PERSONAL FINANCIAL PLANNING

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PERSONALFINANCIAL PLANNING

• Stephen Major
• Independent Financial Planner

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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

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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, 3employee
• Savings cash ISA 3,000
• Student loans 12,000
• Car loan repayment 350 per month

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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

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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?

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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

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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

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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

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Who should purchase the property?

• Should it be joint ownership
• or
• Single ownership

• Joint tenancy
• Tenancy in common

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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

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Michael and Julia

• Joint income 53,000p/a
• Less cost of the following
• Repayment of Michaels car loan 4,200p/a
• Repayment of Michaels student loan
• Repayment of Julias car loan 3,000p/a
• Repayment of Julias student loan
• Joint income available 45,800p/a

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Michael Julia could borrow

• a maximum of 207,000

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Julia could borrow

• a maximum of 106,000

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Julia and parent as Guarantor

• Could borrow 150,000
• Assumes parent has available income of 10,500
  

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Credit Assessment

• Household budget
• Household budgeting and lending decision
• Credit history
• Employment types Employed
• Self-employed
• Contractor
• Property details Freehold or Leasehold

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Mortgage repayment vehicle

• Attitude to risk
• Cautious
• Balanced
• Balanced to Adventurous
• Adventurous

• Capital Repayment (C R)
• Split between C R and Interest only
• Interest and Investment Product i.e. Endowment
  or Pension mortgage
• Interest only

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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.

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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

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Calculation of mortgage repayments

• Calculation of interest charged
• Calculating annual percentage rate (APR)

• Daily
• Monthly
• Annually
• To compare different mortgage rates

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Do you need protection?

• Mortgage Payment Protection Insurance
• Redundancy/Accident Sickness
• Income Protection Insurance
• Buildings Insurance
• Contents Insurance

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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

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Other types of protection

• Life assurance
• Critical Illness Cover
• Decreasing Term or Level Term Policy?
• Individual or Combined Policy?

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It will not happen to me?

• If it is not you then it could be the person
  next to you!

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The importance of a will

• Intestate
• Testate

• Assets go to parents, siblings, other relatives,
  then the State.
• You decide who benefits from your estate.