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Monthly Archives: November 2014

How to match your life cover to your mortgage

fb How to match your life cover to your mortgageAnyone who’s watched Strictly Come Dancing will have had the opportunity to appreciate the importance of keeping all aspects of the performance in synch with each other.  If it matters in a 90-second dance routine then it matters even more when looking at protecting your financial future.  Whether you’re looking at savings, investing, insurance or any other financial product, your overall aim should be to improve your personal wealth and every decision you take should lead towards that goal.  Of course, the Strictly celebrities don’t work on their own, they get help from experienced pros, so when looking at managing the family finance, it can help to get some financial advice from a financial adviser.

Make sure all financial products work effectively together

An example of two financial products which very much need to be kept in step with each other is that of mortgages and life insurance.  The fundamental purpose of life insurance is to provide a financial cash cushion for those who are left behind after a death.  In short it allows beneficiaries to focus on dealing with the emotional aspects of bereavement without facing the additional distress of financial difficulties.  The prospect of a grieving partner having to sell the family home due to an inability to meet mortgage repayments is one that can feasibly be averted with forward planning.

Every time your circumstances change, make sure that your finances stay in synch with them

The key point is to ensure that your life insurance reflects the reality of your outstanding mortgage.  Assuming you take out (or update) your life cover when you buy your first home then the level of cover will reflect the amount needed to take care of the mortgage in the event of a death at that point.  If, however, you increase the size of your mortgage for any reason, then you need to ensure that your life insurance cover will still do its intended job.  The most obvious reason for taking on a larger mortgage is, of course, moving house, but you could choose to increase the size of your mortgage for other reasons.  For example you may want to extend your current property as an alternative to having to move.

Be prepared for life’s slings and arrows

As well as looking at the potential consequences of you or your partner dying, it’s also important to think about what would happen in the event of one or both of you being out of work for any length of time.  This could be due to the employment market or alternatively due to serious illness or accident.  Should any of them happen to either of you, then having the right insurance cover in place could make all the difference to your financial and emotional comfort.  In short it could mean the difference between worrying about paying the bills and being able to concentrate on making a full recovery.

In short, insurance is about making sure that you and your loved ones are protected if the worst happens.  It’s probably one of the few products people buy actively hoping that they’ll never need to use it.  For many people, however, it is an essential part of their overall financial planning and needs to be kept up-to-date in line with their changing needs.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

How To Get The Best Remortgage Deals

fb - How To Get The Best Remortgage DealsIn the next twelve months an increase in the base rate of interest is highly likely. Rising house prices caused by the government’s Help To Buy scheme have reached levels that are causing alarm at the Bank of England and a rate rise is the only measure that can slow them down.

Home owners may be considering remortgaging in the coming year before rates rise, and this article is a quick guide to help borrowers think about how to get the best deals they can.

One motivation for getting a new mortgage is for locking in a low fixed rate for the next five years. The lowest APR (annual Percentage Rate) twelve months ago were at an astonishing low of 2.5 percent.

Deals like that are unlikely to come round again soon as interest rates eventually start to rise, but offers of under 3 percent are currently available.

Loan to Value

The rate you are offered will be based on the degree of risk your home loan presents to the lender, amongst other criteria.

Lenders calculate the degree of risk based on the size of the loan compared to the size of the mortgage.

If you are buying a £100,000 property and you can cover the first £50,000 yourself or with help from family members, you will need to borrow £50,000.

This means your Loan To Value (LTV) ratio is 0.5, and the closer the LTV is to one, the higher the risk and the rate of interest will rise accordingly.

Everything you can possibly do to bring the LTV down will help as it will make you more attractive to lenders, save you money in the long run, and put you on a much more stable financial footing in your new home.

The New Lending World

If you haven’t been to see a mortgage advisor in a few years, you’ll notice a big difference as the rules surrounding borrowing have become far stricter since April this year.

The horror stories of irresponsible lending before the 2008 crash, combined with the government’s massive help to home owners with Help To Buy have led regulators to impose stringent new borrowing rules.

