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What is a Flexible Mortgage?
29 August, 2008

A recent survey has shown that more than one in ten mortgage holders (12%) plan to make overpayments on their mortgage over the next six months.

This survey shows that for most people their top financial priority still paying off their mortgage despite the tough economic conditions. There are still a samll amount of people who are planning on taking payment holidays (3%) and even fewer (1%) plan on underpaying on their Mortgage.

The survey also found that approximatley 1 in 10 people will looking to change their Mortgage within the next six months as they come off short term (2 years) fixed rates. This survey shows that a large percentage of people are interested in Flexible Mortgages.

So what is a flexible Mortgage?

Most lenders do not want the general public what a true flexible Mortgage is,as if used properly a flexible Mortgage can save years off your mortgage and save £1000’s in Interest payments.
You do not have to pay very much extra each month to make a huge difference in the overall amount you pay.

What you should be looking for from a Lender are the following criteria:

1) Does the lender allow overpayments? - usually there is no minimum but there is a maximum and the rule of thumb is you can overpay by 10% of the outstanding balance per year. Most people set up a standing order to overpay say £50 or £100 per month. You are in control as you can start and stop this overpayment whenever you want so you are not committed to this.

2) Does the lender allow underpayments? This can be very useful if you need to reduce your outgoings for what ever reason during your Mortgage term. Now you will have had to have made overpayments to use this facility and you will have had to have had a good payment track record for 6 months.

3) Does the Mortgage have a drawdown facilty? This is very important. When you overpay this is obvioulsy reducing the balance of your mortgage and therefore reducing the Interest element of the monthly payments. This builds up a pot of money that, if there is a draw down facility, you have access to at any time. This drawdown can be used for any purpose you wish and is a fantastic way of funding larger purchases such as new cars etc rather than getting expensive car or bank loans and as it has been paying off your Mortgage you will still be in front if you take it back out.

4) Does the Lender allow payment holidays? This is where you don’t pay anything off your mortgage on a monthly basis. The agreed missed payments are added to the mortgage and will increase the balance and mybe slightly stretch out the term. This facility can be extremely useful for times when your finances may be stretched to breaking point such as having a child or loosing your job. There is generally a maximum time you can take payment holidays and they have to be agreed by the Lender. They will look at your account and if you are upto date with all payments there wont be a problem. If you have overpaid even better as you will not be increasing your balance or increasing your term depending on how much you have overpaid.

There are only a limited number of Lenders who offer these types of Mortgages and they dont advertise them that much.

My favourite lender for this type of Mortgage is Nationwide. I have put many clients onto Nationwide as there flexible Mortgage is a great way of managing your money, reducing the term of your Mortgage and greatly reducing the amount of Interest you will pay.
Check out their deals here.

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How is the Credit Crunch affecting us Brits? 

This is a light hearted post on how the credit crunch will affect us in good old Blighty. A friend of mine sent these across from Australia where she is laughing at us poor brits struggling with the credit crunch and our Lousy weather!!

Even if they are struggling financially like us in Aussie at least they can sit outside and lap up all that Sun!!

The New BT Economy Phone

 Chris Tarrants new Quiz show

 The Queen has had to take a second job.

 Jeremy Clarksons New Ferrari

 Still wouldn’t offer him a job!!

Virgin Rails new Economy class. No chance of getting to the Buffet car though.

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House moves delayed by Government delay.
29 August, 2008

The Governments failure to to confirm the future of stamp duty is having a massive effect on people moving. A massive 83% of home movers are delaying or

postponing their moving date as a result of the recent Governments announcement that it may review Stamp duty.
Move.com said it asked its database on 11th August, just one week after it was leaked that the Chancellor was considering a move to suspend stamp duty in an effort to boost the flagging housing market, if the News had:

1)  Made no differnce to their plans
2)  Pushed back their moving date
3)  Postponed their move indefinitley

They asked over 1,500 movers and the response were:
1) 17% said that it made no difference to them
2) 20% said it had pushed back their moving date
3) 63% said they were postponing their move.

