What does leaving the EU mean for your personal finances?

This post was published immediately after the Brexit referendum and was a summation of the media articles that were written at the time.

As things have moved on since then please take advice from a financial
professional to ensure that your decisions are based on the way things
currently stand in the financial markets.

Managing post-Christmas debt

Some people will be dreading the first credit card after Christmas arriving but, instead of worrying or being stressed, it’s a good time to change the way you manage your money in the year ahead.
Work out what you owe by getting a clear picture of your debts. Work out the total amount that you owe on each credit card, store card and/or loan and start with the debt that has the highest rate of interest as this is your greatest liability.

The key words to remember are KNOWLEDGE and CONTROL.

Put simply, KNOWING how much money you have coming in and how much is going out. Once you know the exact numbers you have CONTROL because you can then look at how to change those numbers for the better.

It is important to know the EXACT numbers rather than have a “vague idea” about things.

It doesn’t matter what the numbers show you even if they show you are overspending. Once you see you are overspending you can look at how to cut back.

Record your spending for a month, particularly the cash you spend. How often do we take £20 out of the cashpoint and need to do it again the next day with no idea where that £20 went?

Write everything down on paper. It’s much easier to see and therefore easier to see where you’re spending too much money.

Put EVERYTHING down; don’t ignore it because it was a “one off” rather than regular expense. It’s the “one offs” that cause the problems and there will always be other “one offs” in subsequent months too.

It may be worth reviewing your utility providers in order to economise and bring down household bills and a visit to a price comparison site may well prove fruitful .

Changing your bank may result in lower charges or higher rates of interest.

It might also be worth investigating whether or not you can move your mortgage, as the loan on your property is the biggest debt you are likely to have.

Building your own home

Ever thought that it would be so much better if you could build your ideal home yourself?

This is a major undertaking as you need to find suitable land where you can get planning permission for a house. How easy this is depends on what part of the country you live in and what kind of property you want to build.

A 1 bedroom cottage will be cheaper to build than a 4 bedroom family home though by building yourself you can always start small and leave your options open to extend later.

Finally you have to decide how you want to go about building your new home. Do you have the skills to do the work yourself or will you need to employ people to do this for you?

Budgeting

The budget for a self build home can be divided into 4 parts: land, fees and miscellaneous costs, materials and labour.

Land, materials and labour are self-explanatory and how much you will need to budget for these depends on what, where and how you are building your home.

Be very realistic about what you can achieve yourself. Your time and health have a value and trying to spread yourself too thinly could be a struggle if not disaster.

For an accurate budget, you will need to be prepared for various fees and miscellaneous costs that are encountered along the way. Like buying a house, buying a plot of land may require the help of a solicitor. You may also require 3rd-party insurance during the build process and there may be connection fees for utilities and other services.

Finance

The good news is that building a home can work out much cheaper than buying the equivalent property ready-built but the bad news is that self build mortgages are a specialist market. We will cover them in a separate blog.

The fewer people require self build mortgages the less incentive for lenders to offer them. There is even less incentive for them to offer the wide range of options and deals available for mortgages on ready-built properties.

In practical terms, most self-build mortgages work along broadly similar lines to mortgages for ready-built homes. The buyer pays the costs up-front and then recovers the money from the lender in stages. This means that people building their own home need to have sufficient funds to hand to cover each phase of the build process until they are refunded.

It may be possible to find a self-build mortgage which pays the money for each building phase up front but prospective builders should look carefully at the cost of these mortgages. The convenience may be outweighed by extra charges.

On the subject of extra charges, self build mortgages are likely to be more expensive than traditional mortgages. This is partly because lenders see them as more risky and partly because there is less competition in the self-build market.

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

Will you be a silver entrepreneur?

When old age pensions were first introduced, life expectancy was far lower than it is today and back then most people of retirement age had approximately five years to savour the meagre entitlements available, before dying aged, on average, 52.

For retirees today the years that follow the end of a working life are not necessarily counted in single digits but often decades and for many retirement is a time of new opportunities when a lifetime of prudence and investment in pension pots pays off.

With the advent of new pension freedoms enabling savers to draw down lump sums from their pensions without large tax penalties, it just may be possible that a generation of silver entrepreneursto emerge.

According to some statistics a tenth of retirees are now considering taking the plunge and setting up small businesses with their pension funds and, on average, the size of the pot they can draw from is £550,000.

