Archive for April, 2015

Thoughts For First Time Buyers

Tuesday, April 28th, 2015

Thoughts For First Time BuyersIf you have never taken out a mortgage before, this blog is aimed at giving you a balanced and informed view of your options and the mortgage market today by examining things you need to consider when you are buying for the first time.


Since last April, the rules surrounding lending have changed, now lenders are required to carry out far reaching audits into personal finances to determine your monthly income and prevent financial over commitment. You will need to demonstrate that you are:

  • Saving monthly
  • Reducing outgoings
  • Reducing debt or
  • Debt free
  • Receiving a regular income
  • In possession of a clean credit rating
  • You will need to calculate the total amount you will need for a mortgage deposit and plan your savings accordingly.
  • It might be worth finding out if the seller is willing to do a private deal, thus cutting out the estate agent.
  • Watch out for extortionate service charges if you are buying a flat, these can significantly add to the cost of your monthly payments.
  • It might be cheaper to see if you can bid for a property at auction instead of buying it through an estate agent.

Government Schemes:

The Government has helped first time buyers and families moving up the property ladder with a landmark schemes in the past five years, the Help to Buy Scheme.

  • Help to Buy: Sky rocketing average house prices have placed home ownership in the last five years out of the reach of countless first time buyers and made it difficult for growing families to move up the property ladder. The Help to Buy Scheme has provided loans of up to 20 percent of the overall value of properties in order to help buyers afford the deposit. Now prospective buyers have to put down just five percent of the overall value of a new home.


  • Look at the street you are buying in, if the house your are purchasing is far more expensive than the others in that post code, remember that the area will have its own ‘ceiling price’ based on what people in general are willing to pay in order to live there.
  • Is the area ‘up and coming?’
  • Are there decent schools?
  • Is it connected to good transport links?
  • What are the amenities like?

Legal Stuff:

There will be a number of compulsory costs included in the mortgage deal:

  • Legal Fees (these may be included in the overall price of the mortgage, so you don’t have to pay them outright but over the life of the mortgage they will be expensive).
  • Stamp duty.
  • Surveys on your new home (scrimp on these at your peril).

You might want to:

  • Find a cheaper solicitor than the one your lender is using.
  • Find out all the costs and ‘extras’ both estate agents and conveyancing solicitors are charging
  • Make sure everyone you are dealing with is covered by a professional charter or body and is insured.
  • Make sure your solicitor works for you, not the other way round.

You will also need to ask some searching questions to protect yourself against future heartache when you view a property for the first time, even if you’ve convinced yourself that ‘it’s the one’:

  • How long has it been on the market?
  • How many offers has it had?
  • What are the neighbours like?
  • Have there been any disputes?
  • Is there up to date paperwork for the gas and electricity?
  • Is there up to date paperwork for the boiler?
  • What is the availability of parking spaces?
  • What is the cost of council tax?
  • What furnishings or fixtures come with the house?
  • Has there been any history of subsidence or dry rot?
  • Is there anything hideous about to be built on your doorstep?

Getting clear answers to these questions will save you much misery later on. You might also want to:

  • Find out about the estate agent; are they famed for good customer service?
  • Find out about the management service (if you are buying a flat) do they have a good reputation?


You need to have a good relationship with your sellers;

  • If you see a property you really want, get them to take it off the market as a condition of your offer. There is nothing worse than being gazumped by another bidder.

Setting up home

You will need to factor in the costs of;

  • Removals (get plenty of quotes for this as prices can vary widely).
  • New furnishings, kitchen or bathroom.
  • Improving the exterior of the building and the garden

Make sure also that you have quotes from workmen for the renovations before you buy, because afterwards the jobs you need doing could become more expensive, the more desperate they sense you are.


So You’ve Found The House, How Soon Can You Move In?

Friday, April 24th, 2015

Move copyWhile having an offer on a house accepted may be a cause for celebration, it is actually a fairly early point in the procedure for buying a property. Here is a summary of the steps to complete before you pick up your keys.

Organize a Solicitor

You may be able to find a solicitor before you have an offer accepted, but the solicitor will only be able to help you once they know what specific property you want to buy. Their job is to check out the property thoroughly from a legal perspective and see if there are any potential issues of which you need to be aware.

