week I look at how to get the best deals you can … and whether you need to think a little laterally.

First off … do you REALLY want to buy a house? And do you really want to buy one now, in a falling market? Nobody knows how bad things are going to get in Britain, but people are now seriously talking about a 25% drop in prices.

A good idea might be to put it off … rent for a year instead, because prices certainly have lower to go.

If you can put off purchasing for a year … Save hard … there are some great savings rates just now that DON’T demand you put your money away for years. This is because the retail banks are desperate to get deposit cash in to finance their lending … because of course if banks can’t lend, they can’t do business.

Eye popping deals at the moment include 10% from the Halifax. If you can tighten your belt and salt away a few hundred each month towards a mortgage (or toward paying down your current mortgage) you will be in a much better position to buy when the market starts looking healthy again.

And the more you stash away, the bigger your deposit. That means you’ll be ahead of the pack - with so few mortgages available it’s much easier to get a 60% mortgage than a 70% one say. We can wave goodbye forever to the 100% and 110% deals that were on the table until recently. Further, the more you put down, the less your risk of getting into negative equity.

But you probably don’t want to hear ALL that … especially if you’ve been renting for years, watching your first time buy recede ever further out of sight. And anyway, providing you’re happy to swallow a further drop after you’ve purchased you can nab a very good deal. After all, if the flat was £200,000 last year and you get it for £150k, who cares if it drops another £10k … long term the market will rise again.

The two things you need TO MAKE A PURCHASE OF COURSE, are a property to buy and a mortgage to fund it.

The good news is that this is definitely a buyer’s market and the one group that unequivocally benefits in such a market is the first time buyer … because they don’t have a depreciating asset of their own to sell. And there are mortgages out there - current standard variable rates are around 6% (that’s 1% over the Bank of England base), while you can get slightly under if you’re prepared to tie yourself to a fixed rate for 2, 3 or even 5 years.

This is the time to drive very hard bargains. Make a silly offer for the property you want … they can only say no. And if they say no, remember there are plenty more properties on the market. NEVER make the mistake of getting too attached to a property you haven’t bought yet. I’d stop short of gazundering … which is a nasty trick to play on anyone, but never be embarrassed at paying as little as you can.

And if you have understanding parents, then this is a good time to borrow. No, not in order to pay over the odds, but to snaffle some of the great current bargains around. The bigger the deposit you can put down, the better your chance of getting the best deal mortgage.

And always remember. There isn’t a single property market, there are dozens. Think laterally again … which are the parts of the market that are REALLY distressed. It’s not lovely Victorian conversions that always hold their value, it’s the by the thousand city centre one and two bed new builds. Builders cannot get them off their hands quickly enough. But they’re not going to knock them down, they HAVE to sell them. Find a development that you think has potential - in a good site, near a station and shops (all the fundamentals in fact) and put in a silly offer.

Now how to get the mortgage best deals. Forget the brokers … I would always have advised a borrower to go to a broker, as these guys could cut through the thousands of mortgage products on the market, finding the best deal for YOUR situation. The chances of you finding the lowest interest rate were a needle in a haystack job.

But the number of mortgage products on the market has dropped by more than half over the past year (a huge number being withdrawn from the market in the last couple of months alone). And banks simply aren’t putting their best deals through brokers any more.

As the banks themselves are finding it hard to borrow cash on the wholesale markets, which means they haven’t got enough mortgage cash to supply customer demand, then why would they pay commission to a broker to hook in new customers?

Instead, they’d rather customers walked through their doors and THEY kept the commission. They also figure they can sell you all the add-ons that make them the REAL money if they’ve got you in the branch.

By all means go to a broker to see what he can come up with, then use that figure as a baseline to shop around.

There are LOADS of good finance sites with the latest and best mortgage deals, but start your search for the best rates with moneyfacts.co.uk. You WILL have to spend more time than previously on researching a deal, but that’s no bad thing.

Brokers will tell you that you should use them because they can offer expert advice. But … how much advice do you need?

You DO need to assess the full cost of the mortgage after lock-ins, arrangement fees, early redemption penalties and the rest are factored in, but then educating yourself about this stuff isn’t a bad idea anyway … If only MORE of us had educated ourselves about the real cost of our credit, Britain might not be in such a financial mess now.

In summary then … get a big deposit, hammer the seller on price, and ideally don’t have a property of your own to sell. Happy hunting!

