One of the first things you should do is talk to your lending institution or a mortgage broker. Your lender should be willing to work with you to find solutions to your repayment problems so as to avoid a mortgagee sale.

Most lenders offer repayment holidays of up to 90 days, which may be enough to let you build up your reserves or pay off other short term debt so as to reduce your weekly outgoings.

Another option may be to convert your mortgage to an ‘interest only’ mortgage. This will have the effect of reducing the amount of your repayments because you are not paying back principal. Yet another option is to extend the term of your mortgage, say from 20 years to 25 years, which will also have the effect of lowering your repayments.

All of these options should be seen as short term solutions because ideally you should pay off your mortgage as quickly as possible.

A mortgage broker may be able to help you shop around for a mortgage at a lower rate of interest, however bear in mind that depending on your circumstances, there may be penalties involved in repaying your existing lender, so get this information from your lender first.

Selling your house because you can’t keep up the mortgage payments should be a last resort. Real estate agent fees, legal fees and removal costs will eat into your deposit, and there is always the uncertainty of whether property prices will move ahead by the time you can afford to buy again.

First of all, check with Work and Income to ensure all available benefits are being received such as accommodation supplements and disability allowances. Check with the local council on eligibility for a rates rebate.

If a large sum of money is needed, the cheapest option to consider is to borrow from family members. This should be done with the assistance of a solicitor to prevent any problems with gift duty or issues that might arise on death.

Unfortunately, children don’t often have money to lend. Borrowing from a bank is a possibility and can usually be done by way of an interest-only loan. While this will help keep repayments small, they still need to made and this can be stressful.

Selling the family home and buying a cheaper house is another way of getting access to funds. This can be an expensive option once all the costs associated with selling, buying and moving are taken into consideration.

Home equity release schemes are proving to be very popular as a last resort option. If you need funds for home improvements, such as a new roof or painting, then taking out a loan will enable you to preserve the value of your house.

Choosing a home equity release scheme is something that needs to be done with caution and is best done with independent financial and legal advice.

Once you become eligible for payments from your fund, you will need to pay tax on those payments as well as bank transfer fees. You will also be exposed to exchange rate changes so that the amount you receive as a pension will fluctuate over time. If you pass away with your money still in a UK scheme, your spouse is likely to receive a pension worth only half of what you would have received, whereas New Zealand retirement schemes pay the whole benefit to your spouse or dependants. UK pension funds are classed as Foreign Investment Funds by Inland Revenue which means that if you are a New Zealand tax resident you may have to pay tax on the investment gains.

UK pensions can be transferred to New Zealand but can only be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) without incurring tax. Up to 40% of any money you transfer may go into an unlocked fund and can be withdrawn before retirement age without tax liability if withdrawn more than six years after leaving the UK. By contrast, some UK pensions allow you to take 25% of your funds after the age of 55 without paying tax. Being able to withdraw funds can help with changing circumstances such as marriage, birth of a child or change in employment status.

Having your funds in New Zealand means it is easier to obtain information on how your investment is performing. The transfer is best done with the assistance of a financial adviser to avoid unnecessary penalties and to be aware of your options.

Market volatility is what generates the return on your investment, and you can therefore use volatility to make money. With experience we find that most events in life that are volatile or uncertain still follow a reasonably predictable pattern over time.

In financial markets, making observations about the way markets have behaved previously in similar conditions should enable you to take the right actions and to reasonably predict the outcome.

Markets move in cycles and as surely as the sun will rise every morning, markets that have dropped will rise again. The question is, how far will they drop in any downturn and how long will it take before they start to rise?

When markets are uncertain in the short term, there are some important principles to consider before you invest. More than ever, the two key principles of liquidity and diversification apply. In simple terms, that means you should aim to invest in things that can easily be converted to cash again (don’t put your money into investments that are locked in or for which there are few buyers and sellers) and spread your money among many different investments rather than trying to pick winners. One of the most effective ways of achieving this is to use another basic investment principle, called dollar cost averaging. That simply means drip feeding small amounts of money on a regular basis into a diversified investment. Contributions to KiwiSaver are a good example of this.

For long term investors, short term market volatility will seem of little consequence in years to come.

Start with the basics. Focus on your goals and objectives. If you have long term investment goals, remind yourself not to get too distracted with short term changes in the market. Reversing your strategy will cause you to lose value and lose time – both key ingredients for achieving your goals.

Review your attitude towards risk and reassess whether your investment strategy is a good fit for your risk tolerance. When things are going well in investment markets it is easy to take on more risk than you should. Find the right balance between risk and return so that you can achieve your goals while taking an acceptable level of risk.

