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Archive for August, 2009
Is your greatest asset protected?
We don’t usually think of our current income and our future earnings as an asset. However, if you take a moment to think about it, the money you earn pays for almost everything you have….mortgage, car loan, bills, children’s education, insurance and so on. Without it, you are faced with a pretty worrying picture.
Nobody wants to think about what life would be like should disability or illness strike. But the reality is that 1 in 6 Irish people will be out of work for more than 6 months at least once during their career. With those who are out of work the average length of claim is 5.5 years. It is surprising then that we protect ourselves against so many of life’s eventualities, yet so few of us protect our salaries.
This is where an Income Protection plan is so important and is appropriate to anyone earning a salary, both the self-employed as well as other employees, regardless of their age or stage of life. With Income Protection you pay a monthly premium which is based on your occupation and the state of your health. This ensures that in the event of an accident or illness, which leaves you unable to work, the policy will pay you a regular income. As there are no restrictions on the type of injury, illness or disability that an income protection plan policy covers, you get complete peace of mind. Best of all, you get to choose and tailor an income protection plan that suits your individual circumstances, with a range of cover types. What’s more, as your needs and circumstances change, you can adapt your income protection policy to suit changes in your life.
In general, we tend to be overly optimistic about how we would manage if we were unable to work due to illness or injury. We over-estimate sick pay arrangements and the support provided by the State. Some employers will cover sick pay for the first 6 months of illness, however, they are not obliged to. The State Illness benefit for 2009 is only just €10,900. And if you are self-employed you don’t even qualify for this.
The reality for most people is that their level of “outgoings” either matches or exceeds their income. So, for a person who no longer is earning that income there will be a significantly negative impact on their lifestyle. But what can you do to protect your salary?
Take an example of a male, who is a sales rep, 38 next birthday is a non smoker and would like to take out an income protection policy which would pay him €500 per week after a deferred period of 26 weeks and up until age 65. The net cost after tax relief would only be €50.49 per month*. If he were to cover himself to age 60 the quote would be cheaper again.
Income Protection should form a core part of any financial plan.
* Quote used is based on the rates applicable to Friends First Guaranteed protection product as at 13/08/2009
Dark clouds hang over the property market, however there is a silver lining
The property market continues to endure a difficult time at present, with the slides in values which commenced in 2007 yielding between 20% & 30% falls in property across the country. This has lead to property in many areas becoming far more affordable & within more buyers reach. This more difficult property market is causing buyers to be far more discerning & choosy about the particular properties they wish to acquire.
The old adage of the three most important things to consider when buying a property are location, location and location has never been more relevant than it is today. What we are finding here at DNG Flanagan Ford is that appropriately priced property in good locations can still find buyers. We do have some properties on our books that have been there for quite a considerable length of time with very few viewings being attracted even when prices are moderately reduced. However in the more popular locations when prices are reduced to reflect the current levels in the market, viewers are forthcoming & we are making successful sales. It is important, I think, for people to realise that all that is happening in the market place is a correction in property prices. Vendors wishing to make sales need to reposition themselves in the current market to reflect prices which the market is prepared to pay. Luckily we have many of those vendors on our books who are prepared to be both realistic & honest about the value of their property.
An example of this is a development called The Hawthorns which is located behind the Carraroe Retail Park here in Sligo city. This scheme saw property prices reduced from a high of €320,000 for a 3 bedroom semi detached down to €200,000 in February of this year. Since that date in February we have successfully sold no fewer than 20 new homes in this scheme. There are many other examples similar to this, such as Dorrins Strand in Strandhill etc. The second hand market continues to endure a tough time, however again at realistic levels sales continue to happen. In the past two weeks our office has sold — 6 second hand properties in the Sligo area. It has also been reported in the DNG offices based in the Greater Dublin area that sales for the month of June of this year were at a record high for the past 2 years. This can be put down to the dramatic correction in prices allowing properties to be far more affordable.
A brief example to explain how much more affordable property has become is to consider The Hawthorns. When we were selling 3 bedroom semi detached houses in this scheme for €320,000 interest rates were running at approximately 5.3%, now that prices have been reduced to €200,000 interest rates are also down to a record all time low of 2.4%. The difference in monthly mortgage repayments as a result of the price reduction & the interest rate reduction is almost €900 per month. The old repayment would have been in excess of €1,542 per month & the new repayments are less than €650 per month.
In relation to market sentiment overall, none of us are living in a cocoon or are immune to the constant barrage of bad news being reported in all sectors of the media. Some of this reporting is pure honest reporting & some if it may be described as sensationalising. However, there is no way of avoiding the fact that we are going through one of the most difficult economic times that the country has ever experienced. Like the constant rise with property, it is important for all of us to realise that falls in property cannot continue either. The difficulty – from a buyers prospective is that we will not know when property prices have bottomed out until they start rising again. Buyers who wish to put off their decision until they know that the property market has bottomed out will surely miss that point in the market by continuing to wait. The only way we will know that the property market has bottomed out is if property prices start to rise. In my opinion the cost of buying a home in the current market has never been more affordable & there are excellent opportunities out there for those buyers prepared to put time & effort in to seek out a suitable property to suit their requirements. My advise would be to start looking and look carefully …………