Ask The Experts - Thisismoney / Mail Online

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Thisismoney/ Mail Online are after suggestions for ‘Ask The Expert' articles like this one and this one (both written by their journalists with responses from various external experts - people like you). The format of these Ask The Expert articles starts with a question, a bit more detail/context and then a response from you about what the person asking the question should do.

Ideally, it will be a topical question that you're getting asked quite regularly now by clients as that means it's more timely and likely to resonate with their readers, hence one of the articles above asking: How do I protect the £500k proceeds from inflation without locking it away?  

Use the format:

  • Q: The question a reader is asking
  • Sketch A. The outline, or sketch, of your response (bullets if need be but enough depth so we can see the angles)

15 responses from the Newspage community

Q. I've recently been asked by an estate agent to use their in-house broker and/or their solicitors but don't know what to do. Sketch A. Pop a note through the door of the property you're wanting to buy and explain that you're trying to make an offer, you really want to buy it but don't want to be bullied into using a service that you don't want or need and let nature take its course Tell your broker they're asking for you to be qualified and your broker will be able to call up and answer any questions they may have about your financial soundness. If you have already got your finances in order, or have already got an AIP, you can simply reject their insistence. If that fails you can refer to the TPO code of conduct particularly sections 9a & d sections 10a & b along with section 18a and your broker will help you do that. Q. Why don't mortgage lenders take into account all the years I've been paying rent? Sketch A. Explain affordability why it's there, what would happen if it wasn't there, how to increase your borrowing power if you need to, schemes that can help boost deposit, also talk about using loan as deposit as main barrier is often saving deposit not income. Q. Do I really need to think about life insurance when I'm young? Sketch A. Yes - give reasons why, different types of products, what they each do and why they may be relevant, cost vs benefit, additional benefits you may not be aware of, budget, which provider, should I do it myself, etc?
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Q. What does "Lifestyling" mean in relation to my pension? Sketch A. Lifestyling is when the funds invested automatically reduce their risk before retirement. In my view, it makes a number of dangerous assumptions about the investor, most of which will probably be incorrect. However, I can see this as a huge ticking regulatory time-bomb similar to PPI. Q. There's going to be WW3 - should I sell everything? Sketch A. Falling markets are scary and it's never nice to see the value go down. Volatility though is the "price" markets extract from investors for higher returns in the long-term. Having finances structured properly before the sell-off is the key to getting through unscathed. Q. Should I pay a financial planner/adviser to help me? Sketch A. What is your main reason for wanting to do this? Do you have confidence you have all the correct answers yourself? Shop around. Many advisers specialise in different types of clients, so find one who suits you. Ask for evidence of value created for clients. Like anything, paying an adviser needs to make economic sense and create more value for you than you pay out.
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Q - Should I help my kids with their debts/get onto the property ladder? Sketch A. A lot of people with some wealth are very keen on helping their children by making cash gifts to them. And, if you've got enough for your own needs, it's generally a good idea to do so. Helping your children now means that you see the benefit of generosity in your lifetime. The children can be put on a much better financial footing with less debt. And there can be inheritance tax savings as the gift might be exempt from inheritance or at least on the 'seven-year clock'. However, we often see parents being too generous with their children when they can't really afford it. It's not necessarily that the parents don't have the money available to make the gifts. It's that they haven't really considered the impact it will have on their own financial position. If you don't have enough for your own retirement then making large gifts to your children may mean you have to delay your retirement. People don't always think of it in terms of having to work longer. I often warn clients that being too generous could see them being unable to afford their golf club fees, or even heat their homes with inflation and energy prices soaring, whilst their children are driving around in a brand new Range Rover.
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Q. Should I invest with active or passive funds? Sketch A. Depends on what you want to achieve and your attitude to costs, risk, investment potential and time frames. There is great potential out-performance from active managers but the data shows a lot of managers don't perform better than the market. Equally, passives have no support mechanisms to help in downward markets that an active manger could use, and it also means you own a bit of everything, which can also be sub-optimal as you own the good, the bad and the ugly. Ideally, you can operate in the same portfolio with a passive core approach and some active satellite holdings that can provide the performance uplift most investors want.
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Q. Should I invest in buy-to-let through a limited company, which I've read a lot about recently? Sketch A. We are getting asked more and more about the benefits of buying a buy-to-let property in a limited company by 'regular' (potential) landlords. Though it varies dependent on an individual's circumstances, there are some clear benefits over buying in your own name, e.g. - You can deduct the entire mortgage interest from your UK tax bill - Ltd company landlords will pay corporation tax, rather than income tax, on rental profits - There are ways to efficiently take income from your investment (e.g. repaying a directors loan, dividends, making pension contributions etc) - Option of a share sale when selling the property (potential lower stamp duty and capital gains) Ultimately it will depend on individual circumstances such as other income and future plans. A good qualified accountant can calculate the different tax scenarios and advise accordingly.