A lifetime of expertise

For some, ending a career at 55 or 65 has meant abandoning a lifetime of knowledge and expertise acquired in what could be considered a valuable and important field so with new opportunities to use my pension to invest in a businessopening to entrepreneurial pensioners, these skills don’t necessarily have to go to waste.

It could be that once you retire you can establish the type of small business that you dreamed of and which may not even be related to your working life!

Some retirees, having been used to a busy life in business have found that a sedate retirement can be frustrating and there is evidence to show that just ‘giving up’ on retiring can be bad for both physical and mental health.

Getting Advice

The prospect of cashing in up to a quarter of an entire pension pot in one go to set up a small business can be daunting. Any investment is a risk and, even if you think the business idea is sound and likely to work, taking a risk when you are 35 is different from taking one when you are 65.

You not gamble more than you can afford to lose and for some people they can‘t really afford to lose any pension at all so seeking professional business and investment advice is essential.

Most local authorities run free business courses and they are always worth investing your time in but getting expert independent financial advice on your new business is also important.

Making the business as tax efficient as possible, ensuring that you have the right kinds of personal, professional and/or public liability insurance at the right price are the types of issues that a trained advisor can give you some guidance on.

Paying off your mortgage vs increasing your savings

In the past six years, the Bank of England has presented home owners who have savings with a dilemma that it is difficult to resolve.

The slashing of the base interest rate to 0.5 percent has resulted in falling rates on mortgages, making borrowing to afford properties cheaper but the savings slump has returned..

A property owner with spare cash might be less concerned about paying extra on his already cheap home loan, but also may feel he has less incentive to pour cash into a savings account that pays a low interest rate.

This blog doesn’t pretend to have the answers to this conundrum and couldn’t give advice even if it did. Instead we will explore the various options of home owners and savers.

Paying off the mortgage faster

By paying extra off your mortgage every month you are speeding up the day that you finally are able to live mortgage free and being able to limit the amount of time you spend in hock to the bank will have the effect of cutting down on the overall interest payments you make. It might seem like a sacrifice at the time, but the quicker the debt is repaid the less it costs you in the long run.

So why doesn’t everyone pay off their mortgages early? Most of us are fixed on spending in the moment and enjoying money while we have it, instead of delaying gratification for the future.

If you are planning to pay off extra on your mortgage every year then you need to make sure you can sustain the monthly committment.

Don’t commit to overpaying more than you can afford – start off with a conservative sum that you know will be easy to stick to and gradually increase it as the months go by.

For some the initial excitement and enthusiasm of paying extra wanes as the months go by and ambitions slip. Therefore, in order for overpaying to be a serious, realistic strategy it must be maintained over the long term.

Adding to savings

As mentioned above, the current financial climate is not one that suits savers. There are few incentives for the people who have spent years building up their nest egg as the rates of return, whilst higher than the base rate set by the Bank of England, they are generally far lower than they were before 2008.

So why save at all?

There are still reasons to save, it is always important to have emergency funds tucked away, irrespective of interest rates and if you put your savings in an ISA you will enjoy protection from taxation and accrue monthly interest.

The rate of interest is also unlikely to remain at the current historic low which means that in the next few years the returns on savings will inevitably improve.

The inevitable choice

As interest rates gradually increase, there will be an incentive both to save and to overpay on a mortgage and while savings will be better rewarded with higher interest, mortgage debt will be more expensive making it more important to repay it as quickly as possible.

Without a thorough audit of your circumstances and your financial strengths and weaknesses, it is difficult to know precisely which option to take which means that before you commit to either, it may be a good idea to get some independent financial advice.

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

Pension Tracking

Some things are so easily lost. Car keys, mobile phone, wallet, or your 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 will benefit from the unclaimed wealth.

The government is keen for individuals to be as minimal burden on the state in their old age as possible have launched the Pension Tracing Service which will help to find missing pension pots but finding them 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 VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED

So you’ve found the house – what now?

Having the offer you’ve made on a house accepted is actually fairly early on in the house buying procedure so, what do you do next?

Organize a Solicitor

Although you can find a solicitor before your offer is accepted they will oly be able to help you once they know what the specific property is so that they change check things out from the legal angle and see if there are any potential issues you need to be aware of.

