by admin | May 7, 2021 | Mortgage News
When it comes to housing deposits, bigger is better. That said, it’s also important not to overstretch yourself. Here are some points to consider when figuring out how much deposit you can really afford.
What are your overall moving costs?
As a buyer, here are some of the main costs you should consider when moving home:
- Travel to view homes
- Surveying fees
- Conveyancing fees
- Mortgage-administration fees
- Home-moving fees
You’ll also need to think about necessary updates, maintenance and running costs in your new home. Keep in mind that any existing services you use may change their price to reflect your house move. You may also find that some of your existing possessions aren’t suitable for your new home.
In addition to all of the above, it’s advisable to allow yourself a bit of financial “breathing space”. This can give you a bit of room to manoeuvre when life happens. It can also ease your transition into your new home. For example, if you’ve spent a day painting, you may not fancy cooking so you might get a takeaway instead. This can increase your food spend.
What is your financial outlook for the future?
If you want a mortgage, you’re going to need to convince your lender that you can afford it. Separately to that, you, personally, need to think about your financial outlook for the future. In basic terms, there are three questions you need to answer.
Firstly, how much income can you reasonably expect to earn over the next five years or so? Secondly, how do you anticipate that income coming in? For example, will you have a consistent monthly salary or do you expect your income to go up and down? Thirdly, what factors will influence your finances? For example, are there any major life events coming up?
The answers to these questions will help you decide what level of savings you need. This in turn will guide you as to how much money you can afford to put towards buying a new home. Remember, however, that the cost of buying a new home goes beyond the deposit. Per the previous comments, resist any temptation to overstretch yourself.
How much money can you afford to put away now?
If you plan to save for your deposit via instant-access savings accounts, then, by definition, you’ll be able to access your money if you need it. If, however, you plan to use some other route, for example, bonds or the stock market, then you may have to lock your money away for a time. What’s more, if you go down the investment route, you put your capital at risk.
Even if you’re using instant-access savings accounts, you may find it easier to make plans if you have a realistic idea of how much of your savings you can keep over the long-term. Obviously, even the best-laid plans can be derailed by what life has in store. That said, you can mitigate this risk by making sure that you have appropriate insurance cover.
In the real world, saving up for a deposit (or anything else) is partly a matter of income and partly a matter of focus. Your income will determine how much of a surplus you have after paying your essential expenses. Your level of focus will determine how much of your disposable income goes toward your deposit.
Keep in mind that building a deposit is an exercise in financial management. It’s not a race. There are no prizes for getting to the “finish line” before anyone else. You just have to decide for yourself how much you want to save for a house versus how much you want to use your money in other ways.
Please contact us for any more information.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
For savings and investments, we act as introducers only
by admin | Apr 25, 2020 | Equity News, Investment, Mortgage News
Our financial situation can be a bit like a spider’s web. Decisions taken in one area of our financial lives can have implications for other areas of our financial life. In some cases this is obvious (if you spend money, you can’t also save it), in other cases, however, it can be much less obvious. For example, any decisions around equity release could have subsequent implication for anything from estate planning to access to means-tested benefits. With some people considering this as a way to help their families through coronavirus, here is some useful information.
The basics of equity-release
In principle, equity-release simply means tapping into the value of your home. In practice, it can mean different things to different people. In fact, it can mean different things to the same person at different stages of their life.
For younger people, equity release may mean increasing the loan-to-value ratio on their home. Essentially, they are swapping some of the equity they already own for cash in hand, but do intend to make monthly repayments of the loan principal until it is ultimately cleared.
For older people, equity release may mean swapping some or all of the equity in their home for a lump sum or income, without committing to making any repayments during their lifetime. The repayments are made out of their estate after their death, or when they move into permanent care and the house is sold.
Both forms of equity release can have significant implications and so it is strongly recommended to get professional advice before entering into either. Here are some ways they could impact your finances.
Inheritance
This is perhaps the most obvious way in which equity release could impact your finances and/or the finances of your estate. On the one hand, reducing the amount of equity you have in your home could lower the value of your estate and hence the amount of inheritance tax which is ultimately payable on it. On the other hand, if your heirs wish to keep the property, then it may result in them having to pay more to do so.
Tax
Tax laws can and do change and so it’s always advisable to check the rules in place at the time of taking out a financial product or service and to familiarise yourself with any changes which are likely to be in the pipeline. As a rule of thumb, however, if you have any income or assets there’s a good chance that HMRC is going to want to claim a share of them somewhere along the line. For example, even if a lump sum is tax-free, if you put it in a bank, then you may end up paying tax on the interest.
Investments
If you are planning on releasing equity from your home via a standard, repayment mortgage in order to fund the purchase of investments, then you have to be aware that the performance of an investment is not guaranteed whereas your mortgage repayments are an unbreakable commitment assuming you want to keep your home.
If, however, you are planning on releasing equity from your home via a lifetime mortgage, in other words, one in which repayments are only made after your death, then the situation is a little different. You are not at risk of losing your home, but you may be at risk of making a sub-optimal financial decision, which could leave you or your heirs worse off. This is definitely a situation in which professional advice is to be recommended in the strongest possible terms.
Pensions and benefits
Pensions are not currently means-tested, but should they become so then any funds received through equity release could impact your ability to claim them. As it currently stands, they may impact your ability to claim means-tested benefits. If you are considering the possibility of releasing equity from your home to build up your pension pot then, again, getting professional financial advice is strongly recommended.
