Family Finance Weblog

Author: Dot Piper

There has been a tremendous boom in overseas property ownership. Whether for personal use as a family, holiday or retirement property or as an investment property, the market shows no sign of slowing down.

In the excitement of making the decision to go ahead, it’s easy to overlook the importance of taking professional advice with regards to the legal situation.

The law in respect of property and mortgages abroad is very different from that in the UK. Local practices, customs and regulations are very different and vary from country to country. One of the most common mistakes made by people purchasing overseas property is to assume that everything will be similar to the UK and there can be nasty shocks in store when the reality of the very different legal system strikes them. Television programmes have highlighted problems in proving ownership, lack of planning permission or plans for three lane highways cutting virtually cutting through the garden.

It needn’t be like this. Expert advisers are in a position to guide buyers through the maze of foreign property purchase and to help them to get independent and specialized advice from professional people such as surveyors, architects and the all-important solicitors.

As far as financing the purchase, it is usual to think about either raising the money on existing UK property or alternatively to arrange a mortgage using the foreign property as security, via an overseas lender.

Assuming you own property in the UK and are buying your overseas property as a holiday home or investment, the easiest route to take would be to arrange a loan on the equity in your home. By releasing this equity you would be able to complete any deal without undue delay.

Alternatively, it may be possible to get an improved interest rate by raising a mortgage on the overseas property you plan to buy. There is an added advantage in this option, in that the legal title of the property would be checked by the lender, who would ensure that all other aspects of the purchase would be in order, such as registration in the buyer’s name, valuation and checking of any building certificates, regulations and planning permissions.

European interest rates are generally lower than those in the UK. Because of this, with Spanish property, most buyers are advised to take out a Euro mortgage, although technically you could choose all major currencies. If buying property in France or Italy then a Euro mortgage is required.

Euro mortgage repayments must be in euros. There will be some currency fluctuations and this should be taken into account when planning your monthly repayments.

Your adviser will be able to help you with the choice of which mortgage is for you. For instance, if you intend to rent out your Spanish property via a Spanish agent, any income will be in euros. Rental received can be paid into a Spanish bank account to help to fund the mortgage repayments, thus avoiding any fluctuation in currency when transferring money each month. Obviously in this case a Euro mortgage makes sense.

A sterling mortgage would avoid the fluctuating currency problem if the property is purely for personal use and there is no foreign income. However, the savings on interest rates still make a Euro mortgage an attractive proposition.

For help on overseas mortgages, we strongly advise you to take some guidance from the experts. This can be found by going on-line to find a broker, where you’ll find their knowledge of the whole foreign property market invaluable.

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Author: Richard Norfolk

If you see your doctor for a report on your condition, be it general or specific to particular symptoms, you would not unreasonably expect an accurate report. If you were paying for the report, this should put extra pressure on your GP to supply one which would be precise and correct, not vague and open to interpretation.

When applying for life insurance it would appear that around 40% of us have a medical condition which we feel obliged to declare on the application form. This information is then followed up by the insurance company and, provided that it is acceptable to the applicant, they will then contact the GP and ask for a medical report on the individual. This report has to be paid for so the insurance company is quite justified in expecting it to be precise and accurate; unfortunately there are times when it is not.

It is a fact that doctors are often under pressure, with a workload that fails to leave adequate time for attention to details which are apparently rather less than urgent. The result is that there are times when GPs will take the easy way out (presumably to save time) and instead of supplying a report, they will pass on to the insurance company a copy of the patient’s record from the practice computer.

In these circumstances they are not only supplying the wrong sort of information, but they could also be breaking the law by breaching patient confidentiality in supplying information about a patient which the patient had not agreed could be disclosed.

As far as the insurance company are concerned, they have paid for information relating to a specific condition or conditions about which they need full and accurate information, to enable them to assess the risk for life insurance. They are not qualified to take the whole of a patient’s records and from them deduce the risk relating to specific conditions. That is a task requiring a doctor’s skills.

Neither the Association of British Insurers nor the British Medical Association is satisfied with the current procedure. There is concern that the agreement by which insurers are allowed access to some medical information could be damaged if they are allowed open access to the whole of a patient’s medical records.

As a result of this concern an agreement has been made between both parties, whereby the fee paid by the insurance company to doctors will increase by 6% per annum over a five year period. In exchange for this commitment GPs have agreed, through the BMA, to provide the insurance companies with reports of a good quality, which will give them the information which they need. At the same time patient confidentiality will be preserved, as the only information which will be provided will be that which the patient has asked to be divulged.

Thus the cost to an insurer of a GPs report will rise over a five year period from £74.70 to £100. A supplementary report will increase from £19.10 to £25.50 and a medical examination from £82.20 to £110 over the same period.

The BMA have for their part made the point to GPs that life assurance is for the patients benefit and should not be treated lightly; they have asked for accuracy in the preparation of these reports which do after all have a cost benefit for the GPs.

This is a relatively small price for insurers for to pay for accurate information, which should in itself save costs for them by providing dependable facts.

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Author: Richard Norfolk

With ‘unsolicited mail’ campaigns and extensive advertising, it appears that car insurance is very popular amongst providers. The sheer variety of schemes being offered to satisfy different requirements, when multiplied by the number of companies active in the market, presents motorists with a choice of routes as complicated as a road map.

Most providers have some sort of restrictions in place to filter out the higher risk drivers. These, including the apparently accident prone and those who flirt with the law by amassing points on their licences, are not popular with most insurers. Their cover is left to specialist companies who are prepared to take them onto their books in exchange for very high premiums.

There are also what might be termed ‘specialised exclusions’, where drivers are excluded by a company because of their record. For example a driving ban will result in refusal of cover from the Halifax, whilst a drink driving offence or 12 penalty points on your licence will result in a ‘no’ from MoreThan.

If you are in the sort of category where you are penalised for misbehaviour, then it is only right that insurance companies avoid passing your hefty costs on to more conventional customers. If you are anxious to get driving again, you could find it hard work trying to shop around for a company which is prepared to take you on. In these circumstances a broker will do a lot of the ‘leg work’ for you, and than can be no easier way to set this enquiry in motion than a visit to brokers web sites.

The remainder, those run-of-the-mill motorists who manage to negotiate life’s roads with only the occasional bump, are then faced with such a variety of choice that deciding on which insurer to go with could easily occupy far more time than the decision is worth. Perhaps the best start is to decide if you fall into one of the special categories which offer advantageous terms.

Gender is perhaps as good a starting point as any. Chauvinistic male motorists should consider the fact that their female counterparts can get special terms, based on the statistically safer driving of female motorists. However, the ladies should examine the terms and costs on offer rather carefully, as it does not necessarily follow that the best deals are offered by the specialists.

With any insurer it will pay to look beyond the ‘puffing up’ of the adverts and check out the finer detail. Will your no claims bonus be protected? Will the approved repairers supply a courtesy car? Is breakdown cover included within the basic cost? There tend to be a lot of extras available which in some cases will be covered in the basic cost, but where they are not provided as standard they could really load your premium.

