Archive for May, 2015

Find My Pension

Friday, May 29th, 2015

FB - FindSome things are so easily lost. Car keys, mobile phone, wallet, or you entire financial future.

At any given time a staggering five million people have lost track of their pension providers, like squirrels who bury acorns but forget where they put them.

The result of a lost pension may lead to a diminished income at retirement age and eventually the Treasury benefitting from the unclaimed wealth.

The government, keen for individuals to be as minimal burden on the state in their dotage as possible have launched the Pension Tracing Service which will help to find missing pension pots.

Finding them, however, is not the end of the story.

Reunited with your long lost pension

Pension pots need to be monitored in order to get the most out of them and to ensure your retirement is a time in your life you can enjoy.

Each pension pot that you have is subject to management charges and possible other annual costs.

In addition to this, some of the pension pots that you have might not have been performing as well as others.

Not all pension funds accumulate wealth as efficiently as others and therefore it is important to closely scrutinise how well your money has actually been performing over the years.

Once you have worked out which pension pots are performing and which are not, you need to explore your options.

Some pension plans might have benefits or guarantees attached to them, so make sure you know the long term consequences of any financial decision.

In addition to this, pensions that have a clause enabling you to retire earlier, or pensions that give you the option to draw down higher than normal lump sums cash free are also valuable and potentially worth keeping.

If you would like to review your pensions and assess the performance, it might be a good idea to seek some financial advice.


The Help To Buy ISA Explained

Tuesday, May 26th, 2015

FB- Help to

Getting on the property ladder in 2015 is harder for many people in Britain than it has ever been.

An indication of how hard is the latest roll out of the government’s ‘Help to Buy’ policies, the Help to Buy ISA, which offers attractive cash incentives to people saving for a deposit.

This blog is focused on explaining the complexities of the ISA and showing who it will work for and how they can get the most out of it as a savings opportunity.

Who is it designed to help

The Help To Buy ISA has been set up as a tax free saving scheme for first time buyers alone, so if you already have a property (or two) you can skip to the next article now.

This is exclusively for people getting on to the ladder (though if you know someone in this predicament and other than yourself, please read on, this advice might help secure them their first home).

The Help To Buy ISA is not dependent on income levels, anyone can open one irrespective of their earning potential, they simply have to be a first timer.

If you have owned a property previously but now you rent or live with parents and are hoping to get back on to the ladder, you won’t be eligible, as stated above, this is for first time buyer savings.

How do ISAs work?

Each month savers can deposit up to £200 in their ISA, which will be tax exempt.

The government will add twenty five percent of the total monthly savings in addition to the amount savers put in.

Therefore a saver who regularly puts away £100 will receive £25 from the government to go into the tax free account.

In the first month that the account is open, your total allowance is a one off of £1,200, meaning that the government’s contribution will be £300.

The government will invest a total of £3,000 in the ISA, meaning that savers who get the full amount from the government, must have invested £12,000 of their own money in the ISA

Once you buy your first property the government will pay the tax free money they have invested off the value of the mortgage, directly to the lender.

This means the money from the government never ends up in your bank account accruing interest unfortunately.

How do I apply?

You can open a Help To Buy ISA in the autumn of 2015 and they will be available through all high street banks and building societies.

The actual interest rates offered by lenders will differ (as is the way with the current market for regular ISAs), and there will inevitably be a highly competitive market for First Time Buyers to take advantage of.

If you already save using an ISA then you will not be able to take advantage of the Help To Buy ISA as well.

The policy is only available for people buying a property up to the value of £450,000 in London or £250,000 throughout the rest of the UK.


Why Are Mortgage Approvals At 6 Month High?

Friday, May 22nd, 2015

Why Are Mortgage Approvals At 6 Month High?The Mortgage Market Review, which took effect in 2014, imposed “affordability criteria” on lenders. In simple terms it aimed to rein in high-risk mortgages. Like any change it triggered speculation about its potential effects.

Almost a year later, mortgage approvals remain high, while house prices are currently holding fairly steady. So what does this mean in practical terms? Well if you’re thinking of buying a house, here are some questions you might want to consider.

Is Now The Right Time For Me To Buy?