Q. With the property market being so busy, what can I do to put myself ahead of the competition Sketch A. Preparation is key, so make sure you have visited a broker and you have your Mortgage in Principle ready, along with certified ID and proof of your deposit, showing the seller that you are ready and serious to buy. Q. How much deposit do I need to purchase a house? Sketch A. It very much depends on the property, what you can afford and your personal circumstances; someone with good credit could be looking at as little as 5%, someone with very poor credit could be looking at 25%+. Q. Is life insurance just a con? Sketch A. No, certianly not. You need to get around the thought that it's for you, as it's not. It's for those who you leave behind, i.e. spouse, partner, family, children, and how would they cope if you were no longer around. Most providers now pay out 98%+ of all claims.
Q: The pandemic really made us look at our lifestyle and we are now seriously thinking of moving out of London to live near the coast or in the countryside. My partner and I are convinced we can continue in our jobs with hybrid working, so that is not an issue. We keep hearing this is happening more and more but what are the advantages and pitfalls of making such a move? Sketch A: We are certainly seeing a lot of enquiries from people selling a property in London and wanting to buy down here in the South West. Travel connections are vital for you with hybrid working so locations close to the rail network or motorway junctions are already starting to rise in price as a result of the exodus from London. The advantages are many but if you enjoy the vibe of London coffee shops, entertainment venues and social life I would advise not going too extreme and remote. Finding somewhere close to cosmopolitan cities such as Bristol can mean you can have the best of both worlds and be enjoying a craft beer and stand-up comedy in the evening and keeping chickens in your country home during the day. The difference in property prices means it is possible to get a lot more for your money if you sell in London. In short, go country but not too country. Q: We have just started house-hunting for the first time and are not sure in what order to do things? What would you advise us to do? Sketch A: Before contacting anybody sit down and decide exactly what type of property you are looking for. It will save you a great deal of time when you do start hunting. Decide on your perfect home, but realise that you almost certainly will have to make some compromises. The first place to start house-hunting is online through the portals. You will quickly get a sense of what prices are like for the home you are looking for and it will help you identify your real needs. Then register with the local estate agent in the area you want to live. Often we know of properties that are coming up and if you are on the books you will be the first to know. Many properties are sold before they get on the internet. Don’t make false deadlines for yourself. It always takes longer than you think and it is better to end up in the perfect property than to compromise because you want to move too quickly.
Q: With interest rates rising, should I be looking to fix my mortgage rate, and if so, for how long? Sketch A. Fixing your mortgage rate is probably a good idea right now. With interest rates likely to rise even further over the coming months, and possibly years, locking into a low rate now could save you hundreds, potentially thousands of pounds. How long you fix for depends on: - how long you are likely to live in your home - what you think is going to happen to interest rates in the medium term - Early repayment charges apply to fixed rate mortgages, which means you'll incur hefty fees if you sell during the fixed rate period. These can often amount to thousands of pounds, particularly in the early years. - If you've no plans to move any time soon, a 5-, 7- or even 10-year fix could be worth considering.
Q: Could I save tax on my life insurance premiums by putting it through the business? A: Potentially yes, and the savings can be significant! Every year come tax time we seem to have a load of company directors all scrambling around to keep their income under the £50K threshold before they get hammered on any income that they draw. Yet there is some real low hanging fruit to insure themselves well should the worst happen in a cost effective way as well as reduce their personal and corporation tax liability. The problem is that most people have never heard of it and even many protection advisors aren't qualified to talk about it. It's called 'relevant life' insurance and in essence rather than pay for your own life insurance personally, your business can provide a death in service benefit for you as long as you are an employee. You don't have to draw the income to pay the premiums, saving personal tax as well as keeping your income below your tax bracket AND the premium can be claimed as a business cost, saving the corporation tax liability. For example, to fund a £100 life insurance premium, an employed person, paying 40% tax and 12% N.I. would need to earn £208.33 in income to have their £100 after tax to pay the premium. The net cost to the employer, so the amount of income your company has to earn to pay that? A whopping £192.04 per month just to pay £100. The alternative would be to put it through the business as a relevant life plan, claim your 19% corporation tax relief, leaving you with a net amount needed of £81 per month. The same premiums in both situations, but proper advice to write the policy on a relevant life basis saves £111.04 each month. A saving of 57.82% Why wouldn't you? So if you are a company director, who pays themselves a salary and pays for life insurance personally, you really need to talk to an advisor who can discuss relevant life insurance.
