BTL mortgage lenders increase stress tests.
Buy-to-Let investors face the prospect of new curbs on their ability to borrow. The Bank of England’s Prudential Regulation Authority (PRA), which monitors the soundness of banks and other lenders, has recently published a consultation paper. Its aim is to lay down underwriting standards that it thinks will prevent landlords getting into mortgage payment difficulties if they have a shock to their system or if interest rates rise.
The PRA wants lenders to assess either whether the monthly rental income from the property is enough to cover the mortgage, or whether the landlord has enough money – along with rental income – to keep paying the mortgage. It makes clear that affordability should never be based on the value of equity in the property used as security for the mortgage, and nor should lenders rely on predictions of rises in house prices to justify loan sizes.
The first of these tests requires lenders to calculate an interest coverage ratio, the relationship of the expected monthly rental income to the monthly interest payments. The PRA says this should be a minimum of 125% but recently we have seen lenders increasing this to 145%. The calculation takes into account all costs of the buy-to-let, including estimated voids, council tax, repairs, letting agent fees and utility costs.
Tax liabilities also need to be incorporated into the sums, including the changes resulting from the government’s limits on mortgage interest tax relief, due to start next year (from 2017 onwards the tax liability will step up year on year until 2020).
A borrower’s affordability is assessed under a hypothetical borrowing rate of at least 5% over a minimum of 5 years from the start of the mortgage. Many lenders have already increased the rate of interest it uses from 5% to 5.5%. In addition to this, some lenders are going so far as to access a borrower’s income in addition to these stress tests which could prove problematic for some buy-to-let landlords.
If you are already a have a buy-to-let property or you are thinking of buying one then talk to us first so we can discuss your options. To arrange a meeting, or an initial chat over the phone, with one of the mortgage team email your details to firstname.lastname@example.org.
Autumn Statement 2016: all change for the Chancellor
The UK has experienced plenty of political upheaval this year with the EU referendum followed by a change of leadership. The Chancellor, Philip Hammond, delivered his first Autumn Statement on 23 November– which also turned out to be his last. His surprise announcement was that after two Budgets in 2017, from 2018 onwards we will have a Spring Statement and an Autumn Budget.
The Chancellor presented his Autumn Statement against a background of reduced growth forecasts and the ‘urgent’ need to tackle the long-term weaknesses of the UK economy. His declared ambition is to make UK ‘match-fit’ for Brexit.
The emphasis of the Chancellor’s speech was on increased infrastructure spending, a stop on further new welfare savings measures and an acceptance that government borrowing will be significantly higher than previously projected.
Non-tax provisions included a proposed ban – as in Scotland – on letting agents charging fees to renters, a continuing freeze on fuel duty, and a 30p an hour increase in the national living wage from April 2017 to £7.50.
On the tax front Mr Hammond announced the removal of tax and NIC advantages from salary sacrifice schemes (excluding pension contributions) and confirmation of the government’s commitment to reducing corporation tax to 17% by 2010. In a statement with little pensions news the Chancellor snuck in a reduction in the money purchase annual allowance (MPAA) from £10,000 to £4,000 from April 2017.
In a speech that ranged from welfare change to insurance premium tax by way of saving Wentworth Woodhouse, an historic stately home said to be the inspiration for Jane Austen’s Pemberley for the nation, Mr Hammond mixed in the serious challenges with some quirky touches. Perhaps he has started as he means to go on.
Read our Autumn Statement summary here http://www.plutuswealth.com/about/documents-library/
#autumnstatement #financialadvice #london
Chartered Financial Planner
The titles of Chartered Financial Planner and Chartered Financial Planners ware granted by the Chartered Insurance Institute (CII). The Privy Council authorised the CII to issue the Chartered title in 2005. Thus, a Chartered Financial Planner now carries equivalent qualifications and other established professions such as Chartered Accountants and Chartered Surveyors, etc. Membership of the Personal Finance Society, the leading professional body for financial planners, is required to be able to use the professional designation Chartered Financial Planner.
The qualification fits into the National Qualifications Framework at Level 6, equivalent to a Bachelors (first) Degree.
To attain Chartered Financial Planner status as an individual, one must study for and pass approximately 14 exams in various aspects of financial services and related subjects. Each exam offered by the Chartered Insurance Institute carries a certain number of “credits” in their qualification scheme. Credits can also be granted for equivalent exams passed form other awarding bodies. A total of 290 credits is required before Chartered status can be applied for. This generally takes several years to achieve.
One is also required to have five years relevant professional experience, and to demonstrate ongoing learning by completing a certain amount of Continued Professional Development each year. In addition, one is required to be a member of the Personal Finance Society, the professional body for Financial Planners, part of the CII Group.
What questions should I ask an adviser? by MONEYSAVINGSEXPERT
Don’t feel embarrassed. You’re potentially going to be transacting a lot of money via this person, so you have every right to ask questions and make sure you’re confident in your decision.
Usually your first meeting with a financial adviser is free, so you’re under no pressure to use them if you’re not impressed, or you simply don’t ‘click’. If you go in armed with the below list of questions (and any others you have of your own) you’ll be best placed to make a decision.
