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Mortgages

5 ways to protect your mortgage

Critical Illness, Income Protection, Life Assurance, Mortgages, Protection
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5 ways to protect your mortgage

After months of hard work you are about to buy your first home and as a result are about to take on a considerable amount of debt! You’ve probably realised by now that if something happens to you or your partner that affects your ability to pay the mortgage, you could be up a certain creek without the proverbial paddle.

Now is not the time to panic, in this blog I will cover 5 of the most common options to help you make an informed decision about which protection risks to prioritise.

How to protect your mortgage

So what could go wrong?

Well…. you, your partner or both of you could:

  • Die
  • Be diagnosed with a Critical Illness
  • Be unable to work due to illness or accident

I’m going to assume that as you are reading this post, you have accepted that you are not invincible and that unfortunately these things could happen to you.  If this is not then give yourself a good shake and start reading from the top. Part of the reason I became a Financial Planner & Mortgage Adviser was down to my experience as a First Time Buyer.  My wife and I are degree educated and we were both working in good jobs at the time. We spoke to an Independent Mortgage Adviser about our mortgage options and we were bamboozled by all the jargon! In this post I hope to use my professional and personal experience to shed some light on the financial jargon surrounding protection.  This should enable you to be better informed about what protection you might need in your life.

The tools of the trade

I’m only going to cover the simplest forms of protection in this post as there are many options, bells and whistles that can be added which would turn this post into an essay. So let’s take a few of the more common protection policies and explain what they can be used for and how they work.

5 common protections policies and when they will pay out

 

Table 1
Policy Type Pays out on
Death Diagnosis of a listed Critical Illness Inability to work due to illness or accident
Decreasing Term Assurance
Level Term Assurance
Critical Illness Cover
Family Income Benefit
Permanent Health Insurance / Income Protection

5 common protections policies and how they pay out their benefits

 

Table 2
Policy Type Pays out a
Lump Sum Regular Income
Decreasing Term Assurance
Level Term Assurance
Critical Illness Cover
Family Income Benefit
Permanent Health Insurance / Income Protection
 – Standard Cover
 – Available as an option
 

So what’s the difference?

Life Assurance & Critical Illness

In a Decreasing Term Assurance (DTA) policy the amount you are insured for reduces each year as shown in the graph below. With a Level term Assurance (LTA) the amount you are insured for stays the same throughout. These policies are the most commonly used to pay off a mortgage with the lump sum benefit. Decreasing versus Level Term Assurance   A Family Income Benefit (FIB) is a policy which pays out a monthly or annual income which could be used to cover your monthly payments throughout the term of the policy. All of the above can come with various additional features such as Critical Illness Cover (CIC) which can make them very flexible and useful.  Standalone CIC policies are also available which with either a decreasing or level sum assured.

Income Protection

Permanent Health Insurance (PHI) policy, sometimes known as Income Protection, pays out a set percentage of your income to replace your earnings should you become unable to work due to illness or injury.

What will this all cost?

The cost will depend on various factors that are personal to you such as:

  • Age
  • Medical History
  • Family History
  • Amount of cover
  • Term of the cover

Generally speaking, life cover is the least expensive as it is the least likely to be claimed on.  Both critical illness and income protection are more likely to be claimed on and are therefore more expensive. The big questions are deciding what cover you feel you should have, as few of us can afford to cover all eventualities or are unwilling to pay the premiums to do so.  You need to prioritise what you want to cover and a good Financial Adviser will make recommendations based on your personal circumstances. Don’t be afraid to disagree with your Adviser or question the recommendations.  I find that when this happens I have to justify my recommendations more fully. This means my clients usually come away happier as they have a better understanding of the products we agree on and arrange.   Life Cover (non‐investment) and Income Protection The plan will have no cash in value at any time, and will cease at the end of the term. If premiums are not maintained, then cover will lapse. Critical Illness Cover The policy may not cover all definitions of a critical illness. For definitions please refer to the Key Features and Policy Documents.

5 Year Anniversary for 0.5% BoE Base Rate

Business, Mortgages, Savings

The Base Rate stays at 0.5% for 5 years running

Interest rates will remain at 0.5% for another month after today’s announcement by the Bank of England.

At this point economist and advisers all over the UK will be making their predictions as to when the rates will rise. My advice is simple for those with mortgages, stress test your finances by calculating the effect of an interest rate rise.

Check out our earlier post What if interest rates rise?

For savers it’s a little more complicated, savings rates are almost negligible so you may need to consider investing your savings.  But before you invest make sure you understand and are comfortable with the risks.  There is no point chasing returns if you can’t sleep at night worrying about the stock market.

