Buy Something A Little Different This Christmas

Even though decorations have been up around Morecambe and Lancaster since late October, now is about the time of year when the rest of us will be looking forward to Christmas.  Like most people I do enjoy the atmosphere around Christmas; putting up the tree, buying everybody gifts and going on festive nights out, but it always leaves a big hole in my wallet.  This year, on average we are expected to spend around an extra £400 each on presents and food than we would in other months, which seems a lot just for one day.  Maybe we should all look at how to use our money more wisely and spend it on something that will benefit us all year round.

 

Lots of us spend more on Christmas than we do on protecting our family finances should our income stop due to accident, sickness or death.  Taking out income protection or life cover can sometimes feel like a bit of a depressing task, because we don’t want to think about bad things happening, but how would we feel if the worst happened and we discovered we weren’t properly covered?  Money is the last thing that I would want to be worrying if I wasn’t able to work because I was sick.

 

We usually find the money to buy everyone presents for Christmas Day, yet don’t always feel we can find the money to ensure our income is fully protected for the whole year, at what could be a similar cost.  I’m hardly about to go and spend the money I have for my girlfriend’s Christmas presents on buying myself life cover and income protection policies.  I don’t think a few policy documents under our tree would look very festive, nor do I think that saying ‘Santa Clause must be feeling the effects of the credit crunch too’ will pass as a valid excuse.  I do however believe that we should prioritise when budgeting and make sure that we can earmark some of our money to give ourselves and our family what they really need instead of what they want.  We buy people presents to make them happy, but surely the best present you can give to someone is security should we not be able to provide for them anymore.

 

A couple of years ago we may have thought that we had a good safety net should we be off work sick or die, having gained equity in our homes during the boom days of property prices.  Now that property prices have fallen, that safety net has been taken away from us.  Even when we did feel safe, I don’t think many people would have been very happy at the prospect of downsizing because they were unable to keep up with mortgage repayments.  We don’t know if, or when something bad might happen and how we will be able to cope financially with the change in income.  It’s a big gamble that we’re taking if we decide that we’d prefer to spend excessively on material things, rather than making sure that our finances will be ok should we not be able to work.

 

Taking out long term protection is very important. Although we may have a false sense of security, not many of us are ever well off enough to take the risk.  If you would like to review your protection needs you should consult an Independent Financial Adviser (IFA).  Kieron Bassett Financial Services are an Independent Financial Advisers and we are open six days a week.  Contact the office on (01524) 832057 or via e-mail info@kieronbassett.com to arrange an appointment.

 

Jason Hinde CertPFS

23^rd November 2009

Non-Residential Equity Release

The concept of equity release is now firmly established. It allows people over 55 to turn their equity into accessible cash, or buy an income without having to sell up or pay anything back during their lifetime. Interest is rolled up and the loan is repaid when you die, or go into care with the house being sold. The market continues to be innovative even with the testing conditions we find ourselves in, with lenders allowing equity release for holiday homes whether let or not and buy to lets. These schemes could prove attractive to many buy to let investors and second home owners who have bought their houses some years ago. They are probably sitting on substantial profits and may want to release their gains. Unfortunately, if they do sell they will have significant capital gains tax to pay. Therefore it could make sense for them to consider equity release as a means of extracting capital without having to sell and pay the capital gains tax. They can raise anything from 16% to 52% of the value of their properties depending on age. For example a 64 year old could raise 25% of the value of their buy to let property. Interest is then rolled up and although not actually paid, I believe this can be offset against their rental income with no capital gains to be paid on death. If inheritance tax is due on death, the mortgage that has accrued can be set against the estate and reduce the tax to be paid making the whole process very tax efficient. These equity release schemes are not only suitable for people with existing properties that want to access capital, but could be used for people who want to purchase a buy to let or holiday home. For example, if you are seventy five and want to buy your holiday home of your dreams for £150,000 but only have £100,000 available with no appetite to make mortgage payments, then this scheme could help you achieve your goal. Another example of this scheme in action could involve a seventy one year old with £60,000 in savings attracting very little interest and thinking of purchasing a buy to let property. However, the basic buy to let property in the area costs £90,000 so there is a shortfall of £30,000. Fortunately, this scheme would allow this money to be raised with perhaps an income of £5,200 per annum based upon average rents in our area. In addition, less tax would be payable due to the mortgage being tax deductible. Based upon the £60,000 invested, gross income could be 8.66% if the property is fully let and before expenses, with also the possibility of capital growth on the investment. However, as always there are no free lunches, and although these schemes offer a no negative equity guarantee, and allow purchasing or remortgaging properties in a tax efficient manner there are drawbacks. Firstly, it is costly to borrow when compared with ordinary mortgages with rates charged at 7.25%, and secondly the interest charged will eat into your estate reducing the amount to be inherited. This area of equity release is complex, therefore it is essential to seek independent financial advice. Kieron Bassett Financial Services have two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms. Kieron Bassett CertPFS 16th November 2009

Try a New Method of ‘Saving’

At the end of each month, if we’re lucky, some of us will have had more money go into our bank account than has gone out.  It’s good to have extra cash in case of an emergency, but once we get more than we know what to do with we’ll sometimes blow it on things we don’t really want or need.