Amongst the questions to be answered will be what level of excess you are prepared to pay, where is the car normally parked i.e. road, drive or garage, is an alarm or immobiliser fitted, do you need cover to drive other cars, and even – are you married? Single drivers often pay a higher premium, but don’t try getting married just to cut your insurance costs!

On the other hand you need to ignore ‘benefits’ which you are unlikely to need. Free cover for motoring abroad for example, is a waste of money if your car will never leave these shores. In this case you have to remember that there is a cost factor built into the premium for any ‘free’ service, unless of course you have discovered the contradiction in terms – the totally altruistic insurance company!

Many other groupings exist, where favourable terms may be offered to drivers meeting specific criteria. These can relate to age, employment, driving experience, even the make of car to be covered.

Whilst age can be used to apply ‘penalties’ in terms of cost for older drivers, where possible loss of alertness or slower reaction times are felt to make accidents more likely, the slightly younger can have an advantage. For example, those just retired are likely to cover less miles per year, and will almost certainly do the greater part of their motoring when the roads are less busy outside the rush hours.

Civil servants have for many years been able to get advantageous terms on a variety of insurance cover needs, with deals negotiated on their behalf on the basis of the large numbers who are likely to respond to the offers. It may be worth enquiring if your employer or your trades union has any such arrangement.

Owners clubs, comprising enthusiasts who drive a specific make or type of car, sometimes make similar arrangements for members whose choice of car could invoke insurance cost penalties. Classic cars of even recent vintage can be very costly to repair, especially when parts are difficult to obtain, and performance models have obvious dangers for drivers and insurers, including repair costs for drivers as well as cars!

It is all a bit of a minefield, so your best move has to be to go online and find a broker who will do most of the hard work for you, but first of all decide on the options which you need and which ones you can manage without.

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Author: Emma Mayo

Speed cameras are already the bane of the driver’s existence. There’s a lot of dispute as to whether they do help save lives, but one thing’s for sure, the Government is making a lot of money out of our collective inability to keep within the speed limits.

If you thought it was bad before, a new speed camera is being tested at the moment that could take the concept of being watched on the roads many steps ahead of its current format.

The new device, manufactured in South Africa, is a digital red light camera and speed camera that can be used both in mobile speed traps and fixed-camera setups. The strength of the device lies in its ability to perform more than one task – meaning double trouble for motorists. Not only can it take up to 100,000 digital images, it can also monitor three lanes of traffic at once. And it can be used as a mobile hand-held camera by police during the day shift, and then stored in stationary housing to continue its job throughout the night. It can also be controlled remotely so the camera can focus and zoom in as required.

Every picture that’s taken is accompanied by GPS time, date and location information, all thanks to WiFi and GSM systems, then the information can be downloaded to a remote base using mobile phone technology. Made by Truvelo, the ‘D-Cam’ will be ready to go on Britain’s roads just one year after it’s approved by the Home Office, which is set to happen imminently. It’s already proved popular in South Africa and Brazil.

At £30,000, the system isn’t cheap, but if you take into account the cost of a speeding fine - £60 – and then multiply that by 100,000 (the amount of pictures the camera can store) and that’s a significant profit margin for the authorities! Truvelo make around 20% of the speed cameras currently on British roads, they can only take 700 film pictures, so they need reloading on a regular basis – so the difference between the two technologies is quite significant.

So what does it mean for motorists? It means there’s even more chance of getting caught speeding. And if you receive a speeding fine, that will affect your car insurance premiums. With a quarter of British households having at least one speeding fine, which gives you three points on your driving licence, it’s a big issue, and it’s giving the car insurers an opportunity to cash in.

Recent AA research found that a driver with a speeding offence could expect to pay an average of 20% more on car insurance. Even if your record was as clean as a whistle before, you will be penalised. Don’t be tempted to withhold the information from an insurer either, as if you come to make a claim and the information is discovered, your policy will be declared null and void.

So if you get caught speeding, and the chances of that are likely to increase once the D-Cam is introduced, what can you do to keep your car insurance at an affordable level? Be extra sure to shop around. Never blindly accept a renewal from your insurer without checking out the competition, and get as many quotes as you can to make sure you’re not paying more than necessary. Many drivers pay more than they should because they fail to get a few quotes – and if you have points on your licence for speeding, it’s more important than ever to keep on top of things. Go online for the cheapest quotes, and be sure to get as many quotes as you can!

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Ask a mix of people to name private schools and generally you would probably get a list which starts with Eton and Harrow and maybe a school local to the individual, but then the list would quickly fade out. In truth there are very many private schools and many variations of education are provided. Most people want the very best for their children, and a good education is usually high on the list.

Most private schools provide a good education in the usual subjects, with all the advantages of smaller class sizes being expected and ‘low take-up’ subjects available. If your child has a learning difficulty of some sort then there are specialised schools available, where the disadvantaged child with hearing or vision problems etc. will receive the specific education which they need.

Conversely, gifted children can be ‘brought out’ at private schools which cater for their particular strengths, which are developed whilst general educational subjects are also taught. So it follows that few parents could honestly claim that private schooling is not a requirement of theirs. If the fees can be afforded then a child is likely to benefit in the jobs market for the whole of their working life.

It would appear that education in state schools is regarded by many parents as failing the pupils and private school education is becoming more popular but also, by the rules of supply and demand, much more expensive. Over the last seven years, figures show that fees have increased by 50%, with the result that the cost of a senior boarding school is now likely to be over £20,000 per year. Non boarding could reduce the direct cost to around half these figures, but remember that ‘boarding at home’ also has a cost!

The possibility of scholarship for a gifted child could be a lifeline which most private schools have available. Alternatively, bursaries are available in cases of low family income, although these are means tested and priority is given to pupils already at the school where the parents are in ‘reduced circumstances’. According to the Independent Schools Council, assistance is currently given to around 30% of pupils. More details are available online at www.isc.co.uk.

Parents in the armed forces, the clergy and some who are employed abroad may find that some or all of the fees are paid for them. Try asking – you may be pleasantly surprised! On the other hand, if a change of occupation was to bring an end to the perk, the disruption to the child’s education could be serious.

So how much are you looking for in total funds? If your child’s education is to be totally at private schools from the age of 4 through to 16 or older, you are going to have to provide £200,000 or more; if you opt for boarding school the figure will be very much higher. This figure drops to around £14,000 if you opt for state school education, on the very reasonable grounds that the private school costs sound too much like your phone number! You thought that state schools were free? Yes they are, but you still have to pay for food, transport, clothing, books etc.

If you opt for state schooling for your child until they reach 11 years old, you could probably get away with a non-boarding cost of around £50,000 over a 5 year period, although don’t forget to ask about scholarships or bursaries. You could find that your total costs are reduced to somewhere between £38,000 and nil!

No scholarship and no bursary? It is still possible if you are determined. If you start soon enough you may be able to fund the 5 year private education option by saving £100 a month into a high interest fund, especially if you are prepared to take a low risk option (rather than no-risk) to increase the interest rate. This would probably be feasible over a ten year period, bearing in mind that you would still need to be saving the same amount whilst your child is receiving the private education.

