Newsletter 3
Case Study #1 – IJ Top Tips – Practical Steps to take during a Downturn
Here we give you some practical suggestions of what you can do moving forward in the worst-case scenario of a housing market and economic downturn. Can you afford your mortgage at the standard variable rate? Do you know how much your property is worth and the effect this will have on you when coming to remortgage?
In this Case Study, we provide our Top Tips and practical steps you can take to shield you as much as possible and ride out the storm. (See the excellent links at the bottom of the page for further guidance).......
Whilst there are not high levels of unemployment and we are not completely in the doldrums at present, there is no harm in reviewing your financial situation and long-term financial goals. This may be to pay your mortgage off early, or save enough for your children’s schools or save enough simply for your next move. One thing is for sure, being prudent at present will allow you to be more flexible when the housing market does pick up again.
Ensure your credit record is unblemished
We looked at this in detail in our Spring Newsletter and the importance this holds when applying for a new mortgage. Lenders are increasingly cherry-picking clients, so be aware. See the Spring Newsletter for IJ’s Top Tips. However, the cardinal sin is to miss a mortgage payment. This should be the absolute last thing that happens and if you fear this may happen, contact your lender immediately as you may be eligible for a payment holiday, without it being marked on your credit report as a missed payment.
Budgeting
Affordability is the key to any mortgage payment and we can look at this more detail for you. Look at your bank statements on a monthly basis and ensure you are not spending frivolously. Whilst we realise you have to enjoy life, do you really need that 41” HD ready TV?!? Household utility bills, mobile phone bills, etc. should all be assessed to check that you have the best deal available. We can help you with this. If you would like to come to the office with your bank statements, credit card and loan statements, we can run through this with you, or point you in the right direction at the very least. Otherwise, simply batten down the hatches for a short time!
Separate Bills Account
A simple idea but having two bank accounts can really help with your budgeting plans. If you receive £2,000 pm and your bills are £1,000, simply set up your standing orders and direct debits on a bills account. This ensures everything is paid on time and then you know exactly what you have to use as disposable income for the month.
Emergency Fund
You should always ensure that you have a fund available for emergencies – regardless of the economic situation! Six months worth of outgoings should cover you sufficiently, but the more the better. You can also take account of other financial products you could use in the short term, credit cards, overdrafts, loans, etc.
Can you afford your mortgage at the Standard Variable Rate?
With lending criteria becoming harsher by the week, you may have to pay the lenders standard variable rate for a time – this may be as high as 7.5%. This is occurring on a high loan to value properties, buy-to-lets, where clients have missed payments on their mortgage, in conjunction with the current lender being unable to offer a new rate, e.g. Northern Rock. I have had several clients in this position.
Contact Us for a copy of your key facts illustration, if IJ has arranged this for you, or for a calculation of your potential new payments.
Ensure you are protected
There are many forms of insurance that you really need to maintain to ensure that a bad situation doesn’t get worse. You may consider redundancy insurance if you fear for your ability to pay your mortgage if you were made unemployed due to the downturn. You must also ensure that you have all appropriate insurances in place. Life insurance, critical illness cover, income protection, business protection and home and contents are as important now as when you took them out, if not more so. You may also wish to review your existing arrangements or set a budget for new types of insurance. We can tailor this for you to suit your budget. Contact us.
How much equity do you have in your property?
This is essential when you come to remortgage and obtain a cheap rate. If you Contact us, we can perform a Hometrack Property Valuation for you for Free and obtain a local property valuation report for £10 (cost price). You need to have at least 10% equity in your property to access the better deals on the market. If you have an interest only mortgage, you should ensure you are making overpayments to reduce your loan. This is also a prudent strategy with a repayment mortgage, as most lenders now allow overpayments. If you have some savings that are not needed in the short term, you may wish to use these to reduce your loan to value.
“If you can keep your head when all about you are losing theirs...” (Rudyard Kipling)
Finally, there will undoubtedly be some tremendous investment opportunities for those people able to move quickly in the housing market. As a first time buyer or investor, you should be looking to save as large a deposit as possible to be able to look at, for instance, buying at auction. You may want to agree your mortgage in principle to allow you to move swiftly should an ideal opportunity present itself. You also need to know of the types of property lenders like and dislike. Please do Contact us to discuss this.
Useful Links
The Financial Services Authority has an excellent website with a number of useful features and calculators:
Undertake a quick generic Financial Health check in 2 minutes!
http://www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=financial-health-check
Calculate your monthly payments at standard variable rate
http://www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=mortgage_calculator
Undertake a budget calculation
http://www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=budget_calculator
Contact Us with any queries relating to this or any other matter.