Expect your mortgage advisor to want to see your entire financial history, bank records, confirmation of employment, savings, credit reports and more.

Pay off any outstanding debt, even if it’s just £50 on a store card, any black marks on your credit score could be potentially fatal when it comes to securing a lending decision.

Rates

In Britain there are, in general, three types of mortgage deal commonly available, and these are fixed rate, variable rate and tracker mortgages.

A fixed rate mortgage offers borrowers a degree of security, it means that if the base rate of interest rises in the future, the lender will continue to offer the rate that was set and that offer will typically run for five years. It is a way of future-proofing your mortgage against sudden and unexpected mortgage rises and typically most people choose them.

Variable rates have been popular in the last five years. Whereas fixed rates are ‘fixed’ at higher levels to enable the lender to get as much out of the deal as the borrower (arguably more), a variable rate simply responds to the Bank of England’s base rate of interest.

When the base rate is low your mortgage is cheap, and when the rate is high, it’s more expensive. Rates have been half of one percent for six years but this is likely to end soon, leaving many variable rate borrowers seeking fixed rates.

A tracker mortgage is similar to a variable rate mortgage, as it follows the base rate set by the Bank of England but at agreed set margin (perhaps one percent), meaning that a one percent rise in the base rate will not result in a three or four percent rise from your high street lender.

Financial Planning

If you’ve already got a mortgage and you are thinking about protecting your wealth against future changes in the economy it is important to see this as part of your long term financial strategy.

If you are unsure about what next steps to take with your remortgage or would like to speak to a financial advisor.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Financial Conversations Every Couple Should Have

fb - Financial Conversations Every Couple Should HaveIt can be hard to define the point when two people become a couple, planning to be together for the years to come.  When it does happen however it can be an appropriate time to make sure that all practicalities are addressed.  This means ensuring that you and your partner are aligned financially as well as emotionally.  Entering into a relationship means changing from thinking in terms of personal wealth to thinking in terms of family finance.  Here are five questions to get you started on these important conversations.

Do you have savings?

Before you start to align your finances, you both need to be honest to each other regarding the state your finances are currently in.  This means that both of you need to be clear about your financial assets such as savings and their financial liabilities.  You also need to be clear about your attitudes to money.  From this point on you’ll be working to a joint financial plan and it’s crucial that you’re both comfortable with it.  With this in mind, this may be a good point to get some professional advice from a financial advisor.

How would you describe your attitude towards investing?

There are a variety of different investments available and choosing the right one(s) for you depends on a number of factors including your goals, your anticipated time frames and your tolerance for risk.  If you’re to develop a financial plan with which you both feel comfortable, then you need to agree on an investment style with which you both feel comfortable.  You’re also going to have to reach an agreement on how to manage the practicalities of investing.  In other words, who is going to take responsibility for choosing investments and going through the process of buying them?  Even if one partner takes day-to-day responsibility for this, the other partner needs to be in touch with what is happening.  They also need to know where to find all relevant documents in the event of something happening to their partner.

What would happen if one of us died tomorrow?

There are basically two parts to this question:  Why do we need life insurance and if what needs to be in our wills?  The answers depend largely on circumstances. When property or children come around, for example, then making provision for the death of one half of the couple needs to be taken very seriously.  In addition to looking at loss of income from working partners, couples may also need to look at the cost of replacing everything each half of the couple does for free, e.g. providing childcare.  This can mean that life insurance is just as important for the non-working partner as it is for the working one.

What would happen if one of us became severely ill/had an accident tomorrow?

This is a fairly similar question to the one of death; however in this case you also need to think about the cost of providing care for the affected partner as well as (temporary) loss of income and their general input to the family.

What sort of retirement do we want to have?

