Ask the Experts

As this is only 15% equity and there is a shortage of mortgages? Do you have any advice on what type I should get?

Mark, the best advice for you in this instance may be to just 'do nothing'. If you remain with Chelsea building society after your fixed rate mortgage expires you will revert to their Standard Variable Rate mortgage(SVR).

Whilst Bank of England base rate (BOER) was at 3%, Chelsea had their SVR @ 5.79%. Since then the BOER has reduced to 2% so Chelsea may actually reduce their SVR further.

You have mentioned that you have around 15% equity in the property - If you look at what new re-mortgages are available on the market at this Loan to Value you will be struggling to do better than 5.79% without paying astronomically large fees.

Bearing this in mind it may be better to remain with Chelsea and move to their SVR, which means you will not incur any fees whatsoever, have a competitive mortgage rate, and also have no early repayment charges which will enable you to re-assess at any time you wish.

All of the above is a very quick assessment and it would be essential to speak with an independent mortgage broker to fully assess your circumstances and recommend your most suitable options.

Peter McGahan, independent financial adviser

4. Tom in Kinross asks: My wife and I have a Legal & General With Profits Income Bond taken out in Dec '03, and Legal & General Investment Bonds taken out in Dec '04 and May '05. We take quarterly interest from all of them. How safe are these? We're not too worried about a temporary drop in interest income.

A with-profit bond is comfortably the most opaque investment structure you can invest into. Quite how safe it is and how well it will perform will be down to the actuary who decides what growth you will receive rather than the actual performance of the plan. Its worth visiting an Independent Financial adviser to discuss your risk and potential reward along with all the potential trip-ups with this plan.

I have long been of the view that with profits are the equivalent of your parents giving you spending money for your summer holidays but drip feeding it to you over the summer and of course giving you less back than you thought you had. It is an ill thought out concept that fell over at the first time of asking back in 2000.

Be careful before exiting such a plan though. The case of whether or not you should exit a with profits investment or pension revolves around what weight you put on potential pain and potential gain and any penalties.

You must remember also a number of key points about a with profits bond. Firstly it is not income producing so whilst you are referring to taking interest from it, there is none. You are simply drawing down part of the capital value. If that capital is not growing, you are eating into your capital worth.

Secondly the last budget rendered bonds pretty ineffective from a tax point of view. They pay tax as they grow which cannot be reclaimed and also they are ineffective form a tax point of view when compared with a unit trust or ISA.

Regarding safety, they are sold as a 'smoothed' contract. Hardly. They are invested into exactly what a normal managed fund is invested into but the returns are decided by the actuary. You are as susceptible to the vagaries of the market as anyone. Have a look at what you would get back today if you encashed, that will tell you how risky they really are.

Peter McGahan, independent financial adviser

5. Peter asks: Can I transfer part of my ISA holding to another bank/building society?

Yes you can but it depends on what you are transferring i.e. if it's a cash or shares Isa. If it's a cash Isa you can move all of this year's contributions into another cash Isa or shares Isa but you cannot split between more than one provider or Isa type.

If it's a previous year's cash Isa you can move all of this, or split it between more than one cash Isa or shares Isa.

If it's this year's shares Isa you can move it to another shares Isa, to a cash Isa or split between one or more shares Isas.

If it's a previous year's shares Isa you can move it into one or more shares ISAs but you can't move it to a cash Isa. Simple!

Peter McGahan, independent financial adviser

6. George in Scotland asks: I have two distribution bonds with AXA/Sunlife, which are rapidly falling in value. Should I be worried and if so is there anything I can do to defend the value of my investment?

Firstly, the only thing that is 'ing' is nothing. Most investors begin to believe their investment is moving up or moving down. As an independent financial adviser I don't believe that. They are simply down or up at that point in time.

Distribution bonds are sold as lower risk assets. Why? Simply because they take larger holdings in certain investments that are less volatile such as fixed interests and property. Just because something is less volatile doesn't mean it can't plummet in value overnight as those invested in property funds will have noticed last year.

The performance of a distribution fund will be down to how they decide how much of these assets they should purchase, along with the quantity of equities and in what proportion. Finally they will stand or fall on the ability to buy all the correct property, bonds and equities.

Consider:

Do some of these large life companies have the expertise to decide the correct allocation between the two (equities and fixed interests). I dont believe they do.

Do they have the expertise to decide which fixed interests to invest into? We are seeing defaults beyond belief and an exposure to anything other than AAA corporate bonds whilst chasing a yield may be a shaky road to losing more money.

Remember these bonds are designed to deliver yield so check your exposure to the grade of bond as defaults on the coupon could easily become defaults on the capital.

Do they chase dividend in the equities they buy without looking at the capital value? We often see that.

Lastly they are an insurance bond that is the most unfavourable method of investing money from a tax point of view.

The 5% 'tax free' fad they are sold on is not true. They pay basic rate tax as they grow which is not reclaimable. There is a potential for higher rate tax.

There is the potential that encashment will mean you lose you age allowance in that year.

They are simply a packaged product which are not favoured by me as you may have picked up!

Peter McGahan, independent financial adviser

7. Sheila in Essex asks: My son and his partner have split up with a joint mortgage in place. His partner does not want to continue paying the mortgage, but have explained that now is not the time to sell as they are in negative equity.

My son is trying to let out a room to help with the mortgage repayments, as he does not want to lose the property, is there any other option available.

