Client Newsletter – Q1 2014

Client Newsletter – Q1 2014

Help to buy – What it really means

The 2013 budget announced the creation of a new Help to Buy scheme to replace the previous First Buy scheme. Unlike the First Buy scheme, which it replaced, the current Help to Buy scheme is available to people who have previously purchased a home and there is no minimum wage requirement to qualify for the scheme itself. The scheme is divided into two parts: a loan scheme and a guarantee scheme. The loan scheme is already in place and the guarantee scheme is intended to start in January 2014.

Loan Scheme

If home-buyers can raise 5% of the deposit needed for a house, they can borrow up to another 20% from the government to a maximum of £120,000. This part of the scheme will only be available to buyers of new-build properties up to the value of £600,000. The loan will be interest-free for 5 years, after which interest will be payable starting at a rate of 1.75% and increasing each year by the RPI rate of inflation plus 1%. The loan must be paid off in full when the property is sold.

Guarantee Scheme

If a home buyer can raise a deposit of between 5% and 20% of the value of the home (with or without using the government loan scheme), then the government will guarantee up to 15% of the remaining mortgage. At current time there is no further information on the maximum amount they

can guarantee; however, it has been confirmed that this part of the scheme will be available to buyers of pre-owned houses.

The principle behind these schemes is that people who can put down larger deposits can qualify for better mortgage deals, which reduces the cost (and complications) of buying a house. When considering whether or not to apply for either (or both) of these schemes, it may be worth using an online mortgage calculator to compare the costs at different deposit levels.

It is also worth remembering that there is much more to buying a house than checking the availability of government schemes and mortgages. The decision as to whether or not to buy a house and if so how much to spend and how to finance the purchase is one of the most important decisions anyone can take. It needs to be taken carefully in the light of each individual’s circumstances and goals. With this in mind, it could be very helpful to take financial advice from a qualified financial adviser.

Sowing the seeds of success

Private schools in the UK are viewed by many parents as an investment in their child’s future.  While there certainly are good state schools, the huge problem is that there is simply no guarantee of being able to get a child into them.

It’s little wonder then that the birth of a new child often results in the proud parents (and grandparents) creating a list of private schools and resigning themselves to paying school fees.  Once children finish school, they and their families enter the world of tuition fees and student loans.  Putting aside money for college is a challenge for many parents, much as they may wish to put their child through further education without saddling them with a student loan.

All in all, having a child is more rewarding than it is expensive, which is just as well, because it’s expensive.  Taking unbiased advice from financial advisers is highly recommended for parents who wish to offer their children the best possible education, with the least possible financial stress.  For those who are already contemplating the reality of school fees and university accommodation, getting the right advice can be a lifeline.

There are a variety of options regarding paying for a child’s education.  Paying from income is probably the most obvious; however with the trend towards parenthood later in life, this option needs to be viewed in the light of retirement considerations.   ISAs can be a very attractive way of saving up for a child’s education.  While parents may have other plans for their own ISA allocations, the introduction of Junior ISAs means that they can effectively give their child their own savings allowance.  Like their adult counterparts, Junior ISAs can be divided between cash allocations and stocks and shares.  As a rule of thumb, the longer the investing horizon, the more attractive it is to invest in the stock market.

While it can be subject to short-term volatility, in the longer-term it offers excellent value.  Using an ISA as a vehicle for stock-market investment is very attractive from the point of view of tax.  Tax planning should ideally be on the minds of grandparents and other older relatives, who will presumably wish to leave as much as possible to their family rather than to the Inland Revenue.  Those with more immediate concerns may be able to pay education costs by using an offset mortgage.  The basic idea behind this is that the interest saved on the debt will be greater than the interest that would have been gained on the savings.

The cost of paying for a child’s education is less than the cost of your child entering the adult world without one, particularly in today’s competitive job market.  Making financial provisions to pay for it, is an essential part of parenthood.

Life happens – Be ready for it

What would happen to you and your family if you were left unable to work, but without income protection insurance?  Many people understand the importance of life insurance policies and of making a will, but fewer think about inheritance mortgage payment, critical illness cover or being able to make a loan payment if they are alive but incapacitated.

People do get ill or have accidents and then recover and the recovery process can be made massively less stressful if appropriate financial planning (which includes the right insurance cover) means that nobody has to worry about lacking the money to pay the mortgage and essential bills and living expenses.

Those who habitually work on short-term contracts or are self-employed should make it a priority to get unbiased advice from a qualified source (such as financial advisers), since they are usually the most vulnerable in terms of being unable to work.  Even those in full-time employment could benefit from professional financial advice to be absolutely sure that they have full mortgage cover in place if they ever need it.

Income protection insurance can be broadly divided into three main types:

Accident, sickness and unemployment (ASU) cover: this is the most basic type of cover and typically no medical underwriting takes place before a policy is issued.  This means that you cannot be completely certain that any subsequent claim will be accepted.

Short-term income protection: cover is fully underwritten from the outset, meaning that you know exactly what is and is not covered under the policy.  The protection is for a fixed duration, usually between one and five years.

Long-term income protection: cover is also fully underwritten from the outset and is payable until a specific age (usually retirement age), death or your return to work. Each of these insurance types is available in three forms.