Q. What is bridging finance used for? Sketch A: Bridging is a form of short-term finance, secured against an asset, typically property. It is used for a variety of different reasons, including: - Buying a property at auction - Refurbishing a property - Preventing a ‘chain break’ - Business ventures - Paying a tax bill - Divorce settlements. It is an important tool for a property investor as Term Lenders (BTL Mortgage, Commercial Mortgage) will not lend on a property until it is considered habitable, so if you are buying a 'fixer-upper' you need to use bridging finance in the first instance to borrow your purchase and refurb costs, unless you have the cash to do it on your own. How much do you want to borrow? Most specialist property lenders will offer funding from £25k to £25m (and more when it comes to development finance). How much is the investment property worth? The value of the property will affect how much you can borrow and the rates you will be charged. Most bridging lenders will loan up to 75% of the value of a property, known as the ‘loan-to-value’ or LTV. The higher the LTV the higher the interest rate. Some lenders can offer a higher LTV, but it’s unusual unless it’s development finance. While typically based on the lower of the purchase price versus the open market value, some bridging lenders will loan against the gross development value (GDV), i.e., the value of the property after renovation. How long do you need to borrow for? Most bridging lenders will charge a minimum interest period of 3 months, although the loans themselves may last weeks only or typically up to 18 months. Normally, if you exit the loan early, as long as you have paid the minimum interest, you will be refunded any excess interest you may have paid. Some lenders do charge exit fees. What is your exit strategy to pay off the loan? There are only two options and the bridging lender will want to see that you have a clear exit strategy in mind: a) Sell the property b) Refinance onto a Term mortgage Bridging loans are expensive compared to a Mortgage. You can expect to pay between 0.4% to 1.5% interest per month, depending on a variety of factors including size of the loan, loan-to-value (LTV), duration, experience and credit rating of the borrower. There are lenders that can disburse the money very quickly, but these tend to be more expensive. There are three types of interest facilities, which are sometimes combined depending on the lender's and the borrower's circumstances. These are: Retained Interest The interest is deducted from the Gross Loan upfront. In this case, the borrower does not need to make monthly repayments, and the capital is repaid at term. Rolled Up Interest The interest is added onto the loan and paid at the end. There are no monthly payments, with both the capital and interest paid at term. Serviced Interest As with Term mortgages, serviced interest is paid off on a monthly basis, with the capital repaid at term. In addition to interest fees, there are also other facility costs that you need to be aware of, including: Arrangement Fee: Charged by the lender for providing the facility, typically around 2% of the value of the gross loan. Administration Fee: Charged by the lender to cover the paperwork and other disbursement costs. Legal Fees: You are expected to cover both your own and the lender’s legal fees. These are charged on the value of the property and expect to pay upwards of £1,200 + VAT. Valuation Fees: This is another fixed fee, paid to the Valuer chosen by the lender determined by property value, starting from £400 + VAT. If you prefer to get a valuation done privately, ahead of taking out a loan, check with your broker if a “re-type” is allowed, i.e. will the existing valuation be usable by the lender. Your broker may also charge fees. We charge nothing for time and advice up front. Once you select a lender and proceed to application it's £199 and then on formal offer post valuation it's 0.5% of the gross loan. With over 199 lenders we work with - with Finanze, it’s personal. Providing bespoke solutions for bridging, buy to let, development finance and commercial mortgages for private and corporate clients.
Q- I want to get on the property ladder. Is a Help to Buy equity Loan a good option? A- - Help to buy equity loans can enable a borrower to buy the property they want but potentially cannot raise a large enough deposit to do so. - Instead of relying on your income to repay the loan, the Equity Loan provider relys on the equity in your property. - this can be a great way for first time buyers to get on the property ladder. Downsides - Seems great for five years, but then the interest becomes payable. Try and come up with a plan to repay this loan before the five year interets free period is up. -limited lenders offer a help to buy equity loan remortgage, so you may be stuck with the same lender when you come to remortgage if you still have the equity loan in place. - When you come to remortgage, or sell, the equity loan will likely have increased by the value of your property. So the 20% equity loan you took out 5 plus years ago will now be based on 20% of your CURRENT property value. The property value may have increased, but so will the loan. It is vital that those considering this route understand this. - Limited to New build properties only. This may limit where and what property you can buy.
