• Northern Rock 2.79% 2 year deal with £595 arrangement fee, 4% ERC until 1st March 2012, max 70% LTV
• ING Direct 2.79% (BoEBR + 2.29%) 2 year deal (24 months exactly) with £795 arrangement fee (£195 booking fee), 2% ERC for 24 months, max 75% LTV
• Co-Op Bank 2.99% 3 year deal with £199 application fee, 3% ERC until 31 January 2013, max 60% LTV
• Woolwich 3.19% for term, no arrangement fee, 1% ERC until 31 January 2012, max 70% LTV

All of these deals look relatively good at the moment, but bear in mind that the base rate will eventually start to rise to combat inflation. Though this may be well into next year, it will still hurt your finances if you’re locked into a deal with an ERC until 2012 - you could well end up paying 6-7% on your mortgage if the base rate rises to 3.5-5%, which is its’ typical level over the course of this decade.

Fixed Rate Mortgages

• First Direct 3.64% fixed for 2 years, £199 arrangement fee + £299 booking fee, ERC 3% yr1 - 2% yr2, max 60% LTV
• Chorley & District BS 4.99% for 2 years, 0.75% arrangement fee, ERC 3% for three years, max 90% LTV
• Mansfield BS 4.39% fixed for 3 years, £999 arrangement fee, ERC 3% for three years, max 75% LTV
• Newcastle BS 4.99% fixed until 31.12.2014, £994 arrangement fee, ERC 3% until 31.12.2014, max 75% LTV
• Chelsea BS 5.69% fixed until 31.12.2019, £995 arrangement fee, ERC from 8% yr 1 to 4% final year

Of these fixed rate deals the First Direct deal looks ok, but none of them are particularly good when you consider the base rate is at 0.5%. We really should be seeing some fixed rate deals below 3% considering the billions of taxpayers money that has been poured into the banks to ease liquidity, but as per usual the UK govt has been stiched up by the bankers who and it’s joe public that feels it.

In fairness to the chap, he had made well over $500,000 in the last few years from internet marketing, but that was just his turnover, I wonder what he spent on advertising? You see that’s the thing with arbitrage, by its very nature, you are usually only making a small margin between what something costs versus what it can be sold for, and this differential should only be available for a short period of time - market forces should mean that over the long term the opportunity for arbitrage dissappears.

So how does the program work exactly? From what I could tell by reading the website and watching the promotional videos, they are buying up cheap traffic on Google then directing it to websites that are full of affiliate links for information products. These information products sell via online networks such as Click Bank, usually for a decent commission, sometimes as much as 75% commission!

The general premise is that if you make $10 commission, and you can buy a click for $1, and every 5 clicks you make a commission, then each click is worth $2, but is only costing you $1. You have therefore made an arbitrary profit of $1 per click. To make some decent money, just increase the number of clicks, simple!

With the economy still not fully recovered from the effects of the credit crunch, and many experts believing that we still have more doom and gloom to come, I can only imagine that the Bank of England base rate will not be rising for a long time to come.

The worst case scenario from what I can make of it all is that the base rate will start to rise sometime in the 2nd quarter of 2010, but the best case scenario is that all through 2010 the base rate will remain at it’s current low level.

For the base rate to rise, the economy has to start inflating again, something that it shows no signs of doing just yet. And even when the economy does start to grow, it will be quite a while before the inflation rate exceeds the 3% maximum target set by the Bank of England. With that in mind I think I have to revise my earlier interest rate predictions for 2009 - 2010, which I predicted the base rate would rise steadily during 2010. I believe the economy hasn’t recovered as quickly as was predicted back in January of this year, and as such the base rate will have to remain at its current level for quite some time to come.

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For a start, on a conventional mortgage the ability to borrow is governed by the deposit you can put down and your income. The larger the deposit, as a percentage of the property value, a reduced interest rate is available to the borrower. The income multiple is usually a multiple of the borrowers income, for example three times salary less annualised non-mortgage debt repayments.

With a buy to let mortgage, the income multiple is governed not by your income as the borrower, but is calculated by the interest payments that can be covered by the annualised rental income of the property. For example, if the property is rented for £795 a month, or £9,540 a year, and the rental cover is 100%, as long as the interest on the mortgage is no more than £9,540 a year, the lender will accept the deal.

In most cases, the rental cover is usually more than 100%, typically 125%, so in the above example, the annualised interest on the mortgage could be no more than £7,632, as once this is multiplied by 125% it would be £9,540.

How do you work this all out? I’ll give you an example:

Property Value: £180,000
Mortgage Size: £120,000
Pay Rate: 4.5%
Rental Cover: 130%
Monthly Rent: £795

Annualised interest: (£120,000 x 4.5%) £5,400
Rental cover: (£5,400 x 130%) £7,020
Annualised rent: (£795 x 12) £9,540

So in this case the annualised rent is greater than the required rental cover, so the lender would accept the case.

The other main consideration when looking at buy to let mortgages is that can cannot rent it to any immediate family.

He is a very cautious investor/advisor and stated in his bio that he hasn’t been invested in the stock market since 1986, when at which point he was invested in the Nikkei at around 40,000, and got out at the right time. Currently as I write this, the Nikkei is at 9770.31, and this is 23 years later?

