New website – theequityman.co.uk

I’ve recently launched a new website – theequityman.co.uk so there will be no new content added to this blog. All the blogs from here are over there and more!

Come over and see what it looks like! See you there!

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What is equity release?

Equity release is simply the process of converting money tied up in property (known as equity) into cash. This can be done at any stage in life but the term “Equity Release” is now more associated with older and/or retired people. They tend to be asset rich and cash poor. They have lived in their property for many years and the value has shot up. However sometimes they have very little income so struggle to make ends meet.

It is possible to release some of the equity in order to help cover their day to day living expenses.

Equity Release can also be used for other purposes. It may not be possible to get a traditional mortgage because of age or other restrictions. Some people release equity to fund improvements to the home or allow them to go on a holiday. The money that you release can be used for any (legal!!) purpose.

This is definitely an area where you need to take independent advice. Find a local Equity Release adviser through unbiased.co.uk.

There are two main types of Equity Release; there are Lifetime Mortgages which allow you to borrow money against your house and there is Home Reversion which means you sell a share in your house.

With Lifetime Mortgages interest is charged but usually nothing is paid back on the loan until you either sell up or die. The interest in compounded over the whole period of the loan which means the debt can escalate more quickly than you may expect.

Home Reversion schemes are where you sell a share of your property to the provider for less than market value. You retain the right to stay in your home for your lifetime if you wish. When you die or move into long term care and the property is sold then the provider gets the same proportion of the sale price as the amount you borrowed. This means that if you borrow 50% of the value of your home that is how much the provider will get when it is sold.

Lifetime Mortgages are available from the age of 55 but Home Reversions can only be taken out by people aged 65 or older.

Equity Release isn’t a cheap way of raising money and it’s very expensive compared to a conventional mortgage.

There is a lot more to say about Equity Release but hopefully this will be a useful starting point.

 

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Have I got the best mortgage deal?

How do I know I have the best mortgage deal available to me?

Interest rates are at an all time low so everyone is paying a lot less interest on their mortgage than they were 8-10 years ago. We have all got used to borrowing money relatively cheaply. Interest rates are predicted to start rising. The question now is “when” rather than “if” they will rise. A lot of us have become lazy about securing the very best mortgage deal. This is because even the most expensive deals today are still good value compared to previous years.

So what do we do to make sure that we have the very best deal that we can?

  1. Use a broker. Look up your nearest on www.unbiased.co.uk. Speak to 2 or 3 to get a feel for whether they “know their stuff”. Most mortgage brokers and IFAs will have access to a range of lenders. You can check this by asking them if they are “Whole of Market”. They will take your basic requirements and source the best deal available that fits your requirements.

  2. Be prepared to pay a fee to find out. On this occasion the broker’s job is to source the best deal. This includes “Direct to Lender” deals. The broker will know about these deals but you will have to do the legwork. This is because certain deals/lenders will only deal directly with the public rather than through an intermediary. Agree the sourcing fee upfront.

You will get one of three possible outcomes:

  1. There is a better deal out there that is a “direct” deal so you can go and sort it out yourself. YOU WIN.

  2. There is a better deal out there that can be secured through the broker. He sorts it out for you. YOU WIN.

  3. There isn’t a better deal out there (or at least not one that it is worth moving to). In this case you have the peace of mind of knowing that you have the best deal. You are staying put as an active choice rather than because of inertia. YOU WIN.

Remember that the broker’s job is to help you make an informed choice. Knowledge is power!! What you do with the information is down to you.

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All that jargon…

MORTGAGE JARGON

An interest only (IO) mortgage is where you only repay the interest each month and do not reduce the amount of the loan itself.

A repayment mortgage is where you pay off the initial loan and the interest that accumulates each month.

Mortgage indemnity is a type of mortgage insurance that you pay for but benefits the lender if you borrow a high proportion of your property’s value and can’t repay the mortgage.

The Financial Conduct Authority (FCA) is the financial services regulator in the UK and replace the Financial Services Authority (FSA).

A remortgage is changing mortgage without moving house. Fees may have to be paid to do this.

A part and part mortgage is where some of the loan is on interest only and some on  repayment.

A tracker rate mortgage is a mortgage that is linked to the Bank of England’s base rate. The rate payable with the Bank base + a certain percentage. This means that when the base rate moves so will your mortgage rate.

A fixed rate mortgage does what it says on the tin.

The APR (Annual Percentage Rate of change) shows the overall cost of borrowing on a credit card or loan. This takes into account fees and/or set up charges.

FEES INVOLVED

A valuation fee pays for a surveyor to look at the property on behalf of the lender to see if it’s worth what you’re paying for it and therefore if it’s good security for the lender. There are different levels and we will look at these in a bit more detail in another blog.

An arrangement fee is the fee that you pay a lender, e.g. a bank or building society, to set up a mortgage for you.