The stats from their site show that moving dates have gone from 37 days to 64 days, showing that the Governments refusal to confirm or deny the suspension is having a major impact on an already badly affected market.

The director of Moveme.com,Charles Wasdell said:

"It is plain to see the devastating effect the Government is having on the housing market, as it keeps tight lipped about the possibility of a stamp duty holiday. The Chancellor must either press ahead with the legislation immediately or confirm that there will be no stamp duty holiday, so the people who are buying property move ahead with their purchase.”

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House prices continue to fall in August - should I fix a rate?
29 August, 2008

Acccording to the latest figures by the Nationwide the price of a typical house fell by a massive 1.9% in August. This equates to a 10.5% drop year on year, the building society said. The average home is now £19,000 cheaper at £164,654 compared with the same time last year.

The Nationwides cheif economist Fionnuala Earley said “The price of a typical house fell by 1.9% in August, bringing the annual fall into double digits for the first time since the fourth quarter of 1990. The price of a typical house fell by 10.5% over the last twelve months to £164,654. While the pace of monthly falls picked up during the month, the less volatile three month on three month measure, eased very slightly in August to 4.5% from 4.6% in July".

Reports form Estate agents are a little more encouraging and optimistic. The data suggests that there may some interest returning to the market. Agents are reporting an upswing in new buyers enquiries, maybe stimulated by recent falls in prices and the opportunities to negeotaite further price reductions.

However the increase in enquiries has not yet translated into sales which is not encouraging.

The level of borrowing is still clearly much lower year on year with some reports saying that mortgage lending is down by a massive 60% year on year.

Borrowers who are active are tending to go for longer term fixed rate deals instead of trackers even though the rates are slightly higher.

The inflation report for August was more dovish than Mays, even though inflation is at its highest level since 1992 and more than twice the Bank of England target. The Bank of Englands growth and infaltion forecasts have indicated that there may be room for rate cuts in the near future but this is by no means a foregone conclusion.

The market has reacted to this and as a consequence fixed rates have started to come down from their recent peaks. The expectation of a reduction in Bank of England rates may have little effect whilst the overall confidence in market conditions and particularly the housing market is still very low.

So what does this mean to you if you are looking for a Mortgage.
As rates and in particular longer term fixed rates start to come down it is worth while looking at fixing a rate for at least 5 years. As stated earlier you may pay a little more in relation to a tracker rate but my personal view is that fixing a longer term rate gives you peace of mind that you will not have any nasty shocks in the future.

Look at your affordabilty and lock in a good fixed rate, don’t worry about the possibilty of loosing out on a small reduction in rates as you are covering yourself for any possible increases in rates over the medium term.

Nationwide in my mind are one of the best lenders on the market. Their rates have always been and remain to be competative. Their fees are generally alot lower than other lenders and they conduct the process very well. Their lending policy is quite conseravtive and they tend to have lower LTVs than otehr lenders.

They don’t get involved in the sub prime market and like to lend to the better end of the market.

Have a look at their rates, you can apply online and they will give you a Decsision in Principle in a matter of minutes.They will tell you based on your affordability what they are prepared to lend you subject to the valuation of your property. They also offer FREE VALUATION and FREE LEGALS with low administration costs for fixed rates.

Take a look at their offerings here.  

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What can I leave in a Will?

for a Will to be valid in England and Wales it must do two things.

1) Nominate an Executor

2) Leave a gift of Property.

Now in terms of writing your Will Property means any asset you own such as a Bank Account, Insurance Policy, Investment or a House. It is important to note that you can only leave property in your Will that you actually own. This may sound stupid but lets take your House foir example. If you own the house as a Joint Tenant no matter what you write in your Will the gift will fail as the house would automatically pass to the surviving tenant on your death. To clarify this most people when they buy a house with their spouse or partner will own the property as Joint tenants. This means that you both own 100% of the equitable interest in the property and therefore automatically passes to the surviving Joint tenant on death. I will cover the different ways of owning property in another post.

There are three main types of legacies in a Will.