With less time available you would need to look at alternatives. Saving the taxation costs by going for ISAs or the appropriate National Savings schemes could be a wise move which would give the apparent interest rate a significant boost. Maybe couple these funds with a remortgage to ensure that you can cover the school fees

It’s the old story. Do your homework, trawl the internet, and make sure that you have got the best deal which you can find. You are using your money to ensure that your child’s prospects are as good as you can make them – use that money wisely.

A final cautionary word. All the figures quoted above are for one child only. If you have 2, 3 or 4 children (or worse still twins, triplets or quadruplets who will all start school together) then you have a few problems and the writers sympathy.

Author: Catriona Singfield

Chronic Fatigue Syndrome, also known as ME and stigmatised as ‘Yuppie flu’ in the 80s, has now been recognised as a proper, and serious, life-damaging illness. Unfortunately for sufferers, some major insurance companies are behind the times, as Miss A found out.

Diagnosed eight years ago, Miss A suffers from a virulent form of ME that has left her wracked with pain and totally unable to complete a normal day’s work, let alone hold down a job. With just £180 a week in benefits – which has to cover all her expenses, including assistance with the illness – she depends on the support and care of her boyfriend and family. Yet with a good, permanent health insurance policy in place, Miss A believed that she would be protected from this tragic situation

Miss A’s former employers believed that they were providing the best health insurance for their workers, with a policy from Swiss Life providing a permanent income in the event of a claim of 75% of final salary. But, after initially agreeing to pay out, insurance firm Swiss Life decided to drop Miss A’s claim. For the last five years, they have refused to pay her the money she is owed, and she has lost £40,000 so far.

Surely, you might think, we should hear Swiss Life’s side of the story? It’s certainly worth reading …

Disregarding personal privacy, as well as the debilitating disease and its effect on Miss A’s life, the insurance company set up a spying programme to capture evidence of her activities on video. They then used this to claim that she was leading a fit and active lifestyle, well able to work for a living and support herself. For example, footage of Miss A making a visit to her Mother’s house after attending a doctor’s appointment was used to suggest that she was perfectly healthy.

As both laymen and medical experts know, ME sufferers may be flat out in bed one day, and able to rise and perform light tasks the next, while being forced to rest yet again a few days later. Thus video evidence of Miss A simply out and about would not suggest to any medical professional that she had recovered.

Swiss Life have also criticised Miss A for providing them with evidence of long-term illness that they find insufficient. In 2002, she started a course of restorative treatment designed to get her back on her feet, but sadly she was unable to finish the course before a relapse hit her. Swiss Life claim that this is evidence not of Miss A taking steps to get well and being knocked back, but avoiding treatment.

You might think that the findings of a respected Harley Street ME specialist might be enough to pacify the insurers. But even with this assessment, Swiss Life are denying Miss A her rightful payments.

Swiss Life are a subsidiary of a company called Resolution, who have said that if Miss A wishes to take her claim to the Financial Ombudsman, then they will not try to prevent her case from being heard. But as Ombudsman compensation is limited to £100,000, Miss A is understandably reluctant to take this route. She does not know how long the condition will persist, and has little reason to trust Swiss life after her treatment so far!

Miss A, and others like her, are being hit by the same prejudice – the idea that such conditions as ME are merely ‘designer diseases’, excuses for the sufferer to get sympathy and avoid a day’s work. This could not be farther from the truth, as any doctor will agree. Real people are suffering real illnesses, and being denied payments that are rightfully theirs.

Until unscrupulous insurers are brought to heel, what can you do to prevent this from happening to you? Your first port of call should be a good online insurance broker. They will search policies for you, to your specific requirements, comparing companies and quotes. Make sure that they are aware of your concerns, and they will be able to help you find an insurance company that has a sympathetic, up-to-date attitude to conditions like ME. Not only that, but they may be able to hunt down an online bargain too!

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Author: Catriona Singfield

In the UK, as with the rest of Europe, we are now living longer than at any time in the past – and the figure is rising. The average lifespan for a British man is now 76.2 years, with a woman living even longer at 80.7 years. This is excellent news, but sadly there is a downside – we may be living longer, but we’re not as healthy as our fellow Europeans.

According to an EU survey on the subject, conducted over a sample of 60,000 people, longevity is not the only index of old age we should be paying attention to. The survey made a study of age of death, sickness and overall health. Healthy life years, the amount of time we can expect to enjoy an active, able old age, are just not matching up to lifespan.

Out of a average life of 76.2 years, a British man can expect to enjoy only 61.5 years in good physical condition. In the European league table of health, we are fifth from the bottom.

However, it is important not to jump to conclusions too early because as yet, no-one is sure exactly why the study has come up with these findings. There are wide variations across Europe, with cardiovascular disease being far more of a risk the further north you live. According to action group Help the Aged, we are putting ourselves at risk because we do not take one simple factor as seriously as we should - the cold. Failure to wrap up can lead to thickening of the blood, perhaps even a fatal clot. Surely an incentive to keep warm!

The healthiest Europeans are the Italians, with an average of 70.9 healthy life years over a total lifespan of 76.8 years. It’s well known that in Italy, the national diet includes a lot of vegetables and fish, with few saturated fats, which may be one reason why the Italians are living more healthily for longer. Again according to Help the Aged, these differences could be caused by several factors: better diet, the quality of the Health Service, the weather, and prevalence of smoking.

Indeed, in a recent league table comparing healthy life years and lifespan, Italy is number one. Next come Spain, Germany, Poland, the Netherlands, and the UK, followed by France, Hungary, Portugal and Finland.

The figures are interesting. For example, a Finnish woman can expect to live for 81.8 years, but only 56.5 years will be free from ill health, defined in the study as a disabling condition.

Taken together, all these factors point to one conclusion: the average man or woman would be well advised to look for good critical illness cover, not only life insurance. Consider this sobering fact: the average age of retirement now comes after the average age at which ill health sets in – by between three and a half and eight and a half years. The recent rise in official retirement age is matched by many people’s expectations of being not just available, but able to work into their 70s.

So what is critical illness cover? Briefly, this is insurance that pays out if you are diagnosed with a serious condition, for example cancer, a stroke, or heart disease. Be sure to check the policy carefully, as not all policies cover the same conditions. Consider that such an illness can affect your entire lifestyle. You may need to change or even give up your work, or alter your house or car. If you have good critical illness cover in place, at least you can be sure that your needs can be met financially.

If you have a family, you may like to consider what the effect would be were you not there for them. No-one likes to think of the worst happening, but it is only sensible to take a careful look at your life insurance options.

Fortunately, it’s easy to find out good information on these types of insurance, for both cost and cover. Go online and find an Internet insurance broker, who will be able to search for you to find the most competitive quote.

Once you have your plans in place, there’s only one more thing to do – beat those tables and enjoy your old age!

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Author: Catriona Singfield

Searching for mortgage information these days has never been easier – if all you are looking for is another advert promising you the best, simplest, cheapest, most wonderful product ever! How do you unravel the meaning from all these fantastic claims?

Not to worry – help is at hand! Here we sort out the different mortgage types from each other, and offer some advice on choosing the best one for your needs.

We begin with that first-time favourite, the discount variable rate deal. The good side is that this mortgage has an interest rate tied to follow the company’s standard variable rate, and also offers a cost reduction. The downside of this particular variable version is just that: it varies and may therefore rise unexpectedly.