For Equity Release we act as introducer only
Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration
Your home may be repossessed if you do not keep up repayments on your mortgage
For inheritance tax planning (IHT), estate planning, tax planning, investments and pensions we act as introducer only
The FCA does not regulate some forms of tax planning, inheritance tax planning and estate planning
by admin | Apr 19, 2020 | Mortgage News
The havoc being wreaked by the Coronavirus is not being contained within the walls of hospitals or even with the walls of people’s homes. It’s spreading into all aspects of life in the UK and hurting people emotionally and financially even if it is not impacting them physically. While there is little the government can do about the virus itself, at least for the time being, it is trying to help people manage their finances during this difficult time and, in particular, to allow them to stay in their own homes.
Help for renters
As of 26th March all proceedings for, and enforcement of, possession orders has been suspended for a period of 90 days. Also since 26th March landlords have been obliged to provide tenants with three months’ notice in advance of starting eviction proceedings. This measure is due to last until 30th September. Both measures could potentially be extended if necessary. Landlords themselves can apply for a payment holiday on their mortgage in the same way as people with residential mortgages.
Help for homeowners with mortgages
The Bank of England cut interest rates on 11th March (from 0.75% to 0.25%) and then again on 19th March (from 0.25% to 0.1%). This may not be great news for savers, but it could help borrowers who can “just about” make ends meet.
Borrowers who have been able to make ends meet (i.e. who are up-to-date with their payments) but who have experienced a loss of income due to the Coronavirus, can contact their lender and request a payment holiday of up to three months. They will need to self-certify that their request is due to being impacted by the Coronavirus.
Help for borrowers
At the moment, help for borrowers is largely being provided by the lender themselves, which means it’s variable depending on what product you have and with which lender. The Financial Conduct Authority (FCA) is, however, attempting to bring some level of standardization to what is on offer. They have contacted lenders with the following suggested changes:
Customers who have already been financially affected by the coronavirus should be able to use arranged overdrafts on an interest-free basis for up to three months and all overdraft customers should be left no worse off than they would have been prior to the recent changes made to overdraft pricing.
Customers facing financial difficulties as a result of coronavirus should be offered a payment holiday for loans and credit cards. This should last for up to three months.
Customers who access these temporary measures should not see their credit rating adversely impacted.
While the FCA’s list is phrased as “proposals”, it’s rather hard to see how lenders could refuse, particularly since they could probably take it as read that these proposals could be turned into emergency legislation if they did. They could also reasonably expect a sharp backlash against their business given that the industry benefited from a taxpayer-funded bailout in 2008.
That said, the FCA’s proposals, while undeniably welcome, do raise further questions, particularly with regard to those in persistent debt. The FCA has already advised that credit card lenders should refrain from suspending the cards of people who’ve been in persistent debt for more than 36 months, which, in principle, offers them a lifeline. In practice, however, it could lead to them having to pay back even more interest, thus placing them in an even worse position further down the line.
Similarly, if people in persistent debt take payment holidays, but the interest continues to be applied to their account, then they could also end up substantially worse off, especially if they are near their credit limit and the interest pushes them over it so that further fees are applied, if not immediately, then later on.
The FCA does not regulate some forms of buy to let mortgages
Your property may be repossessed if you do not keep up repayments on your mortgage
by admin | Nov 30, 2019 | Mortgage News
Interest-only mortgages are exactly what they sound like. During the lifetime of the mortgage, you only repay the interest on the mortgage. The principal only becomes repayable at the end of the term. On the one hand, this keeps your monthly payments low. On the other hand, it means you pay the maximum amount of interest because the amount owed does not go down over the term of the mortgage as it does with repayment mortgages. It also means that there is a huge bill waiting for you at the end of the term.
Interest-only mortgages are still very much alive and kicking
These days, interest-only mortgages have just about disappeared from the residential-mortgage market. They are still very much in use in the buy-to-let market but that is another situation. There are, however, still a number of “legacy” interest-only mortgages at various stages of maturity and if you hold one of them, then you need to start thinking seriously about your options.
Option 1 – convert to a repayment mortgage
This may not be as easy as it sounds given that interest-only mortgages are more affordable month-to-month than repayment ones, so, you may find that the higher payments required for a repayment mortgage are out of your reach, especially if you are due to retire over the course of the term. On the other hand, it might not be out of the question either, especially if you are going to be working for most of the term. Although you will not have any equity in your home, if it’s value has gone up, then that will effectively act as a deposit for you and reduce the amount you need to borrow.
Option 2 – sell your home
You don’t have any equity in your home, so equity release isn’t an option. In practical terms, you’re just renting it from the bank, while you work on getting the money together to buy it outright. In principle, you have an advantage over renters in that you can do what you like with and in your own home. The flip side of this, however, is that you also have the responsibility of maintaining the property.
If you can’t convert to a repayment mortgage and don’t yet have a feasible plan in place for paying off the principal at the end of the term, then it might be best to consider whether or not you really stand a decent chance of being able to do so and, even if you do, whether you’re really willing to do whatever it is you’re going to need to do to make that happen. In other words, how much of a sacrifice are you willing to make?
Unless you are 100% sure that you can get the necessary funds together and that you’re willing to do whatever is necessary to achieve your goal, then it might be best just to grit your teeth and sell your home, even if you are in negative equity, because there’s no guarantee that the situation will get better if you wait. In fact it might get worse.
Option 3 – increase your income so as to be able to make the repayment
There are lots of potential ways to increase your income from monetizing your home in some way (e.g. renting out a room), to starting a side-hustle, to looking at savings and investments. Each has different advantages and disadvantages and chances of success. If you’re going to go down this route, then it may make sense to talk with a financial adviser so that you can get an unbiased second opinion on how practical your plan is likely to be and whether there are any adjustments you could make which might improve its chances of success.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Equity Release refers to home reversion plans and lifetime mortgages. To understand the features and risks, ask for a personalised illustration.
For equity release, savings and investments we act as introducers only.
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