Organize a Surveyor

There are two types of survey which can be carried out on a property. One is a valuation survey and the other is a property survey. In very simple terms, the valuation survey is to ensure that the price of the property is reasonable given the amount of the mortgage you have requested. In other words, the surveyor will only do enough to check that the mortgage lender is assuming a reasonable risk. A property survey is a much more extensive survey, which aims to identify any potential physical issues with the property. Property surveys are divided into three types. Home condition surveys are the most basic level of property survey. They cover the key aspects of the property and highlight any major issues. A home-buyer’s report goes into more detail, checking the property both internally and externally. A building or structural survey is the most detailed form of report.

Finalising the Offer and Confirming the Mortgage

Although these are two separate steps, they are very much interdependent. In a best case scenario, the property will be given a complete bill of health by both the solicitor and the surveyor(s). The sellers will still be happy with the offer and the mortgage lender will be happy with the valuation. If this is the case, then you can proceed to the next step – if you want to. It’s important to note that this stage is effectively the point of no return for both parties. Up until contracts are exchanged either party, seller or buyer, can back out. Once contracts are exchanged, if either party pulls out they could quite feasibly be faced with penalties.

If there are any issues identified with the purchase as it has been agreed, then these will need to be resolved or the purchase abandoned. Fortunately it may well be possible to resolve issues provided that there is communication between all relevant parties. If the issues have a financial impact, e.g. the surveyor identifies an issue which requires repair, then the sellers may be persuaded to accept a lower offer. Alternatively if the valuation comes in at less than the agreed sale price, sellers may also agree to a reduced price. Quite simply getting a mortgage is a necessity for many house purchases and only when this stage has been completed can buyers and sellers move on to the next step.

Exchanging Contracts

Pretty much what it says. Obviously buyers need to go through the contract thoroughly with their solicitor. You need to be absolutely sure you understand everything and are completely happy with it. In particular you need to be clear about what is and is not included in the sale. Once you have signed the contract you are committed to the purchase.

Completion and Paying Fees

Completion essentially means registering the sale with the relevant authority (this varies according to the specific part of the country where the sale was made). It also means paying the cost of the house and the money due to the parties involved in the sale. It may also mean paying stamp duty.

A Guide to Time-scales

In practice the shortest period of time in which to move from offer to completion would be around six weeks. This does, however assume, that everything is plain sailing and that all parties involved are working at maximum speed with no holidays (public or otherwise) or any other events (such as sickness or people changing jobs) to interrupt the process. Buyers should be prepared for the process to take longer and also be ready to keep tabs on the parties involved and check for progress when appropriate.


Cashing In On The New NISA

Tuesday, April 21st, 2015

FB - NISAFor decades now, successive governments have aimed to encourage saving. Arguably it is very much in their interests to do so. People with savings, pretty much by definition, are less likely to run into financial difficulties. This means that they are also less likely to need state benefits. In recent years, governments have made particular efforts to encourage saving for retirement (“We’re all in!”). While pensions have been the most traditional form of retirement savings, NISAs may also be worth investigating too.

The start of the ISA age

ISAs were introduced way back in 1999. Then as now they essentially provided a tax-efficient wrapper for savings and investments. To begin with there were two kinds of ISAs. A cash ISA received the entire interest income from their cash deposits without any tax being charged. A stocks and shares ISA was used for investments. The rules around tax were a bit more complicated, but they were still very tax efficient. People could choose to have one or the other or both. There was, however, a twist to the rules around ISA limits. Investors could choose to put their whole ISA allowance into a stocks and shares ISA. Alternatively they could choose to split the allowance between a stocks and shares ISA and a cash ISA. Those who did so still received the full ISA allowance, but there was a limit to how much they could keep in cash. Savers who simply wanted a tax-efficient savings vehicle, could choose just to have a cash ISA. If they did so, however, they could only save the maximum permitted cash allowance. ISAs were intended as products for the medium to longer term so the limits referred to the total amount holders could deposit. In other words, if you withdrew money from an ISA you couldn’t just replace it.

ISAs in practice

When ISAs were first introduced (financial year 1999/2000) investors could choose only to have a stocks and shares ISA in which case they could invest up to £7000. Alternatively they could choose to have both a stocks and shares ISA and a cash ISA, in which case they could invest £4000 via the former and save £3000 in the latter. Savers who only wanted a cash ISA could only save up to £3000. The limits and the ratios of cash to stocks and shares changed somewhat over the years but the basic principles remained the same. Then on 1st July 2014, the government introduced NISAs.