A slightly different type, the tracker variable rate, is also tied in but this time to the base rate. Tracker rates change only when the base rate changes – and this rate is set by the Bank of England, which may give more stability. Trackers are a friendly face in the mortgage jungle, being simple in concept and easy to understand. They are also available in two variants, short term and lifetime.

A common way to try to make sure you stay with the best rate out there is to re-mortgage after a favourable deal ends. This is a sound idea, as long as you manage the all-important timing just right. You also need to find a new deal that matches (or betters) your old one. If you don’t make the change fast enough, you can end up paying the lender’s standard variable rate instead. It can be a useful strategy, but you’ll want to remain open to switching to a good longer term deal if one comes around.

Speaking of long term, it isn’t necessarily the case that a longer duration means a worse rate. Look into your options carefully. Additionally, some borrowers actually prefer to have a longer term plan in place, especially if they were used to making regular rent payments of a fixed amount.

Longer term mortgages can be worthwhile too if you are considering a repayment mortgage. This type reduces the capital you owe over time, as you make payments. If you find the inconvenience of searching around for a good mortgage deal every couple of years troublesome, then investing in a sound long term package could be your answer. And the amount you’d save by changing is often not that large.

Another mortgage sweetener often used to attract new buyers is the cashback mortgage. It can seem tempting to have a cash-in-hand sum, especially when there are a host of things you’d like to do to get your new home just as you’d like it. But beware! Just like many welcome gifts, it often comes with a less impressive interest rate attached. There is a longer tie-in period too – the length of time before you can change to another mortgage without paying a fee. Worst of all, if you do switch, your cashback may have to be repaid!

There are low-fee deals on offer. These may come with no arrangement fee, but with a correspondingly higher interest rate. Consider if over time, it would work out cheaper for you to pay the fee. Remember: there are no free features with a mortgage! It’s also quite possible that the fee can be added to the mortgage total anyway, softening the blow.

It’s a slightly different case if you are offered a free valuation, or free legal work, as these are incentives which will actually reduce costs you’d otherwise have to pay. But as always, check the interest rates carefully. These are the main feature of any mortgage.

So what’s your best avenue for up to date market advice and tips? An online broker is trained to look for exactly what you need, and can match your requirements with the very latest and most economical deals. They can also sometimes find special discount mortgages that are only available via the Internet.

It makes sense to look at the ever-changing mortgage market from all angles. Your knowledgeable broker is your best ally, so make sure they work for you and find that fantastic new deal!

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Author: Richard Norfolk

Mobility in the jobs market can be vital for progress in your career, but the costs incurred can be considerable if you move any distance and moving home becomes necessary. If it can be helped, these should not be allowed to affect your decision to live nearer to your new employment, but you need to ensure that you are aware of the likely total cost.

A report quotes a cost of over £5,500 to move house, based on the current average property price, so you may need to temper that enthusiasm for a grand mansion with a little realism regarding affordability. There will be several different companies who want to have a share of your hard earned cash, and of course the government will also want to profit by your move.

Your first investigation should be into the new mortgage which you will need. You may not have moved home for some time, but even so it is likely that you will have a reasonably up to date picture of the way that property prices have moved – if not, you are in for a shock! First of all you should look at the basics of the mortgage market to see the different types available, and what repayments will be required. Armed with this knowledge, you will be able to start looking for suitable properties, being careful to bear in mind that your costs will not start and end with mortgage repayments.

The governments share in your endeavours will be in the form of stamp duty, which does not seem to have any particular purpose except to enrich the treasury. Currently this cost comes into play on properties where the price exceeds £125,000, which in many parts of the country means that most if not all will carry the 1% additional cost on amounts above this figure.

The next threshold is at £250,000, above which stamp duty climbs steeply to 3%; this on-cost is now reaching very significant proportions and must be taken into consideration. It is worth noting however that if a property is priced by the sellers at a level just above a stamp duty threshold, they will be fully expecting strong negotiations aimed at bringing the price down to the lower level.

The treasury is taking stamp duty at the rate of £5 million per annum – don’t encourage them by unnecessary additions to this sum!

Whilst searching for suitable property you could spend some time in lining up a solicitor and also take an initial look at the mortgage market. You can expect the solicitor’s services to cost in the region of £500; set this money aside along with an additional £900 if you are going to require a full structural survey, which is usually advisable.

When you have a reasonable idea of the type of property which will meet your needs, your investigations into the many types of mortgage available can move on in greater detail. If you have a mortgage on your present property you need to be aware that you could face having to pay early repayment charges or ERCs. At this point you should talk to your current mortgage provider, as they may waive these charges if your new mortgage is to be with them.

If you are likely to have to move home again you could check the future situation – will you be charged ERCs next time? You will need to shop around and do your sums. Another penalty which could be applied if you are well into repayments on your existing mortgage is exit fees, also known as deeds release or admin costs (or whatever other name your provider chooses).

The only purpose for these seems to be to extract funds from a departing customer, although mortgage providers would argue that competition has forced prices down to the point where any loss of revenue has to be dealt with. The amount involved is not great but even £300 or so is a cost to avoid if possible. Ask your current provider about ERCs or exit charges applying if you stay with them.

A lender may adjust his risk assessment applying to your new mortgage if you can only pay a small deposit, and higher lending charges may be incurred by you. On the other hand competition for your business is having an effect on some of these extraneous charges, and more companies are accepting that lack of a lump sum deposit does not necessarily indicate inability to meet regular payments; loans of 100% are no longer rare.

The moral is to keep checking and keep adding up the extras as well as the large mortgage payments because they are all costs which have to be met. After all, even the furniture removers need to be considered. They will not work without payment and you literally will not get far without them.

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Author: Richard Norfolk

The time was when you started to pay your mortgage off whilst relatively young, perhaps 25 or 30. This meant that with the usual 25 year mortgage it was fully paid up at 50 or 55, and the problems of old age could be approached without the distraction of those monthly payments.

O.K., you now owned your own house and had to face the cost of maintenance, but somehow it was easier to bear. You also had a fairly accurate idea of what your pension would be worth, and if you had also paid for a company pension you had a reasonable idea of what your retirement income would be.

Sadly that accuracy is now largely a thing of the past. Government pension increases have fallen well short of matching inflation for a long time now, so the value of that pension has been steadily eroded. Many company pensions have hit difficulties and in some cases they have vanished altogether. And then there is your house – at what age will you cease to pay for it?

Currently, well over half a million pensioners still have outstanding amounts to pay on their mortgages, and it is not always the last few payments which are facing them. Figures indicate that over 20,000 of those still paying are over the age of 80; in terms of monthly payments, that is 180 or more made since they became pensioners, and they are still paying.

This situation has arisen because some have gone in for improvements to their home, or have decided to move house as retirement approaches, or in too many cases because of an endowment mortgage shortfall.

Prudential have researched the situation, and they reveal that almost 25% of pensioners are not in a position to find the funds necessary for a worry-free retirement. There is a major problem here which needs to be faced, and the fixed income which most pensioners have to cope with is only likely to exacerbate the difficulty of finding a solution.

