Financial University

Moving House

We all know buying a house is a stressful experience, and when you’re looking to buy your next house and sell your current one, it can be even more stressful. In this episode we’re going to help you to get through the process with less stress and a calm mind, while also minimising the costs involved. When my wife and I had our first house we were quite happy in it until we decided that we want to… sell it. Not sure why all of a sudden but I’m sure you’ll have those moments. Maybe you want to have more children and you think the house you live in is not suitable for this purpose. You also might need to move because you have a job offer in a different city, you’d like to downsize, or you just like to be closer to your family. But you’re unsure of the future challenges, you’re scared of the increasing interest rates, you don’t know how you can afford the new house. Is it possible despite your need or your good income? My first tip is coming from my own personal experience: 1. Make it attractive Make sure your current house looks attractive to the buyer as you’ll have to sell for the best price out there. We started selling our house because we didn’t like the interior mostly. However, when it came on the market we had lots of views but no offers, not even any silly ones which can cut you down quite badly. After a few months we had to withdraw it from the market and decided we’re staying there. Later on, we started renovating the house. I changed the kitchen with a ready made one from IKEA, I replaced the laminate flooring and the old boiler, removed all the old wardrobes and the outdated decorations etc., we painted the house with a nice neutral colour (white) and bought some new furniture. We totally loved it. However, one day still unsure of what to do I accidentally filled an online valuation form on an estate agent’s website. After that the agent called and came to give us an approximate price. He had the confidence that the house will sell and convinced us to try to sell it. Eventually it did sell at a higher price than we expected. If your house looks more presentable then the chances of someone buying it at a good price are much higher. 2. Build equity The more equity you have, the lower the interest rate the bank can offer you and you would be able to go for a house much closer to your house you want. This might mean that you would have to wait a few more years until your house appreciates in price so you can start the process. 3. Find a good estate agent. I came across them accidentally. Previously had one of the major estate agents who didn’t do a good job and we decided to try with a hybrid one: they market the house but you welcome the potential buyers to show them around. They were also local which ensured that they know the market well. Your agent should know how to make your house look as beautiful as it can starting from the pictures, description and presenting it to the potential buyers. If you’re not getting the viewings or the offers, talk to them and ask them to provide feedback from the buyers. Ours were sending us any feedback they received which was even better. 4. Don’t be desperate Don’t be desperate to sell unless you get the price you want. There will be many buyers who would like to undercut you and try their luck. Make sure you don’t lose your temper because of that and don’t pay attention to them. Continue to wait and be certain that nothing is impossible (unless your asking price is way too high!). 5. Set a maximum price Set yourself a cap for the maximum price of the new house, which you can really afford. If you go to your mortgage advisor or complete a decision in principle with some of the major banks then you’d have an idea how much more you can borrow based on the selling price of your house, the equity you have in it, and your income. Now you can start looking for your new house but make sure you don’t go for the highest price and instead try to go for a lower price if possible. This way you would be able to afford to spend some money to refresh the new house later on if needed. 6. Be patient Wait for a good offer to come on the market and don’t settle for just any house. New offers come to the market every day so don’t lose hope if you can’t find the one you like. The process of searching for a house on Right Move or Zoopla may take a long time. Discuss exactly what house you’d like, whether with your partner or your closest relatives/friends, and when you see a suitable one list all the advantages and disadvantages to take them into account in the big picture. 7. Have a strategy When you find the house you like, have a strategy as to the price you’d like to start with when you make an offer. Don’t be afraid to go for a lower price at first. You can always negotiate a higher price. Usually the buyer will go with your lower offer if they don’t have any good offers but they might decline as well. And although this might be discouraging it’s still part of the normal process. 8. Consider fees Have in mind the fees you need to pay this time round: estate agent’s fee (these are usually 1% of the house price or higher), stamp duty (find out the current stamp duty on gov.uk), and conveyancing charges for both the sold and the newly purchased property (get a few quotes to compare them). You would also benefit from a homebuyer survey as it’s a good to know if there any structural or other defects in the house. 9. Check the new house thoroughly Check the overall condition of the house including the boiler and find out if there’s any warranty left on it. Read carefully the fixture and fittings contents from the seller to know what appliances and other fixtures you’ll need to buy yourself. The EPC certificate is also important to know the efficiency of the house and have an idea whether you’ll need to make some home improvement to bring it to a higher rating. 10. Prepare for completion day The completion day can be very stressful. Prepare for it! After you’ve agreed to sell your house and your offer for the new house has been accepted you would be in a position to set the completion date. On the day you would need to move out of your house as soon as possible and move into your new house at the same time. Speak to your buyer to ask them to give you some time to move out once you have the keys to your new house. Pack everything in advance and ask the man with a van/the removal company to come early at a good time to allow you to start loading. You’ll have a very small window to move out and move into your house. Planning for the logistics is essential. 11. Don’t stress about the mess When you move into your new house everything will be in a mess. Don’t get upset or anxious as it’ll take some time to put everything into place. This is quite normal. You’ll have sufficient time to do it all. Relax and enjoy the fact that you’re in a new house. These are all my tips for buying a house for the second time. We’d like to hear whether they’ve been helpful to you. Please send us an email to finance@proclaimers.com.