One of the key points to understand about house-buying is that it involves a lot of expenses in addition to the actual price of the house. Along with the infamous stamp duty (on homes costing over £125K), there are likely to be fees for solicitors and surveyors as well as mortgage-arrangement fees. These all need to be factored in to your rent v buy calculations.

Some mortgages impose an early repayment charge if you end them before the full term of the loan (e.g. if you move house). Likewise if you use an estate agent to help sell your house, you will pay a fee for their services. Therefore it’s a good idea to think carefully about how long you will need to stay in a house to make all these expenses worthwhile. It can also be a good idea to factor in a margin for adjustment. In other words, where would you stand if house prices stayed steady rather than rising? What about if they actually fell slightly? If you feel uncertain about any of these points, then renting may be a better option for you.

I’m Ready to Buy, How Do I Reduce My Mortgage Payments?

The good news is that lower interest rates can feed through into lower rates on loan products, including mortgages. There are still great mortgage deals out there. The trick to being able to take your pick from the low-cost mortgages is making yourself as attractive as possible as a customer. There are basically three steps to doing this. Firstly, put together as much of a deposit as you possibly can. Secondly, make sure your credit record is sparkling clean. In particular make sure that you avoid being scored negatively for reasons you can easily address. For example being on the electoral roll is a plus point for your credit score so make sure you are. Also make sure that any actual mistakes are corrected. Thirdly make sure that you stay within the affordability boundaries laid down by the Mortgage Market Review.

You can expect a prospective lender to check this thoroughly, so doing your homework in advance can be a useful exercise in seeing yourself as others see you.

What Happens If Interest Rates Go Up, Or If They Go Down?

If you are on a fixed-rate mortgage deal then any changes in interest rates will only affect you once the fixed-rate term comes to an end. If mortgage rates rise then you can reasonably expect this to feed through into your mortgage repayments. Therefore in addition to all the other questions we’ve just discussed above, it is also advisable to think about how you would cope in this situation. In principle lower interest rates should also mean lower monthly repayments. It would, however, arguably be very risky to base a financial strategy on this happening. In practical terms, if you are planning to make a house a home and stay in it over the long term, say at least 5 years, then it is entirely possible that you will see interest rates rise and fall during this period. Your financial strategy needs to be able to cope with both scenarios.


Protect Your Portfolio

Tuesday, May 19th, 2015

Protect Your PortfolioFor all the old jokes about change being the only constant, change also has a habit of making people nervous. Stock markets are ultimately made up of people – traders on one side and the employees of the companies they trade with on the other. Because of this the prospect of significant change can be reflected in the performance of the stock exchange. This effect can often be noticed around election times in general.

Sterling and the Importance of Image

Outside of the Euro zone, most individual countries have their own currency (at least officially). Therefore in order for international trade to take place, there has to be an agreed rate at which one currency is exchanged against another. While individuals may not think of themselves as being involved in the global market, the truth is that it impacts the daily life of pretty much everyone. Many of the products on supermarket shelves are imported and the UK exports both goods and services. Therefore the strength of any currency as compared to other matters to most people’s money management more than you might initially think. In many ways the relative strength of currencies can be seen as an opinion on the prospects of the countries in question. Therefore, when a country’s future is uncertain, such as in a period before an election, that country’s currency may become weaker in comparison to countries with more stability.

Will the Pound Sterling Start to Spin?

It is a reasonable expectation that markets will react when a new government is formed. If the market’s reaction is negative then it is entirely possible that there will be a fall both in the value of the stock market and the value of sterling itself. This may well be only temporary, but this may be of small comfort to investors who prefer stability. Those old enough to remember the 1990s may still recall “Black Wednesday” (16th September 1992) when sterling collapsed and the UK was forced to withdraw from the European Exchange Rate Mechanism. Investors might want to look at their options for protecting their portfolio against a severe drop in the value of sterling. This could be a particularly important step for those with a more international lifestyle, for example those planning on retiring abroad or sending (grand) children to study abroad.

What Does This Mean in Practical Terms?