Some people are now planning their lifestyle to ensure that property ownership will fund a part of their pension, with 13 million intending to take that route. Over 1½ million are banking on it providing in excess of half their retirement income. This is perhaps a reasonable approach if you have been able to plan for this nest egg, but if you are approaching retirement with only your home as security, you will need to hold off booking that world cruise for the foreseeable future.

Equity release is one possible solution, making use of your home’s locked in value. It is possible to obtain equity release on a home which still has a small outstanding mortgage balance, but expect to be required to use the funds released to pay this off. You will find that you must exceed a minimum age and your house must meet a minimum value before you can be accepted – the older you are, the larger the sum which you may borrow. Repayment of the loan plus interest charges will be required when the last occupier (of a maximum of 2) leaves the property, if necessary this repayment will be funded by the sale of the property.

Another approach which 1 in 6 pensioners are prepared to consider is to rent a room to a lodger. This is not a route to be taken lightly. Adapting to having a stranger moving in could be very difficult for many people, and in addition the financial implications need to be examined.

First you must get approval for the idea from anyone who has a financial interest in your home. Your insurer and any mortgage provider must give it their blessing, and it would be wise to talk to your tax office; they will give you a clear picture of what you need to consider from an earnings point of view. In this context you need to check the possible effect on any benefits which you currently receive.

Another route is to look at a the possibility of a re-mortgage but you are unlikely to obtain this if you are over 75, and the interest rates may be prohibitive. You would almost certainly have to use your home for security on the loan which, to put it simply, means that if anything goes wrong you could lose your home.

If you feel that you are too young for this situation to concern you, think again. The younger you are when you make your pension arrangements, the cheaper they will be. Wait 10 years and you may find that the payments for the pension you want have moved beyond your ability to pay

Shakespeare said ‘all the world’s a stage’, so act now!

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Author: Catriona Singfield

As winter draws near, around 10,000 of the UK’s motorcyclists begin to make plans for storing their bikes away for the cold season. Snow, ice and biting winds make riding a motorbike a less attractive prospect, so many savvy bikers pack their machines up and save on the tax and insurance until biking season comes around again. Unfortunately, thieves know this too and every month around 600 motorcycles are stolen from their garages.

This could be a problem if you are the unlucky victim of such a theft when you are temporarily uninsured. A useful compromise is to reduce the cover to the minimum needed, usually just fire and theft.

Compared to car insurance, motorcycle insurance has some unusual features. That old favourite, the no claims bonus, is almost unheard of for bikes and it’s only a select few insurers who offer any comparable discount.

So how does a typical motorbike policy work? As with cars, there are a variety to choose from, such as third party, specified rider policy and specified bike policy. Specified bike policies cover the machine, not the rider, which means that several riders can be insured for the same bike.

Specified rider policies apply the other way around, to a specified rider on any bike of a size agreed by the policy.

Comprehensive insurance is the most expensive type, but like the familiar car version it covers you for the repair costs for accidental damage, and may or may not include breakdown cover. If you need to make a claim, you pay a specified excess and the rest will be paid for by your insurance company.

Third party insurance covers you for the legal minimum, and is thus the least expensive. It includes any damage you may cause to property, or injury to people. It doesn’t cover you for damage to your bike or repair costs, and still includes an excess payment.

Unfortunately, the exhilaration of getting a new bike is tempered for many young riders by much higher premiums on all types of insurance. This is because the chances of a new rider being involved in an accident are so much higher, due in part to lack of experience on the road. Motorbikes are also notorious for offering little protection in the event of a crash, and such accidents can have tragic consequences.

Premiums are also calculated on how long the rider spends travelling, for example a daily journey to work, or touring. This is because the longer a biker spends on the road, the greater the likelihood of an accident occurring. If you have had the misfortune to make a claim for a driving-related accident recently, this will also affect the rate you will be offered.

So what else goes in to the complex mix of tailored bike insurance? Well, the size of the engine and the make of the machine will be factors, so owning a vintage Harley is likely to be a costly affair! Any previous convictions for speeding, dangerous driving or even a disqualification will affect it adversely too.

It seems sensible to do what you can to reduce these fees. A security device, especially an immobiliser, steering lock or alarm should also secure a discount, as may completion of a specialised motorbike training course.

With so many things to take into account, it may seem tempting to be economical with the truth to save costs. This will certainly invalidate your insurance, leaving you with an expensive payout and no claim. It’s also illegal to drive without insurance, so honesty is definitely best for your policy!

Naturally, you’ll want to find the best deal, so try an online insurance broker. They can find you a policy to suit your specific requirements, and shop around for the best quotes to match your budget. Not only do they have the experience to help out, but they often have access to special discounts only available online.

So shop around, make sure you get the right insurance for your needs and have a safe drive!

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Author: Dot Piper

Life is taxing enough without parting with more of your hard-earned cash than you need to. There are lots of ways in which you can trim down your tax bill.

The current tax allowance for people under 65 is £5,035 per annum. This is a tax free amount and when your income rises above this, income tax will become due. It may be that your spouse is either not earning or is a low earner. You could think about transferring investments to him or her to make use of their allowance.

Is your tax code correct? If not, you could be paying more tax and national insurance than you should. It’s very easy to check your tax code and the government website offers a full explanation of how to do this. www.direct.gov.uk

If you’ve left your job and not applied for unemployment benefit you should be able to get a tax repayment. You will need to apply to your tax office for a repayment form P50. You will also need the P45 which your employer gave you with your final wage payment.

Her Majesty’s Revenue and Customs and the Department of Work and Pensions have £2.9bn of tax credits on offer. You may be entitled to one of three credits. There’s child tax credit, working family credit or pension credit. www.taxcredits.inlandrevenue.gov.uk is the place to check.

An ISA offers a way of earning tax-free interest. You can have £7000-worth of stocks and shares, or alternatively invest £4000 in stocks and shares and £3000 in cash. As long as the ISA is in place, the interest will be tax-free.

Building society and bank interest is normally paid after deduction of tax. If you’re a non tax-payer you can request that you receive your interest gross. Should you have already had tax deducted, you can claim a tax refund. The Taxback Helpline phone number is 0845 077 6543.

The taxman will help you with your pension contributions too. This varies according to your tax rate. If you’re a basic rate taxpayer, for every £100 invested in a scheme, the tax man will contribute £22, so you only part with £78. Higher rate taxpayers would only need to contribute £60 for £100-worth of investment.

If your estate is worth £278,000 or more, it would come into the inheritance tax bracket of 40%. It may well be that your home alone is approaching that figure. To lessen the tax burden on your heirs, it may be worth considering gifting money; you can give up to £3000 per year tax free.

You are allowed to earn up to £4,250 by renting out a room in your home. This is free of tax, but apparently you should declare the fact that you are taking advantage of this scheme. You can find details and help on www.hmrc.gov.uk

There is a Capital Gains allowance, which is currently £8,800. This is a yearly tax-free allowance. This is transferable between spouses to maximise assets.

Charity Begins at Home? Lastly, if you donate to charity, the use of a tax-efficient deed of covenant, payroll giving or Giftaid means that the taxman will give his support too!