Stay diversified. Markets can change quickly, and moving all your investments into one asset class might work in the short term, but it means you are taking on more risk by having all your eggs in one basket. Don’t sell in a panic or you will crystallise any paper losses. Selling up and putting all your money into very safe investments will lower your return, possibly making your goals harder to achieve.

Evaluate all the options you have. This might mean getting more information from an expert who you trust. Make sure that any advice you get is from someone with a balanced or independent point of view who can point out the downsides as well as the advantages of different investment options.

Confident investors have a long term plan that they stick to, they do their research, they aren’t swayed by emotions such as fear or greed, and they are successful at building wealth.

Firstly, we are seeing a decline in property prices as winter sets in. Some property investors have reacted to the last budget by choosing to sell and this has had an impact at the lower end of the market.

Mortgage interest rates are expected to increase over the next few months and this will help keep property prices in check.

The second piece of good news for first home buyers is that from 1 July, 2010 you can you use some of your KiwiSaver funds for your house purchase providing you meet certain criteria.

You must have been a member of KiwiSaver for at least three years and the house you buy must be one that you plan to live in yourself for at least six months.

You will be able to withdraw the contributions you have made to KiwiSaver plus your employer contributions and investment returns. As well, you may be eligible for a subsidy of $1,000 for every year you have been a member of KiwiSaver up to a maximum of $5,000. To be eligible, your income and the value of the house you are buying must be within certain limits.

Thirdly, you may also be eligible for a low deposit loan through Housing New Zealand’s Welcome Home Loan scheme.

With this scheme, you can borrow up to $200,000 without a deposit and up to $280,000 ($350,000 in some areas) with a 15% deposit on the amount above $200,000. That means you can buy a $280,000 house with a deposit of $7,500 and your KiwiSaver money (contributions plus subsidy) will count towards your deposit.

Now is definitely a good time for first home buyers.

One key advantage of a line of credit is that if you run short of funds you can spend or withdraw up to the limit that has been set. This means that you can pay all your spare cash into your line of credit to keep the balance and the interest down, knowing you can grab it back at any time. If you have a mortgage, the best return you can get for your emergency savings is to ‘invest’ it in a line of credit. The return you get will be the interest you save on your borrowing.

Some mortgage brokers and lenders advocate using a line of credit as a transaction account for receiving income and paying all your living expenses. In theory, this will ensure your loan balance is kept as low as possible. In practice, this system usually fails because unless you are very disciplined it becomes almost impossible to keep to a budget. It is better to instead make a regular payment each payday into your line of credit to reduce the balance.

Some banks are now offering customers the ability to offset balances in a range of accounts, which is a great way to keep your savings separate from your mortgage. You will only pay or earn interest on the net balance of the range of accounts. The more you save, the more you will crunch your credit!

The Consumer report was based on a mystery shopping survey which involved 11 mystery shoppers seeking advice from 33 financial advisers. Of the 33 advisers, only 3 were deemed to have given ‘good’ advice based on the Consumer assesment criteria. Moneymax was asked to prepare a pre-retirement plan for a mystery shopper. A pre-retirement plan is one that is prepared for a person who has a mortgage and little in the way savings but who wants to get ahead. I spend many hours giving free advice to such people and in some cases I prepare a basic written plan for $600-800 plus GST depending on complexity. The true cost of preparing these plans is at least $1,600. Detailed plans cost around $2-3,000 and this is beyond the reach of people with no savings. My plan for the mystery shopper was rejected on the basis that it was not sufficiently detailed.

To maintain public confidence in the work of the Code Committee, I offered my resignation from that Committee to the Chair, Mr Ross Butler. Mr Patrick Middleton of Westpac offered his resignation for the same reason. Both resignations were accepted and Ms Annabel Cotton, the Commissioner for Financial Advisers, has stated publicly that these resignations do not in any way reflect our competence or our contribution to the Code Committee. A copy of the media release from Annabel can by read by clicking here.

Consumer Report

The Consumer Report has been condemned by the financial advice industry as flawed and sensationalised. You can read some of the industry response on two financial planning websites, Good Returns (click here) and Financial Alert (click here). I have written a letter of complaint to the Chief Executive of Consumer and you can read a copy of that letter by clicking here.

I was asked by Asset Magazine to write an opinion on the Consumer report. This will be published in the next issue of the magazine and you can preview the article titled ‘Why Consumer was Wrong’ by clicking here.

Support from Clients and Colleagues

I have been overwhelmed by the support I have received from both clients and fellow advisers over the last two weeks. I remain passionate about my profession and being able to help people make the most of their money. If you have any concerns about what you have read or heard, please contact me.