Buying Your First House

Buying a house can be an exciting time especially if you’ve waited for a long time beforehand. However, the process of buying could be stressful depending on the various circumstances. What steps would you take? Where would you start? Are you scared that you can make a costly mistake? Don’t worry, we’ve decided to have this episode just for you and by the end of it I promise you won’t think it’s that bad. 1. Property type First consider the type of property you’re looking to buy, whether you’d like a flat or a house. Usually flats are sold as leasehold properties where you don’t own the land underneath but you only lease it e.g. for 99 years or in some cases much more. You would have to pay a regular service charge and you might have to renew the lease at some point. Houses on the other hand are normally sold as a freehold which means that you own the building as well as the land on which it has been built. But not all houses are freehold. That’s why you should please check with the vendor whether the house you’re interested is a freehold or leasehold property. If you’d like to buy a house, would you want it to be a terraced house, semi-detached, detached or a bungalow? You would need to decide on whether you’d like a newly built property (more expensive on average) or an older one. Usually the price is lower for a terraced house while bungalows are much more expensive. And this leads us to our second point… 2. How much? How much are you willing to spend or how much can you afford to spend on a property? You’ll need to have a look on sites like Rightmove or Zoopla and find out what are the prices which you’d be comfortable with. The price will vary between the different types of properties as well as the area in which these are located. If they are in a well sought area then the chances are that you’ll need to pay a premium to buy the property. 3. Deposit You’ll also need to have at least 10% cash deposit. The larger your deposit the better choice you’ll have and you’d be able to get a better deal on the mortgage that you’d be requiring from the bank (the interest rate is lower the higher the deposit you’re prepared to pay). If you don’t have sufficient deposit to pay for your first home you are eligible to get help from the government via a Lifetime ISA, but you must be minimum 18 and under 40 years old to open that account. You can pay up to £4K per annum until you’re 50 and the government will add 25% on top of what you pay with a maximum of £1000 per annum. This means that if you save for 10 years the maximum per year £4K you would get £50K with £10K of that being free money. Depending on how much deposit you need it might take you a few years before you’re ready to buy. This would require you to be saving monthly and be prepared to have a good financial discipline. Currently the average price for a house is £310K so I would suggest to try to find a house below that price e.g £250K with a deposit of £25K. Don’t try to buy the dream house with your first purchase. If you buy just a nice house and live in it for 5 years the price should generally go up and you would have paid off a small chunk of it which would allow you to have more equity if you sell it and then buy another one. A rule of thumb here is the 35 rule: your mortgage monthly payments should be no more than 35% of your gross monthly income. But if you want to be more prudent and go with a more cautious approach, maybe there’s another rule for you, which is the 25 rule or the mortgage monthly payment should be no more than 25% of your gross monthly income. You decide of course the law, the mortgage payments the better for you because you’re gonna have more disposable income. 4. Credit score It would be good to check your credit score as soon as you can to ensure that you have a good score as the higher the score the better the chance that the bank will approve your mortgage application. You need to be aware of any potential issues like missed payments, returned direct debits or in some cases CCJs which might prevent you from getting a mortgage. 5. Speak to an adviser Once you have clarified all of the above and you’re ready to start looking you can go to a mortgage adviser and have a chat with them. They would be able to run an application for you and advise of the next steps with an indicative amount of how much you would be able to borrow (for a fee). Alternativelyi, if you feel more confident, you can go online to any of the major banks and get a decision in principle, which if approved will confirm approximately how much the bank can lend you so you can go ahead and start looking (this is usually free). The decision in principle won’t leave a mark on your credit profile as it’s only a soft search, meaning this is only what this particular bank knows about you. The final application would include the full search on your profile. If you’ve done your homework and you’ve checked your credit record you should have no surprises here. 6. Consider your income Another thing to consider is your income. If you’d be applying together with a partner you would be able to add up both incomes and increase your chances of getting a bigger mortgage. Banks are usually ready to provide a mortgage amount from 4x to 4.5x or even 5x your total income. If you’re employed you’ll ideally be on a permanent contract or at least have a job offer. If you’re self-employed you’ll need to present the last two years’ accounts from your accountant or HMRC self assessment tax return. Now it would be good to consider the following: the higher the amount you borrow the longer it would take you to pay off your mortgage and the more interest you’d be paying. Is it wise to borrow 5x your income vs 4.5x or even 4x your income? The less you need to borrow the better, don’t push yourself too hard. Also the shorter the term the less interest you’d be paying if you can afford this of course. You need to strike the right balance and try different options. Maybe for the first purchase you can borrow for a longer term e.g. 30 years but then if you’re remortgaging try to reduce the remaining term by a few years as long as it’s affordable. 7. Stamp duty Consider whether you’ll need to pay Stamp Duty. This is the tax on the purchase price of the property. Currently if your property is under £425K you won’t need to pay stamp duty as a first time buyer. 8. Legal fees As a first time buyer you would still be liable to legal fees for the purchase. In some cases banks are able to cover most of those fees with certain mortgage deals they have. 9. Valuation The basic valuation of the property, which the bank requires to ensure that the property is worth the amount that it’s being sold for. Some banks cover this cost as part of the mortgage offer but unless that’s the case you would need to add roughly £300-£500 to the total cost of buying the property. 10. Make an offer! Once you decide on a house you would be able to make an offer and if accepted go to your bank or your mortgage advisor and complete a full application. Hopefully you would get approved and start the process, which might be quite lengthy in some cases as the solicitors usually take a long time to complete the various checks on the property followed by the exchange of contracts and then finally the completion, which is the day on which you’d be able to obtain the keys for your property and start moving. Conclusion I hope this has been helpful and you enjoyed our session. As always if you have any questions, feedback or suggestions for future episodes please email us at finance@proclaimers.com. Thank you!