By Richard Norfolk

In our present consumer driven society, problem debts give many people sleepless nights. Worrying day after day about whether you will be able to meet your commitments is no way to ensure a peaceful life. Lenders abound of course, offering loans at varying rates and in some cases making the problem more acute by charging interest at very high levels. Is there any way out of continually paying more but getting less because interest costs pile up and have to be repaid?

The answer is yes, in the form of credit unions. You have probably never heard of them but they are well worth investigating if you are in need of financial help. You are likely to be very pleasantly surprised.

Credit Unions, under the umbrella of ABCUL (Association of British Credit Unions), are best described as financial co-operatives, working on a non-profit basis on behalf of groups of members who have a common ‘bond’. This bond may be where they live or work, or membership of a church or trade union – something which ties them together as a recognisable group.

The members own and control the credit union, working within laws laid down to protect them all. They are responsible for the election of a board of volunteer directors who run the union for their benefit.

They will offer savings facilities which are very flexible, allowing members to save as much as they wish whenever they want to. This can be paid in via designated local places such as shops or even direct from wages. An annual dividend will be paid on the amount saved; this is usually around 2-3% but can be anything up to 8%. Child Trust Fund vouchers can also be used, through an arrangement with the Scottish Friendly Society.

Loans are made available to members at very reasonable rates, usually for up to 5 years unsecured or 10 years secured. The charge can be expected to be around 1% per month on the reducing balance of the loan, rather than on the total loan taken out. This gives an APR of 12.7%, which in much simpler terms means that for £1000 borrowed over 1 year, the total repayment would be £1067. You are unlikely to get a rate anywhere near this from the usual ‘high street’ lenders. Life insurance is provided free of charge to cover the outstanding loan if you reach your ‘best before date’ with payments still to be made!

The loan charges are such that you may well find that it would pay to borrow from the credit union to pay off an existing debt, and then repay the loan at the union’s much lower rate. Note also that there are no additional charges if you are able to pay off the loan early.

Another not so obvious advantage of the credit union is that the operation is totally local, so that the money is kept within the local community. This is better than if the funds are whisked away to a relatively anonymous ‘head office’ which is probably located in a city at the other end of the country.

Details of credit union operations and on how to start a credit union in your area, can be obtained on www.abcul.org, email at info@abcul.org or telephone 0161 832 3694.To reassure you about the status of this organisation, many facts are provided at this website which serve to show its international coverage.

A listing of existing credit unions is given and you may be disappointed to find that there is not one in your area, but don’t despair – there are answers. In the first place you should check if the union nearest to you is not fully subscribed and that you do qualify under the ‘common bond’ requirement. Also, you may well find that the ‘boundaries’ of
common bonds are being extended to cover larger numbers: an expansion could be in line for your area, or you may be able to convince an existing union to do so.

Failing this, why not consider starting your own credit union. You can make a start by going to the ABCUL website and that of the Financial Services Authority at www.fsa.gov.uk and noting the requirements for starting a new Credit Union. These are quite detailed and cover a broad area but don’t panic. Plenty of people have been here before you, to start up their own.

Very briefly, to start your own credit union you need to know that to establish your union is likely to take 1 to 3 years and within the common bond you have decided upon, you initially need a minimum of 21 members. Then you will have to arrange and follow up your publicity drive to establish the demand in your area.

You would be wise to join ABCUL once you have enough backing to ensure that the project is going ahead. This will give you access to a large amount of very relevant information from ABCUL information services as well as a full manual providing guidance on how to progress. Also see the FSA website mentioned above to find out what you need for FSA approval before you can proceed further.

Members will have to choose the directors, who will require training to enable them to run the union. They will need to investigate sponsorship and obtain promises from local organisations to provide funds to cover the early years of the operation. These costs can be as high as £70,000 in the first 3 years. This could be a daunting sum, but ABCUL make the point that one of their objectives is the education of their members in the wise use of money – surely a very worthy aim. Membership in the UK (where the association started in 1979) is given as 600,000; worldwide there are said to be 40,258 credit unions in 79 countries with 118 million members in total. In Ireland (founded 1958) the coverage is given as 50% of the population and in the USA and Australia as 25%.

You can certainly proceed with confidence in the organisation!

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By Bridget Carter

So you’re serious about buying a home and you think you have enough money together to take the plunge into the property market?
One of the things you are undoubtedly going to need is a mortgage. It might be that you go straight to your bank and make an inquiry about how to obtain one.

But what you need to remember when it comes to borrowing money is that there are many different money lenders to choose from and many different types of mortgages you can obtain.

This is why you really need to shop around to make sure that you are getting yourself the best deal. On offer is such a wide variety of loans, including special mortgages for graduates and mortgages for professionals. There are guarantor mortgages, joint mortgages with your parents and the list goes on.

It is even more important than ever to make sure you are paying out the least amount of interest as possible on your loan. That is because the costs connected to making your first home purchase have rocketed by 94% in six years. They are increases have had a large impact on those trying to get their foot on the property ladder.

Consider these numbers. In the year 2000 people only needed an average of £4,698 to pay for things like stamp duty, mortgage fees and solicitors’ bills. But in 2006, the costs almost doubled to become £9113. So when it comes to raising a deposit on your home you can see how much more difficult it has become.

And for this reason, some wanting to purchase their first property might not even have enough money to pay for the deposit on their house.
There are some money leaders out there willing to loan money for people to pay for their deposit.

Your money lender may offer you a mortgage package that includes the deposit as part of the overall package, but be careful of this.
A major disadvantage is that if there’s a crash in the property market you could wind up owing more than you borrowed, often known as negative equity.

Also be wary about over committing to a mortgage. If you cannot keep up your mortgage repayments you may wind up in court trying to fight to keep your house so that the banks or the money lenders do not take it from under your feet.
This may happen if you have a credit history is not that positive in the first place because money lenders will make you pay more on your interest rates than others if, in fact, they loan you money at all.

If you are in the fortunate position where you have the money to put down a large deposit, it might be worth baring in mind that the more money you put down on a house as a deposit, the less interest you may pay on your mortgage.
Usually people pay up to 10% of the total cost of the property as a deposit. For example, if you were to purchase a £100,000 house, you would pay £10,000 up front.

When you go to your bank or money lender, they will consider things like your disposable income and existing loans before deciding whether or not to give you a mortgage.

Whatever your decision, make sure you shop around and take the right advice. Factor in fees for your mortgage interest rates because while a company may quote ‘typical rates’ for a mortgage, the exact rate that you pay will depend on your personal circumstances.

There may be many routes available for you. More and more lenders are launching mortgages specifically designed to help out first-time buyers. The possibilities are almost unlimited.

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Author: Bridget Carter

So you think it is impossible to get enough money together to convince the banks to offer you a mortgage on your first home? You are still renting and have given up getting your first foot on the property ladder?

It can be soul destroying for those trying to acquire their own piece of property, especially for those trying to go it alone with respect to buying a house. You can see how easy it can be for people to just give up.

Well, it actually does not need to be as difficult to buy a house as the headlines and statistics suggest. Ask yourself this question. Have I really, I mean really tried hard to save the money for the deposit on my first home?

