Check out some of the most commonly asked questions below.
Frequently Asked Questions
Mortgage & Protection
What is a mortgage broker? A mortgage Broker is someone that has access to an array of mortgage lenders and mortgage products. The best mortgage brokers are `whole of market` as they can access all available products. A mortgage Broker will work with you to match you with the most suitable mortgage lender and product based on your personal circumstance. They will then complete the mortgage process on your behalf from Decision in Principle stage to full mortgage application.
How much can I borrow? This is lender specific but usually revolves around their own lending criteria, your credit score and an assessment by them of your affordability. Generally, though `rule of thumb` lenders will take 4.5 times your total gross income into consideration and take off credit commitments such as loans, hire purchase and credit cards. There are lenders who lend more than 4.5 times income, but all dependent on loan to value, profession and a range of specific criteria.
How much deposit do I need? For residential properties, taking government and other incentives aside such as builders deposits, the average deposit needed is 10% of the property valuation. However, there are some lenders that will accept 5%. For Buy to Let properties, the usual deposit required is 25% of the property valuation. Though recently one lender had lowered this to 20%. It should be noted that generally the lower the deposit the higher the interest rate will be.
What is a decision in principle? A decision in principle (DIP) or often what is termed as an Agreement in principle (AIP) is a non-binding agreement obtained from a mortgage lender stating that they would be willing to lend to you. It often will state a maximum amount that they will lend, all subject to the information in the DIP being correct. The lender will usually do a credit file check on you at this DIP stage, though it is usually a `soft footprint`, meaning that the credit check does not impact on your credit score.
I have bad credit, can I get a mortgage? The answer is more often than not, yes. Essentially if you’ve got a good credit history, ie you’ve kept up to date with all your financial commitments e.g. no missed payments then you will more than likely be accepted for many types of credit, all dependent on circumstance and affordability naturally. Usually this will be with mainstream banks and lenders and for the best interest rates and terms. However, there are many other specialist lenders, often ones you may not have heard of, who will assess you with a different, more flexible approach and criteria. This means they look at your credit history and make a judgement based on this and other criteria they deem to be relevant. They will look for example at information available to them such as the amount and value of any missed payments you may have, whether you have or are in a debt management plan or whether you have ccj`s, the list isn’t endless. Each specialist lender has its own scoring and criteria. Due to the complexity of this lending and in their eyes the higher risk they would be taking on, then the interest rates will be higher than mainstream lenders and usually the length of process from start to finish.
I’m self employed, can I get a mortgage? Yes, naturally all dependent on individual circumstances. However, whereas a mortgage application for an employed person requires up to date payslips and often corresponding P60, these are not usually applicable to a self-employed position. So, lenders will require far more proof of income history that demonstrates that an income has previously been consistent and would reasonably be considered to be in the future, i.e. over the term of the mortgage lending. For this a lender may require the following - business profit & loss and balance sheet accounts/projected accounts, SA302, business and personal bank statements, proof of contract if contract worker to name a few. So to conclude there are a few more hurdles to getting a mortgage when you are self-employed, but as there are over 4 million self employed people in the UK, as at Sept 2024, then this is a growing market that mortgage lenders want to be involved in.
What different types of mortgages are there? Generally, there are three types of mortgages available now – Variable, Fixed and Tracker. There used to be many more. Standard variable interest rate is a lender `default` rate. It is the interest rate that you would be subject to were you to not take one of their other type of mortgages. Variable rates are usually a higher interest rate than other rates by the lender. For this reason, they are the least popular. Fixed interest rates do what they `say on the tin`. They are fixed for a period of time, usually 2,3 or 5 years. Though there are more variances. This means you `lock in` to a rate for the chosen period of time, whereby you pay the same monthly mortgage payment until the `deal` ends. It can give you peace of mind knowing that any change to the Bank of England Base Rate (used by lenders to set their rates) will not affect your monthly mortgage payment for the duration of your fixed rate. Tracker interest rates, usually track the Bank of England (BOE) Base rate. So, if you have a tracker rate mortgage that is 1.25% above the BOE rate and the BOE rate was 4.75%, then the interest you would be paying on your mortgage would be 6%. And if the BOE went up your interest rate and payments would go up, conversely if the rate went down, yours would equally go down, you get the idea. It’s really a `punt` when taking such a product about whether you believe the interest rates are going to go down in reality.