He states in the article that although there are big gains to be made in the stock market, there have also been big losses during the 23 years in which he has not been “in the market” and firmly believes that it is too risky right now to be piling money into the market.

However, I’m sure some people will have noticed that the FTSE 100 has risen from a low of around 3000 at the bottom of this current trough to a rather more healthy 5296 today. But what has driven this recovery?

According to this investor, the same problems that caused the credit crunch, i.e. abundance of cheap credit are causing the rapid recovery we are seeing now, except the difference being that the cheap credit prior to the credit crunch was being pumped into the housing market, whereas now it is being pumped into the stock market, thanks largely to the central government bailouts that we have seen across the major developed economies.

I’m fairly certain that this is not individuals who are pumping in lots of money into the stock markets, more likely it will be the banks speculating with the money they have received in handouts from the govt. Though I’m sure some of this investment in the stock market will be driven by canny investors looking to take advantage of depressed asset prices, using either their own capital or capital they may be able to borrow. Lest we forget that not everyone struggles to borrow money at times like these, just those that need to borrow…those that don’t have a need to borrow will find that there is plenty of credit available to them, rather ironically.

The feeling I got from reading this article is that the recession is not over, far from it in fact, and that we as a society are not learning from our mistakes. Any growth in the stock market in the next few months will largely because of demand driven by credit, rather than because the fundamentals of the stocks being purchased are improving vastly.

The book was written in 1926, though it still feels very relevant today, and what’s more, the lessons that it teaches are written in the context of the residents of Babylon circa 500 BC. This is what so fascinated me, the notion that the secrets to wealth and happines are the same today as they were thousands of years ago.

The main lessons that I got from reading the book are the same as the main lessons that you can read in many other self help books. Here are a few:

• Always save 10% of your earnings for future investment
• Control your spending, i.e. learn to live frugally and well within your means
• Don’t get sucked into scams, only invest in things you understand or invest with people that have the understanding themselves
• Make your money work for you, i.e. look for opportunities for passive income to be generated

Now I have read many self help books, most of which have focussed on either generating wealth or improving ones personal finances, and in all the books I’ve read, I can honestly say that The Richest Man In Babylon has had the most profound effect because it makes one realise that the rules of the game have not changed in millenia. This in turn made me come to a very profound realisation, there are no short-cuts, the only path to lifelong wealth and happines is to play a long game.

Now when the base rate was between for instance 5%, this pretty much always made sense, as the reversionary rate on my clients’ mortgages was usually between 1.75% and 2.25% over base, so best case 6.75% would be the standard variable rate, which I would always be able to beat, even when all costs were taken into account.

Nowadays, things are slightly different thanks to the credit crunch and the Bank of England’s decisions over the past nine months to reduce the base rate to 0.5% and maintain this unprecedented low level for the last three months.

Any mortgage holder now just about to come off a fixed rate deal will be rubbing their hands with glee at the though of potentially paying as little as 2.25% on their mortgage, assuming a similar margin over base from earlier.

It really doesn’t make much sense to consider swapping your mortgage to a new fixed rate deal when you will save considerably more money on your mortgage by simply sticking with the standard variable rate, or am I missing something? It strikes me that fixed rates should have come down significantly over the last six months, but they still seem to be hovering around the 4-5% mark. If you could find a three or five year deal at around 3%, then it would make sense to remortgage onto that, such that when the base rate does start to rise, you will have locked in cheap money for 3-5 years.

Clearly, this all hinges on the Bank of England and what they decide to do with the base rate, though, as I wrote in an article earlier in the week, it seems that at least one big high street bank thinks that the base rate won’t rise until late 2010.

I’m in the lucky position that my mortgage reverted to SVR just as the Bank of England started drastically reducing the base rate late in 2008, such that I’m paying about £600 less each month than I thought I would be once the mortgage had reverted to SVR, which saved me needing to remortgage. Although, with everything that has happened in the last year, the lesson I’ve learnt is that our society is so burdoned with debt that even if you stuck on a variable rate mortgage and didn’t go shopping around for a good fixed rate deal every 2-3 years, you will be better off.

The reason for this is simple – too many people with too much debt will stop the Bank of England from raising rates too high, most likely by causing another credit crunch / recession just as it looks like inflation requires a period of sustained high interest rates.

Now you would think that the more educated the clients were the better they would be with their personal finances, not so. What I discovered whilst dealing with the various clients I dealt with was that some people just seem to have a natural instinct for personal finances, and others seemed to need a helping hand.

The lesson I tried to instil in all of my clients that fell into this latter category was the importance of budgeting. This seemed quite alien to some of them, and it was only when I went through their monthly income and outgoings, to create a monthly budget for them that they realised why they were so often getting into debt.

By preparing a family budget, where you know exactly what your necessary outgoings (mortgage/rent, utilities, insurance, food, petrol/diesel) are each month allows you to then see what you have left over each month to spend and save.

If you only vaguely know how much you have on a week-by-week or monthly basis to spend, then it’s very easy to overspend, or worse if you have overestimated, get into debt on a credit card or overdraft.