Having a NISA is so much nicer than having an ISA

Fundamentally NISAs work the same way as the old ISAs. The government used the introduction of NISAs as an opportunity to raise the deposit limits (to £15,000), but there is nothing particularly unusual about that. The headline change, however, is that the ISA allowance can now be used as the individual wishes. In other words, savers can now choose to use their entire £15,000 to hold cash, or in stocks and shares. Of course, there is a difference between being able to do something and it being a good idea. With that in mind, it may be helpful to get some professional advice from a qualified financial adviser before deciding how best to use your NISA allowance.

Those thinking of inheritance planning might be interested to learn of another change. In the days of ISAs, spouses could inherit the contents of ISAs tax-free but had to pay tax on the income from them. Now, however, the income from ISAs is included under the spousal transfer rules. (These rules also apply to those in civil partnerships).


Protecting Your Family If Your Are Too Ill To Work

Friday, April 17th, 2015

Protecting Your Family If Your Are Too Ill To WorkFor some of us, a good proportion of our time is spent avoiding thinking about difficult or uncomfortable things.

Tax bills, medical checkups, dealing with difficult people at work are just a few, but one of the more overlooked areas in many of our lives is that of insurance cover.

We might have adequate cover for the house, the car or the cat but surprisingly few people stop to consider how they might provide for their families if they became ill or suffered an accident.

Each year this leaves many thousands of people in serious trouble when they discover they or their partner is ill and unable to work. Instead of having a financial plan, they may simply have to struggle.

Recovering from a serious illness or planning for your family’s future should be the first priority in these circumstances, but for many, struggling to survive financially has to come first.

Sadly, the thought that naturally occurs: ‘I should be protecting my family’, has to take second place to struggling to pay the mortgage.

A critical illness policy ensures that the major liabilities you have, your mortgage or children’s university education could be paid off with a tax free lump sum if you are diagnosed with a serious illness.

Being able to clear debt or afford to have your home adapted if you needed a wheelchair access or had other disability needs would be a relief in very difficult circumstances.

It is tempting, when you are younger, to simply rely on your continued good health and assume you will remain fit and healthy into the future.

This is a common mistake and it shows that human beings tend to be bad about predicting future risk.

The reason for taking out insurance in the first place is to protect against the things that are not exactly certain to happen, but that would be catastrophic if they occurred.

One of the realities of life in the 21st Century for most working people is the degree to which security has become a comparative rarity.

Jobs with generous health care packages, a relaxed and generous attitude towards sick leave and which pay enough for employees to amass enough savings to pay for long periods of ill health are rarities.

Instead, employers now expect their staff to take care of themselves if they are seriously ill, so taking care of your own future has now become an essential task.

There is a wide range of life insurance and critical illness policies available and the right package for you will depend on your own circumstances.

The number of dependents, the size of your mortgage and any other liabilities will all determine what level of cover you need.

In addition to this, your lifestyle, current health and any potentially hazardous work or leisure related activities will affect the policy you receive.

If you have decided that the time has come to be proactive about securing your future against the possibility of ill health, then it might be a good idea to get some financial advice.

Consulting a professional advisor does not commit you to taking out any policy, but it will give you a thorough understanding of the options open to you.

How Much Should You Take Out Of Your Pension Pot?

Tuesday, April 14th, 2015

How Much Should You Take Out Of Your Pension Pot?No one is as wise, prudent or capable of self restraint as they think they are. When we think of a large sum of money, £100,000 say, we tend to think in terms of what it might buy: An incredible car, several years travelling round the world, a large new extension transforming our house into a dream home, or continued financial security in our old age?

The latter is, of course, less exciting, less glamorous, and less fun, but far more important, which is why, after 6th April this year, savers who become eligible to draw down their pensions need to exercise a degree of caution.

Last March the Chancellor of the Exchequer, George Osborne, announced that annuities, the insurance policy taken out against the value of your pension, guaranteeing a monthly income for life, would cease to be compulsory.

This means that pensioners can now access as much or as little of their nest egg as they like in a lump sum, and then commit the rest to an annuity or a different kind of policy thereafter.

The question, however, is how much can one withdraw from a pension before it ceases to be a viable savings pot?

Twenty years ago, the financial advisor William Bengen calculated what he believed to be an exact figure for the amount an investor could withdraw annually and maintain the same standard of living.

Bengen, who lived and worked in the USA, based his calculations on a portfolio of US stocks and bonds, divided evenly between the two. He assumed that on average, bond returns would be 2.6 percent and the return on shares would be 8.6 percent.