Dom, your ER question today inspired me! What are the top ten tips you would give to homeowners over the age of 55 considering taking equity out of their property? 1) Do plenty of initial research on Equity Release.. There are many articles, stories and case studies you could read so you know your Drawdown policy from your No negative equity guarantee. These phrases will be used by all the brokers you speak to so read the definitions first. The Equity Release Council site contains much, impartial information. 2) Write a list of pros and cons to taking out equity from your home. This may be a list of what you need the funds for, or a list of what effects taking money from home will have on your finances both now and in the future. 3) Research alternative ways to solving your particular financial issue This could be checking if you are entitled to any benefits or grants, if you could downsize your property instead, perhaps take in a lodger or borrow using another type of loan of mortgage. 4) Choose the firm you seek advice from carefully Only choose a Broker who can search for Equity Release, Retirement Only Interest Mortgages and Residential Mortgages. An Equity Release broker will only sell you one thing, which may not be right for you. 5) Use the Equity Release Council website or a site like unbiased.co.uk to find advice. Find five advisors you like the sound of, then check out their website. If you like what they write (or say) then narrow it down to three. Read their reviews and decide if you like what their previous clients have to say about their experience. Do not read company reviews, only individual advisor reviews. 6) When looking at Equity Release deals consider the Drawdown options. A drawdown mortgage will only charge interest on the initial amount you borrow until you draw down further funds, then interest is charged on the whole amount drawn down. Careful though as the drawdowns may not be charged at the same fixed interest rate as the initial amount borrowed. 7) Decide which type of Early Repayment Charge(ERC) suits your needs. All deals now allow you to pay back a minimum of 10% of the original loan amount each year. If you pay more than that there is likely to be an ERC. do you want yours to be fixed or variable. I usually advise clients that a Fixed rate gives more certainty. A variable ERC can mean a 25% penalty! 8) Check out the moving home clause in the Key Features document. These can vary from lender to lender so ensure that you can move home with low or no charges, and when can you? Is their a compassion clause that allows you to move after the death of your partner? 9) Will your chosen Broker negotiate their advice fee? If you do not ask, you do not get! A larger loan means the lender is likely to pay the broker a bigger Procuration Fee (commission) so ask if they will reduce their advice fee for you. 10) Take your time making a final decision. There is no rush to decide. If your broker is feeling pushy, they are the wrong broker for you. Ask for the Key Features Illustration (KFI) for the deal you like. Once you have this, if the lender increases their interest rate, they will reserve the rate for a couple of week s after. Ask your broker to let you know if this happens, then you have a fortnight to decide. All of these tips are based on our years of Equity Release experience. Being ethical in our advice, ensuring all our clients understand all options and guiding them through the Equity Release process is essential to all we do. We have more tips which cover the application to completion process and how you can ensure this goes as smoothly as possible, as well as the best way to ensure your Equity Release deal remains the best one for you until you die! These could be covered in a Part 2 if you are interested.
- Q. How long will the current stock market correction last? - Sketch A. It's difficult to tell. History tells us that corrections rarely last for longer than 6 months before a recovery begins to take place but there are examples of declines lasting years too. The answer is to stay true to what you believe and invest in. Corrections have never been permanent in the past and a full recovery is fully expected. The role of financial planning should also be employed as 'bigger picture' planning to ensure that sufficient liquidity and time horizon is present to avoid having to sell a devalued asset at an unfortunate time.
What is the most tax efficient way to gift money to my children and grandchildren? 1. First of all, before you think about your grandchildren make sure you are ok and have enough income and or capital to cover all your current and future expenses and lifestyle. Also that you have enough provision for care if you need it later in life . A financial planner can help create a plan for you with the use of financial forecasting models so that you are sure that you have enough, even taking inflation into account. You will then know how much you can afford to gift to the next generations while you are still alive. 2. Ensure you have a will in place - so you know who's receiving what upon your death. 3. It's then worth calculating your likely inheritance tax bill. If you have a liability due , then we can look at the ways to mitigate this by gifting. 3. Each of you can gift up to £3000 every year , and £3000 from the previous year if you have missed it. This is exempt from inheritance tax . Wedding gifts for your children and grandchildren up to a certain amount are also exempt. 4. If you have surplus income above your expenditure every month , you can use some or all of this surplus to make regular gifts to your children or grandchildren. This is also exempt from inheritance tax. You can help pay school fees in this way or put the money into a Junior ISA on their behalf. Make sure to record these gifts though, so they can be shown to HMRC when the time comes. 5. Other gifts are called Potentially exempt Transfers. If you make a gift then survive for seven years after you make the gift, there is no inheritance tax to pay. If you die in the first three years, the full tax is payable, from three to seven years the tax is reduced on a sliding scale. 6. You can also make lifetime gifts into trusts, which is a vehicle for managing assets and making payments to people that you choose. You can set up a trust to pay for your grandchildren's school or college education for example. You can gift up to £325,000 into a trust without having to pay any tax. Any amount above this will incur part of the tax now rather than upon your death. The seven year rule still applies but the tax will be reduced by any tax paid during your lifetime.