November 2017 - Oakhill Independent Financial Services Limited

What does it cost to move?

Moving can be an exciting but expensive time. Drawing up a budget will help you work out how much cash you will need for the fees you can expect to pay. The exact figure will depend on which rung of the housing ladder you’re on, whether you’re buying and selling, and which part of the country you live in.

There are costs involved with arranging a mortgage and your adviser will talk you through these in detail and confirm them in writing.

You’ll need a solicitor or a conveyancer to carry out the legal work. Typically, they will charge between £500 and £1,500, and will provide an up-front estimate of their fees. If you’re selling a property at the same time, you may be able to negotiate a package deal to cover both.

The cost of selling

If you’re buying, you don’t have to pay estate agents’ fees, but if you’re selling you can expect to pay a percentage fee which can range between 0.75% and 3%, plus VAT, of the agreed selling price of your home, depending on the type of contract you opt for. Alternatively, you can adopt the DIY approach and put your property onto a website, in which case your costs will be lower, but you’ll need to do a lot of the work yourself, including arranging viewings.

You should also consider getting a survey done to ensure you aren’t buying somewhere that could end up costing you a lot of money in repairs. Depending on the type you choose, you could be paying anything from £250 for a basic report to around £1,000 for a more detailed structural survey.

Then there’s stamp duty (Lands & Building Tax or LBTT in Scotland). This is payable on properties bought for over £125,000 in England and Wales and £145,000 in Scotland, and goes up in bands. For example, it would be £5,000 on a £300,000 property in England and Wales (0% on the first £125,000, 2% on the next £125,000 and 5% on the last £50,000). Don’t forget you may also need to book a removal firm, so there are a whole myriad of costs to budget for.

As a mortgage is secured against your home, it could be repossessed if you do not keep up mortgage repayments.

29 November 2017/by motive

News, Protection

Long or short-term income protection – which is right for you?

Experts have long expressed their concerns for those who don’t have protection policies, fearing that millions of households could face real financial hardship if the main breadwinner was unable to work due to a serious illness, accident or unemployment. For those new to insurance, short-term policies can be a cost-effective way to get some cover in place.

Short-term policies

This type of policy, sometimes referred to as accident, sickness and unemployment insurance, is designed to pay out a monthly income for one or two years. It covers a percentage of your monthly income to help you pay mortgage and household bills.

If you claim on your policy, there is a waiting period before it starts to pay out, and you can choose how long you want this to be when you take the policy out. This is usually referred to as the ‘deferred period’ and can be from a few days up to two years. The longer the deferred period, the lower the premiums are likely to be.

Long-term policies

These provide a regular income if you are unable to work due to illness or disability (but not if you are made redundant) until you are well enough to return to work, or until you reach the end of the policy term, or die. Here, the premiums are likely to be higher because they cover a wider range of illnesses, including debilitating strokes and heart attacks not usually covered by short-term policies.

So clearly there is a choice, depending on how much you can afford in premiums, the length of time you want the policy for, and the risks you want to cover. Short-term policies often don’t require a medical so can be quick and easy to arrange and have lower premiums, especially if you take the policy out when you’re younger. Longer-term policies often provide protection right up to retirement, and offer much wider cover, but are likely to be more expensive.

21 November 2017/by motive

Mortgages, News

Mortgages – bank of England tightens the rules

In a move that demonstrates the Bank of England’s determination to prevent lenders getting too complacent about current low interest rates, strict new rules on mortgage affordability have been announced.

New tests to be applied

The rules, often referred to as “stress tests”, were set out in the Bank’s Financial Stability Report. Lenders will be forced to apply an interest rate stress test that would look at whether a borrower could still comfortably afford to make mortgage repayments at the end of an introductory period if the rate were then to rise by 3 percentage points.

When an introductory deal ends, it’s usual to move to a lender’s standard variable rate (SVR). The SVR is usually pegged to a percentage above bank base rate, and can be subject to change. SVRs can currently be as high as 5.75%, so this could mean that some lenders are forced to check whether a borrower’s finances could cope with a rate as high as 8.75%.

This could mean that someone with a 25-year mortgage of £200,000 paying around £700 a month would need to be able to prove they could still afford their mortgage if the monthly repayments doubled to £1,400.

In the same scenario, the previous stress test would have required a check at 5% which would mean the borrower being able to afford £1,100 per month. This means that under the new test they must be able to afford an additional £300 per month.

What the changes might mean in practice

However, as many lenders have been operating under strict mortgage criteria for some years now, the general view is that this may not be the stumbling block to new mortgages it might appear. The Bank has estimated that if these rules had been in operation in 2016, it would only have reduced mortgage approvals by less than 0.5%.

As a mortgage is secured against your home, it could be repossessed if you do not keep up mortgage repayments.

16 November 2017/by motive

Housing Market, Mortgages, News

Setting up companies leaves landlords out of pocket

In 2015, then Chancellor George Osborne announced measures that he hoped would ‘level the playing field’ for first-time buyers by reducing the many tax concessions available to buy-to-let landlords, deterring more from entering that market and encouraging some to sell their rental properties.

Landlords accustomed to claiming relief worth 40% or 45% will find their relief restricted to the basic rate of 20% once the changes are fully implemented in 2020. In the 2017-18 tax year, the deduction from property income is being restricted to 75% of finance costs, with the remaining being available as a basic-rate reduction. In addition, the 10% wear-and-tear allowance has been revoked, meaning landlords are only able to deduct costs they have incurred.

Some landlords who foresaw their rental yields falling because of these tax changes chose to set up limited companies and to transfer their rental properties into them.

Limited company drawbacks

The main benefit of holding properties within a limited company is that profits are taxed at 19%. Limited companies aren’t affected by the restrictions that took effect from April, so mortgage interest is fully deductible against tax.

However, recent research suggests that only landlords who own four or more properties stand to gain from a limited company structure. This is in part because limited company mortgage products are only available through a small number of lenders, meaning that the rates charged are often higher than those available to personal borrowers, and more liable to change with market conditions. Plus, many lenders operate under significantly different criteria when lending to limited company borrowers.

Whilst some people have considered buying a property as an individual and then moving it into a limited company, this can have unintended tax consequences. Doing this could give rise to a major capital gains tax liability and create a problem with stamp duty.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

The information contained within the article is based on our current understanding of taxation and can be subject to change in future. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

8 November 2017/by motive

Limited company drawbacks

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