personal financial planning stephen major independent financial planner
TRANSCRIPT
PERSONALFINANCIAL PLANNING
Stephen Major
Independent Financial Planner
Topics to included
• Buying a property
• Risks associated with owning a property
• How much can be borrowed?
• Mortgage repayment vehicles
• Types of protection
• The need to have a Will
Michael White
• Age 24 Left university 2 years ago• Employed as a Business Manager• Salary £25,000 per annum• Joined company (DC) pension scheme –
contributions: 5% employer, 3%employee• Savings: cash ISA £3,000• Student loans: £12,000• Car loan repayment: £350 per month
Julia Green
• Age 24 Qualified as an accountant 2007• Self-employed• No pension arrangements• Net relevant earnings (2007/08): £28,000• Savings: none• Student Loan: £12,000• Car loan repayment: £250 per month• Family Inheritance of £60,000
Property purchase price: £200,000
• What is the house buying process?
• What are the costs?
• What are the risks?
• Who can purchase the property?
• How much can be borrowed?
• Do you need assurance and insurance?
What is the property buying process?
• Ascertain how much you can borrow• Look for a property• Make an offer – offer accepted• Appoint a solicitor• Apply to lender for a mortgage loan• The lender will undertake a credit check• Mortgage offer made by lender• Exchange of contracts – deposit paid• Completion of house purchase
What are the costs?
• Solicitors fee
• Disbursements• Stamp Duty• Arrangement fee• Surveyors fee• Furnishings• Utilities/Moving costs
£300.00£200.00
£2,000.00£950.00£200.00
£4,000.00£350.00
_______________Total £8,000.00
What are the risks?
• Unable to meet the mortgage repayments
• Unemployment
• Long term illness
• Effects of interest rate changes
• Negative equity
• Redemption penalties if loan is redeem early
Who should purchase the property?
• Should it be joint ownership
• or
• Single ownership
• Joint tenancy
• Tenancy in common
How much can be borrowed?
• Gross salary or net relevant earnings
• LESS
• Cost of personal loans and hire purchase
• Student loans
• Cost of repaying credit cards
• Child maintenance
Michael and Julia
• Joint income = £53,000p/a• Less cost of the following:• Repayment of Michael’s car loan = £4,200p/a• Repayment of Michael’s student loan • Repayment of Julia’s car loan = £3,000p/a• Repayment of Julia’s student loan
• Joint income available = £45,800p/a
Michael & Julia could borrow
a maximum of £207,000
Julia could borrow
a maximum of £106,000
Julia and parent as Guarantor
Could borrow £150,000*
*Assumes parent has available income of £10,500
Credit Assessment
• Household budget
• Household budgeting and lending decision
• Credit history
• Employment types: Employed
Self-employed
Contractor
• Property details: Freehold or Leasehold
Mortgage repayment vehicle
• Capital & Repayment (C & R)
• Split between C & R and Interest only
• Interest and Investment Product – i.e. Endowment or Pension mortgage
• Interest only
Attitude to risk
• Cautious
• Balanced
• Balanced to Adventurous
• Adventurous
Mortgage – Attitude to risk
• Cautious
• Balanced
• Balanced to Adventurous
• Adventurous
• The mortgage loan is guaranteed to be repaid at the end of term.
• Only part of the mortgage is guaranteed to be repaid. The part that is interest only is not.
• Only the interest is being paid each month and at the end of the term the investment vehicle may or may not be sufficient to repay the mortgage.
• Only the interest is being paid each month and there is no provision to repay the mortgage at term end.
Which mortgage product?
• Variable • Flexible
• Tracker• Discounted• Cap & Collar• Cash back
• Fixed
• No product fee• No penalty
• Product fee charged• Penalty within term of
product, if repaid
• As above
Calculation of mortgage repayments
• Calculation of interest charged
• Calculating annual percentage rate (APR)
• Daily• Monthly• Annually
• To compare different mortgage rates
Do you need protection?
• Mortgage Payment Protection Insurance
• Redundancy/Accident & Sickness
• Income Protection Insurance
• Buildings Insurance
• Contents Insurance
Types of Payment Protection Insurance
• Redundancy Insurance
• Accident & Sickness Insurance
• Income Protection Insurance
• Term – 1 or 2 years• Renewal not guaranteed
• Term – 1 or 2 years• Renewal not guaranteed
• Term usually to retirement age• Once accepted can not be
terminated by provider
Other types of protection
• Life assurance
• Critical Illness Cover
• Decreasing Term or Level Term Policy?
• Individual or Combined Policy?
It will not happen to me?
If it is not you then it could be the person next to you!
The importance of a will
• Intestate
• Testate
• Assets go to parents, siblings, other relatives, then the State.
• You decide who benefits from your estate.