Page last updated at 12:05 GMT, Friday, 17 October 2008 13:05 UK

Money worries: Your questions

Danny Cox, a chartered financial planner with Hargreaves Lansdown, answers some of your questions.


Danny Cox
Danny Cox of Hargreaves Lansdown

I will be 65 next July, and my pension fund, already only modest, is likely to be affected. Can you give me any positive comment on what the effect will be, and what I should be doing to reduce the impact?

I assume that your pension fund is a money purchase scheme rather than a final salary pension scheme. If your pension fund is invested in stock market funds then it is too late, the value will have already fallen. This means that there is less money to convert into a lump sum and income.

You do have the option of delaying taking benefits from your pension at the age of 65 until the stock market recovers. Some pension funds automatically switch from stock market funds to safer, cash and fixed interest funds as you approach retirement. If this is the case, then your pension fund will have been protected from the stock market falls.


I am expecting the housing market to fall by up to 30% and the economy not to start picking up until maybe 2011. What do you think?

I agree that the housing market will probably fall about 30% from its peak and that it may not pick up again until 2010-11. Of course this is an average estimate and some properties will fall more or less than this depending upon various factors including their location.

The last housing crisis in the late 1980s and early 1990s lasted about six years and was compounded by high interest rates and high unemployment. Now we have relatively low and still falling interest rates, but unemployment is picking up.

The other big difference is the buy-to-let boom. Buy-to-let did not exist last time around. I expect experienced buy-to-let investors to buy distressed property which should mean the slump will be shorter than the last time.


What are interest rates likely to do in the short term and also in the long run over the next couple of years, with recession looming and inflation on the up? I have just recently remortgaged and - taking into account recent interest rates cuts - I have opted for a tracker mortgage for the next two years. Is this a good move?

Generally speaking, I think that a tracker mortgage is the right move. This is because I expect interest rates to be cut again before Christmas with further falls in 2009. Some analysts are suggesting they may go below 3% next year.

But it is important to keep an eye on things. The likelihood is that the Government will issue lots of gilts to try and stimulate the economy which means that inflation will become a factor and this will put pressure on interest rates in the medium term.


As a small investor, with unit trusts worth about 70,000 but owning my house and at the age of 75, I am concerned about what is happening. Obviously, I will not sell investments but if we go into a 1930s environment what do I do?

Notes and coins
Fears have been raised of a 1930s style slump

If you are already in unit trusts, you have already suffered the falls so if you cash in now you will bank those losses. We would hope that over time the stock market will pick up again and prices will recover.

This is a good time to review your holdings and make sure that you are invested in the right funds for you. If you do swap any holdings, any gains that you have made will be smaller and therefore there is less chance of any capital gains tax.


What, now, are the chances for any of us ill-fated depositors in the failed Kaupthing, Singer & Friedlander bank in the Isle of Man (IOM) getting (any of) our money back in a reasonable time frame? And if it is only going to be the possible 50,000 mentioned, when might that be?

This is really unfortunate. The situation is not clear at the moment and as can be seen from the press release from the IOM authorities, the UK is now representing the island in its representations to the Icelandic government about their bank's guarantees.


Is holding on to your cash earnings the safest option for the ordinary citizen? Would it be unsafe to even keep one's earnings in banks as fixed deposits? Would it be wise to buy property by making an outright one-time payment, without (taking)the route of loans and mortgages?

I think that the next couple of years are going to be tough for world economies and because of this, private investors are more likely to spend less and increase their savings, which will make the problem worse. That said, every person has to consider their own circumstances and make the right decisions for themselves.

This is a time when we should consider pulling in the purse strings and making sure we have enough cash in the bank to cover any contingencies including redundancy. You can protect your deposits by keeping them within the amounts guaranteed by government or opting for a nationalised bank where unlimited amounts are guaranteed.

Unless you find your dream home at a bargain price, I think housing prices will fall further so it might be prudent to wait before buying.


Would this be a bad time to continue the process of converting a 40,000 pension fund and taking the 25% tax free sum to enable me to pay off a visa card that I pay high interest on?

I was given almost identical figures in the quotation as I was given one year ago.

Trader on the New York stock exchange
Many investments have lost value during the crisis

My first thought is that this is a good idea. Reducing debt, particularly expensive debt is almost always a good idea. However, your pension fund is for your retirement, so if you take 25% now it reduces what you will receive in the future. If your quotation hasn't changed in the last year, it suggests that you are not invested in stock market funds, or that you have a final salary scheme.

I would think carefully and see if there are alternatives to repaying this debt before touching your pension.


Currently my pension is held in a pension fund, and 100% of it is in shares. Would it make sense to manage the current risk by moving one-third by value to bonds and one-third to cash until the market recovers?

If you move money from shares to cash and bonds now, you will "bank" the recent stock market falls and two thirds of your pension fund will not benefit from any upturns in markets. That said it will protect this part of your pension from future falls in equity markets.

If you are a long way from retirement (10 years plus) and are saving regularly, you should probably hold your nerve and continue to invest in stock market funds. I would expect you to be rewarded over the long term.


I am a house owner and own two-thirds of my house. However if the interest rates (rise to) reflect the recession of the 80s, I would not be able to pay my mortgage. Would it be sensible at this stage to change to a fixed-rate mortgage?

Interest rates will almost certainly fall over the next 12 months to perhaps 3% so a fixed rate deal might look expensive in a year's time. You should only take a fixed rate deal if an increase in the interest rate would cause you a big problem. Interest rates peaked at around 15% in the early 1990s and I think that it is extremely unlikely that rates will get anywhere near this level.


I am the owner of a small business and yesterday I met with my bank manager to discuss future funding and rates of interest.

Their punch line at the end of the meeting was that my lending rates would have to go up because Libor was higher than base rate and I would have to bear the difference. I tried to point out to them that I had heard that it was a condition of the recent government injection of cash into their bank that they would be required to maintain competitively priced lending to small businesses at 2007 levels. This information was met with blank faces and apparently neither of them were aware of such a condition.

Notes and coins
Even some cash savings have been unsafe in recent months

You are correct but this deal was only arranged last week so there has to be time allowed to let these changes come in. Despite what the Government has done, lending rates will continue to be driven by the Libor rate which will only start to fall when the banks start to trust each other again. I do expect this to ease.


I am approaching official retirement age and have a few pounds to spare, so should I buy shares in the three failed banks? The share price is so low and it is tempting in spite of the lack of dividends.

In principle you should only invest in the stock market for the long term meaning that you are prepared to hold these shares for at least five years. You also should be happy to accept that the values can fall as well as rise.

It takes a brave person to invest in banking stocks at the moment. Northern Rock and Bradford and Bingley investors may never see a return on their shareholdings and those banks who have taken support from the Government may not be able to pay dividends for some years (this is being negotiated at the moment).

In ten years time it could be the best investment you ever made, but equally the returns might be poor.


Why, with the oil price nearly halving, have we not heard anything about domestic electricity and gas prices coming down in the same way that petrol now is? Does this correlation cease to apply when the price of oil is falling?

Essentially we buy oil in advance, up to six months in advance and therefore there is a lag between falling oil prices and falling energy prices. We are a net importer of oil meaning that there is little we can do to regulate the price. At the same time sterling has weakened against the dollar and since oil is traded in dollars this means that our pounds do not go as far.

I expect petrol and energy prices to eventually benefit from the falling oil price, however the general trend for energy prices is upward, and so they are unlikely to fall significantly.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation

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