He also assumed that the total length of time that a person would be drawing on a pension for would be thirty years and on this assumption he argued that each year; a total of four percent of the overall pot could be withdrawn without running out of money.

However, all such calculations reflect the era in which they were made and the investment world 20 years later, post 2008 crash is very different.

There are plenty of economists and advisors who now argue that Bengen’s projections are flawed and do not match the current investment realities of our age.

A new study into pension draw down by Michael Finke, Wade Pfau and David Blanchett, published in 2013, titled “The 4 Percent Rule is Not Safe in a Low-Yield World,” state that pension companies cannot rely on Bengen’s rule any longer.

A larger population than ever before is reaching retirement age and the growing wealth of previously poorer countries with high savings rates is attracting more and more capital away from UK and US companies.

These factors combined mean that in 2015 we exist in an economy where yields of investments are much lower than when Bengen first calculated his four percent rule.

Because portfolios on average are not performing as well as they once did, one cannot rely on the same figures and arguably one should try to draw down less, or perhaps not draw down at all.

This might sound like an argument for re-instating annuities, and savers who want those kinds of guarantees can buy annuities if they choose.

Before committing yourself to any course of action with your pension, it is always advisable idea to get some practical advice, in fact most pension companies will insist on this.

The market for pension investments is fluid, complex and difficult to predict, so it is often worth accessing some impartial financial expertise before making decisions about your financial wellbeing for the rest of your retirement.


How To Benefit From Low Oil Prices

Friday, April 10th, 2015

How To Benefit From Low Oil PricesAs the old saying goes – what goes up must come down. Recently oil prices have been coming down quite spectacularly. This has naturally raised the question of how investors can benefit from this. To answer this question, we need to understand why oil prices have fallen. There are essentially three theories on this.

Oil prices are being deliberately kept low

High oil prices encourage people to look for lower-cost alternatives. These include shale gas and coal. As oil prices drop, it becomes less attractive to extract other kinds of fuels. This is particularly true of shale gas as fracking is still highly controversial. One school of thought holds that oil-producing countries are prepared to take a short-term hit in terms of oil prices to stop alternative industries, such as shale gas, from gaining acceptance. Consequently as soon as the oil-producing countries are happy that they have eliminated the threat (for now at least), oil prices will rise again.

There is an excess supply of oil

High oil prices encourage oil production. If, however, there is an over-supply of oil, prices will fall. When this happens production is reduced until prices rise again. In an ideal world a continual cycle of rising and falling prices would be replaced by a balance between supply and demand. In the real world, however, demand for oil can vary hugely for a number of reasons. This makes it very difficult to strike this perfect balance.

There is reduced demand for oil

Another explanation is that weakened economies have a lower demand for oil. To put it another way, oil is essential for many purposes, but not all purposes are essential for daily life. For example oil prices feed into petrol prices. Petrol is used by the emergency services, which have to keep going day in day out and therefore have to buy petrol regardless of the cost. Petrol is also used for leisure travel, but people can reduce or cut out leisure travel if the cost of it becomes too high.

Energy costs are a matter of long-term strategy

The truth is that any or all of these explanations could explain the drop in oil prices. What some consumers may find harder to understand is why lower oil prices take so long to become lower petrol prices or heating bills or air tickets. In fact, some people may even see this delay as an example of “fat cat” profiteering. However very few oil-dependant companies are buying fuel now to use now. Large companies value stability as it enables them to create long-term business plans. They therefore engage in long-term supply contracts, which can result in them paying well above market prices for the fuel they need. (Of course, the reverse is also true). They may also choose to invest in oil-related companies so that they can benefit, in some way, from rising prices.

So how can individuals benefit from the oil market?

This is the key question and it is one which deserves serious consideration. It could also be worth thinking about the question of energy in more general terms. Regardless of what oil prices do in the short term, the reality is that oil is a finite resource (as are other fossil fuels). Because of this, we need to look at alternative sources of energy for the future. We also need to look at ways to use the resources we still have more effectively. Therefore investments which relate to either of the above could be well worth taking some time for to get professional advice from a qualified financial adviser.

How To Benefit From The New Pension Rules

Wednesday, April 8th, 2015

How To Benefit From The New Pension RulesHere’s an unsettling mortal thought: When do you think you are going to die?

It’s a question we generally seek to avoid, though thanks to recent changes in the pension market, it’s a question that’s taken on a new significance.