Organize a Surveyor

There are two types of survey which can be carried out on a property – valuation surveys and property surveys.  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 it’s a reasonable risk for the mortgage lender.  A property survey is a much more extensive and aims to identify any potential physical issues with the property.  Property surveys are divided into three types.  Home condition surveys are the basic level of property survey and they cover the key aspects of the property highlighting any major issues.  A home-buyer’s report goes into more detail and there are checks 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 be happy with the offer and the mortgage lender will be happy with the valuation.  If this is the case, and if you want to, then you can proceed to the next step.  It’s important to note that this stage is, in effect, the point of no return for both parties.  Up until contracts are exchanged either party, seller, can back out but 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 either need to be resolved or the purchase abandoned.  It may be possible to resolve issues provided that there is communication between all relevant parties.  If the issues have a financial impact, for example if the surveyor identifies an issue which requires repair, then the sellers may be prepared to accept a lower offer.  Alternatively, if the valuation comes in at less than the agreed sale price, the sellers may also agree to a reduced price.  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

As buyers you need to go through the contract thoroughly with your solicitor and 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 and 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 and it may also mean paying stamp duty.

Time scales

The shortest period of time in which to move from offer to completion would be around six weeks.  This assumes that everything is plain sailing and that all parties involved are working at maximum speed with no holidays or any other events 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, checking for progress when appropriate.

It is important to remember that if you do not keep up with mortgage repayments then your home may be repossessed.

When do you need financial advice?

This blog post will, hopefully, help you explore some of the times when financial advice might make all the difference to your wealth.

First Home 

Before the 2008 crash, at the height of Britains property prices, the speed at which house purchase decisions were made reached epic proportions.

The availability of mortgages and other cheap credit in an economy based on an unsustainable housing boom resulted in countless first time buyers finding themselves, after the crash of the market, in negative equity whilst others found that when the sweetheart dealmortgage rate they signed up to ended, their home became exceedingly expensive. In both instances some financial advice might have prevented a lot of long term heartache.

The long term effect of negative equity or an expensive mortgage deal can be immense, being trappedin your property that you can only sell at a loss or saddled with a huge mortgage obligation should be avoided at all costs. You can often get mortgage advice from independent financial adviser as part of the overall cost of the loan you take out.

Marriage 

Getting married, sharing a home, and potentially having children together means that life insurance, wills and inheritance and the ownership of shared assets all have to be considered so it is essential to be realistic about the economics of marriage as well as enjoying the romance!

Accessing financial advice is important at this point, as there are countless life insurance policies, critical illness covers, and other provisions to cover your individual needs to choose from so having an expert who can guide you towards the best deals might well save you money in the long run.

Divorce 

Divorce will be a significant milestone for many so it goes without saying that during the complex and emotionally painful process of ending a marriage expert legal advice is necessary, but it is also important for both parties to have financial advice too.

You might experience a considerable decrease in your income as a result of divorce from your partner, or you might be the recipient of money in the divorce settlement and if you become the sole provider for any children from the marriage, you may need to consider your life insurance and critical illness cover. 

You might already have these policies but they may need to be reviewed in order to reflect the value of any maintenance payments you receive and a financial adviser can offer guidance on the most effective way of investing any lump sum from the divorce so it continues to grow in value, and possibly be used to pay for education and/or university costs for your children, or add to your own retirement fund.

Some divorcing couples also need to disentangle their pensions and here a financial adviser can be invaluable.

Retirement 

Making sure we have an income that will sustain us after our working life is over is something that many people put off until their 30s or 40s, but the longer you leave it, the more costly it becomes.

If you are just starting out on the road to planning your retirement and you have no idea about what choices there are or what pension products to buy, getting some advice is a good place to start.

If you already have a portfolio of investments and a variety of pension pots that you have built up yourself it might be important to find out whether you current pension providers or other investments are performing effectively, compared to the rest of the market. A financial adviser will be able to give your portfolio an audit and suggest whether or not your money could be put to better use elsewhere.

Knowledge is wealth 

The more expertise that is available to us, the better informed we are and the less likely we will be to make costly decisions that are not easily undone. Financially, we only have so many options, money, and time, to spend investing it, so it is important not to rely on pot luck.

So if you have a significant milestone in your life fast approaching, you might find it useful to talk over your options with an independent financial adviser.

What the general election means for your wealth (2015)

With the General Election now only weeks away, the contenders are throwing their economic hats into the ring.  Although none of the 3 main parties has provided a manifesto as yet, they have all been giving their views on tax and spending and reducing the UK deficit.  Here is a quick overview to where the three main parties stand on balancing the UK’s books.

