It was no surprise that DIY stores enjoyed a sales boom during the various lockdowns, as homeowners distracted themselves with improvement projects. Now, as the latest restrictions are eased, your thoughts may be turning to a more ambitious DIY project – building your own house from scratch.

Building your own home might sound like an unrealistic dream. But these days it’s easier to self-build than you might expect, according to Paul Johnson, Chartered Financial Planner and Head of Mortgages at St. James’s Place Wealth Management.

“About 20 years ago, it was hard. But today there are so many companies that can help you with it,” he says. “There’s a misconception it’s difficult to get finance, but there are at least 20 lenders out there that will lend on self-build.”

Degrees of DIY

The attractions of self-building are various. Perhaps the most obvious is the level of choice and control it offers, with the opportunity to follow your own vision and not be constrained by what’s currently on the market. As Johnson points out, people who have lived in several homes and are looking at their next move often have particular preferences and requirements.

“There’s always something that’s not right. Maybe the houses they’re looking at aren’t in the right location. Or they’re in the wrong style. So, they want to work from a clean sheet – where they choose the area and build the property to their own specification,” he says.

There’s also growing demand for eco-friendly self-builds from those wanting to ensure their home is as energy-efficient as possible. There’s a potential cost advantage here, with a growing number of lenders offering green mortgages that have lower interest charges on more energy-efficient properties.

In some areas it’s becoming easier to secure planning permission, too, with local authorities increasingly flexible and accommodating when it comes to converting vacant ex-commercial space, says Johnson.

While some people want to take on a self-build project as their own and manage the process from start to finish, others would prefer to remain relatively hands-off. It’s up to you how involved you want to be, says Johnson.

“We can introduce you to someone who can take the stress of the project off you – from the building process to the finance. Or, if you prefer to get stuck in, we can simply advise you on the lending and help prevent you from running out of money before the end of the process.”

Whichever approach you take, it’s vital to seek advice from the outset. “Don’t just dive into it. Step one is to talk to an adviser before you start looking at land, getting a builder and putting plans in place,” says Johnson.

It’s especially important to understand what it’ll cost, whether you can afford it and the type of lending you’ll need in place.

Making it add up

The self-build approach can be cost-efficient and potentially cheaper than buying a new property. Research suggests the average self-builder spends around £270,000 on completing their project, with the cost of the plot averaging out at £190,000.¹

But at the outset, it can be easy to underestimate the various costs, while navigating the self-build mortgage market is much easier with expert advice.

High-street banks generally avoid lending on self-builds, so the best bet is usually one of several building societies, with the likes of Skipton, Leeds, Ecology and Furness among the specialists in the area.

There are crucial mortgage differences to be aware of, too. While traditional mortgages provide the finance in one go, self-build loans are usually released in tranches.

“They release the money as you go through, but every lender is different in how they do it,” says Johnson. “They typically start providing funding for the land, but not all of them will.”

This is designed largely to protect lenders and reduce the risk of funds running out during construction. But it’s an arrangement that can become complex for borrowers when phases are delayed or costs begin to rise.

The application process is largely similar to that for standard mortgages, however. Lenders will want to see the planning permission – but aside from that, the focus is mainly on affordability and income.

So, it’s far from an impossible dream, says Johnson – provided you get good advice. “Talk to an adviser. You might be surprised at what you can do, and it’s often a very logical step. Why look at second best or compromise when you’ve got your own vision and you know what you want?”

Your home may be repossessed if you do not keep up repayments on your mortgage.

¹ Homebuilding & Renovating, Self & Custom Build Market Report, 2020

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It’s wonderful to read headlines about vaccines and a return to something like normal; yet daily news of further restrictions and recession do little to calm the financial nerves. Little wonder, then, that many people are using this uncertain time to reassess their goals to in the light of unpredictable events, as well as reassessing their own objectives.

One way of doing this is securing a better-value loan on your home through remortgaging. Switching your mortgage deal, either with your existing lender or a different one, isn’t a new concept; but when it comes to achieving long-term financial goals, for some people it takes a back seat to, say, amending a personal pension or restructuring investments.