What is the difference between repayment and interest only? Put simply, a repayment mortgage pays off your total mortgage loan amount in monthly payments resulting in full repayment by the end of the agreed mortgage term, for example 30 years. Your monthly repayments are made up of paying off an element of the outstanding capital (the loan) and an element of interest on the loan. An interest Only mortgage is where you pay only the interest element of the loan. This means that at the end of the term of the mortgage, using the example of 30 years, you would still owe the full mortgage amount. You would have only paid the interest each month on that loan and would either have to remortgage, if you could, pay it off in full with other monies or sell and move out of the property.
Pensions & Retirement Planning
What is a pension? A pension is basically a tax efficient long-term savings and investment plan designed to build up a pot of money to support you when you eventually retire. There are many different pension plans currently in existence and over the years there has been a simplification of the pension rules which has narrowed down the types of pension available. Also, the government introduced compulsory workplace pensions in 2012 to ensure most employees have access to a pension.
How much should I pay into my pension? This is a great question and one that is often asked. The `Woolly` answer would be as much as you can afford, but that doesn’t really help, as affordability is subjective. One persons `must have expenditure` is another’s persons waste of money. However, if you are employed you should already be a member of an employers pension with at least total contributions of 8% of your annual gross salary going to a pension pot. So, is this enough? Probably not, but it’s a good start. A rule of thumb often cited in the financial press is if you are just starting to pay into a pension and have no previous pension provision then halving your age to get a starting percentage can be quite useful. For example, a thirty-year-old may look to contribute 15% of their gross annual income each year. However, it often makes sense to work back over. By this we mean you need to determine what you think you will need at retirement to cover basic living costs and add on extra for those little luxuries. Remember that hopefully there won’t be certain expenditures such as a mortgage, or a second car for example in retirement. Once you have a rough estimate of potential living costs then you can target a final pension pot value to give you a guaranteed monthly income (An Annuity). So, then the question, which we have turned on its head is, how much money do I need in my pension pot to sustain the life I want to live in retirement? To give you an idea a £100,000 pension pot at 65 years old will currently give you an income in the region of £6,000 per annum for the rest of your life. All dependent on circumstance (remember annuity rates change), but you get the idea that if the magical figure you needed at retirement was an annual income of say £18,000, then you would need a final pot value of £300,000. This hasn’t even taken into consideration whether you take tax free cash from your pension pot. Another topic perhaps. So, flipping back to the original question, you can then roughly work out a monthly contribution. Say for example you are thirty years old and intend to retire at 65, and you needed the said £18,000 income. That’s 420 months (thirty-five years) divided into £300,000 gives approx. a monthly contribution of £715 (this can include employers and employee’s contributions along with tax relief if applicable. So your contribution could be a lot lower than this in a workplace pension. To note: the above is a very simplistic approach. We haven’t included any growth nor loss in the projection, nor charges and fees involved, just simply a `flatlining` accumulation of monies. Many projections in the investing arena will use an array of `expected` investment growth figures along with a compounding effect of this and each relevant contribution. For the purposes of this topic we wanted to keep it clean and simple. So, now you have an idea of the figures needed. Get saving into your pension!
Do I need a financial adviser for my pension? No. unless you have a particular Defined Benefit plan and intend to transfer it out to an alternative provider, then you will probably need a pension transfer specialist. However, for most people pensions can be quite complex and a financial adviser can help and advise you with general pension queries or you can instruct a financial adviser to `manage and advise` you on your pension with an ad hoc service or on a more permanent basis.
Can I afford to retire? Great question. The answer comes back in a question, How much do you need to be able to retire? See our - How much shall I pay into my pension? For our answer.
How is my pension taxed? Any income you receive from a pension is taxed at your marginal tax rate. In other words, the income is added to all your other income in any tax year and taxed accordingly within its respective tax banding, i.e. 20%, 40% or 45%.
Who can inherit my pension? When you join a pension plan you will fill out an expression of wishes form for which you will nominate beneficiaries of your pension. Currently if you die before age 75 your pension benefits will be paid tax free to your nominated beneficiary. If you die after 75 then your beneficiary will be liable to income tax at their marginal rate. From April 2027 there are to be inheritance tax changes to pensions, meaning any unused pension monies and death benefits will fall into an estate for inheritance tax purposes.