Q. Are you independent or restricted?
A. This is probably the most important question you can ask and it’s best to make it your first so you know where you stand. An independent financial adviser will be able to search the whole of the market to get the best product for you, and must be entirely unbiased to call themselves independent. Read more on the difference.
Since 31 December 2012, advisers who are not able to search the whole market, or are tied to certain providers, must class themselves as ‘restricted advisers’.
If you find a restricted adviser, check what their restriction is. Some are called restricted because they have, for example, chosen to specialise in certain areas such as pensions and won’t offer advise on anything else.
However, other restricted advisers are tied to certain providers and will only be able to offer you products from those providers, or none at all if there are no products they can advise on that match what you want. Always check if the adviser you are consulting meets your needs. If in doubt, always, always look for an independent adviser.
Q. How will I receive the advice?
A. You should ask whether the advice will be given to you face-to-face, on the phone, via email or in a report. If you have a preference, ask if there are different prices for each.
The adviser should send you an outline of their recommendations, which is usually called a ‘suitability report’. Read and check this carefully to ensure it reflects the discussion you had with the adviser and that you understand why they recommended a particular product.
Q. Are you authorised?
A. The FCA monitors firms to check they are qualified and above board. Before you meet any IFA, do a quick search on the FCA’s website to check they’re fully authorised.
Q. What qualifications do you have?
A. The FCA requires all IFAs to pass what they call ‘Level 4 qualifications’ – so you should be looking for a diploma-level certificate, such as the Diploma in Financial Planning (DipFP) (formerly the Advanced Financial Planning Certificate), or even better, the Advanced Diploma in Financial Planning
As we approach the end of the tax year and the impending changes to pension rules on April 5th, one of our advisers Tom Dean, talks us through the important points.
On retirement individuals typically crystalised a 25% tax free lump sum and drew an income from the remainder (via drawdown or annuity). From April, those over age 55 will be able to access money purchase pensions in their entirety. It will be down to the individual to assess whether this is suitable, the main issues to consider will be whether they will retain enough assets to fund their income in retirement and their marginal rate of tax.
Before the new legislation, the most significant change to pension death benefits occurred at the point the pension was vested, that is to say moving from uncrystalised to crystalised. This has now changed and a new line has been drawn at age 75, prior to this age, regardless of whether any benefits have been taken, the fund is returned tax free to the beneficiaries.
Post age 75, the beneficiary can draw the benefits at their marginal rate of income tax.
Annual Allowances for those in Drawdown
The conventional annual allowance remains at £40,000 but there is now a new ‘money purchase annual allowance’ (MPAA) which is £10,000, the introduction of the MPAA has been deemed necessary to limit the scope for pension fund recycling.
This will apply to those already in flexible drawdown who have received a payment before 6th April 2015, those who use flexi-access drawdown after April 5th and subsequently draw income from the fund, those taking more than 25% of an uncrystallised lump sum and those in capped drawdown who exceed the maximum income limit after April 5th.
The lower annual allowance will not apply to those already in capped drawdown who do not increase their income level, neither will it apply to those entering flexi-access drawdown who only take their 25% tax free lump sum.
Pensions – so misunderstood!
Pensions and their rules can be confusing, everyone’s situation will be different and before you make any decisions about your pension you should talk to a professional. So please do talk to us if you would like to know more.
This from The Freedom and Choice in Pensions research paper survey:
“Would you like to buy a guaranteed income for life with your pension pot? YES 70%
“Would you like to buy an annuity with your pension pot? YES 17%
We are approaching the end of the tax year so now is the time to start considering what you need to do. There are many options and of course these depend on your circumstances but below we have highlighted just a few of the key things you may want to consider before the 5th April 2015.
Use your ISA allowance
Every person has an allowance every tax year. The current allowance is £15,000. Income and capital gains from ISAs are tax free and withdrawals from adult ISAs do not affect tax relief. Why wait until March? For the Tax year 2015/16 the allowance is £15,240.
Use your Pension allowance
Every person has an allowance of £40,000 per annum, which is the amount that can be contributed into your pension scheme by yourself and your employer.
Maximising contributions in 2014/15 may be advantageous – depending on your past contribution pattern and the ability to adjust your payment input period, it is theoretically possible to contribute up to £190,000 before 6 April 2015 and obtain tax relief on the whole sum.
Invest in Enterprise Investment Schemes (EIS)
Investments in qualifying EIS companies in 2014/15 attract income tax relief at 30% on a maximum annual investment of up to £1 million for qualifying individuals – spouses and civil partners each have individual investment entitlements. Relief from CGT is available too, but EIS investments remain higher risk than many other choices.
Invest in Venture Capital Trusts (VCTs)
Buying units in venture capital trusts (VCT) is also higher risk than many other investment choices as they are required to invest in smaller companies that are not fully listed, however, they also offer generous tax benefits.
Income tax relief at 30% is available on qualifying investments of up to £200,000 for 2014/5 and dividends received from the units are tax free. In addition there is no CGT payable on any gain made when you sell the VCT.