7 tips if you want to invest in Buy to Let property

7 tips if you want to invest in Buy to Let property

While property prices may have stalled during the lockdown, early signs point to a recovery now restrictions have been lifted. If you’re looking for assets to invest in, a Buy to Let property can be attractive. Rental yields have climbed significantly in recent years, especially in cities and commuter towns. But it’s not a straightforward decision and there are drawbacks to keep in mind too.

If it’s an option you’re exploring, these seven tips could help you assess if it’s the right decision for you and help you get started.

1. Research the market

It’s important that you fully understand your investment and how you can expect it to perform.

When it comes to a ‘good’ investment, there’s no single rule that applies to every area. A home that appeals to a young professional will be very different from the one that attracts a growing family. You need to research the type of home that’s in demand where you’re planning to buy, what potential tenants expect and rental values of properties nearby.

As a Buy to Let investor, the good news is you’re in a good position to haggle. You benefit from the same advantage as a first-time buyer in that you’re not part of a chain. As a result, sellers may be willing to accept lower offers for less chance of the sale falling through.

2. Understand the responsibility of landlords

Becoming a landlord can often be seen as an ‘easy’ way to make some extra money. However, it comes with a lot of responsibilities too.

You have to ensure the property remains in good condition and meets stringent regulations. This can cost both time and money. For instance, gas and electric appliances will need to be tested regularly, fire safety should be considered and any repairs that need completing should be done so in a timely fashion. Failing to comply with regulations could result in hefty fines or legal action.

Rules and regulations change regularly. So, it’s important you stay in the loop.

3. Carefully calculate ongoing expenses

A Buy to Let investment isn’t one that you can manage passively. You will need to be involved in managing a property and it’s important to be aware of the ongoing expenses associated with this. These include repair and maintenance work and landlord insurance.

If you decide you’d like to take a more hands-off approach, a letting agent is an option. However, this too will come at a cost. A letting agent will typically take a portion of the monthly rent as a property management fee. You can often negotiate this or shop around for a better deal. However, keep in mind, that a good letting agent can reduce the chance of void periods and save you money in the long run.

4. Prepare for rental voids

There will be times when the property is vacant or rent isn’t being paid, costing you money. Recognising and preparing for this can help you maximise your investment.

The first step is to fully vet tenants. This can help you minimise the risk of selecting tenants that won’t pay on time. Once you’ve got tenants in the property, treating them well and responding to concerns promptly can improve the chances of them staying long term. It means you reduce admin costs and the periods of rental voids.

In some cases, a letting agent may be a good option for tackling this. They’ll vet potential tenants on your behalf and handle initial enquiries. This, of course, comes at a cost, but if you don’t want to be a hands-on landlord, it’s a useful option.

5. Take advantage of the Stamp Duty holiday

As part of the 2020 Summer Statement, Chancellor Rishi Sunak announced a temporary reduction in Stamp Duty rates. This will apply to all residential properties purchased from 8 July 2020 until 31 March 2021, including Buy to Let investments. If you’re thinking about purchasing a house to let out, taking advantage of this could save you thousands of pounds.

The threshold at which Stamp Duty is payable on residential properties is temporarily increased from £125,000 to £500,000. Property investors will still need to pay a 3% Stamp Duty surcharge but assuming the property’s value is below £500,000, no further duty will be due.

6. Have a long-term plan

As with any investment, you should purchase a Buy to Let property with a long-term plan in mind. Current worries about the economy following the Covid-19 pandemic has led to speculation that the housing market will ‘crash’.

While this can be frustrating in the short term, prices have historically increased in the medium and long term. Take the 2008 recession, for example. House prices fell by around 20% over 16 months. However, in most areas, these have gone on to recover and deliver long-term gains. A long-term view means short-term dips aren’t so devastating.

7. Prepare for rising interest rates

At the moment, interest rates are at historic lows, good news for anyone paying a mortgage. Given the current economic situation, steep rises in interest rates aren’t expected. However, as Buy to Let mortgages generally have higher interest rates, a rise could have an impact on profitability.