It’s easier than you might think

That, however, may be a mistake, according to Paul Johnson, Client Banking and Mortgage Manager at St. James’s Place, who believes that remortgaging should be at the forefront of financial planning. He says the historic perception of remortgaging – that it’s a troublesome, bureaucratic process involving the gathering of payslips and other paperwork, and seeking a solicitor’s approval – is largely outdated. Many lenders have made the process simpler, quicker and far less stressful.

Remortgaging is also an option with buy-to-let (BTL) investment properties. Some landlords increase the size of their portfolios by releasing funds from existing BTLs through remortgaging, to pay the typical 30 to 40% deposits required when purchasing an additional property.

But whether you’re an owner-occupier or a landlord, it’s important to have clear goals for remortgaging, and then to research and calculate as thoroughly as possible to ensure that you choose the optimum remortgaging product.

Identifying goals

So, why talk about goals? Surely remortgaging is simply about paying less per month on a mortgage?

“Yes and no,” says Johnson. “Of course remortgaging should mean paying less, and if successful it’s likely to save hundreds of pounds a month. But if that’s frittered away, the full saving isn’t maximised. A goal of, say, using saved money to pay down the mortgage is a win-win – you pay less per month on the mortgage itself, while the loan term is shortened.”

There are many other possible goals – using saved money to invest, for example – so establishing objectives at the outset will help you to identify the right mortgage for you. That’s where research comes in. There are literally thousands of mortgage products in the marketplace, so where’s the best place to start?

A lower monthly payment will be the primary objective, but it’s vital to assess other factors. Is there an arrangement fee for switching to another lender? Does a longer-term mortgage mean you ultimately pay more? If you inherit and want to go mortgage-free, will there be a large early repayment fee?

“And remember, not all lenders cater for all clients, especially in our Covid times,” says Johnson. “The self-employed or those on furlough will have fewer remortgage choices – but they do exist, and an expert will find them and advise on them.”

Getting the right help

That access to expertise – from people who can authoritatively assess your financial position and look at the widest selection of options available – is more important than ever right now.

“Covid has fast-tracked change in people’s lives. Job security, which they previously felt they controlled, might now be out of their hands. And the monthly cash flow, which used to be so reliable, may be much less certain today,” says Melloney Underhill, Marketing Insights Manager at St. James’s Place.

Traditional reasons for remortgaging – because an existing mortgage deal is ending, or a home has increased in value substantially, or a borrower is concerned about future changes to interest rates – remain completely valid. But in the context of the pandemic, there are often more immediate and less predictable reasons why people may take this course of action, especially if short-term protections such as payment holidays and furlough arrangements are added into the mix.

“It’s a delicate and difficult time,” says Underhill. “Someone must be willing to say if an option is wrong and suggest a better solution. If a client has a six-month cash problem, they shouldn’t lock themselves into a 25-year product which makes them disadvantaged long-term just to achieve a quick remedy.”

With uncertainty in plentiful supply, it’s easy to steer that wrong course. “So the trick,” says Underhill, “is to have someone like a St. James’s Place Partner in your corner, identifying opportunities and pitfalls, and offering financial advice. It’s needed more now than ever before.”

The home on which the mortgage is secured may be repossessed if repayments are not kept up to date on the mortgage.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Some buy-to-let mortgages are not regulated by the Financial Conduct Authority.

The post Is it time to think about remortgaging? appeared first on Hestia Mortgages.

• The scheme could be useful for young buyers with no parental financial assistance – who cannot see themselves saving more than a 5% deposit
• But there’s currently a shortage of mortgage choice for the new scheme and interest rates for borrowers are likely to be high
• 95% mortgages do already exist outside of the scheme – and there are options that allow family members to help out in the buying process
• It’s key to get information from an informed expert who knows the options and is on your side

The news that a 95% mortgage scheme is being launched to encourage younger people to get a foot on the property ladder is welcome. After all, no one can deny that saving for a hefty deposit is usually extremely difficult, especially in the midst of a pandemic.