There are many different approaches to investing, no matter what your attitude to risk you can probably find one which fits in with your financial plan. Some people like to invest directly into stocks and shares, others prefer investing in funds. Whether you are investing for growth or income, whether you specialise in a particular sector or prefer tracker funds or managed funds, you will have to understand that markets and currencies have their ups and downs. At the same time, investing can also be a classic example of the phrase “don’t put all your eggs in one basket”. Opening up your investing horizons to opportunities overseas and in other currencies can be a very helpful way of reducing your exposure to (temporary) issues with the UK market.


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Life Insurance Made Simple

Friday, May 15th, 2015

Life Insurance Made Simple“Expect the unexpected” may be an old cliché but the unexpected can and does happen. Hoping that it happens to someone else is a very poor strategy in terms of family protection. To put the matter quite simply, if you have people who depend on you in any way, you should be checking to see whether you need life cover.
Protecting my Family – Every Parent’s Priority

When making a financial plan, it’s entirely understandable that people give priority to their present-day needs before worrying about the future. It’s also understandable that people will think about common challenges, such as unemployment, rather than highly unusual ones, such as the death of a younger person. The good news is that insurers also understand that healthy, young adults are far less likely to die than their older counterparts. This means that, generally speaking, younger people can reasonably expect lower insurance premiums.

Understand What You Need – and What You Can Afford to Pay

The starting point for arranging life insurance is understanding what you absolutely need in order to keep going in the event of the death of one or more family members. This includes the death of anyone who makes a significant, non-financial contribution to the household, for example a home-maker or care-giver. The tasks these people do will still need to be done in the event of their death – and they’ll need to be paid for. This forms your baseline in terms of taking out cover. If you can afford to pay more than the minimum then you may choose to do so, to make life a little easier for those left behind after a bereavement. Alternatively you may prefer to take out a lower level of cover to have more money available for the present. If, however, you are unable to afford the minimum level of cover you believe you need, then it is very advisable to look seriously at ways to make up the shortfall. If, however, you really can’t afford higher premiums at all, then having at least some cover is usually better than having none.

Choosing the Right Type of Cover

The first question to ask is whether you need whole-life cover or term assurance. Whole-of-life cover, as its name suggests, offers indefinite cover. In other words, as long as you pay the premiums as agreed, your beneficiaries are guaranteed an eventual pay-out. Term assurance is cover for an agreed length of time, a term. If you die within this period, your beneficiaries will receive a payment, otherwise the policy will simply expire. Choosing which one is best for you depends on your personal situation. It should be noted however, that term assurance tends to be less expensive than it’s whole-of-life counterpart.

The second question to ask is whether or not you expect to need the same level of cover over the forthcoming years. For example, if the main purpose of the policy is to cover a mortgage (or other debt), then it may be appropriate to have a level of cover which decreases over time, along with the level of debt. If, on the other hand, the main purpose of the insurance is to provide for the future of young children, then it may be best to have cover which increases over time, to keep pace with inflation.

The importance of trust

Whatever form of cover you choose, you may wish to consider ring-fencing the proceeds of the policy into a trust. In simple terms, this separates the proceeds of the policy from the rest of the estate. This means that it is kept of out the probate proceedings, which may be very lengthy and can therefore be made available to the intended recipients much more quickly.

The Theory of Every Asset

Tuesday, May 12th, 2015

The Theory of Every AssetPhysics is a more exact science than finance, and judging by recent Oscar nominations, it’s often more romantic and glamorous.

Stephen Hawking, one of the great minds of the 20th Century was one of the first proponents of unified field theory, or the theory that explained the entire universe.

So far a unified financial theory has yet to be created, but let’s consider the possible components.

Many of us are acquisitive, and we look to maximise profit and minimise loss in our day to day money management. We balance the need to acquire against the need to limit risk and this leads to a level of security we are comfortable with.

The one insight that is more useful than any other to the novice, or even the seasoned investor, is that their principal role, above all else, is to manage and to an extent, tolerate risk.

A strategy of investing for the long term as opposed to looking for short term higher risk investments generally provides more stability over time.

This is not a new idea particularly, but, as with all the most enduring scientific discoveries in the past, it doesn’t need to be, is simply has to make sense and to work.

Scientists like Stephen Hawking have often revolutionised how we see the universe in small steps, building on the achievements of their contemporaries and as Isaac Newton put it ‘standing on the shoulders of giants’.