Understanding how you want to spend your post-work years is the first step in working out how much money will be required to pay for them.  This is another area where is can be particularly helpful to get professional advice from a financial adviser.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED

 

5 Estate Agent Tricks That Can Add Value To Your Home

fb 5 Estate Agent Tricks That Can Add Value To Your HomeA house can be a combination of a financial investment and a family home.  It can be a store of personal wealth where adults organize the family finance and children get their first lessons in the importance of having savings.  Buying and selling a home can have major financial implications as well as emotional ones, so it can be a good time to get some professional advice from a financial adviser.  If you’re selling a home, it can also be worth investing a little time and possibly some money on your home to achieve the best possible price.  Here are some suggestions to help you.

Create curb appeal

The first impression of a property is usually from the outside so make sure viewers are impressed.  If your garden is a major selling point then it may be worth speaking to a professional gardener for tips on how to make it look its absolute best.  For example some strategically-placed lighting could highlight its best features to visitors arriving for evening viewings.  Even if you don’t have a garden, you will have an entrance door and some quality fittings (number or name, letter box, door knocker…) can make a huge difference to its appearance.

Make sure viewers are comfortable when they arrive

Viewers aren’t exactly guests but they are people you want to stay in your home for a while and be in a mood to appreciate it.  Make sure that there is somewhere obvious and convenient for them to put their coats and consider having some extra pairs of slippers to offer them (which might also be good for protecting your floors).  Be prepared to offer tea or coffee and some quality biscuits and serve them in attractive cups or mugs.

Remember allergy sufferers

Common allergies include nuts, pet hair and pollen.  It’s therefore worth taking steps to remove any of these before viewers arrive.  While fresh flowers can look very attractive and some viewers will love them, they are unlikely to win you any brownie points from people with hay fever.  Green plants and/or fresh fruit, however, are more allergy-safe and also attractive choices.  Remember to put them in containers which match with the overall décor of the room.

Make sure your home passes the sniff test

Any potentially offensive odours need to be properly banished.  With a view to this, if anyone is in the habit of smoking in the house, then they need to stop doing so until the house is sold and the house will need to be thoroughly aired.  If there are young children or pets that may have accidents then you need to have something on hand to deal with them quickly.  If you have a cat who uses a litter tray then it may be worth upgrading to an enclosed one in case your cat chooses to use it when you have viewers.  Empty it promptly outside of viewing times and keep pet cages scrupulously clean.  While it may be tempting to try to use scent to enhance the atmosphere of your home, it’s worth remembering that individuals react to scents differently.  You therefore run the risk of accidentally fragrancing your home with a scent that you love but your viewer hates.  It’s also worth remembering that pregnant women have an enhanced sense of smell and so even light scents may seem overpowering to them.

See your walls and shelves as others may see them

Remove anything which could be remotely controversial, such as an object showing affiliation to a sports team or political organization.  Take a long, hard look at everything else and decide if it is in keeping with the image of your house that you want to give.  A studio portrait of your children could be an attractive feature in a family home but basic family snapshots are probably better moved out of sight, along with children’s paintings and home-made gifts etc.

Don’t Rely On Using The Sale Of Your Home To Fund Your Retirement

Blog 2014 (2)

As with any major reform to savings, pensions and investments, the recent government changes to annuities has been accompanied by a flurry of newspaper headlines, ranging from the alarming to the surreal.

Deciding how you will fund your retirement is one of the biggest financial decisions you will ever make and one that cannot be taken lightly, but often the information overload that happens courtesy of the media can leave savers feeling more uncertain than ever.

It is tempting in this situation to rely on a tried and trusted method of funding a retirement, the accumulation of equity in a property, but this might not be the safest and most effective way of paying for a retirement.

Using a property to pay for retirement is always gamble because savers have to make educated guesses on the robustness of the property market in the future when they eventually come to sell.

There might be scope for many people to profit if they act fast, sell up when property prices are high, and invest the equity.

The Bank of England’s Monetary Policy Committee may put up interest rates after the next general election and there is no guarantee that Help to Buy will continue in its present form, with some schemes encountering difficulties already.

So what other options might there be?

In the last year the pension market has undergone some radical changes and the options for savers and those who are due to benefit from their pensions have increased.