There are several significant differences between income protection insurance and payment protection insurance (PPI).  In summary: income protection insurance provides the holder with an income in case of illness or injury.  It can be used to provide long-term cover and is available to most people (including the self-employed).  PPI is used to cover a specific debt payment, when the holder is deprived of their regular income, typically due to unemployment and is only available to people in “suitable occupations”.

While PPI has had a bad press, it can be useful, but it is not a substitute for Income Protection Insurance and certainly not for solid financial advice.

Saving for your wedding day

If you are looking to pay for your wedding day on a limited budget, then reducing wedding costs and using bank interest rates to your advantage could be a way of doing it.

For most people paying for a wedding is no easy task.  According to the average cost of a wedding in 2013 is expected to be around £16,164.  A figure that most people don’t have sitting in their bank account.

However, with the right financial planning and discipline, meeting this cost may not be as difficult as you think.

First steps in paying for a wedding
You don’t necessarily connect financial advisers with weddings, but you could sit down with someone independent of your family to help you work through the details impartially. If you think about it, saving to pay for a wedding is in financial terms a short-term investment, an area where some we specialise.

So working out how much your wedding is going to cost is arguably the best place to begin.  This final figure will be your goal and your target.  Without a target figure, you may feel you have saved a lot of money but it may not be enough.  To avoid this disappointment, work out how much
you need.

Paying for weddings may not take up a great deal of our time in relation to pensions or buying a house. Like other investments, we will be able to look at your financial goal, which will probably be around £16,000. We can look at what you have, and offer advice based on what we find.

Sorting out the finances (How much is everyone contributing?)
Some aspects your independent adviser may examine will be who is contributing to the wedding cost, and how much they are going to contribute.  Traditionally, the bride’s father pays for a wedding, but assuming the cost is going to be covered by a number of people, then it may be worth taking a note of how much people are putting in to the wedding pot.  Also, it could be an idea to find out if they are contributing monthly or as a lump sum payment.  Some might wish to pay for specific items on their credit card.  Find out and make a note.

Once you have the information, looking at good savings schemes is arguably a good way to get the ball rolling to pay for your wedding.

ISA investing is an area that you may want to look at.  It is in effect a way of saving tax free until you reach the current threshold for savings or investments and then you start to pay tax.  Again, a good financial adviser will be able to look at what savings schemes for tax free savings are available and give an opinion on what they feel is best for you.

Other areas to help pay for a wedding you may want to consider, is to look at cheaper alternatives to the traditional wedding.  The Guardian newspaper recently published some ideas on how to cut the cost of your wedding, and it is an article well worth reading.

Some credit cards are beginning to offer interest free repayments over a limited time period.  Check out a comparison site for the best deals this month. Again, it could be an option to consider and a subject to broach with your financial adviser.

How to use your pension scheme to benefit your business

Although organising a workplace pension and paying employer contributions to it, does place additional administrative and financial requirements on employers, with a little planning the change can be made very manageable.

The auto-enrolment process is already underway amongst the largest businesses and will steadily be extending until all employers have auto-enrolled all staff.  This process will take about 5 years.

The owners of small-to medium-sized business should therefore be thinking now about the potential implications for them.  This may well involve getting unbiased advice from knowledgeable professionals such as financial advisers.

In terms of budgeting for workplace pensions, it is usually safest to assume that all auto-enrolled staff will remain in the scheme and that therefore employers will need to make the minimum contribution, which is currently 1% of qualifying earnings and will rise to 3% by 2018.  In reality, it is entirely possible that some employees will choose to opt out, for example, if they prefer the greater flexibility of a personal pension plan, but this cannot be assumed.

Although employers need to offer all eligible employees a pension plan, they do not need to offer the same plan on the same terms.  For example, employers could choose to increase the percentage they contribute in line with length of service.  Alternatively they could have one scheme for permanent employees and another for contractors.  Employers should look at their options and see how pensions provision fits in with their overall business strategy for attracting and retaining quality staff.  On that note, employers who wish to make their pension provision a key part of their recruitment and retention strategy may be interested in applying for a Pension Quality Mark.

While many employees may have at least heard of the auto-enrolment program, courtesy of an extensive TV advertising campaign, it is less certain that they will understand its full implications for them.  For example, they may know that their employer is obliged to contribute towards their pension but not understand that they will be obliged to make a minimum level of contributions out of their own salary, or that the level of both sets of contributions is scheduled to increase over the coming years.  They may also not understand that they can choose to opt out of the scheme and may then choose to opt back in again.  Employers need to be ready to explain the implications to their staff.

Finally, employers need to make sure that they have the administrative systems and processes in place to cope with the new measures.  While many smaller companies are likely to use outsourced payroll and HR services, it’s still worth checking when they’ll be able to support these changes and the degree of flexibility they allow for employers who want to offer different options to different staff.  If payroll and HR are kept in house then it’s vital that they are made ready well in time for the implementation date.

Your home may be repossessed if you do not keep up with the repayments on your mortgage.
There are other products available designed to protect you against loss of income. For impartial information about insurance, please visit the website at