If you can work out your family budget well for the month, and know exactly how much money you have to spend, then you can avoid going into debt, and it’s this that is the key to budgeting. I helped many clients realise that the reason they were getting into debt each month was that they were overspending on unnecessary items, such as expensive mobile phone contracts, over priced insurance, expensive utilities, expensive sky tv or cable, and generally spending a lot of money shopping at the supermarket.

By helping these people to understand their budget, they were able to make cuts that saved them money each month which they could then spend guilt free, knowing that they were now not getting into debt because they had made a family budget, and most importantly were sticking to it!

However, I’m sure there are many out there that have always had jobs, and though they may have no desire to run their own business, if their ultimate goal is financial freedom, then I would suggest that this could be achieved quicker by setting up and running your own business.

Before you do though, take a bit of time to evaluate a potential business opportunity to see if it is right for you, as well as evaluating the business to ensure that it is actually a business and not just self-employment – a mistake I was guilty of making with my mortgage brokerage!

Evaluation criteria for a business opportunity

1. Is the opportunity you are considering something you have an interest in? If not, it may be best to steer clear of it, as you will be putting in the hours for this, so it better be something that you have some passion for.

2. Do you have something unique to offer the marketplace? If the answer is no, then it will be harder to make it a success – essentially you will be just another player in a crowded marketplace with little to make you stand out from the crowd, and don’t think that your pricing strategy is enough to make you unique – it isn’t!

3. Is there sufficient demand in the marketplace to sustain your new business? Especially important if it is already a mature marketplace with existing businesses already thriving, even more so if the market is not growing rapidly. Essentially, if you are entering a market that is mature and not growing, then to make your business a success, you will have to steal the customers from other businesses, and you can be sure that your competitors will not like this and most likely take action to counter this. This makes customer acquisition and retention much more costly.

4. What demographic trends are going to help your business? Clearly starting a pie shop in a wealthy, health conscious marketplace will probably not do that well. However, starting an organic farm shop will probably thrive, firstly because of the demographic trend on your side, and secondly because organic products are premium products, which makes them less price sensitive and theoretically higher margins.

5. What risks are there that are totally out of your control? I speak from experience, I have seen my ability to trade wiped out because I didn’t understand the risks that were inherent in being a middle man or a broker in the mortgage intermediary market – the lenders control the market by way of the products they make available to brokers, if they decide to sell their own products cheaper than brokers can, it undermines ones ability to trade. This is pretty much what put me out of business as a mortgage broker, and is a lesson I will never forget. Take great care in evaluating any business idea to ensure that have as much control as possible, don’t rely on another business(es) being able to continue to supply you with anything.

As well as these five points that will help you to evaluate a business opportunity, I would also advise you to think about these other factors:

1. Are you willing to do what it takes to become a successful business person? It may involve taking drastic measures, like selling your home, living in a caravan, living on a tiny amount of money while you get the business going, doing without nice holidays, cars or even designer labels! If you want to continue to live a high consumption lifestyle while trying to get a business of the ground, I can tell you that this will make it almost impossible, so it’s better to change your way of thinking (and spending) before starting your business.

2. Are you willing to deal with all the negativity and scorn that others, sometimes those closest you, will deal you? You’d be amazed at how closed minded people are when it comes to entrepreneurs, although in my experience this is only when you are starting out. Once you start showing a profit, suddenly everyone becomes a believer! This is simply a result of the fact that most people do not have the imagination to think “outside the box”, and therefore cannot comprehend starting a business. Most people need to see to believe, to be a successful entrepreneur, you need to believe before you see – can you do this? Do you have the ability to visualize your future, a future where you are running a successful business? Does the thought of making more money than you ever did as an employee excite, rather than intimidate you? If you answered yes to these questions, then you probably have what it takes to be a success, if you answered no, then don’t bother, you will fail and lots of people who said “I told you so” will be smug that they knew better.

3. Are you in a stable relationship, with a partner that supports your dreams and is prepared to stand by you come thick and thin? If not, then be prepared to walk away from them should they not be supportive or be prepared to fail in your endeavour because having an unsupportive partner will do nothing other than undermine your efforts, most likely resulting in your business not succeeding.

I know this is quite blunt and to the point, but it has to be. Starting your own business is not something to be taken lightly, you need nerves of steel, determination and most of all, the ability to learn, quickly. In addition there are probably a bunch of other critical attributes that are needed that I will go into in another post.

He informed me that he had received an internal memo recently from Natwests’ in house economic forecasters stating that they felt the current low interest rates which most of us borrowers are benefitting from should last until the end of 2010.

I was quite shocked, but very pleasantly surprised by this, as I had predicted that interest rates would rise during 2010. If we do see the current 0.5% BoE base rate until the end of next year, then my predictions will be completely wrong – not that I mind, I have a mortgage and am quite enjoying paying just over 2% on my mortgage.

This will mean misery for the hundreds of thousands of pensioners who have significant savings in their savings accounts, and in fact, while I was in Natwest sorting out a savings account for my corporation tax, I was rather amazed to find out that I will be getting a whopping 1.25% interest on my savings – hardly seems worth it really!

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