PERSONAL FINANCIAL PLANNING Stephen Major Independent Financial Planner.

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.