1. Specific items - these physical items. They may have an intrinsic value or just sentimental value. So you may want to leave your Fender Statercaster guitar to your friend who was in a band with you. Women generally leave their jewelery to their daughters. Now to stipulate the actual gift or you can make it generic gift. i.e. You wouldn’t leave your Vauxhall Vectra to your son or daughter as in 20 years time you most probably wouldn’t own a Vauxhall Vectra. But what you could do is leave "Any car I own at the time of my Death" this means that you wouldn’t have to change your Will every time you changed your car.
2. Monetary gifts - these gifts can be a specific value of money i.e. I leave £10,000 to my sister Joan Smith or it could be a Percentage of your estate. i.e. I leave 5% of my estate to each of my grandchildren alive at my death. Also things such as Bank accounts and insurance policies can be left to specific people but you must include the actual bank account details and the Policy numbers to stop any confusion as to which bank account or Policy you meant.
3. Class Gifts - these gifts are that are split between people or classes of people. So you might want to leave a specific sum of money to all your grandchildren. This would be worded something like " I Leave £20,000 divided equally between all my grandchildren alive at my death" or as in the monetary gifts section you could say "I leave 10% of my estate divided equally between all my grandchildren alive at my death"

The first thing that comes out of your estate is your Funeral expense and Testamentayr expenses (probate fees), then any spefic or monetary gifts and what is left is genarlly the bulk of the estate or whats know as the RESIDUE. The residue is then left either to specific people in specific shares or left to a class of people either in specific shares or divided equally. i.e. "I leave the residue of my estate to all my children alive at the time of my death in eqaul shares"

The first thing to do is to make an asset register ( I.e. everything you own) and then decide who you are going to leave it to. There is lots more information to read here

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What is Critical Illness

Critical illness insurance is an insurance based product that most people do not take out or are unaware of. Most people take out Life insurance at certain points in their Life. These are trigger point are usually buying a house or having children. They understand the need for this type of insurance as they want to protect their families should they die. Thats great but what happens if they get critically ill, recover and are unable to work again.

A classic example of this is having a heart attack. With improvements in medical science a vast majority of people who have have a heart attack now survive, which again is great news but can leave people and their families in a difficult position if they are then unable to work. This could mean that the major bread winners income has disappeared. The main issue is generally how do we now pay the Mortgage?

If they had Critical Illness Insurance, on diagnosis of a Critical Illness they would be paid out a lump sum. The policies are normally written on a reducing term basis in line with their outstanding Mortgage balance. So for example, if someone had a Mortgage of £100,000 over 25 years the policy would be written on a £100,000 pay out reducing over the 25 years term of the Mortgage as their Mortgage balance reduces.

I used to believe wrongly that Critical Illness was a waste of money. We had Life insurance, endowment policies and Income protection what else did we need? Then in Dec 2007 my wife was diagnosed with Breast Cancer. The initial shock was devastating, we have a 2 year old son so our outlook on life changed overnight. Fortunately my wife has recovered and she will be fine but she now has to go back to work as we need her income to pay the mortgage. Her income protection will not pay out as she is technically fit to work. If we had taken our Financial advisers advice years ago we would have had Critical Illness cover and my wife’s policy would have paid out and wiped out our £93,000 mortgage. This would have dramatically changed our life as my wife would not have had to go back to work as our monthly outgoings would have dropped to a level where one wage would have been comfortable for us.

So what did I do?Straight away I got full Critical Illness cover for myself for the full amount of our outstanding Mortgage its obviously too late for my wife due to the Breast cancer. Now as I am a lot older than when our Financial adviser recommended the policy it has cost me a lot more and I am also a smoker so again the monthly premiums are more. My Premiums are £97 per month ( this also includes Life cover) and this covers our £93,000 mortgage. Note I have been a smoker so my premiums are quite high but I think its worth it.

Points to note.