If you need advice on mortgages, savings or your investments call 02895 815000.

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

The value of units can fall as well as rise, and you may not get back all of your original investment.

Are there any 95% Loan-to-value Mortgages available in Northern Ireland?

Buy-to-Let, First Time Buyer, Help To Buy, Homebuyer, Mortgages, Remortgage, Self Build
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Are there any 95% Loan-to-value Mortgages available in Northern Ireland?

It is hard to save for a deposit in today’s economy regardless whether you are a First Time Buyer or a Home mover.  It is difficult if you own a property with little or no equity and want to get a remortgage while the rates are low.  Almost on a daily basis I get asked if there are there any 95% LTV mortgages available in Northern Ireland.

I thought this post might help even more people find the answer.

95% LTV Mortgages Northern Ireland (NI)

As a Financial Planner & Mortgage Adviser I always like to point out the risks with mortgages with such low deposits.  The Northern Ireland market is at best in the early stages of an economic recovery but what if NI house prices drop again? 95% loan-to-value mortgages could very quickly become negative equity mortgages.  It’s important to consider if you afford a bigger deposit?

So assuming you are comfortable with the risk; can you get a 95% loan-to-value Mortgage in Northern Ireland (NI) in the current market? The answers are shown in the table below depending on the type of mortgage you are looking for; Buy to Let, First Time Buyer, Help to Buy, Let to Buy, Remortgage, Self-Build or a Homebuyer mortgage.

95% LTV Mortgages

Mortgage Type

95% LTV Mortgage

Buy to Let

No

First Time Buyer

Yes

Help to Buy

Yes

Homebuyer

Yes

Let to Buy

No

Remortgage

No

Self Build

No

As you can see 95% loan-to-value mortgages are few and far between and you need a good credit rating to get one.

Rates, Fees and Affordability

As with all mortgages the rates, fees and affordability calculations will vary from lender to lender.  For a 95% LTV mortgage in the current market, expect the fine tooth comb approach.

Good news for First Time Buyers, Help to Buy and Homebuyers with low deposits across Northern Ireland. Alas everyone else will have to save a little more or pay down their existing mortgages

From Acorns Financial Planning Ltd are based in Tyrone, Mid Ulster. We provide a comprehensive Financial Planning and Mortgage Advice service to clients across Northern Ireland and the UK.

Mortgage Advice

If you have any questions or if you need help getting a mortgage for a 95% LTV mortgage in Northern Ireland or further afield call 02895 815000, email [email protected] or leave a comment below.

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Bank of England Base Rate Remains in an Oasis of Calm

Business, Mortgages, Savings

Bank of England Base Rate going nowhere

Hello, the talk tonight will be of the continuing low BoE base rates. We are only a month away from the 5th anniversary of the base rate being reduced to historic lows of 0.5%. It seems as though these low rates may live forever.

If you are worried how an interest rate rise will affect your finances, then don’t go away, read my previous post. Personally I acquiesce that the BoE is unlikely to raise the base rate until 2015. That said, I don’t think that Lenders will continue to offer the low fixed mortgage rates we’re seeing at the moment for very long either. Existing mortgage borrowers who are on their lender’s standard variable rate are going to have to make some decisions. These are likely to be along the lines of either paying a little more now or paying a little more later.

If you have money held on deposit, don’t look back in anger over the past five years of low returns. Instead go let it out little by little and soldier on.

Some might say that monthly posts about nothing happening with the base rate are well… whatever. I look at it as an opportunity to get mucky fingers and slip as many song titles from a certain Mancunian band in, just for the fun of it. D’you know what I mean?

So how many song titles did you count?

What if interest rates rise?

Business, Mortgages, Savings
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How would an interest rate rise affect you?

The Bank of England (BoE) Base Rate has been held at 0.5% since March 2009 and they have previously indicated that they will not consider a rate rise until the UK unemployment rate is below 7%.  Even then the BoE has announced that a rate rise isn’t guaranteed so we can all relax and worry about it in a year or so, right?  Well, no.

BoE Base RateIt’s all well and good that the rate is unlikely to rise in the short term but it is essential to consider the effect of a rate rise on your finances before making any decisions.  Variable mortgage rates tend to increase directly in line with the BoE base rate and this in turn increases the monthly mortgage payment. A 1% rise in interest rates will add an extra £83.33 per month onto a £100,000 mortgage.  If this would seriously affect your monthly budget than a fixed rate mortgage may be a better solution for you.