Booking fee: lenders put aside pots of money for certain deals that they offer. The money for these deals can be limited therefore you have to pay an upfront booking fee to make sure that you secure some of those funds.

Telegraphic transfer (TT) is the fee that the lender charges to send the money to the solicitors to complete the purchase/remortgage.

Mortgage account fee – the fee that the lender charges for closing the mortgage account when you clear the mortgage. It is always quoted at the time of taking out the mortgage even though it is not payable until the mortgage is cleared.

Broker fee – a fee charge by a mortgage broker to source the best mortgage for you, help with the various forms and to get you the mortgage offer.

Conveyancing fee – the legal process involved with house purchase is called conveyancing so this is the fee charged by the solicitor or licenced conveyancer to complete the legal work.

LTV – Loan to Value is a percentage. What percentage of the property price do you need to borrow? The higher the LTV the higher the risk to the lender and therefore the higher the rate, e.g. a 95% mortgage will attract a higher rate of interest than a 50% mortgage.

KFI – Key Facts Illustration. This is the illustration that the lender/broker gives you detailing all the costs of the mortgage that you are considering. This is a quotation not an estimate.

With many mortgage deals there is a preferential rate initially. If you clear the mortgage during this initial period there will be Early Redemption Charges (ERC) to pay. These charges normally end at the same time as the initial rate.

Discount rate – each lender has it’s own Standard Variable Rate (SVR) which is the rate that you pay if you are not on a special deal. The lender can change this rate whenever they like. They will offer rates that are SVR – a certain percentage. Again, when the SVR rises, your mortgage rate goes up too.

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0% credit card deals

It’s easy to reach the limit on your credit card and find yourself paying back the minimum amount each month while watching the interest clock up so those advertisements we see on television for credit cards offering 0% interest for fixed periods are really tempting but are they worth changing to?

Broadly speaking the answer is yes but you need to choose carefully and for the right reasons. You also need to be disciplined. This process should not be seen as a quick fix solution.

Always look for the longest interest free period. The idea is that you want to clear as much of the balance as possible during the interest free period. This process should NOT be used so that you transfer the balance and continue to rack up debt on the old card.

Changing credit card providers to take advantage of a 0% interest rate is to save money. These cards, when they revert to full interest, usually have a higher Annual Percentage Rate (APR) than average. (Credit cards are about short term borrowing so interest rates are higher than for a bank loan.) Always try to clear the balance before the rate jumps up.

There will always be a one off charge to transfer a balance, usually about 3% of the balance transferred. However over the course of a year it is usually better to pay a 3% fee rather than 12-15% interest on the balance.

If you find yourself at the end of the 0% interest period still with a debt on your credit card then it may well be in your best interest to change to another provider.

If you’re in a position where you can’t or don’t want to move to a different provider in the first place then have a chat with your current provider to see if you can negotiate a lower interest rate.

If you end up with a whole load of credit cards with zero balances at the end of the process then it will be worth cancelling some of the cards at that point. This has a couple of positive impacts. Firstly it removes the temptation to use the cards. Secondly it will improve your credit score. If you look for further credit such as a mortgage or loan then the potential lender will get worried if they see that you could access a lot of unsecured debt via credit cards. They are concerned that you may get the loan/mortgage and then max out the credit cards afterwards. When lenders get nervous they tend to say no to the lending.

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Savings

Most of us would like to put something by for a rainy day but think that we don’t have enough money to save or that it’s difficult to do. This is because we go through the month and plan to save whatever is left over at the end. We always seem to get to the end of the month and there’s nothing left to put aside into savings. We need to change our thinking a bit and put ourselves first and not last.

First of all open a savings account. If you choose an ISA (Individual Savings Account) account then you can save very tax efficiently. Most banks have an ISA that you can be started of with £1. Now you have a savings account you can go about adding to it.

Have a look at your income and spending and see how much you could save in a month. It’s better to start off with a small amount that you can realistically manage, e.g. £25 than to aim for a figure e.g. £100 that you wouldn’t necessarily be able to reach.

The next step is to set up a Direct Debit (DD) for the amount you’ve chosen to save from your current account to your savings account. The moment you’ve done this you’ve become a regular saver. Make sure the Direct Debit is set up to go out straight after you’ve been paid when there will definitely be money in the account.

Once that money is going out regularly you will find that you’re not missing it at all and may even feel able to add to it. This is because there is always some money that we spend without knowing where it’s gone so there is always some slack in the system.

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Budgeting

The two key words to do with budgeting are KNOWLEDGE and CONTROL.

Put simply, budgeting is 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.


Try to build up a bank balance that is equal to a whole month of your regular committed spending Direct Debits (DD) etc. This means that you won’t be caught on the hop if a DD goes out early. Penalties for bounced DDs can mount up easily and this can damage not only your financial health but also your credit score.

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