When looking for critical Illness insurance always take advice from a Professional. The forms can be daunting as they ask a lot of questions. Be honest with the answers you give, the Insurance company will always look at your medical history if you make a claim and they will always be looking for a reason to not pay you out. If you have had a medical condition not matter how long ago make sure you declare this on the forms. Also if you smoke or have smoked or used tobacco products in the last 5 years say you are a smoker, your premiums will increase but you will be covered. Taking advice will also make sure that the Policy you take out is the most competitive on the market and the company that you are using has a good record on paying claims. All the major Insurance companies have a Critical Illness product so it can be a minefield thats why I recommend you talk to an adviser.

It can always be too late to get Critical Illness Insurance but never too early
 

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How to choose an Executor 

When you are writing your Will one of the main things you need to consider is who will your Executors be. This is an important role with a lot of responsibility. Therefore who you should nominate as an executor needs some careful consideration. Remember the person or persons you nominate will be carrying out your wishes as you have directed in your Will but unfortuneatly you will not be around to check up on them.

In the previous post I explaned what their main roles and responsibilities are. In this post I am going to cover how you decide who your execuors should be.

You can nominate as many Executors as you want but only 4 can act. It is advisable to nominate at least 2 executors as two are required to sell land and houses. Most people nominate their spouse/partner and an other.

Firstly you should ask the people who you are going to nominate if they are actually willing to do the job. There is no point in nominating someone if when it comes to the time for them to act they refuse to do the job - they are not legally bound by your nomination. Below are the basic criteria you should be looking for.

1) Do you trust them? - this seems obvious but their role is to carry out your wishes as instructed in the Will. From a distribution point of view they are legally bound to do this properly as per the instructions. But for things like Funeral instructions they do not have to comply with your wishes.

2) How old are they? It is generally recommended that your nominated executors should be of a similar or younger age. This seems obvious but many people nominate their parents and years later when their parents have died they have not updated their Will and then there are no Executors nominated who are alive.

3) Where do they Live? It is unfair to nominate someone who lives abroad. Think about it. If they say live in Australia they may come back for the Funeral but would they want to stay around to sort out your estate, probably not.

4) Are they capabale of doing the job? As stated in the previous post there is quite a lot to do. although it is not rocket science if the nominated person cant fill in the forms or keep good records they will find it very difficult.

5) Willingness. We covered this in the information above.

6) Are they acceptable? Remember they will probably have to deal with the rest of the family, so do they get on with them. If not it will make the task more difficult.

For more information on writing your Will and appointing executors go here

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We have dealt with what happens if you die without making a Will, i.e. the Laws of Intestacy will be used to distribute the estate. For a Will to be valid by English Law it must

a) Be in Writing

b) Be signed and witnessed by two independent witnesses

c) Nominate at least one Executor

d) Make a distribution of some property that the testator owns (NB Property means anything that you own such as specific items, money , bank accounts etc. Not just houses)

One of the most important things that are covered in a Will is the nomination of Executors. Who you nominate depends on some very important factors. Firstly we will cover what an executors Responsibilities are.

In broad terms and Executors role is to take the Will through probate (the proving of the Will) and to distribute the assets to the beneficiaries of the Will as per the instructions in the Will. The executors have no say in who gets what unless there are specific directions stipulating that it is at the discretion of the Executors.

Responsibilities of An executor

(a)       Register the death of the client. Obtain copies of the death certificate – several may be required, one for the funeral directors and others for    each of the funds that may have to be released or transferred e.g. bank accounts, insurance policies, shares and other equities. Many organisations  will need to see the original death certificate before releasing funds. Copies obtained from the Registry of Births Deaths and Marriages are regarded as originals.

(b)       Arrange the funeral. The cost will usually be the first expense paid from the deceased’s estate. Make enquiries about the existence of a prepaid    funeral plan. If a Client purchases a funeral plan they should inform the Executors and advise them of the providers of the plan.

(c)       Arrange to open a personal representative’s bank account. This will be used to receive any monies due to the estate and any loan organised to pay    for Inheritance Tax and/or probate fees.

(d)       Inform all relevant persons or organisations.

(e)       Arrange for valuation of the estate.

(f)       Draw up a full schedule of debts that must be paid from the proceeds of the estate.

(g)       Complete the forms required by the Inland Revenue capital taxes office so that it can be established whether any Inheritance Tax is due. 