But let’s look at the small print. Do the details – in particular how much it will cost borrowers to service the debt in the long-term – mean that there are ‘cons’ as well as ‘pros’?

How does the initiative work?

The scheme involves the government offering a guarantee to banks to encourage them to offer 95% mortgages. It runs from April 2021 to December 2022, for properties old and new up to £600,000. It is not restricted to first-time buyers, although this is likely to be the group most attracted to the prospect of requiring just a 5% deposit.

Under the scheme, the government will partially compensate the mortgage lender if a homeowner fails to pay their mortgage – if that sounds familiar, it’s because it’s modelled on the Help to Buy mortgage guarantee scheme used by over 100,000 buyers up to 2016.¹

There are a few other restrictions. The new scheme is not open for buy-to-let or holiday home purchases, of course, and applies only to repayment (not interest-only) mortgages. All applicants must pass affordability checks assessing their income and credit scores

Is it the best way to buy?

So far, so obvious and sensible. However, is this new route definitely the best way for all younger buyers to consider getting their first home?

Perhaps not, says Paul Johnson, Head of Mortgages at St. James’s Place. He believes that younger buyers, and their parents or guardians if appropriate, should look in the round to find the best route to buy.

“One factor to consider now is the relative shortage of mortgage choice for the new scheme. No building society is taking part, and so far, only a few banks have stepped forward. Therefore, interest rates for borrowers are likely to be very high,” he warns.

What are the alternatives?

While every applicant’s circumstances will differ, some may find other routes to ownership more acceptable and cheaper.

“There are some 95% mortgages already, not within the scheme. Alternatively, some banks offer an option for a family member to put down a deposit for the young buyer – effectively that means no deposit has to be paid at all by the actual purchaser,” says Johnson.

“There’s also an offset mortgage from some lenders, allowing a family member’s savings to be used to ‘offset’ the loan taken out by the younger person,” he adds.

There might even be a more radical alternative to all of these – do nothing and wait, for six or 12 months, especially for the financial side-effects of the pandemic to become clear.

During that time more saving can take place, possibly meaning a larger deposit and a wider choice of lower-interest mortgages. House prices could dip, individual job prospects may change, or the 95% mortgage market become more competitive as additional lenders enter the fray and vie for customers.

Seek advice

Of course, having looked at all of these, it’s perfectly possible that the new guaranteed scheme fits the bill best. It is certainly likely to be useful for younger purchasers with no parental financial assistance, as well as for those who have saved yet cannot see themselves reaching beyond a 5% deposit.

“Weigh the pros and cons not just of the new scheme but of all the alternatives available,” continues Johnson. “There are almost certainly more options than you think, so it’s key to get information from an informed expert who knows the options and is on your side, but can offer guidance.”

Looking for a trusted adviser to help you with your mortgage options? Talk to your St. James’s Place Partner today.

Your home may be repossessed if you do not keep up repayments on your mortgage. Some Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.

Sources:

¹Help to Buy: Mortgage Guarantee Scheme quarterly statistics, 28 September 2017

The post The 95% mortgage guarantee scheme: understanding your options appeared first on Hestia Mortgages.

• Women typically insure themselves far less than men, despite the fact that on top of their earnings, their unpaid work, such as caring responsibilities, make their household contribution extremely valuable.
• While life insurance that pays out upon death is important, you are more likely to suffer a serious illness that prevents you from working, so it’s vital to look at critical illness cover and income protection insurance as well.
• Your St. James’s Place Partner can review your protection insurance needs to make sure you’re well covered.

How much is your life worth? It’s not a pleasant thought to consider, but evidence shows women are placing a lower value on their input to household finances than men – and under-insuring themselves.

According to figures from insurance company Zurich, the average amount of life insurance taken out by women is 53% lower than men. For critical illness cover – which pays a lump sum if you suffer a serious illness covered by the policy – the difference is even more staggering, with women typically insuring 90% less than men.¹

When we’re talking to married or cohabiting women about why they haven’t insured themselves for as much as their partner, the answer is often the same. “I don’t earn as much,” they say, or, “I only work part-time.”

