WhyWaitForever - London - Finance

Banking, savings, loans, mortgages and pensions

For any loan such as a student loan, a car loan or a complex mortgage the amount of the loan must be dependent on the ability to repay the loan. Changes in circumstances happen both job promotions and redundancies so flexibility is the key.

Always work out monthly incomes and outgoings for at least the last two years. Project this forward and add a reasonable large lump sum expenditure every six months (the fridge breaks down, the car needs to be repaired). The excess of income over outgoings is the amount available to repay a loan.

In a mortgage, repayments of a loan of twice annual salary should be tolerable, three times salary and there is usually pain. Some lenders factor in promotions and offer low interest rates at the start of a loan period consider all the implications of these offers very carefully. It is still very common to forego all holidays and to have minimal furniture in the first few years after a mortgage is taken out. Inflation (thankfully) remains low (fingers crossed) this does mean the pain can continue much longer than it used to as wage inflation eroded the value of the original loan.

A mortgage is a loan secured against a property. If the property is a dwelling the possible charge against the value of the property is registered at the HM Land Registry. The HM Land Registry for a fee can supply authenticated copies of the documents. Many people refer to these documents as the "title deeds". Never forget after the loan is paid off to obtain copies showing that the charge has been struck out.

There are a number of types of mortgages and variants within these types. A repayment mortgage is the easiest to understand. Every payment comprises a part that repays the interest on the outstanding loan (the interest part) and a part that repays the loan itself (the capital part). If the mortgage terms are flexible lump sums can be paid early, which reduces interest charges and maybe allows the loan to be repaid in full early. In general the earlier a loan is repaid the less overall the loan will cost. Flexible terms can allow payments to be delayed for short periods and resumed at higher rates to repay the missing payments.

There are other types of mortgages for example endowment and pension. These appear to be inflexible. These appear to combine a number of elements including repayment rates, life insurance, term insurance, actuarial tables, company standing, charges and commissions. These appear either for people who like unravelling the most intricate of financial jigsaw puzzles or for people who are optimists and like the nice smile of the man who sold them the financial product. As always it depends on individual circumstances. As with any complex product it is very important to make sure all claims are formally supplied in a written form that can later be used if necessary in court if a dispute arises.

Insurance

Most of the majors cover all the major types of insurance including house and content, motor and travel. It is important to get a number of quotes and to understand the restrictive clauses in the policies. Before signing it is useful to ask for written examples of hypothetical claims pertinent to your circumstances. You can emphasis the point by making it absolutely clear that these may be used later in court if a dispute arises. With loss adjustors and claims adjusters it can sometimes appear easier to squeeze blood from stone than it is to make a successful claim. Full paperwork and receipts are the best supporting evidence for any claims....so file ... file ...file.

When one is young and without financial encumberances there is a lesser need to be covered by insurance. Car, motorcycle and travel insurance are the only areas where this fell craft needs to be practised. A relationship with or without children increases dependencies and increases the need for insurance.

Mortgage repayment life insurance can be taken out to repay the mortgage should either party die. A surviving partner with children has enough worries without the need to find and pay for a new place to live. Insurance which covers the loss of the ability to repay a mortgage other than in the event of death can be very expensive.

Life insurance with no frills with no profits payable on the death of either partner is seen by many to be essential cover for the early years of a relationship. For a low annual payment usually fixed over the period of the policy a lump sum is paid on death. The lump sum usually increases the longer the policy is in force.

Term insurance is basically a method of saving with an element of insurance. After an agreed term if the insured survives a lump sum is paid out. This can have an element of life insurance. This can be set up to be with or without profits. To some the with profits type of saving is for optimists. There is little control over how companies calculate or make the profits. Management charges and overheads cuts sways into the profits of every company. Success is dependent on the insurance company being successful many years into the future. To quote a famous comic "What are the chance? Eh?"

Building insurance provides cover to allow a building to be rebuild in the event of specific risks occuring. Many mortgage lenders insist it is taken out as a condition of the loan. Even if they did not the capital sums involved in rebuilding after subsidence are so large that many feel this is essential. In many cases it is better to purchase this insurance from someone other than the mortgage lender. When the loan is repaid you will want to continue to enjoy building insurance cover. The annual renewal is a good reminder to recheck that the rates are still competitive and the amount of cover is sufficient to cover any increases in rebuilding costs.

Contents insurance covers possesions and provides peace of mind that the traumas of loss through theft and sometimes accidental damage is reduced. Equipment maintenance such as cover for central heating, plumbing or appliances can reduce the costs of repair. This is one area where costs can be disproportionate. If an electrical device will be out of date in three years and the costs of this type of device is falling think carefully about five year cover.

Some feel there is a place for health insurance in England.

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Caveat Emptor

Let the buyer beware. Shares and most financial instruments can go up in value and can fall in value. It is possible to lose all of your original investment. Sometimes markets lose their liquidity which means a buyer or seller cannot be found. Sometimes you are forced to sell following a takeover.

For London and UK residents it is very important to know where the financial instrument is traded and under whose rules the transaction is governed. For example there is a major Internet bank that advertises heavily in the UK and appears to be a UK bank but which operates under the Bank of France rules. This might add extra complexity.