(h)       Pay any IHT due.  If the estate is liable for Inheritance Tax the Executors account of the estate is passed to the Inland Revenue.  The Grant of    Probate cannot be issued until the Tax is paid. The Executors usually have six months from the date of death to pay the tax.

(i)       Complete the Probate forms and send them to the Probate Office along with the original Will, the death certificate and the Inland Revenue account.

(j)       Apply for Grant of Probate via the nearest Probate Registry.  An appointment will be made for the personal representative to “swear the papers”    within about 5-6 weeks of receipt of the Probate forms at the Probate Office.

(k)       Collect in debts/other assets.  Once the tax is paid, Grant of Probate can then be applied for and copies of the Grant should be sent to anyone who    owes the estate money. The Executors now have a legal authority to pursue any debts owning to the Estate.

(l)       Distribute the estate.  When the Grant of Probate is received the estate can be distributed according to the terms of the Will. The Executors must        prepare and sign accounts showing how the estate has been distributed. They must be able to show that they have acted in accordance with the terms        of the Will in case there is any dissent from the family of the deceased.

(m)      Retain papers.  Once the estate has been finalised all papers, including the Grant of Probate and the accounts, must be stored safely for a period   of 12 years.

As you can see the duties of an Executor and quite onerous and should not be taken lightly. The responsibilty is firmly palced on the Executors shoulders to carry out the Testators wishes. Anyone who is nominated as an Executor can refuse to act - being nominated is not legally binding. But if they do start the process they then can’t decide half way through that they don’t want to continue. An executor can appoint another executor i.e. A solicitor if they feel they would be unable to complete the process.

In the next post I will cover who you should nominate as an executor.

you can read more here

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Why make a Will?

Amazingly over 70% of the people in England and Wales do not have a valid Will. So why should you make a Will? I get asked this question a lot. Most people wrongly assume that if they are married then everything will go to their spouse - wrong. When someone dies without a Will they die Intestate. This means that the state will write one for you and for most people the result is not what they would have wanted.

Statutory Wills are written by a strict code called the The Laws of Intestacy. These rules have not changed for 80 years and there is a strict hierarchy of who gets what. For a full breakdown of the process used see below.

Without a valid Will The Laws of Intestacy are just the start of the problems that the remaining family will encounter. If there is no will then the probate office will need to appoint administrators - normally family members and Letters of administration will be issued. This means that:-

a) The process takes a lot longer, this may deprive potential beneficiaries of their due Inheritance for longer and leave them in financial hardship

b) The process may be a lot more expensive especially if lawyers have to get involved.

c) The deceased estate may not go to who they wished it to go to.

d) Any gifts to people or charities outside immediate family members will not happen.

c) If there are children involved then you would  not be able to nominate Guardians of your choice - very important. 

The laws of intestacy.

1) Single person - no children

Their estate will pass to their parents if alive

If No parents then it will go to brothers and sisters in equal shares 

If No Brothers and Sisters then it will go to Half Brothers and sisters

If No half brothers or sisters then it goes to Grandparents

If No Grandparents then it goes to Aunts and Uncles

If no other relatives then it all goes to the Crown.

2) Single Person - With Children 

Thier estate will pass to their children in equal shares 

If there are No children estate will pass to their parents if alive

If No parents then it will go to brothers and sisters in equal shares 

If No Brothers and Sisters then it will go to Half Brothers and sisters

If No half brothers or sisters then it goes to Grandparents

If No Grandparents then it goes to Aunts and Uncles

If no other relatives then it all goes to the Crown.

3) Unmarried Partners 

The partner is entitled to nothing - there is a miss conception about common law husbands and wives. They can apply to the court for a share of the estate but it is time consuming and costly.

They will be treated as single people with or without children and the same rules as above apply

4) Married couples or couples in a Civil partnership 

If the estate including the house is below £125,000 the spouse/partner will inherit everything

If the estate is above £125,000 and their are children then the spouse gets the first £125,000 and a lifetime interest (i.e. any income it would produce) in half the remainder. the rest would go straight to the children

If the estate is above £125,000 and their are no children then the spouse/partner is entitled to the first £200,000 of the estate. The rest would go along similar lines as above. i.e. To the parents, if no parents then to brothers and sisters etc.