For those in same sex relationships, it can also be the case that one partner undervalues their contribution, and in relationships with two women, both may find themselves under-insured.

Get covered for whatever life throws at you

Whether she has a partner or not, a woman’s contribution to a smoothly-run household is usually far more than the sum of her earnings, particularly if children are involved. This means that when you are thinking about how much insurance to buy, it’s important to consider not just your financial contribution to the household finances and the money you are putting away for your future, but also all that unpaid work.

If, for example, you couldn’t work or run around after the kids, the dog, maybe even your parents, who else would? Whether it’s childcare, dog walking or tending to older relatives, this unpaid work you do without batting an eyelid might need to be paid for if you weren’t able to do it.

However, it’s not just about the amount of protection insurance you buy, it’s about making sure that you’ve got the right type – so that you’re covered whatever life throws at you.

The different types of insurance

Life insurance is one of the most commonly bought form of protection and often the priority for families. Maybe because it’s offered alongside mortgages, maybe because it’s relatively cheap, or maybe because death scares us.

This cover is important and can provide a lifeline to families if a parent dies – perhaps paying off the mortgage and easing the pressure on the surviving partner, or providing funds to pay the bills.

But death isn’t necessarily what should be worrying us most. The average 40-year-old woman has just a 4% chance of dying before she retires, but the risk of suffering a serious illness is three times as great at 12%, while the risk of being unable to work for a period of two months or more is 36%.²

With the odds of getting ill greater than the odds of dying, it’s worth considering other policies alongside life insurance.

Critical illness cover works a bit like life insurance in so far as it pays out a lump sum, but rather than paying out when you die, it pays out when you are diagnosed with a serious or life-threatening condition covered by the plan. This could be anything from a cancer diagnosis through to heart disease or multiple sclerosis. You can spend the money as you wish to help support you through a difficult time.

Income protection insurance, on the other hand, is a bit like salary insurance. You don’t have to suffer a specific condition; rather, it pays out a monthly benefit if an illness or accident stops you working. This could be a life-threatening illness such as cancer or heart disease, but would also extend to mental-health problems, back pain and other injuries.

Review your protection needs with an expert

You can arrange these policies yourself – but it’s not always easy to get it right. Indeed, at St. James’s Place, we often see that people recognise the need for protection but don’t act on it because they’re not sure how to.

This is where a regular protection review can really help. Whether you are single, in a relationship, have children or are child free, your St. James’s Place Partner will be able to set up the right package of protection for you. Or, if you already have some cover, they can help you spot any gaps or areas where you could be under-insured.

Arranging protection means facing up to some difficult thoughts and conversations, and you don’t get that same feeling of satisfaction as you might when you’ve decided to up your ISA contributions or a savings plan for your child.

What it can buy you, though, is the peace of mind that if disaster does strike, your finances shouldn’t take too big a hit.

We always say that protection provides the foundation of your financial plan, and once it’s sorted – and your safety net is in place – you’re free to focus on achieving your bigger, more exciting financial goals.

To ensure you have the right protection in place, speak to your St. James’s Place Partner about insurance.

Sources:

¹ Women and protection during coronavirus, Zurich, 22 June 2020

² Figures from LV= Risk Reality Calculator, based on a 40-year-old, non-smoking woman retiring at age 67

The post Why every woman should review her protection insurance now appeared first on Hestia Mortgages.

• The COVID-19 pandemic hit self-employed businesses hard, exacerbating the difficulty of making long-term financial plans.
• However, some aspects of self-employment can prove beneficial when it comes to building an income for retirement.
• Self-employment can be time-consuming and tiring. Letting an adviser take the strain of financial planning could be a smart move.

When it comes to long-term finances and retirement planning, the self-employed have little option but to engage or risk being left behind. While there are many challenges, the flexibility that comes with going it alone offers some benefits, too – and this might be particularly important in light of the impact of the COVID-19 crisis on their businesses.