Life Insurance

If you’ve ever been out in a small boat, you will have worn a life jacket. The chances are you won’t need to use it, but if things did go wrong on the water, you’d certainly be glad you were wearing one! Insurance is like the life jacket for our money, and having the right cover in place can make all the difference should you ever need it. You have insurance for your house, for your car, maybe for your pet, but do you have insurance for you? Have you considered what would happen to those closest to you when you’re no longer around? In this episode we’re going to look at life insurance, what it is, the different types of life insurance, and whether or not you need it. Types of life insurance First, let’s get a quick overview of some of the different types of life insurance. Life insurance falls into two main categories — fixed term and whole life. Fixed term will insure you for a specified number of years, and will pay out if you pass away during that time. Whole life policies have a guaranteed pay out when you die, whenever that may be, as long as your policy is still active. Because of how they work, whole life policies are generally a lot more expensive for the same payout when compared to term life policies. Term life insurance can be level term, which provides a fixed payout; increasing term, which aims to combat inflation by providing a payout that increases over time; or decreasing term, which is designed to cover the remaining balance of a mortgage or similar debt, with a payout that decreases over time. There’s also family income benefit insurance, which is a fixed term policy that provides a guaranteed regular income for your family instead of a lump sum payment. Whole life falls into two main categories — balanced cover and maximum cover. Balanced, or standard cover has an agreed payout for a fixed premium throughout the policy. With maximum cover, your cover is linked to an investment fund, and if those investments don’t perform at the level the insurer wanted, the final payout may decrease, or your monthly premiums may increase, sometimes substantially. Whole life insurance can be useful for things like covering an inheritance tax bill. But beware as some whole life policies might not be worthwhile. Over 50s life insurance is an example of whole life insurance, but when you run the numbers, unless you die much younger than the average life expectancy, you can end up paying more into the policy than will be paid out when you die. And if you miss a payment, it could be that nothing is paid out at all. In most cases, you’d be better off investing your money elsewhere. Do you need it? There’s a 100% chance you’ll die, but only 30% of people in the UK have life insurance. So do you need it? Life insurance is not a legal requirement and is not required by mortgage companies, but they do encourage you to have life insurance to cover the outstanding mortgage balance. This is a wise move. If you pass away before your house is paid off, it can fall to your loved ones to keep up the mortgage payments which can be a major financial burden at an already devastating time. Decreasing term life insurance is designed to cover for this eventually and will pay off the house in full in the event of your death, meaning that you leave behind an asset not a liability. Having life insurance is also a smart move if you have any dependents, such as children who live with you. If you or your partner were no longer around, consider the financial implications of your family income being reduced as well as additional childcare expenses. Life insurance in this case can make the world of difference for those left behind. The other reason you might want life insurance is to cover funeral expenses. The average cost of dying in the UK, which includes including funeral, send-off, and professional fees, is over £9000. Without life insurance, it could fall to your loved ones to cover these costs themselves. So if you don’t have a mortgage, you have no dependants, and you have enough money saved to cover funeral expenses, you might not need life insurance. Otherwise, it’s a really smart move. Even if you don’t feel you need life insurance, you might choose to have it as part of the legacy you leave. The payout could form part of the inheritance for your children, or be left to a charity so that you can have an impact even when you’re no longer around. How to buy life insurance There are many options when buying life insurance and things can get complicated. The last thing you want to do is to pay into a policy that doesn’t provide the right cover for you, so this is not a type of insurance that you should be buying from a price comparison website. Instead, speak to a financial advisor that can help you navigate the complexities, get the right level of cover for you, and get you the best deal. In fact, studies show that you’ll actually get a better price on average going through an advisor. But be careful who it is you’re speaking to. Ask how they’re getting paid and make sure that they have your best interests at heart and aren’t just trying to make a sale. The younger you are, the cheaper your policy will be when it comes to term life insurance. You can get a lot of cover for not much money, and it’s not difficult to set up. The average cost of a life insurance policy in the UK right now is around £38 per month, so probably around the same as you pay for your phone or internet service. Conclusion Like when writing a will, it’s not fun to have to consider your own mortality when setting up life insurance, but it’s an important aspect of being a responsible adult and loving those closest to you who will be hardest hit if you were to pass. The chances are, of course, that you won’t need life insurance — most of us will live well into old age. But if the worst should happen, protecting the financial future of those you leave behind should be a top priority. This has just been a very quick overview of the many options for life insurance, I hope it’s been helpful as a starting point for you to do your own research. If you have any questions or suggestions for future episodes, please get in touch. You can email us at finance@proclaimers.com. Thanks! Links Proclaimers