Bond investments are also affected: as interest rates rise, bond prices go down in order to bring the rate of income they pay back in line.  Businesses are also affected by rising interest rates in the form of higher borrowing costs, which can ultimately hit the share price and have a knock-on effect across your investment portfolio. As usual keep an eye on your long term goals and assess if you are still on track before making any decisions in any circumstance.

From Acorns Financial Planning Ltd are based in Tyrone, Mid Ulster and provide a comprehensive Financial Planning service to both personal and business clients across Northern Ireland and the UK.

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Status Quo for the Bank of England Base Rate

Business, Mortgages, Savings

Bank of England Base Rate remains at 0.5%

The BoE Monetary Policy Committee has today again announced that rates will continue to be held at 0.5%.  The base rate has been held at the record low of 0.5% since March 2009.  Having indicated that the rate may not even consider a rate increase until the unemployment rate falls below 7% back in August, the Bank has given no further guidance.

The latest figures have the unemployment rate at 7.4% and some experts expect that it will fall below 7% this year.  A few months ago the Bank predicted that unemployment would not reach 7% until 2016 which means an interest rate rise may happen sooner than we thought.

I don’t expect the Base rate to rise but like a good former boy scout I recommend that you ‘be prepared’. Do your sums and make sure you understand the consequences of any rise in interest rates for your personal and/or business finances.

In other news I have decided, on behalf of From Acorns Financial Planning Ltd, to sneak rock band names into random post titles.  Status Quo have not made any comment that I know of regarding the Bank of England Base Rate.

What you need to know about the Autumn Statement 2013

Business, General, Help To Buy, Mortgages, Pensions, Savings
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What you need to know about the Autumn Statement 2013

Income

The income tax personal allowance will rise to £10,000 in April 2014 as expected and will rise in line with inflation from 2015/16.  Inflation will be measured by the Consumer Prices Index (CPI) in this context.

From April 2015, a new transferable tax allowance will be made available for married couples and civil partners who are basic rate taxpayers.  This will enable people to transfer £1,000 of their personal allowance to their respective partner.

Benefits

A new welfare spending cap is to be introduced in 2014, although this will not include the cost of providing State pensions or Jobseeker’s Allowance.

Those claiming benefits aged 18-21 will need to demonstrate basic English and Maths, take skills training or they will risk losing their benefits.

Benefit claimants who are out of work for longer than six months will have to start a traineeship; do work experience or a community work placement rather than risk losing their benefits.

Some change is always good

Pensions

The Basic State Pension will rise by £2.95 per week in April 2014, meaning a single pensioner will now receive £113.10 per week.

Plans were announced to increase the state pension age to 68 in the mid-2030s and to 69 by the late-2040s, based on the latest life expectancy figures.

For those with sizeable pension pots there has been no change to the way GAD rates are calculated for Income Drawdown.

Savings & Investments

The Annual Allowance for Individual Savings Accounts (ISAs) will rise to £11,880 in 2014/15 of which £5,940 can be invested in cash.

Junior ISAs and Child Trust Fund (CTF) limits will also increase to £3,840 per annum.

In a drive to encourage funds to locate in the UK, Exchange-Traded Fund (ETF) stamp duty will be abolished.  This could save investors 0.5% on domiciled ETFs next year.

Mortgages

It was announced that two more lenders, Aldermore and Virgin, are expected to join the Help to Buy scheme in December 2013.

Businesses

From April 2015 employers will no longer have to pay employer National Insurance contributions for 16 to 21 year old employees, a potential saving of £500 for each employee on £12,000 per annum.

The business rate relief scheme for small businesses will be extended for a further year and end in April 2015. Additionally, the planned rate increase for all business premises will be capped at 2% from 2014.  A discount of £1,000 will be available for some small businesses and a 50% business rates discount will be available for those taking on vacant units.

Taxes

Importantly for commuters the planned fuel duty rise next September of 2p a litre was cancelled, that’s as good as we can hope for in terms of fuel duty.

From April 2015 foreign residential property owners will pay capital gains tax (CGT) future gains on the sale of UK property.

We already mentioned the removal of stamp duty on the purchase of ETFs in the Savings & Investments section.

The Autumn Statement also contained a package of five measures to address tax avoidance and tax evasion.

Bank of England Base Rate to remain at 0.5%

Mortgages, Savings

Bank of England Base Rate to remain at 0.5%

The BoE Monetary Policy Committee has announced today that rates will be again held at the record low of 0.5%.  The base rate has been held at 0.5% since March 2009 and the Bank has indicated that the rate will not even consider a rate increase until the unemployment rate falls below 7%.