When assessing Buy to Let as an investment, keep in mind that interest rates could rise. Understanding what this would mean for your income can help you create an appropriate buffer if needed. Much like traditional mortgages, you can fix your mortgage interest rate so this outgoing will remain the same.

If you’re considering investing in a Buy to Let property, please contact us. We’re here to help guide you throughout the process.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Buy to Let mortgages are not regulated by the Financial Conduct Authority.

5 things to check before cashing in a Final Salary pension

5 things to check before cashing in a Final Salary pension

If you’re fortunate enough to have a Final Salary pension, you have options for creating a retirement income that suits your goals. But, if you’re tempted to transfer out of a scheme, it’s essential you understand what you’d be giving up first.

Figures published in the Telegraph show cash transfer values for retirees leaving a Final Salary pension scheme reached record highs this summer. The estimated cash transfer value of a 64-year-old with a £10,000 a year pension was worth £260,800 in mid-June. It’s easy to see why Final Salary pension holders may want to transfer out of their existing scheme when such large sums are on offer.

However, it’s not in the interest of most people and there are numerous factors to consider before taking the next steps.

What does transferring out of a Final Salary pension mean?

A Final Salary pension, also known as a Defined Benefit pension, provides you with a guaranteed income for life.

When you start paying into a Final Salary pension, the calculation to understand your eventual retirement income is already defined. Usually, this is linked to how long you’re a member of the scheme and your final salary or career average. It is the pension scheme’s responsibility to meet these financial commitments. Investment performance will not affect how much you receive.

In recent years, the number of Final Salary pensions available has fallen as it becomes more expensive for schemes to meet their obligations due to longer life expectancy. This has also led to schemes offering greater sums to pension savers that wish to transfer out, known as a cash transfer value.

If you transfer out of a Final Salary pension, you lose a guaranteed income for life and instead receive a lump sum, which you will need to place in a personal pension, a self-invested personal pension (SIPP) or a pension scheme with another employer.

With a personal pension, your money is invested, and the performance will affect your retirement income. You’re also responsible for how and when you’ll access the savings, including ensuring it’ll last a lifetime.

5 things to think about if you’re considering transferring out
1. What income will your Final Salary pension provide?

The first step is to understand what income your current pension scheme will provide. You should receive an annual statement with these details or can contact your scheme to find out more. The scheme will also set a retirement date, this is often before traditional State Pension age. Remember this income will be paid for the rest of your life. It is also usually linked to inflation, preserving your spending power throughout retirement.

2. What additional benefits does your Final Salary scheme provide?

Many Final Salary pensions come with additional benefits, which, depending on your circumstances, can be valuable. For example, your scheme may offer a spouse or dependents’ pension. This would ensure loved ones continue to receive an income even if you pass away. If your family rely on your financial support, this can provide peace of mind. Any additional benefits from a pension will cease if you leave the scheme. As a result, if you transfer out, you will need to consider alternative measures.

3. What cash transfer value are you being offered?

To be able to understand how transferring out will affect your retirement long term, you need to review the cash transfer value your pension scheme will offer. You can request this from your pension scheme. While this can seem like a significant sum, remember this will need to last for the rest of your life and that inflation will have an impact long term.

4. How long is your life expectancy?

No one wants to think about passing away, but this is an important question when retirement planning. It’ll help you understand how long the cash transfer value will need to last for and how this compares to the guaranteed income. Keep in mind that we often underestimate how long we live for and there’s a good chance that you’ll exceed the average life expectancy and you need to factor this in.

5. What investment returns can you expect from a personal pension?

If you transfer from a Final Salary pension, your savings will usually be invested. This can help your savings to grow and keep pace with inflation. However, this comes with challenges too. To achieve your desired annual income, what returns would be needed? Once you have a figure, you also need to ask:

  • Are your expectations realistic?
  • How much risk will you need to take?
  • How will you manage market volatility?