A good investment firm with sound investment choices operates in a similar way, using the knowledge of experts in their given fields, to maximise return by investing in funds and minimise risk for the investor.

A well managed fund will seek to perform these two roles and make the investor’s money work hard so the investor doesn’t have to.

Therefore all investors have to accept a degree of risk when they purchase, but in return, the risk takers are entitled to a share of any rewards the accrue.

There now follows a statement that almost goes without saying, one which any investor with a modicum of common sense knows, but one which, by law, we have to reiterate:

“Past performance is not a guide to future performance. The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.”

Yes, the value of investments can fluctuate, it can rise and it can fall. It is for this reason that the many investors ensure they access financial advice on how to invest their money.


Fancy Retiring to an Exotic Marigold Hotel?

Friday, May 8th, 2015

Fancy Retiring to an Exotic Marigold Hotel?In the UK today 40 percent of people consistently put away too little money each month to fund the cost of their retirements. Too many people simply spend for today being unaware that tomorrow waits for nobody.

Throughout the working lives for many of us the day on which we will need to draw on our pensions seems consistently far away.

Even for those lucky enough to be enjoying their youth in a carefree way, the fact remains that by failing to invest in the present, the time they enjoy is being waste.

The government has announced in the last twelve months a huge series of changes and shake-ups in the pension market and savers will have more freedom than ever before to decide how they access their pension savings from the beginning of the new tax year.

The question of how much to put away each month into a pension is a complex one and in this blog, we will address what you need to consider before you arrive at a fixed sum.

The first thing to consider is what type of lifestyle you hope to enjoy once you’ve retired and at what age you see yourself retiring.

Many people leave their working lives before reaching the once statutory 65, and age discrimination legislation now prevents mandatory retirement at any age.

It is possible, therefore, to retire earlier or later, but you will need the finances to sustain you.

The rather bleak question of how long you will live in your retirement also needs to be addressed.

New pension rules ending the compulsory purchase of annuities means that when you do retire, a portion of the pension pot could be used to pay off debts such as mortgages.

This will leave savers with less of a recurring monthly income but also lower overheads and more security.

The chances are that if you are reading this, you may already have a pension plan. If you are a UK tax payer, you may also have access to a state pension through paying national insurance.

This means that you might be in a better position than you thought, so a first step should be an audit of what savings and investments you have.

The government’s Pensions Tracing Service, can help you find any obscure pots of money that you are entitled to. Alternatively if you would like some advice or help in devising a pensions strategy for the future or finding a pension fund that suits you, why not speak to a professional adviser.


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You Can Invest In Property With Buy to Let

Tuesday, May 5th, 2015

You Can Invest In Property With Buy to Let

Back in the day

Ten years ago, nearly every TV show across a wide range of channels was property related. Not only was it cheap, easy TV to make, but the public couldn’t get enough of it.

A Place In The Sun, Property Ladder, that show with Kevin McLeod where people turn barns into mansions, the list was endless.

The vast public appetite for such programmes and for property investment in general was part of a vast bubble that, as we now know, burst in 2008.

It’s easy to be wise after the fact, and Britain’s property market, particularly the buy-to-let market has never quite been the same since.

A super cheap buy to let market between 1997 and 2008 saw large numbers of ‘get rich quick’ casual landlords buy properties in the hope that they would have to do very little in return for a continual income.

Many left the market in 2008, and a few limped on, realising that being a landlord is often quite demanding.

There is still a place for serious buy to letters out there who can work and think strategically to build up a business.

If you are thinking about it as an investment strategy for the future, this blog will give you some useful pointers.

Different finance

You cannot use a conventional mortgage or insurance to buy a buy to let property and switching a regular residential home over to rental use requires a special buy to let mortgage.

Scrimp on this detail and the bank might call in its mortgage altogether.

A mortgage for a rental property will typically have a much higher interest rate than a residential mortgage.

The loan to value percentage (how much of the total value of the property you can actually borrow), is higher for a buy to let mortgage than for a residential mortgage.

This shows that banks are interested in lending to serious investors who can a higher percent of the value of a property themselves.

One aspect of the buy to let mortgage that makes life slightly easier for the purchaser is the fact that they are often interest only.