Save Thousands by Doing These 3 Things

Has anyone ever told you you’re weird? If you call me weird, I wouldn’t be offended at all; in fact I definitely describe myself as weird and I’m proud of it. And when it comes to how we handle money in our society, it’s definitely good to be weird! In this episode we’re going to look at three ways to be weird, to go against what most people are doing, but things that could save you big time. The first one will save you hundreds of pounds, the second one thousands, and the last one tens of thousands. Phones First up, I want to talk about phones. The way most people buy their phones in this country is based on one of the greatest marketing strategies of our time, but it’s costing us big time. Most people get a new phone every two to three years, and most people buy their phones brand new as part of a contract. There’s something very clever about how phone carriers have positioned this to make it feel like you’re getting a good deal, like the phone is somehow free and you’re just paying every month to use the network. But that’s not true at all. You’re paying for the phone on finance over the course of your contract. Some of these high end devices now cost well over £1000! If you had £1000 in your wallet, would you choose to spend it on a phone that’s ever so slightly better than your current one? Maybe you would, but if you wouldn’t do it with cash, why on earth would you do it with debt? A lot of people will say when they come to the end of their contract that they’re “due an upgrade”. What coming to the end of your contract actually means is that you’ve finally cleared the debt on your phone and you can now move to a much cheaper SIM only contact, saving you hundreds of pounds a year. Imagine if you bought a new fridge freezer on finance, paid it off over 24 months, then when it was finally paid off you went to take out a loan for a new one and got rid of the old one even though it still worked — you just miss having that monthly payment and you loved being in debt so much that you had to buy a new fridge. You wouldn’t do it, would you? And yet that’s what normal people do with their phones all the time. So what does weird look like? Well, I used to be normal and upgrade my phone every two years, but I stopped doing that and kept my last phone for almost ten years. It still works fine, but I needed a newer one for my job as an app developer, so I’ve just bought a new one. Except it wasn’t really new. It’s about four or five years old, and while it would have cost £1000 new, it cost me £170. It’s still a great phone that is more than adequate for what I need, but I’m not paying for all that depreciation, someone else is. So when it comes to phones, being weird and keeping your old phone or buying used can save you hundreds of pounds a year. Cars Next, let’s talk about cars. The average price of a used car in the UK last year was £18,000. Many people will use finance to buy their car, whether it’s new or used, and the average car payment is approaching £300 per month. Cars are expensive. They’re also depreciating assets, meaning you’ll almost certainly lose money on your car purchase. But most people need a car, right? And you want something that’s going to be reliable and safe, so how can we save money when it comes to cars? Let’s chat to Jivko. Houses Lastly, let’s talk about something that’s not a depreciating asset — your house. A house can be a great investment, but if you treat your mortgage like most people do, instead of being a great asset, it can rob you of your financial future. The problems come when you over extend yourself with borrowing to buy a house and the payments end up taking away so much of your monthly income that it’s hard invest and grow your money for the future. If you’re taking out the biggest mortgage the bank will give you, you might have too much mortgage. Good advice is take out a fifteen year mortgage and to make sure the monthly mortgage payments don’t exceed 25% of your household tax home pay. Having a fifteen year mortgage rather than a twenty-five or thirty year mortgage is weird, but it will save you tens of thousands in interest over that time. Plus, paying off your house sooner frees up your income to really get serious about building wealth through investments of different kinds. Not letting your mortgage payment exceed 25% of your income will create margin in your life. Margin for when interest rates rise, or your income fluctuates, or the cost of living increases. And margin to be investing for the future. Too many people make an emotional decision when it comes to buying a house and spend more than they can afford because they fall in love with what they see. While it’s nice to like where you live, it’s not a building that will make you happy. There’s also the disconnect because it’s such a large sum of money, it almost doesn’t seem real. When else do you deal in the hundreds of thousands? An extra ten or twenty thousand pounds over your budget might not seem that much compared to cost of the property, but to most people ten or twenty thousand pounds is a big amount of money. Don’t forget you’ll need to pay it all back, and with interest. So don’t let emotions rule when it comes to buying a house. Instead, stay well within your means, and you’ll be setting yourself up for a far better financial future. Conclusion I hope that has given you some things to think about when it comes to saving money. Remember, in our society, being normal means not being intentional with money. When we really consider carefully where our money is going, it can have a huge impact on our financial future. If you have any questions or suggestions for future episodes, please get in touch. You can email us at finance@proclaimers.com. Thanks!