Decades ago, one retired at sixty five and, on average, drew a decade of pension entitlement before departing for the sweet hereafter.

In 2015, some of these certainties have gone. Not only are many of us taking early retirement, but equally as many are facing a future where they will have to work on for many years.

We have longer life expectancies than ever before and this means longer retirements to plan for.

As of March last year, and coming into effect from 6th April 2015, savers accessing their pensions will no longer be forced to purchase an annuity.

Annuities are insurance products that pension savers bought with the lump sum of their pension, which in turn guarantee them a monthly income for the rest of their lives.

Since this will be made non-compulsory, pensioners have been allowed to spend their lump sum in whatever way they see fit.

This new found freedom has both benefits and drawbacks. Greater flexibility in the way savers draw down their pensions means more choice for millions, but it also means that there is the potential for serious financial problems later on.

Let the saver beware

Pensioners with large sums of money to spend need to be wary of investments that sound too good to be true.

In addition to this, even if they are investing their in thoroughly reputable funds or buying property, it is essential that they work out exactly how far their savings will go.

Thinking of one’s own life expectancy, the amount of returns that the investment will yield, and the standard of living ideally one might like to enjoy are all crucial considerations.

Savers must also consider the potential rise in the cost of living as inflation is guaranteed to erode part of any savings in the long run.

Very few pensioners will make genuinely foolish decisions and blow their life savings on a Ferrari, but there might well be a significant number who seriously miscalculate how much they will need to live on and wind up with major financial problems later on.

Getting advice

Retirement is supposed to be a time in life where the hard work of the previous decades pays off and life can be enjoyed, but without a sound financial basis, this is impossible.

It is for this reason that pensioners who access their annuity free lump sums should seek some professional financial advice as a priority.

Financially planning a retirement is difficult, and for many of us, managing it alone is a complex and demanding process.


Is A Self Invested Pension Right For You?

Thursday, April 2nd, 2015

Is A Self Invested Pension Right For You?In the past year, due to pensions reform,  the UK pensions market has undergone radical change and savers will have more autonomy and more choices now than ever before after 6th April 2015.

Whilst this is undoubtedly a positive development for many, it also means that savers need to be better informed than ever before about the benefits and potential downsides of different types of pension.

The Self Invested Personal Pension (SIPP) gives the saver control over their investment choices and this blog will explore what investors can gain from them.

Traditionally, pensions were policies sold by and managed by large providers.

Pensions would tend to invest in funds managed by the pension company meaning that the policy holder is limited in their investment choices.

A SIPP is quite different. It is a DIY flexible pensions policy that enables the holder to invest in a wide range of choices, with the shares held in a ‘pensions wrapper’. The investments that a SIPP owner can buy have to be approved by HMRC.

Who might benefit from a SIPP policy?

Pension companies are paid for their ability (in theory)  to maximise the return on investments and minimise risk. However, there are individual investors often understand how to profit from investing already.

If you already understand investing, are happy to do your homework and work out what investment opportunities suit your needs then a self invested pension might well be a good opportunity for you.

However, as any seasoned investor knows, the value of investments can go up, but it can also go down.

Stepping out on your own can be liberating but at the end of the day any poor investment decision made by you will see your fund decline in value.

What do I do with my SIPP?

You can put a variety of different types of investments into your SIPP, so choosing a mixture of low, medium and higher risk stocks, shares and bonds (among other investments).

One of the advantages of a SIPP is the government tax relief you will receive when making an investment. If your personal rate of income tax is 20 percent, this is the rate of tax relief that will be applied to your SIPP.

Therefore, if you invest £8,000 in a SIPP, the government will assume that, without the 20 percent tax that would normally be levied on your earnings, you would have had £10,000 to invest. The government will then top your SIPP up by £2,000 to £10,000.

If you are earning a wage you can invest up to 100 percent of your wages (up to £40,000 in the 2014-2015 tax year). If you are unwaged you can contribute up to £3,600 per year and still access tax relief.

What else do I need to look out for?

In order to open one through an investment firm, you will be looking at setting up fees.

You might find that some SIPPs don’t charge an annual fee, but others will charge anything between 0.5 percent and one percent of the total value of your investments per annum.

Therefore on a £100,000 pot you could wind up spending £1,000 a year in fees.

In addition to this, you as an investor are responsible for the cost of your own trades, which might be anywhere between £10-£15 a time.

Before you commit yourself to any investment you should talk through your needs and priorities with a professional financial advisor who is an expert in the field.



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