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Caution is the new cool

I overheard a conversation on a train last week which started along the lines of “So what are you doing for the credit crunch?”

Tales were relayed about tightening belts, cutting down on this and that, not to mention shopping around for the best Bogofs.

Everyone has a view on the credit crunch. It is something that has affected most of us. For my younger clients, it is almost trendy to be tight with money. It is now socially acceptable to say you cannot come out for a drink because you are broke. Caution is the new cool.

Good old-fashioned budgeting seems fashionable and if it is allowing people to concentrate on their current accounts or to start saving, then this has to be positive.

If the credit crunch is going to help a younger, debt-prone generation to reshape their financial values, then this is the grand triumph of experience over education.

Then there is the property downturn. The long overdue correction is a reminder to clients that bricks and mortar are not infallible and can fall in value as well as rise.

This is no bad thing. With the exception of high-net- worth properties, the concept of “my home is my pension” has always given me cause for concern as it offered the excuse for lack of saving in favour of a more hedonistic lifestyle so long as the mortgage was paid. Maybe that is where I went wrong.

In the short term at least, there may be the realisation that other retirement planning may be required.

I think back to two years ago and the insults I received from two clients in particular for refusing to set up a 100 per cent interest-only mortgage for them.

I had a 100 per cent interest-only mortgage in 1991 at the height of the last property boom. The pain of extricating myself from a high-interest mortgage, coupled with plummeting property prices over the next seven years is not something I would want to repeat.

My reluctance to recommend a mortgage in that similar scenario was based on bitter experience, not bloody mindedness. I remain glad that I had the courage of my convictions but I doubt those clients are thanking me now as they ended up borrowing elsewhere.

The downturn means that property may finally become more affordable which is another positive thing but only to those who have hefty deposits.

I can think of only a hand-ful of lenders which now offer a 5 per cent or 10 per cent deposit, but at higher interest rates. Mortgage companies have tightened their lending criteria and this, as we all know, should have been done years ago.

But good borrowers are being penalised because of those who lived on the never never. This is not good. The huge increase in mortgage fees is almost directly proportional to the significant reduction in the number of mortgage applications and the lenders have to make their profit from somewhere.

Those lenders which excluded brokers from their best deals to save money are certainly on my list to try to avoid (compliance permitting) when the market recovers. Talk about biting the hand that feeds you.

Still, on the bright side, at least you can get through to the call centres without being on hold for 20 minutes.

It is not all bad news. Rental properties are in demand, albeit with reduced profit margins, and for those who have a sound credit history, stability and a good deposit, there are newbuild bargains to be had.

And despite stockmarket volatility, there are some great deals in undervalued equities for the longer- term investor.

A client commented last week that I must be finding my job difficult at the moment. On the contrary in times like these, people need good quality advice. Whatever the bad news, there is always room for good news. Every cloud, as they say…

Fiona Sharp is senior adviser at M2 Finance4Women

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