 

If your mortgage allows, it might be worth considering paying more than your normal instalment each month.  We don’t usually consider a mortgage to be a savings product, but by paying it off quicker it has a similar effect to your overall financial position as saving at an interest rate equal to that of your mortgage.  There are another two bonuses that come from making overpayments.  The first is that on average you should end up remortgaging fewer times in your life, which means you won’t have to fork out for as many arrangement, valuation and solicitors fees.  It also means that you’ll be applying for a lower loan to value mortgage each time, possibly making you eligible for the better deals as the equity in your property rises.  Having too little equity in your home has been a real problem in the last year with the recent fall in property values.

 

A variation of this idea is the offset mortgage, whereby your bank account is linked to your mortgage account and interest is calculated on the difference between the two balances.  The product we’ve all probably heard of is ‘the mortgage shrinker’ from the One Account, and while it is not quite as magical as the man off the television makes it look, it could he an attractive option for some people.  The offset mortgage however, requires a lot of self-discipline and would not be suitable for many.

 

With the recent fall in interest rates, some people may have seen their repayments fall dramatically and are enjoying the extra money they have in their pocket.  However maybe this is the time when they should take advantage of being able to reduce the outstanding balance.  Interest rates won’t stay low forever and people may be kicking themselves when they do rise because they never took advantage of the opportunity to get their outstanding balance down.  It may not seem like the most exciting thing to do with your extra cash, but at least it means you wouldn’t feel the pain as much if interest rates were to go back to the levels they were at a few years ago – or even worse if they rose to double figures like they were at during the late ‘80s and early ‘90s.

 

Before you start increasing your mortgage payments you should look at all your debts, credit cards and overdraft facilities and pay them off in order, starting with the one with the highest rate of interest attached to it.  Some people, without thinking about it, will have a debt of say £1,000 on a credit card and have £1,000 sat in a savings account.  By leaving it like this, they are basically throwing money down the drain.

 

It’s good to review your financial arrangements regularly to ensure you make the most of your money and it may be worthwhile contacting an Independent Financial Adviser who specialises in mortgages to help you obtain the mortgage that is most suited to your needs.  Kieron Bassett Financial Services has two Independent Financial Advisers.  Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.

 

Jason Hinde CertPFS

9^th November 2009

Mortgage Add-Ons

When buying anything from a car to a kitchen we tend to find that we have to pay extra for a certain trim or finish.  It can be annoying to find that what you would have regarded as standard is classified as an extra.  So often we find ourselves having been attracted to a product because of its price, having to pay so much in extras that a previously more expensive product that incorporates the extras now appears to represent good value.  Unfortunately by the time we have discovered this we may have already committed to the product with all the extra costs.  So we end up perhaps not getting such a good deal after all.

 

Obtaining a mortgage can be a similar experience in terms of coping with extra costs and charges that are added to the loan.  Therefore it is important that as much groundwork is done as possible before committing to a loan to help avoid making expensive mistakes.  To assist you it could be worthwhile using an Independent Financial Adviser to help you obtain a number of quotes so that you can examine all the pros and cons of each deal.   

 

Things to look out for having already selected whether you are opting for a fixed or variable rate are booking fees.  These are fees lenders charge to buy into the mortgage and costs can vary from a few hundred pounds to a few thousand pounds.  So it is imperative that you weigh up these figures.  It may make sense to select a mortgage deal that has a much higher interest rate than the best headline rate because the higher rate is offset by a much smaller arrangement fee.  Also when paying your booking /arrangement fee it is worth considering whether you want the fee added to your loan or subtracted from it.  Most lenders tend to add it to the loan, and in fairness most borrowers prefer this as it increases cash flow.  However if you have spare capital available it is worthwhile considering having the fee deducted from the loan, as you can make savings on interest charges during the term of the loan.  

 

Other additional charges to consider include the cost of valuations and charges levied for insuring your property elsewhere.  Some lenders will grant you a free survey and others will charge you hundreds for a survey.  I believe that many lenders deduct a large administration fee from the survey, and that this is the reason why survey fees are so high with many lenders.  With regard to buildings cover some lenders are happy for you to make your arrangements and charge no fee whilst others will make you pay for not insuring with them.  Even when you come to pay your mortgage off you are not free of fees with some lenders charging over £200 more than others for closing down the mortgage.

 

Finally it is important to know the basic terms of the loan as to whether it is portable or not.  I am getting the feeling that some old practises are resurfacing with a few lenders not allowing portability of your loan.  This means that you will have to pay a penalty on your existing mortgage if you are in a deal, and then take out a new one with the extra setup costs.  So before committing to any mortgage product it is worthwhile working out all the underlying costs of the mortgage.  This will ensure that the market leading rate that attracts you does not have any nasty surprises.  To help you achieve this you should consult an Independent Financial Adviser (IFA).  Kieron Bassett Financial Services are an Independent Financial Advisers and we are open six days a week.  Contact the office on (01524) 832057 or via e-mail info@kieronbassett.com to arrange an appointment.

 

Kieron Bassett CertPFS

2^nd November 2009