What are the different types of pensions? There are mainly two categories: Defined Contribution Pension (DC). These define the contribution (usually on a monthly basis) you are to make, say for example £250 per month. These monthly payments are invested into funds and the valuation of your pension pot is linked to the performance of those funds and ultimately the financial stock markets. Therefore, the investment and performance risk is taken by you the pension owner. A pension value at maturity/retirement is not guaranteed. Personal pensions and most new workplace pensions are examples of a defined contribution plan. Defined Benefit Pension (DB). These define the benefit you will receive from the plan at maturity/retirement. So an example of this would be a plan that guarantees to pay you, say £10,000 per annum, for the remainder of your life when you retire. With these plans the employer takes all the risk and guarantees a stated benefit at maturity/retirement. These are often termed `gold plated` pensions as generally they are far more `valuable` than a DC plan. For this reason less and less employers are offering DB plans to employees and indeed most employers have closed their schemes due to the extremely high costs of providing these benefits.
How old do I need to be to receive a pension? Currently as at December 2024, you need to be 55 years old to receive benefits from a personal or workplace pension plan. As of April 6th, 2028 this minimum age will increase to 57 years old. Going forward it is intended to have a ten-year linkage to the State Pension age, whereby if the state pension age increases then the minimum age to access your pension will. Just as a side note, there are older existing pension plans that may have a protected pension age that may be different to current plans due to previous pension legislation. Equally there are rules that provide early access to pension funds due to retiring from the workplace through ill health.
How are pensions regulated? The Pensions Regulator (TPR) is the governmental body that oversees workplace pensions. The Financial Conduct Authority (FCA) oversees a large proportion of the pension industry.
Can I transfer my pension? Possibly. It all depends on the type of pension you have and whether such a pension or trustees of the pension will allow it to be transferred. Equally it may not be beneficial to transfer your pension. It could be that an existing pension plan has preserved or what we call `safeguarded` benefits attached to it. So, in essence you can usually transfer a personal pension plan, particularly one that doesn’t have safeguarded benefits. However, when we talk about Defined Benefit (Final salary) pensions the answer is not as simple and usually you will need a pension transfer specialist to help you determine whether it is the right advice or indeed can be transferred to an alternative plan. There are many factors to take into consideration with these types of plan.
What is a Will? A will is a legal document which instructs how you want your assets, whether that be Property, cash, investments or personal belongings, to be distributed upon your death.
What happens if I don't have a Will? If you do not have a Will in place, then your assets will be distributed as per the rules of intestacy set out in law.
What are executors of a Will? Executors of a will are the people who are legally responsible for the administration of your estate according to the Will. Some of their responsibilities include securing any assets, arranging the funeral, and applying for the Grant of Probate. For more information see.
Do I need a Will if I am married? Everyone should have a Will written irrelevant of their martial situation. If you are married as per the rules of intestacy your spouse/civil partner would inherit the majority, if not the entire, estate. You would also still benefit from any assets left to a spouse/civil partner being exempt from IHT. However, after you have passed away your spouse could change their Will to leave everything to another person which could lead to the disinheritance of any children you may have together.
What should I include in my Will? In your Will you should include your chosen beneficiaries’ (who should inherit your estate), your chosen executors and what assets you have. You can also include guardians for minor children and specific gifts you wish to leave.
How should I store my Will? You can choose to store the Will in your own home or at a Will storage facility for a fee. We would note that if you choose to store your Will at home to be aware that if it was lost, damaged or destroyed it would become useless. Wherever you decide to store your Will it is a good idea to let your executor(s) know where it is so it can be found easily when needed.
What if I have young children? Having a Will in place is important when you have young children. Within your Will you can name guardians to take care of your children should the worst happen, if you did not have named guardians it would be down to the courts to decide who should gain custody. Any assets left to your children will be placed into a Children’s Trust until an age chosen by yourself for them to inherit.
What types of trusts are there? There are many types of trusts available within estate planning including Discretionary Trusts and Interest in Possession Trusts. When selecting a trust, it depends on individual circumstances which is the best option.
What is a Lasting Power of Attorney? A Lasting Power of Attorney (LPA) is a legal document which enables you to name people you trust to make decisions and act on your behalf should you lose capacity be that physically or mentally. There are two types of LPA’s – Property & Financial and Health & Welfare. For information on what each type involves click here.
What is an attorney? An Attorney is the title given to those chosen to act on your behalf in an LPA.
Is my enduring power of attorney still valid? If your Enduring Power of Attorney (EPA) was made before 1st October 2007 then you can continue to use it. EPA’s can only be used whilst the donor has mental capacity unless they have already been registered with the Office of Public Guardian (OPG). Lasting Power of Attorney’s (LPA’s) replaced EPA’s in October 2007 and are generally considered more flexible and give more protection.
When can LPA's be used? An LPA has to have been registered with the OPG in order to be valid, they can be used once the Donor has lost mental capacity (or in the case of the Property & Financial LPA immediately upon registration if chosen).
Wills & Estate Planning