It can be difficult to understand how a lump sum will translate into an income for what could be a 30- or 40-year long retirement. This is where financial advice can add value, helping you to grasp what giving up a Final Salary pension means for you in terms of income and lifestyle goals. You can’t transfer Final Salary pension with a value of more than £30,000 without seeking specialist financial advice.

Considering your lifestyle

One of the reasons that people consider transferring out of a Final Salary pension is the lump sum on offer. It can provide you with more flexibility in how and when you access your pension. For instance, you may plan to spend significantly more in the early years of your retirement.

However, in many cases, you can use other assets to create more flexibility and still benefit from the security of a guaranteed income. As a result, you need to consider your retirement lifestyle in the short and long term before you move forward with plans. Financial planning can put your options into perspective with your goals in mind. We’re here to help you create a retirement lifestyle that suits you, please get in touch.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Transferring out of a Defined Benefit pension is not in the best interest of the majority of pension savers.

Should you choose cash or stocks during Covid-19 volatility?

Should you choose cash or stocks during Covid-19 volatility?

With the stock market experiencing volatility due to Covid-19 earlier this year and further uncertainty about the state of the economy, you may be wondering how to make the most of your savings. Should you save in a cash account or invest?

Research from Aegon found that one in eight people have opened up a new saving account during the coronavirus pandemic. Some 70% have opted for a cash-based product, while just 30% have chosen to invest their savings through stocks and shares.

There’s no right or wrong answer when deciding between cash and stocks and shares, but you do need to consider your goals.

Cash savings

In the current climate, the main drawback with cash products is low-interest rates.

Interest rates have been low since the 2008 financial crisis. However, the Covid-19 pandemic led to the Bank of England slashing its base rate to a new low of 0.1% in March. It means you’re probably not getting much in return for saving your money.

On the face of it, that doesn’t seem too bad. After all, your money is ‘safe’. However, once you factor in inflation, which is likely higher than your interest rate, your savings will be losing value in real terms. That means your spending power is decreasing as time goes by. In the short term, the impact is small, but it can compound over longer periods.

When should you use a cash product? Cash savings are often most appropriate if you’re building an emergency fund and are saving with a short-term goal in mind.

Investing in stocks and shares

This year we’ve seen significant volatility within stock markets as governments grappled with how to slow the spread of Covid-19 and many businesses were forced to adapt or temporarily close.

With headlines stating markets ‘crashed’ in March, it’s not surprising that some savers are now nervous about investing in the current climate. However, when assessing markets and investment opportunities, you need to take a long-term view. Short-term volatility is normal in markets, what you should be looking at is a wider trend.

Despite numerous ‘crashes’ over the decades, markets have recovered and gone on to deliver long-term gains to investors. If it aligns with your goals, investing during a downturn can be beneficial, as you’ll be buying stocks and shares while they’re at a low point.

It’s important to recognise that all investments do come with some level of risk though. You should make sure this is tailored to your risk profile and that your portfolio is suitably diversified.

When should you use a stocks and shares product? Ideally, you should invest with a long-term time frame (more than five years) only.

Consider an ISA when saving and investing

Despite being a popular product, just a third (34%) choose a cash ISA (Individual Savings Account) to place their savings and 15% choose a stocks and shares ISA.

ISAs are a tax-efficient way to save and invest. Whether you choose cash or investment products, an ISA is worth considering. Any money earned through interest or investment returns is tax-free. Adults can place up to £20,000 into ISA products each tax year. You can deposit into a single account or spread across several.

If you’re saving for children or grandchildren, a Junior ISA (JISA) may also be a good option. Again, they are tax-efficient, and you can choose between cash and stocks and shares options. Up to £9,000 can be deposited in a JISA each tax year. However, keep in mind withdrawals cannot be made until the child is 18.

Steve Cameron, Pensions Director at Aegon, said: “Saving for the future has never been more important, and the choice between cash and stocks and shares is arguably more difficult than ever.”