Building up money reserves does not have to mean skipping a holiday or trying to go without any rewards. What it does require is making small daily changes to your everyday life then routinely putting an amount of money aside week after week.

You need to change your lifestyle – buying coffee for example can cost £15 a week and £720 a year. So do you really need it? And what about lunch? Do you buy your sandwiches each day or do you make your lunch? Health benefits aside, bringing your own lunch to work each day stops you spending more money or something that turns out to be of a higher cost than you thought. If you do the calculations in your head, by the time you have spent £2 on a coffee, perhaps up to £3 on a sandwich and a further £2 on snacks, you can see how easy it could be easy to spend £70 a week on daily food and more than £3000 a year.

Why don’t you get a credit card with zero interest? If you are in debt, you would end up spending the money on reducing the balance rather than paying the interest. Likewise, shop around for the best deal on a savings account. There are high interest saving accounts or you could try a tax-free Investment Savings Account. Cancel extra memberships and subscriptions that you just do not need.

Of course people become despondent with the house market with headlines like ‘House Prices Continue to Rise’ and ‘First Time Buyers Continue To Struggle’.

After all, ten years ago people only need to get together £4000 for a deposit on a house. These days you pay closer to £12,000, so naturally, the age of your average house buyer is now early to mid thirties.

But if you can work out how much you can commit to with respect to your mortgage you are half way there. You can then establish the amount of the deposit and the monthly payments. This can be done by simply having a look on the internet. Once you have a goal to work towards, the saving part is easy. It’s all about making small changes and getting into a saving routine – and sticking to it!

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Author: Dot Piper

The buy-to-let market is buoyant, with buy-to-let mortgages up by over 475% in five years. As falls in share prices dent the confidence in the stock market, many buyers have moved to this more “hands on” type of investment, and most are very happy to have done so. Typically you may get a couple who already have a property each deciding to move in together, and they may decide to rent out one or both of their properties to fund their new start.

Failure to “cross the t’s and dot the I’s” at this stage can lead to problems later and as a new television series, entitled, rather worryingly, “Tenants from Hell” shows us, it may not all be plain sailing in your new life as a landlord.

Tales of cannabis farms being set up in a London property, expensive homes being wrecked by a revenge-seeking unhappy tenant or finding you’ve let a home, lovingly refurbished maybe, to a convicted criminal are featured in the programme.

There are steps that you can take to lessen the risk of nightmare tenants. Two of the most important things are to ensure the tenant signs a contract and pays at least a month’s deposit before being given the key. Also, always obtain and follow up, references, including that of their employer. It’s also a good idea to check with the employer just how long the tenant has been employed. References from previous landlords are invaluable, try to speak to them personally if possible. It is also possible to use a credit referencing service, at a cost of around £25.

It may be possible to secure a guarantor for the tenant, which would be an excellent move. No matter how pleasant and easy to get on with the prospective tenant appears to be, it’s easier at this stage to ask for a copy of their passport and make a note of their national insurance number. If it comes to tracing them later, you’ll be glad you took this step.

If you do, unfortunately, find yourself lumbered with a bad tenant, despite all the precautions, the courts are busy and understaffed and you may find yourself waiting five months to obtain a repossession order, which is frustrating and costly.

We heard of a case recently where someone rented out a terraced house with a value of just under £120.000 to a single woman on housing benefit. The first month’s rent and a further month’s deposit were paid, but no more money was received. By the time the tenant was evicted, the house was in a total mess and in addition to the almost £5,000 rent owed, there was £2,000 needed to redecorate and rubbish removal costs.

To avoid getting into this situation it might be as well to consider employing an agent. They will thoroughly vet any prospective tenants and are experienced in spotting potential problems and acting quickly to minimise the consequences. They are there to protect your interests.

An agent who is registered with the Association of Residential Lettings Agents, otherwise known as ARLA, or the National Association of Estate Agents (NAEA) is a good choice. Both stick to good codes of practice.

So, take care when choosing your tenants. Buy-to-let continues to be a sound investment if you can avoid the, fortunately rare, tenants-from-hell.

For details and quotes on buy-to-let mortgages, search the internet for a broker. You’ll then be offered details of what’s on offer, but remember to follow all the rules for a good relationship with your tenant.

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Author: Dot Piper

There’s a new critical illness policy on the market which attempts to go some way with regard to sorting out the perplexity regarding exactly what is, and is not, covered when it comes to claiming on the policy.

Traditional critical illness policies tend to cover up to 35 listed medical conditions. Policyholders could become seriously ill with a condition that doesn’t fall into the scope of the policy and find that their illness is not covered, whilst others may be diagnosed with a listed illness with a lower “grading” which is relatively easily treated, for which they get a full payout.
Because of this inequality, the Financial Services Authority is uneasy with regard to insurers failing to fully understand that cover is restricted to certain specific illnesses.

This new product is marketed by the Prudential, under the name of the Flexible Protection Plan, and is unusual in that it claims to cover an amazing 140 medical conditions. However, cover is based on the severity of the condition which could possibly cause some uncertainty regarding the grading of these illnesses.

This is how the plan works:

Listed in the policy are practically all serious illnesses and the payout when one these is diagnosed will be graded according to the severity of the condition. The Prudential says that by tying payments to the degree of seriousness of the illness means that more payments can be offered to people with debilitating illnesses, who may otherwise get nothing at all. An example of this is that should you lose the sight of one eye; the Prudential policy will pay 25% of the sum assured. Normally, critical illness policies would only pay out when total blindness occurs. In all, 140 severe conditions are covered.

A spokesman for one of the specialist financial advisers welcomed the range of the policy, but voiced some concern regarding the implementation of these severity-based payments, saying that it would be open to argument as to what level of severity some illnesses would be graded as. It was felt that it would not be advisable to enter into this type of policy unless you had a very clear understanding of exactly how it would work. We quote “It will be up to the consumer to decide whether a guarantee of getting a smaller payment is better than possibly getting nothing.”

The cost of this new policy is approximately twice as much as conventional critical illness cover.

If your main concern regarding insurance cover should you become critically ill would be the financial outcome, it might be better to consider life insurance. Particularly, if you have a family to support, you may need something that is going to guarantee their lifestyle in the worst case scenario and with the addition of some income protection cover, which would meet outgoings in the event of you becoming unable to work due to illness. This type of cover, unlike the critical illness policy, protects you against common conditions, which result in you being unable to carry out your work.

The best course of action would be to contact a broker and check out the alternatives. The internet’s a good place to start and there are some good internet discount’s available, along with plenty of advice. A good broker will be able to compare the products available and come up with the right insurance product for you.

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Author: Dot Piper

There’s a new critical illness policy on the market which attempts to go some way with regard to sorting out the perplexity regarding exactly what is, and is not, covered when it comes to claiming on the policy.

Traditional critical illness policies tend to cover up to 35 listed medical conditions. Policyholders could become seriously ill with a condition that doesn’t fall into the scope of the policy and find that their illness is not covered, whilst others may be diagnosed with a listed illness with a lower “grading” which is relatively easily treated, for which they get a full payout.
Because of this inequality, the Financial Services Authority is uneasy with regard to insurers failing to fully understand that cover is restricted to certain specific illnesses.