With the end of compulsory annuities on most pensions, savers have more flexibility to draw down a lump sum of their nest egg at retirement.

Paying off a mortgage or wiping out remaining debt in one go might be more cost effective solution for retirees than simply being tied to an annuity payment.

In September it was announced that pensions could become tax efficient savings funds, not just designed for paying an income later in life but also a way of passing on a pension pot to the next generation.

From April, depending on your age when you die, you may be able to leave your pension fund with no tax to pay on it (previously most inherited funds were taxed at an eye watering (previously it was taxed at an eye watering 55 percent).

It is not possible to leave an annuity policy in a will to a family member and as a result of the announced changes, annuities may become even less attractive as a means of managing ones pension income.

Some 12 million people in the UK in defined contribution pension schemes will be affected by the changes and they will be able to pass their pensions on without incurring penalties for inheritance tax if they are over the age of 75 when they decide to do so.

The government, with next year’s election in mind is looking to offer the electorate a reduction in the taxation burden on pensions and inheritance, and in this way they have given future retirees a lot more options.

If you are uncertain about how best to provide for you and your loved ones in the future, it might be an idea to seek some advice to give you an informed opinion on your possible choices.

To find out more about the options available, speak with a financial advisor.

 

 

 

 

 

Out of Debt, With Savings and On Track for Retirement. So What’s Next?

fb Out of Debt, With Savings and On Track for Retirement. So What's Next

If, in the past five years, you have managed to pay off your debts and start to plan for retirement, you are in a small minority. Despite the urgings of the Chancellor for the nation to live within its means, personal debt was reported last year to have hit record highs.

Britain’s love of spending and the availability of credit has left us more indebted than we were in 2008, but for a diligent few, the rewards of a debt free existence can be savored.

Getting to a level of financial health that means that credit card spending is under control, personal loans are gone, a mortgage is paid off and you have a retirement plan with regular pension contributions may seem like financial utopia, but are there other financial needs to take care of?

Savings

The more you save, the more financial security you have, as savings are a way of future proofing yourself against the possibility of redundancy, illness, or major life change that disrupts your power to earn.

Financial expert Alvin Hall suggests that everyone who is earning should try to put away ten percent of their income each month since, according to Hall, the evidence points towards the fact that savers do not notice ten percent leaving their total disposable income.

Keeping track of your spending

One tried and tested method of understanding where your money goes, and subsequently how you can protect it and make it work more effectively for you, is the keeping of a spending and saving diary.

The problem with spending is that we do so much of it unconsciously and we have little idea of precisely how much we are spending (or wasting).

If you have a particular savings goal a financial diary or journal can help to motivate you to stick to your targets, and you can also discover what emotional spending triggers there are. Some people spend too much when they are happy and others fritter money away when they are stressed or miserable.

Goal Setting

A financial diary can help you with goal setting, particularly with big ticket items such as paying off the mortgage, or paying for a child’s university fees.

If you are going to set goals then it’s advisable for them to be SMART (Specific, Measurable, Attainable, Realistic, and Timely). This means that you need to Specify how much you want to save (ideally to the last penny), and to track (Measure) how much you are actually saving each month.

Your saving goals need to be Attainable and Realistic: There is no point in trying to save 80 percent of your income each month if your goal is impossible. All you will teach yourself is that saving is impossible, and this will lead to a downward spiral of declining motivation and you’ll actually be in a worse situation than when you started.

Keeping your goal Timely, or within a particular time frame (say, six months), will also keep you motivated. Things that are too far away (20 years or so), lose their meaning.

Get Advice

Finally, the money you work so hard to earn should ideally be put to work instead of doing next to nothing in a low interest savings account.

Investing is an essential part of any long term wealth protection strategy, which means that it is probably a good idea to get some investment advice before you make any major financial decisions.

This may be a good time to get some financial advice from a professional financial adviser who can give you a clearer picture of your choices and explore how to maximise your money.

If you would like some investment advice, click here for further detail