Link: Mortgage Compare, Mortgage deals

Last week I looked at penny shares and was, in the eyes of some readers, rather scathing about them. It’s not to say penny shares won’t grow (every share was a penny share once), more that your chance of picking the 1% of winners rather than the 99% of duds, is slim indeed. Precisely the opposite obtains for Blue Chip and Dividend shares. But first, let’s define what we’re talking about here.

Among the definitions I found in a quick search for ‘blue chip shares’ are ‘Shares of a company known for its ability to make profits and which pay a dividend in good times or in bad.’

Then there is ‘shares in quality, stable companies that have paid regular dividends in both good and bad years’. We’re talking about the giants of the stockmarket, companies that have been around for decades, like BT, British Airways and Marks & Spencer. We’re talking BP, Barclays, Royal Dutch Shell and Vodafone, companies with market capitalisations in the billions of pounds, and with share prices not in the pennies but the pounds.

And these are the shares that the penny share buyers avoid. Why? Because you’ve missed the boat, they will say. There is no way that BT or HBOS is going to rocket in value in the way a new company will. These are solid, dividend yielding shares, and people make them the bedrock of their share portfolios for just that reason … they will deliver slow and steady growth over the years.

That’s not to say that blue chips can’t be volatile. Anyone looking at bank shares at the moment, particularly the hapless Royal Bank of Scotland, might figure that the gig is up.

RBS is down From around 530 pence a year ago to around 250 pence a share now. Venerable Barclays down from more than £7 to less than £4. BT Group has dropped from 320p to around 220p in the same period, while Vodafone has seesawed from 160p up to around 200p to end up … well pretty much back where it started a year ago.

So why bother buying them? Well first of all you’re not buying M&S or BT shares to sell them a year later - you’re buying them to hold, to give you that slow and steady growth we talked about. And over time all those little (or even large) blips in the price graph will even out - you’ll forget all about them. You also won’t waste time checking the share price each day and you won’t waste money on trading commission, beacuse you won’t be buying and selling them.

The FTSE 100 index, the hundred companies quoted on the London Stock Exchange with the largest capitalisations, started in 1984 with a value of 1000p.

It’s soared and plunged from time to time and is going through a rocky period just now. Nonetheless in June 2008 it stands just above 6000p.

And while there have been a number of companies ejected from the FTSE down the years, the collapses have been few and far between. There was the infamous Railtrack failure and the collapse of British and Commonwealth. Generally though, these giant companies have been swallowed up by even bigger ones - Bank of Scotland into HBOS, Enterprise Oil into Royal Dutch Shell, the biggest of them all.

So failure is rare, and even if growth is slow and steady and boring, that’s only half the story.

Maybe your stock is only climbing 5% a year, but these blue chip shares will pay a dividend - give you an income in other words.

The super rich, those fortunate souls who inherited a couple of million in stocks from their grandpa, may never buy or sell their shares but simply live off the income from dividends. Because even if the share price drops, the blue chip companies are almost certain to still pay the dividend each year.

If you, rather than spending that income, simply invest it in more stock, then that’s where REAL growth kicks in. And over the past century, the markets have delivered around 9% a year … ASSUMING investors reinvest their dividends.

NOW … that 9% compounds each year. That would mean that if I popped £7,000 (which is the current yearly ISA limit) into shares at age 30, and ignored them till I retired at 60, I would pick up around £90,000. More realistically, pop 7k into my ISA for each of those 30 years and my £210,000 investment will be worth 1.1million. I haven’t bought or sold, as these are shares to hold, so I’ve minimal dealing costs.

Many successful investors have profited from this ‘buy and hold’ policy, not least Warren Buffett, who obviously knows a thing or two.

There’s more to it than that of course - with Buffett also being a past master at value investing, looking for shares that he believes are fundamentally undervalued.

But after that, it’s buy, hold and watch yourself grow rich. Rather than chasing the dream of penny shares you could do much worse than making dividend yielding blue chips the bedrock of your investment portfolio.

In future editions of Walletwatcher, I’ll also be looking at how to find value shares, and how to identify high yielders … to make the pot grow even faster. Next week, as credit gets crunched harder I’m going to be looking at some creative ways to raise the mortgage you want.

Links: Stockmarket overview and live prices

Tags: Blue chip shares, Dividend shares, Financial budgeting, Stockmarkets, shares, personal financial advice