This new product is marketed by the Prudential, under the name of the Flexible Protection Plan, and is unusual in that it claims to cover an amazing 140 medical conditions. However, cover is based on the severity of the condition which could possibly cause some uncertainty regarding the grading of these illnesses.

This is how the plan works:

Listed in the policy are practically all serious illnesses and the payout when one these is diagnosed will be graded according to the severity of the condition. The Prudential says that by tying payments to the degree of seriousness of the illness means that more payments can be offered to people with debilitating illnesses, who may otherwise get nothing at all. An example of this is that should you lose the sight of one eye; the Prudential policy will pay 25% of the sum assured. Normally, critical illness policies would only pay out when total blindness occurs. In all, 140 severe conditions are covered.

A spokesman for one of the specialist financial advisers welcomed the range of the policy, but voiced some concern regarding the implementation of these severity-based payments, saying that it would be open to argument as to what level of severity some illnesses would be graded as. It was felt that it would not be advisable to enter into this type of policy unless you had a very clear understanding of exactly how it would work. We quote “It will be up to the consumer to decide whether a guarantee of getting a smaller payment is better than possibly getting nothing.”

The cost of this new policy is approximately twice as much as conventional critical illness cover.

If your main concern regarding insurance cover should you become critically ill would be the financial outcome, it might be better to consider life insurance. Particularly, if you have a family to support, you may need something that is going to guarantee their lifestyle in the worst case scenario and with the addition of some income protection cover, which would meet outgoings in the event of you becoming unable to work due to illness. This type of cover, unlike the critical illness policy, protects you against common conditions, which result in you being unable to carry out your work.

The best course of action would be to contact a broker and check out the alternatives. The internet’s a good place to start and there are some good internet discount’s available, along with plenty of advice. A good broker will be able to compare the products available and come up with the right insurance product for you.

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Blogg entry for Wed 9th Aug

By Melinda Varley

Over 200,000 homebuyers in London during 2005 took out an interest-only loan according to the Council of Mortgage Lenders (CML). None of whom had a repayment vehicle in place and of these, 60,900 were first-time buyers.

There are no figures available for the total number of homebuyers with interest-only loans. However, figures for new interest-only house purchase loans have been running at between 10 and 20 per cent for all new first-time buyers over the past 10 years, and roughly the same for other homebuyers.

With more than half of all mortgages now arranged through an intermediary, mortgage brokers could be in the firing line for claims of mis-selling if the homebuyer’s loan reaches maturity and there is not enough cash to pay off the loan.

The CML is keeping close tabs on the situation and has set up a shortfalls working group to look into ways of encouraging consumers to act now to address any shortfall on interest-only mortgages.

“We are suggesting that when a mortgage comes up for review, for example, when it reaches the end of a concessionary rate, then it would be prudent to check on how the borrower intends to repay the loan,” said a spokesperson for the CML.

Using an interest-only mortgage will keep your monthly payments down until you can afford the higher monthly payments of a repayment mortgage.

But because you’re not paying anything off the amount you owe, you will probably end up paying more interest in the long run.

Interest only mortgages are a high-risk strategy that could come back to haunt advisers that set up the arrangement. An increase in interest rates could also hit these clients hard as they would have no fall-back option of reverting to an interest-only mortgage.

Simply enough, to combat the issue clients must be told that if they can not afford to pay for a mortgage, don’t take one out.

Here’s what you need to know. With an interest-only mortgage your monthly payments only cover the interest on the loan and do not actually pay off the loan itself.

If you take this option you will need to make separate arrangements to pay off the loan when the mortgage ends. You can make your arrangements through your lender – but it isn’t compulsory.

If you don’t arrange the funds at the end of the mortgage you may very well lose your home. Essentially, the money you pay to the interest only mortgage goes no where – you may as well rent.

You will have a substantial amount of time (depending on the actual agreement) to save regularly in order to make payments into a savings or investment scheme in order to build up a lump sum to pay off the mortgage when the time comes.

However, the returns offered by banking or building society accounts are usually too low to be used to pay off the amount borrowed.

Instead, it is common to accept some risk in the hope of a higher return by choosing schemes where returns are linked to the stock market. Although the risk is with these stock market linked schemes, there is no guarantee that your money will grow enough to pay off the mortgage in full by the end of the mortgage term.

Another option is to change to a repayment mortgage later. This might be a suitable option if your earnings are low now but are expected to be much higher in future.

Using a lump sum from somewhere else such as an inheritance or selling something such as another property or a business is another option and is also a risky one. You need to be sure that the inheritance will materialize and think about what would happen if your business was to fail.

Selling the property to pay off the loan is probably your last option. This is suitable only if you won’t need to live in the property such as if it is a buy-to-let property or a second home, or you are buying something cheaper.

Whatever plans you make to repay your mortgage, remember to review them from time to time to make sure that they are still on track. In the first place, interest only loans should be a last resort and should always only borrow what you are guaranteed to be able to pay back.

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Author: Bridget Carter

This year the Financial Services Authority revealed the extreme lengths some mortgage brokers will go to in an effort to secure a loan in the sub prime mortgage market. Sub prime customers range from those who have been declared bankrupt right down to those who might have missed just one credit card payment. But because the customers are considered risky, money lending companies use this to justify charging them higher-than-normal interest rates. As part of a probe into the sub prime money lending business this year, the FSA found three cases where brokers lied about an applicant’s income to secure the deal on the loan. As an outcome of this discovery, the firms involved have been referred to enforcement agencies for further investigation. And the FSA is not leaving it alone there. It plans to do more digging to see what else it can find going on in the highly lucrative business.

The three cases involving the mortgage brokers is a classic example of the desire within this part of the money lending industry to sign up sub prime customers into an agreement for more debt. These days, the sub prime market is worth £30bn a year. The money is too big to resist for both large finance institutions and smaller companies, which is why a growing number of big players in the finance industry want a slice of it.

The new players area banks like Deutsche, West LB and Investec. Lehman, GMAC and Merill Lynch have been lending to sub prime customers for some time.

It is estimated that the amount of UK sub prime residential mortgage backed securities issued rocketed from £5.9bn in 2003 to £12.1bn in 2005. It is expected that the number will continue to rise.

So what exactly is the FSA doing about it?

A spokesperson says it is taking a closer look at the advisers working on the scene to make sure they are collecting the right information to decide whether someone is adequately capable of taking on the burden of a mortgage.

“We want to assess whether mortgage advisers are taking reasonable steps to ensure that personal recommendations to enter into sub prime mortgage products are appropriate to the needs and circumstances of consumers. We also want to ensure that mortgage advisers are gathering all information likely to be relevant for the purpose of establishing the suitability of these products.”

In a recent investigation, the FSA examined 31 small mortgage firms and 210 customers who had borrowed with these firms.

It found that six in ten companies had not collected the information they should have to determine whether the applicant could pay back the loan and a further six in ten signed up customers who already had existing debts. Almost seven in ten were unable to prove they had considered an applicant’s previous situation when it came to their debts. Most companies could not justify how the mortgage met the applicant’s needs.

So don’t think that the authority is done with the matter. Another investigation is underway this summer. And there are bound to be more.

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