Hi Sheila, there are quite a few issues within what you have said. If your son's partner remains on the mortgage they will continue to have an interest in the property, whether contributing to the mortgage payments or not.

This has consequences for both your son and his partner eg - if he fails to meet the payments his partner will be classed as missing the mortgage payments which will also have an impact on their credit rating. If he continues to make the payments until he can sell the property for a profit, his partner may try to argue they want part of this profit.

The first step here is for both of them to take legal advice as how they should protect their interest moving forward.

In order to cope with the mortgage payments your son could look to see if his mortgage is on a Capital Repayment basis. If this is the case he could convert it to 'interest only' for the time being to lower the monthly payment but check if the lender allows this without extortionate fees.

If he can rent a room out he could take advantage of the government 'rent a room scheme' where he is allowed to earn up to £4,250 pa tax free.

It would be worthwhile your son speaking with an independent mortgage broker to see if there are any other options available outside of his existing lender.

Peter McGahan, independent financial adviser

8. Margaret in Cornwall asks: My IFA has recommended my husband and I put our savings and pensions in a 'wrap platform'. He thinks this would be a reliable safe haven and will save money on fees. Any comments please.

Wrap investment is an interesting one. Many providers are referring to a wrap even though it is not. For example most fund supermarkets call themselves a wrap when they are simply a platform which holds some of the assets. A good explanation of the difference is found here under wrap investment.

The key benefits of a wrap are:

In a good wrap, funds can be purchased for as little as 0.30% which is 5% cheaper than going direct.

Wrap allows advisers and customers to see all assets and liabilities in a single place.

Instead of your pension being with one company and your ISAs with another, all your assets will be held in the same place. This does not mean that your money is invested in the same place as with wrap you have access to every fund in the market place.

Wrap allows customers access to all the best funds in the market place rather than be restricted by an insurance companies under performing funds.

The unclaimed assets register currently has over £15 billion of assets where they have lost documents or have forgotten to claim and where they have moved property. Wrap actually holds the asset electronically so it is not possible that you can lose any of your assets.

At a glance you can see where all your gains are, where your losses are and can have an immediate report for probate capital gains tax or simply a valuation.

As the advisers job is easier, that saving can be passed to you whilst the adviser can focus on what you want which is to make the best possible returns whilst minimising the risk on your investments.

The Investment functionality allows advisers to ensure their client's investment strategy is appropriate and monitored.

Wrap has a wide range of reporting that allows your wrap to be reviewed and recommendations implemented easily and efficiently.

Wrap also has a wide range of tax wrappers to ensure the most appropriate tax wrappers are available to you.

The key is to make sure you are able to quickly reregister from a wrap if you need to without fees. Going into one that didn't allow that would be a poor decision.

Peter McGahan, independent financial adviser

9. Frank in Bristol asks: I have a large amount of monies in a with-profits 'Prudential International Bond'which is based in Dublin and part of the Prudential Assurance group, what I would like to know is - a) how safe is this investment and b) should I keep the investment going for the full term (5 years left of 10).

I do not seem to be able to find exact information on this type of investment and how it 'fits' in with the current situation.

How safe is the investment? The answer to that is two fold: One is the investor protection and the other relates to the quality of the investment.

Investor protection first: As long as you are UK resident and took the plan out after 30th November 2001 you are afforded the same protection as if you took out a Uk investment under the Financial services compensation scheme which is 100% of the first £2,000 plus 90% of the remainder of the claim. As for the quality of the investment? That breaks into two parts itself. The first relates to where the money is invested into inside the bond and the second relates to with profits.

Remember that any investment inside an investment bond that is outside of an insurance company's normal insurance products may be caught under the 'large company' rule. Basically an investment into cash in an offshore investment where the bank went bust would mean the investor had no protection at all and would receive nothing. An investment into with profits has a different risk.

They are complicated in their makeup and so opaque they are impossible to understand by anyone other than the actuary deciding how much of the returns they have made that they should give to you - a bit like how you treat your five year old when you take them on holiday and allocate their spending money.

They are supposed to be low risk but this has been proven to be complete nonsense. They invest their underlying fund in a wide range of assets just like their managed fund. They asset allocate and try and achieve the best returns. Asset allocation is everything. In 2005 we told everyone to get out of property with a 100% exodus. In the last year everyone else piled out of property.

Prudential's with profits response? Amazing. They increased the holding in property then dropped it by 1% and in 2008 they increased it by 0.6%. Enough said.

The idea is they take returns from good years and give back to you in bad years. At first time of asking they fell over as markets fell in 2000.

Think about it simply: they invest in the managed fund and achieve a return. They cant give you any more than that so give you less and keep some back. If things go really wrong they will thump you with an MVR (market value reduction) to keep you invested. Better still they only give you 90% of the returns they receive as shareholders receive the rest.

Look at the returns below from the M&G managed growth account versus the with profit fund to see how much is kept back. Its is only with the extreme conditions in this year that the with profit fund has been allowed to get closer but the scheme will now be very defensive in comparison and will not be equipped to benefit from any market bounce as it will be forced to stay defensive. I would seek the advice of an Independent financial adviser who can give you a favourable insight into such a scheme in consideration of the current environment.

I am of the view (having blocked our customers going into such schemes 11 years ago that most if not all people who have invested into such schemes have not been explained them at all. Moreover they pay 7-8% commission to an adviser rather than a fee based adviser who would just charge you for the work they are doing and I can guarantee you would not have ended up with such a scheme.

Peter McGahan, independent financial adviser