If their are no other living relatives then the spouse/partner would inherit everything.

As you can see the Laws of Intestacy could cause all sorts of problems for remaining family and in some cases of unmarried couples the remaining partner could be left with absolutely nothing. 

There is no valid reason for not writing a Will. Its is relatively simple and painless and generally quite cheap.

There are plenty of online services that you can use. We have found that Tenminute Will is by far the best in terms of ease of use, cost and the quality of the documents produced. 

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Loans: Bridging Lonas -The Basics

So You’ve found your new ideal home, and you’ve had your offer accepted.  But youve got a big problem - you havnt got a buyer for your house yet andou are at risk of loosing the one youve put an offer on.

A bridging loan may be the only way to save the situation.

Bridging Loans can be expensive and should be considered to be a last resort. But if a bridging loan is the only way to save tghe stuation then the extra expense may be the only way to stop losing money already spent in the purchase process, as well as reducing stress and making sure you get your dream home. 

The bridging-loan market is small compared to the normal mortgage market, especially during a property boom when there is rarely a problem with selling a home quickly. But when there is a down turn in the market, more and more home owners are forced to consider bridging loans. 

Types of Bridging Loans 

There are two main types of bridging loan

1) The ‘closed’ bridge Loan.

A ‘closed’ bridging Loan is for people who have already exchanged on the sale of their existing property. Few sales fall through after exchange, as exchange means that contrcats have been signed and it is very difficult for buyers to pull out once contrcats are signed. Therefore lenders are generally happy to offer closed-bridge loans.

2) The ‘open’ bridge.
An ‘open’ bridge is taken out by buyers who have found a property they wish to buy, but may not have sold their existing property. A lender will ask lots of questions and want supporting information. It will also insist on you having lots of equity in your existing property.

The basics of bridging finance loans.

The lender will want to see the mortgage offer relevant to the property you want to purchase and all the property details. The lender will also want some proof that your current property is being actively marketed i.e. estate agency details etc. The Lender will also want to know how you will meet the interest payments (affordability) and ask what your exit strategy will be if things go wrong and the sale were to fall through. 

The genral rule of thumb is that bridging loans will run for a 12-month limit on an open bridge. After that, they will probably renegotiate as long as you have paid the interest during the period and the property market hasn’t collapsed.

Interest rates

All bridging Loans have higher interest rates than normal mortgages. Generally it is the Bank of England bank base rate plus 2% to 2.5%. There may also be an arrangement fee which would be added to the loan ranging from 0.5% to 1.5% of the value of the loan.

Different lenders charge higher rates of interest and lower arrangement fees and visa versa. There are also specialist lenders that are faster at issuing the cash, but borrowers can expect to pay a high price for the privilege. 

1)  If you are confident that the sale of your existing property will be sold quickly, then perhaps it would be better to get a loan with a lower arrangement fee.

2) If you think you may need bridging finance for quite a few months, then the fee becomes a smaller part of the overall cost.

Work some figures out assuming a fast sale i.e. less than 3 months and also some figures on a longer time scale i.e. 6-12 months and see what the overall cost would be for the sum you need. Personally I would always plan for the longest time so you know you can always afford the bridging finance.

The alternative

If you are uncomfortable with bridging finance, you may consider letting your old property instead.

This is how it works: you remortgage your existing property. Use the equity released to pay the deposit for the new property. Then convert the mortgage on the old property to a buy-to-let mortgage (your lender must be informed that you are going to rent the proprty). Just make sure that the rental income would cover the motgage payments.

Just be careful though. You are not guaranteed that the property will always be let. In your calculations allow for at least 2 months per year with no rental income. If the figures still stack up great, if not tread very carefully as when the property is empty and you are not recieving any rental income you will still have the Mortgage payments on two properties to find. Make sure you research the local rental market before taking the plunge.

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