Living in a world of low interest rates

We could no doubt debate at some length the wisdom of the government's policy when it comes to setting interest rates, as a mechanism for handling the recession, but on another level this is an absolute gift for IFAs as a means of highlighting the stark choices available to investors and borrowers.

The BOE base rate is now at a lower level than at any time since the BOE was created in 1694.  Inevitably, this low rate of 0.5% has clear knock-on implications for both borrowers and investors.

Our conclusion is perhaps a simplistic one:

If your client is a borrower

The present circumstances offer a compelling opportunity for paying off debt.  The best variable rate is currently (as at 07/04/2009) 2.89% - why not devise capital repayment plans for clients with substantial borrowings, to ensure an accelerated reduction in debt.  The government wants your clients to spend, but in many ways this is almost the perfect opportunity to improve one's capital position.

This extremely low cost to borrowing also opens up opportunities for the repayment of more expensive (credit card) debt - funded by the increase in spendable income related to reduced mortgage overheads.

If your client is an investor

Clearly, there are few attractions to be found in cash.  At the time of writing, the best Instant Access rate is 2.66% AER and the best 1-Yr Bond is 3.9% AER.   These compare with a current CPI rate of 3.2%.  This is a far-from ideal position for those clients who have, historically, become dependent upon interest earned from deposits.  Many of them are now in considerable financial discomfort, and may well therefore be inclined to countenance alternatives which previously they would have shied away from.

The current market presents an absolutely convincing case for "income investing".  If you want to consider some of the data available, then we suggest you look at this webpage.

The 'Low Interest World' is an absolute gift for IFAs.  What are you going to do to maximise this windfall opportunity for building your business?