This means that each monthly repayment covers just the interest payment and not the loan ‘capital’. At the end of the agreement the capital can be repaid by selling the property and the seller can retain any profits.

This presumes, of course, that there are profits. A poor purchasing decision could leave you with negative equity, or you might find, as millions have in the last decade, that markets can slump as well as boom.

Business Strategy

The bank sees the borrower as a business partner, one which it hopes will be fit, healthy and alive towards the end of the agreement.

The risk averse banking sector is no longer throwing money at house buyers (private or rental), and expect a buy to let landlord to take on the bulk of liability.

This means that if you are going into the letting business, you need to make sure that you have a viable business plan.

Are you targeting young professionals, students, married couples or commuters? If you don’t have a niche market in mind, you need to get one before you go any further.

This will determine where, and what you buy. There is no point buying a flat for wealthy young professionals in bedsit land, or a property aimed at families in a row of student houses.

Your Legal Responsibilities

You will also be responsible to the local authority as well as the bank; a rental property has to reach the basic levels of safety, hygiene and energy efficiency.

It might be worth consulting your council’s housing department for further advice on your legal requirements before you proceed.

Remember as well that your property will be liable for council tax payments, a cost that most landlords pass on to the tenants.

If you would like further advice on the kinds of finance available for fledgling buy to let businesses, speak to a financial adviser who deals in mortgage advice.




Is The State Pension Like Jupiter Ascending?

Friday, May 1st, 2015

Is The State Pension Like Jupiter Ascending?The film Jupiter Ascending is arguably a sci-fi version of Cinderella. Jupiter (Mila Kunis) lives a life of drudgery until she discovers her true destiny. The new state pension rules aim to save those planning for retirement from a life of penny-pinching. In short those reaching state pension age from April 2016 will receive a substantially higher state pension (about £148 per week instead of £113.10 per week) – but they will have to pay National Insurance (NI) for longer to get it. Until April 2016, you can claim a full state pension with 30 years’ NI. After April 2016 you will need 35.

A Quick Guide to NI and the State Pension

If you are employed then you will be paying National Insurance and therefore contributing to your state pension. If you are self employed and earning £5,885 or less you can choose whether or not you pay NI. Obviously your choice will affect your entitlement (or otherwise) to a state pension. For those taking a career break to raise children, registering for child benefit will ensure that NI continues to be paid. This means that in terms of an overall financial plan, it can be worthwhile registering for child benefit even if your family’s overall income is too high for you to receive any money directly. It could also worth noting that these credits can be transferred to working age-family members who provide childcare e.g. grandparents. In other words, if you are working and therefore building up excess NI contributions through child benefit, you can pass the NI credits from child benefit to other people who actually can benefit from them. This may be a substantial boost to them in terms of their own money management.

A Note Regarding Contracting Out

Under the current system, there is essentially a two-tier state pension. There is a basic state pension and an additional state pension. At this point, under certain circumstances, people can opt out (contract out) of paying NI towards the additional state pension. Put quite simply, as of April 2016, this option will cease. The government has a formula in place for calculating where people who have contracted out stand in terms of NI payments. Anyone in this situation can register at (or to get a project of their pension entitlement. This could be a useful exercise for other people too.

Alternative Pension Choices

Politicians of all persuasions are united in their concern over the potential effects of an ageing population saving too little for their retirement. Because of this, they are becoming increasingly active in their attempts to motivate people to save in the here and now to pay for their future. Auto-enrolment into a workplace pension scheme (“We’re all in”) is one example of this. Of course, any individual’s ability to save voluntarily into a pension scheme depends entirely on their ability to meet their needs in the present. It is also fair to say that there are other options for saving for retirement, some of which offer tax efficient options (e.g. ISAs). However, the fact that pension contributions attract at least some degree of tax relief is a clear and potentially significant benefit to saving for retirement through a pension fund. This benefit can be further enhanced with contributions from employers. Therefore, while saving into a pension may not be right for everyone, it is certainly an option which deserves serious consideration.

In short

It’s never too early to start saving for retirement and even late is better than never. The more effectively working-age people plan for the time when they will no longer be working, the likelier it is that they will be able to enjoy the experience of being retired.


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