Seven in 10 suffered a fall in business revenues in the six months from March 2020, with 9% ceasing trading entirely, according to research by the Financial Conduct Authority.¹

That will inevitably affect retirement plans, an area in which the self-employed are in some ways disadvantaged. They are among the groups least likely to have a pension they are contributing to, the Financial Conduct Authority reported, with just 55% building a pension pot, compared with 80% of all adults in work.²

An uphill battle

There are several reasons for this. Most people open a pension with their employer, but the self-employed are excluded from automatic enrolment, which, since its launch in 2012, has seen millions of workers placed into workplace pension schemes to help them make payments and plan for retirement.

So, while self-employment has grown significantly in recent decades – rising from 8% of UK workers in 1975 to more than 14% by 2019³ – the pension challenges that come with it remain largely unchanged.

They include the unpredictability of income that is often a feature of self-employment, notes Tony Clark, Senior Propositions Manager at St. James’s Place. “An erratic income stream, with good periods and not-so-good periods, is an issue,” he says. “It’s harder to plan ahead and know how much you can pay into your pension.”

There’s also the time and hassle factor, with self-employed people having to manage both their personal and business finances at the same time. Setting up and maintaining a pension and long-term savings plans can be time-consuming, especially when first leaving employment and embarking on the solo journey.

With no workplace pension available, the onus is on the self-employed to be proactive when it comes to making sure they are putting enough aside for later life. “The employed are being nudged into saving more, whereas that doesn’t happen for the self-employed, so it’s about being savvy and active in how you plan,” says Clark.

Making it work

The odds might feel stacked against you if you’re self-employed. But in many ways, the flexible nature of self-employment fits well with the modern way of retirement.

“Most people approaching retirement in the next 10 or 20 years will need to draw on a range of different assets, not just their pension,” says Clark. “The self-employed have the opportunity to be a bit ahead of the curve in that respect.”

For instance, while pensions are important, they should ideally be just one part of a broader retirement savings package. Individual savings accounts (ISAs), personal pensions, self-invested personal pensions (SIPPs), property and business assets can all provide an income in retirement, as well as offering extra diversification and investment flexibility.

“It’s about building retirement assets, and your pension is just one of them,” says Clark. “Having a plan in place can help you take full advantage of the flexibility that often comes with being self-employed.”

That plan may involve making pension or investment contributions that fit with earnings levels that often jump up and down. For instance, some might find it easier to pay in lump sums every few months rather than contributing a set monthly amount.

Uneven or irregular incomes can also work in your favour due to the way pension allowances work. Under the annual allowance rules, there’s a limit to the amount you can pay into a pension each year, but there’s also a ‘carry-forward’ feature.

This means you can use any unused allowances from your previous three tax years to maximise your pension contributions in the current tax year. It also means that if you don’t use all of your allowance this year, you can carry it forward and still benefit from it in future.

“You can balance out how much you contribute to your pension, depending on if your business is experiencing good years or tough times, and really take advantage of those tax allowances,” says Clark.

Working as a team

Maximising allowances and making the flexibility of self-employment really work well for you might come down to letting a professional take some of the burden off your busy shoulders.

“If you haven’t used all of your allowance, your adviser can look at the past few years and see what you can do with it,” he explains. “It’s like a jigsaw puzzle, whereas when you’re employed, it’s easier to just let your pension do the work.”

Having an adviser is more crucial than ever in understanding how you can make contributions that fit with your work and earnings patterns. “Retirement and pension planning will often fall down the list when you’ve got a lot to do, so it’s important to ensure you’re not in it alone,” says Clark. “Use your financial adviser, because trying to do everything yourself can be really hard when you’re self-employed.”

If you’re self-employed and need help planning your retirement, please get in touch.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Sources

^1,2 Financial Lives 2020 survey: the impact of coronavirus, Financial Conduct Authority, 11 February 2021, 16,000+ survey respondents

³ What does the rise of self-employment tell us about the UK labour market?, briefing note, Institute for Fiscal Studies, 19 November 2020

The post How the self-employed can work towards a bright financial future appeared first on Hestia Mortgages.