Issue 8 Summer 2014 Viewpoint

Haircuts and homebuying: New mortgage rules take effect

At the end of April, the Financial Affordability is paramount How plausible is your situation? Conduct Authority (FCA) set out The lender is now expected to You should also expect your mortgage new rules that may make it harder undertake a detailed assessment adviser to assess the plausibility of for you to get a mortgage. All of to ensure you can afford the loan the picture painted by the information your outgoings, including things both now and in the future. you provide. For example, is it likely like going out for dinner, travelling, that a couple, both working with two childcare, and even the cost of You should prepare for questions young children, have no childcare a haircut, are now likely to be around the level of your arrangements, or that the travel costs explored as part of the mortgage ‘non-discretionary’ expenditure of a client are negligible when they application process. (eg. council tax, utility, childcare) work 100 miles from home? Advice moves centre stage as well as lifestyle expenditure (eg. entertainment, holidays and A common sense approach Advice is now mandatory in virtually all haircuts). You must also ensure your You should expect the process of taking mortgage transactions, apart from where credit rating is as high as possible. out a mortgage to take longer. And where there’s no dialogue between you and the As you get closer to applying for a affordability is tight, some borrowers may lender (for example, if you complete an mortgage, you should try to minimise find it harder to get a mortgage. But the online application form and don’t ask any lifestyle expenditure that could make the new rules are common sense and should questions along the way). lender wary of your financial position. help ensure that only borrowers who can afford to repay their loan receive one. If you’re used to getting advice from Your adviser is likely to ask you for a mortgage adviser, you should only copies of recent bank statements. see a small change in this area, as These will help them compile the most advisers already provided a information needed to submit your fully advised service. This is not true, mortgage application to the most however, of many banks who often suitable lender. Your adviser will look If you want to discuss your adopted a short, non-advised process. for tell-tale signs of financial stress such circumstances, and how the Overall, the changes will mean longer as regular use of overdrafts, repayments new rules may affect you, interviews and more detailed questioning of pay-day loans and other credit please get in touch. on your circumstances and needs. commitments, such as a car loan.

For arranging a mortgage a fee of £350 or 0.5% of the loan amount if greater is payable on completion. Typically this will be £350.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Compass Personal Finance offi[email protected] 01489 578338 Make the most of Help to Buy

Help to Buy is in the news again. Help to Buy and the housing market While no one knows exactly what’s Hardly a week goes by without Help to Buy making the headlines. With the scheme so closely linked with around the corner, even the Prime the housing market, there are opposing views on whether Minister has publicly admitted he the scheme should stay or go.

would be prepared to amend the All of the UK’s main housing market indicators have registered scheme if prompted to do so by an annual rise in property prices, with Nationwide reporting a 10.9% rise in the year to April 2014 – a trend many people the Bank of England governor, attribute to the scheme. Mark Carney. Concerns over Help to Buy If you’re considering using Help to Buy was originally due to end in 2016, but was extended to 2020 in George Osborne’s Budget. But Help to Buy to realise your home there now seems to be a growing movement in favour ownership dreams, you may want of scaling it back.

to take advantage of the scheme While Help to Buy has made new-build properties more before any changes are made to it. accessible for some buyers, and opened up the market for first-time buyers, there are fears it may cause a housing bubble and undermine affordability. A number of market commentators and economists, who blame Help to Buy What is Help to Buy? for contributing to house price increases, have urged the government to make changes to the scheme. Help to Buy is a government-funded initiative designed to help those who cannot otherwise afford to buy a home To add fuel to the fire, the governor of the Bank of England, that meets their needs. The scheme comprises two parts: Mark Carney, has recently warned the Help to Buy scheme could distort the entire mortgage market and may have to be curbed. He has also expressed fears that allowing new home a ‘mortgage guarantee', which helps you buy owners to secure a mortgage with a deposit of only 5% may be a home with a deposit of 5%. It’s open to both encouraging a return to risky lending. His remarks offer signs first-time buyers and home movers for new-build that the Bank of England may formally request a policy change 1 and older homes in the UK with a purchase price in September. up to £600,000 The future of the scheme an ‘equity loan’, where the government will lend you up to 20% of the value of your newly-built If Help to Buy is scaled back, or withdrawn altogether, potential home. Again, a minimum 5% deposit is required, buyers may lose the advantage of being able to purchase a 2 and the maximum purchase price is £600,000 property with a smaller deposit than is ordinarily required. If that happens, expect to see a scramble from buyers looking to take advantage while the scheme remains in place.

If you’re looking to take advantage of Help to Buy, please get in touch.

For arranging a mortgage a fee of £350 or 0.5% of the loan amount if greater is payable on completion. Typically this will be £350.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Compass Personal Finance offi[email protected] 01489 578338 Risk versus reality A new online risk calculator, from insurer LV=, uses UK morbidity and mortality statistics to identify your percentage risk of being off work for more than two months, suffering a serious illness, or dying before you reach retirement.

As an illustrative example, All the same, it won’t happen Ask yourself, how would your family Jenny Jones is a 34 year-old to me… cope if they couldn’t rely on your non-smoker who plans to retire income for a long period of time? Although the results are illustrative, at 65. According to LV=’s Risk Could they sustain their lifestyle if the calculator highlights just how Reality Calculator, Jenny has a: you were to die suddenly? important one area of your financial • 46% risk of being unable to work planning – Life and Protection What’s your risk profile? for two months or more Insurance – really is. This becomes even more evident when you consider If you would like to better understand • 13% risk of suffering a serious illness the reality of suffering a serious illness your risk profile, please speak to us. • 6% risk of death or dying suddenly: We’ll take a careful look at the impact this might have on your current • more than 1 in 3 people in the UK Perhaps the most striking result is circumstances, and help you identify will be diagnosed with some form that the likelihood of any of these any gaps in your existing protection of cancer during their lifetime1 things happening to Jenny before arrangements. the age of 65 is 55%. • cardiovascular disease causes around 74,000 premature deaths per year in the UK2 • we all face a 1 in 6 chance of having a stroke3

Will my policy pay out?

If you're put off buying protection because you don't think it will pay out when you need it, think again. According to the Association of British Insurers £3.1bn was paid out on protection claims in 2013, the equivalent of 97% of all protection claims received during the year4.

This meant that £8.4m was paid to 270 families every day last year, helping them to cope with the financial burden caused by long-term or serious illness and/or death.

1 Cancer Research UK, January 2014 2 To better understand your risk profile, or for a full British Heart Foundation, Coronary Heart Disease Statistics 2014 (based on 2011 figures) protection review, please get in touch. 3 World Stroke Organization - World Stroke Campaign, 2012/13 4www.abi.org.uk/News/News-releases/2014/05/Protection-Claims-2013-QA

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