The Liberal Democrats

The Liberal Democrats plan to increase the amount lower earners can take home by raising the personal allowance to £11K in their first year of office and then to £12.5K by the end of their (first) term.  Whilst they, unlike Labour, have not (yet) suggested bringing back the 50p tax rate on incomes over £150K pa, the closeness of previous votes on the issue means that this could not be completely ruled out.  What is being proposed for the moment is a “Mansion Tax”, which would essentially work in the same way as Council Tax but with the funds going to central government.   Additionally the Liberal Democrats have suggested increasing Capital Gains Tax to 35% (from 28%).  This would potentially affect people who own second homes (e.g. buy to let landlords) as well as those who own other forms of investments such as shares.  Their aim is to have the UK back in the fiscal black by April 2018.

The Labour Party

One of Labour’s headline policies is to reintroduce the 10p tax rate as a bridge between the nil rate personal allowance and the 20p rate.  At current time, however, they are yet to specify how much income would be included in this rate.  They have, however, stated that the impact on government finances could be counterbalanced by withdrawing the Marriage Couples’ Tax Allowance.  Labour plans to reduce the deficit by a combination of ending further borrowing to finance spending and an increase in various taxes.  They have proposed reintroducing the 50p tax rate on incomes over £150K pa.  They also support a Mansion Tax, although they are yet to explain how specifically, this would work.  On the subject of houses, while Labour have, as yet, made no comment on Inheritance Tax, even taking no action could have a serious impact on many people.  Rising house prices have made IHT a reality for increasing numbers of people. Unless the nil rate is raised at some point in the future, then the impact of IHT will continue to spread.  Labour have also proposed a tax on banker’s bonuses.  One policy which may prove popular with the electorate is a 5% pay cut for government ministers.

The Conservative Party

The Conservatives’ plan is essentially to reduce the deficit by cutting government spending.  They too aim to have the UK back in the black by 2018.  They plan to raise the personal allowance to £12. 5K pa (from its present level of £10.5K pa). Likewise the 40% rate would start at £50K pa (from its present level of 41.9K pa).  Their stated aim is to have these tax changes in place by the end of the next parliamentary term.    While this would not deliver any short-term improvements to higher-earners, it might not have an adverse impact on the family finances either.  The Conservatives have not only made a commitment to a Mansion Tax, but have actively opposed it in the past.  Likewise, while they have not many any pledges on Inheritance Tax, they have made recent changes to pensions rules from 6th April 2015 which effectively makes it easier and more tax efficient to pass on pension pots between generations.  It is an open question as to whether or not the Conservatives will be able to increase the nil-rate band to reflect the impact of rising house prices.  There is, however, no obvious sign that they would seek to lower the bands.

Four tips for better finances

The decisions that you make about money have a direct impact on your life and so it pays (in every sense of the word) to get them right so here are four tips that can help you make the right decisions for you.

Who are you and what are your goals?

It’s a cliché to say that we’re all individuals but it’s also true and this is reflected in the decisions we make. Age and personality both play roles in the decision-making process, e.g. a child may want to save for a toy but the saving goal of an adult may well be something like the deposit on a property or planning for retirement. So we first have to know what we’re aiming for and whether they’re short, medium or long-term goals.

Don’t sweat the small stuff but don’t ignore it!

“Look after the pennies and the pounds will look after themselves” may be an old saying but it’s stood the test of time and it’s a fair point. Small costs can go by unnoticed and turn into a large amount over a period of time but people do lead busy lives and it’s a big challenge to keep track of every single penny. Take a little time and make adjustments such as taking a packed lunch to work or buying a refillable water bottle instead of buying a bottle of water each day and the savings will soon mount up.

Your personal wealth is your responsibility

As an adult you are responsible for your own health, wealth and happiness. This can seem a little intimidating but once broken down into manageable chunks you can create a budget that works for you. Make notes of renewal dates for mobile phone contracts, insurance, end of mortgage deals etc. and find a little time to look for the best deals for the significant purchases. Plan to ensure that you have some funds in hand to meet your medium to long-term needs be it large purchases or a retirement fund.

The right financial advice can more than pay for itself

Just because you’re responsible for your life doesn’t mean that you have to do it all alone – you are allowed to ask for help. If you look at the financial sections of the press or on website you can get confused by all the different pieces of advice and the huge amount of information that is just sitting there. Family and friend all have their own point of view about matters too and the idea of making a decision can become intimidating. A professional financial adviser can help you see what applies to you and explain jargon to allow you to make the right decision for you and in this way their advice can be, quite literally, invaluable.