How to Make Smarter Money Choices

Do you ever find it hard to know what the right thing to do is when it comes to money? I don’t know about you, but I really don’t want to look back in ten or twenty years time and think I’ve made a foolish decision. But there’s no way to predict the future, so how can we be wise with what we have now, not knowing what’s to come? In this episode, we’re going to look at one simple technique that has helped me to make smarter decisions with my money, and I hope can do the same for you. This is a technique I’ve picked up from listening to financial guru Dave Ramsey. The idea is simply that you take whatever situation it is, and flip it round to give you a fresh perspective. When you do this, the path ahead often becomes clear. Let me give you some examples. Let’s say you’re moving 200 miles away across the country and you’re wondering whether or not you should keep your old house as a rental property. Well, let’s flip it round. Let’s say you’d completed your move already and you had the cash available to buy a rental property. Would you choose to buy one 200 miles away, knowing that you’d either need to travel that distance to do maintenance or employ someone to do the work for you, or would you buy one closer to where you live? Maybe if you had the cash, you wouldn’t choose to buy any rental property, but do something else with it instead. What about when it comes to the decision to sell or keep something you own? A few years ago, I decided I would learn bass guitar, so I bought a cheap bass for about £100 and it has pretty much sat in the cupboard ever since. Now if I sell it, I might get £60 for it so I’m going to be losing money, and maybe one day I’ll want to play bass again, so maybe I should keep it. Well flipping it round, if I had £60 today, would I go out and buy this bass guitar so that it could sit in a cupboard unused? No, I definitely wouldn’t, I can think of much better things to do with the money. So flipping the situation round has helped me to release that I should sell it. One more example — the question of whether you should pay extra into your mortgage or invest the money. We know that, on average, the returns from the stock market are higher than mortgage interest rates, so doesn’t it make sense to invest the money rather than pay down your debt? Well, let’s flip it round. If you had a paid off house, would you remortgage it and go back into debt in order to invest in the stock market? If the answer’s ‘no’, then why not? And doesn’t that apply to the decision of whether to pay down the mortgage or invest now? I really like this idea of flipping the situation round to get a fresh perspective that can help to make smarter financial decisions. I hope you find it useful too. If you have any questions or have an idea for a topic you’d like to be covered in the future, please email us at finance@proclaimers.com. Take care. Links Ramsey Solutions Proclaimers