The latest figures have the unemployment rate at 7.6% and inflation has fallen to 2.2% according to the Consumer Price Index (CPI)

This is further good news for existing mortgage borrowers, especially those on low variable rates and more bad news for savers with money held on deposit.

5 tips for First Time Buyers

First Time Buyer, Mortgages
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5 tips for First Time Buyers

1. Find out how much can you borrow?

It is rarely as simple as saying a lender will lend First Time Buyers up to X times your earnings anymore as lenders have tightened up their underwriting in lieu of the credit crunch.  Before underwriting your borrowing capacity the lender will want to know?

  • Details of your Income
  • Details of your expenditure
  • How much of a deposit you can put down?

Each lender has different criteria and will estimate your borrowing capacity differently which makes the need to get advice even more prevalent as these calculations often include a credit search and too many can be damaging to your credit score.

2. Budget, Budget, Budget

In buying a property you will likely incur some fees along the way such as

  • First Time Buyer Northern Ireland (NI)Surveys
  • Stamp duty
  • Land registry fees
  • Conveyancing
  • Arrangement fees
  • Moving costs

On top of that once you have bought the property you could also be responsible for meeting the additional cost of all the following expenses (depending on your personal circumstances):

A good budget is essential in preparing yourself for what lays ahead.

3. Choose the right rate for you

Generally speaking (always dangerous to speak generally about personal financial circumstances but we’ll go for it) most First Time Buyers opt for a fixed rate as this means they know exactly what they a paying for the first 2, 3 or 5 years.  This obviously depends on the market at the time but is a sensible approach especially in the current market with rates at historic lows.

4.  Timing, how long will it take to get a first time buyer mortgage?

This will vary from week to week and from lender to lender.  Those with the most competitive deals will often take the longest as there is more demand for the product.  In today’s market it could take from 2-4 weeks at best and 8-10 would be a reasonable estimate for the worst case scenario.

The key is to approach the lender prepared, you need to have all the answers and documentation ready along with your deposit etc. and a good Mortgage Adviser can help you with this.

5. Get independent mortgage advice

Of course we would say this but here’s why:

  • Buying your first home is stressful and as such it is worth speaking to a mortgage professional that will guide you through the process from start to finish.
  • Deposits, rates, affordability and terms for First Time Buyers vary from lender to lender and this needs to be matched to your circumstances.

An Independent Mortgage Adviser will help you from start to finish including finding a suitable lender, working with Surveyors, your Solicitor and making sure you have any necessary insurance.

Images courtesy of Sunfox on Flickr

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This page does not constitute advice and should not be taken as a recommendation to purchase or invest in any of the products/services mentioned

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

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What is the Help to Buy Scheme and how does it work?

First Time Buyer, Help To Buy, Homebuyer, Mortgages, Remortgage
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What is the Help to Buy Scheme and how does it work?

The Help to Buy scheme helps homebuyers and First Time Buyers who don’t have a lot of savings to buy a home.

The Help to Buy scheme is available to those who have a 5% deposit to put towards the purchase of a property.

Help To Buy Mortgage

How does the Help to Buy scheme work?

As with any mortgage application you need a good credit rating and to buy a home through the Help to Buy scheme you will need to have a 5% deposit.

Once you have found a suitable property you will then need to find a suitable Help to Buy mortgage from a willing Lender.  The Lender then applies to the government for a guarantee on your loan of up to 20% of the value of your property, which means if you default on your mortgage and the property is repossessed the Lender will be liable for this portion of the loan.

Who are Help to Buy schemes available to?

Help to Buy mortgage schemes are available to first time buyers, homeowners moving home and potentially those who need to remortgage.

Unlike other schemes the Help to Buy scheme will accept both new builds and second hand properties.  The property must be valued less than £600,000 (£400,000 in Scotland). Second homes and Buy to Lets are excluded from the scheme.

How do I apply for a Help to Buy mortgage?

A good Mortgage Adviser will help you source a suitable mortgage from a lender that operates in the Help to Buy scheme.

Remember there will be additional costs above and beyond the required 5% deposit, such as

  • Mortgage application & booking fees
  • Survey costs
  • Solicitor’s fees
  • Mortgage Advice fees
  • Buildings and contents insurance and life assurance

Of course the lender will have to carry out the usual checks on prospective borrowers such as assessing their credit report, assessing affordability including the ability to cover repayments if the interest rate increases.

Images courtesy of kennymatic on Flickr

THIS PAGE DOES NOT CONSTITUTE ADVICE AND SHOULD NOT BE TAKEN AS A RECOMMENDATION TO PURCHASE OR INVEST IN ANY OF THE PRODUCTS/SERVICES MENTIONED 

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