PERSONAL FINANCIAL 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 24Left 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 24Qualified 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 £ £ £2, £ £ £4, £ _______________ 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.