He added: “For those not confident making their own financial decisions, it can often pay to seek financial advice. This can help individuals gain a better understanding of their personal attitudes to investment risk and build confidence that a chosen strategy can deliver in line with their goals.”

If you’d like to discuss saving and investing with a financial planner, please get in touch. Our goal is to understand your aspirations and help you get the most out of your money with these in mind.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.


4 financial steps to take if you’re facing redundancy

4 financial steps to take if you’re facing redundancy

As Covid-19 lockdown restrictions ease, there are still concerns about what it means for the economy. As the furlough scheme ends, you may be worried about what it means for your job role or you may have already been made redundant. While it’s the short-term challenges that are often the focus, it can affect long-term financial security too.

The Job Retention Scheme, also known as the furlough scheme, has paid employees unable to work due to the pandemic 80% of their wages (up to £2,500 per month) since April. In October, as Covid-19 restrictions lift, it will wind down. This will place some businesses in a difficult position.

A poll by the Bank of England suggested unemployment would increase to 3.5 million. This would be an unemployment rate of 11% compared to April’s official unemployment rate of 3.9%.

If you’re worried about job security, it can be worth taking a step back now to review your finances.

1. Understand the short-term financial challenges

If you’re being made redundant, the first step to take is to secure your short-term finances.

Check what redundancy payment you’ll receive and what assets you can use to tide you over in the coming weeks, this may include an emergency fund.

Your focus should be on keeping on top of debt repayments and essentials, such as utility bills. Check what outgoings you have and whether you can meet these with the existing assets you have. If you need help, seek it, including asking for a repayment holiday on debt if needed. Be proactive, it’s better to ask for a holiday than fall behind on repayments. You’ll still need to pay the money back eventually, but a holiday can give you some breathing space while you search for a new job.

2. Review your assets

Your emergency fund was designed to provide you with financial security at times like this. But it’s also worth reviewing other assets and understanding how they can support you.

These may include savings and investments. While you may not need them immediately, knowing that they’re there if you do can provide peace of mind and a sense of security during what may be a stressful time.

Once you have an income coming in again, it’s worth doing a follow-up review too. This can help you see where you need to divert savings to build funds back up. Even if you’ve not depleted assets while searching for a job, not contributing to them during this time can have an impact. Check to see if you’re still on track to meet goals.

3. Assess if you’ll lose benefits from your employer

Your employer may have provided additional benefits that were valuable to you, such as death in service insurance or other forms of financial protection.

While you may be trying to reduce your outgoings at this time, it may be wise to seek personal protection to improve your security depending on your priorities. Even if you decide you don’t need to replace these benefits, it’s important to understand what has been lost and how it could affect your long-term security.

4. Check your pension

When you’ve lost your job, pensions are unlikely to be high on your priority list. But once things have settled down and you have an income coming in, it’s an area to review.

Even taking just a few months out of contributing to a pension can mean you’re no longer on track to meet goals, especially when you consider employer contributions and tax relief will have stopped too. In some cases, you may need to increase pension contributions to meet your goals.

If you’re over the age of 55, you may be considering accessing your pension early. Make sure you understand the long-term implications of this before you make any decision. Taking a lump sum or income will affect your income in retirement. Accessing your pension may also mean the amount you can tax-efficiently save into a pension is reduced, impacting your ability to replace what you’ve taken.

Whether you’re thinking about taking a lump sum to tide you over or retiring early, please get in touch to understand what this would mean in the long term.

What’s being done to support those that are made redundant?

The government has taken some steps to support those made redundant due to Covid-19.

First, a new law was passed in July to ensure furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough wage. You’re normally entitled to statutory redundancy pay if you’ve been working for your current employer for two or more years.

You’ll get:

  • Half a week’s pay for each full year you were under 22
  • One week’s pay for each full year you were 22 or older, but under 41
  • One and a half week’s pay for each full year you were 41 or older

Length of service is capped at 20 years. Redundancy pay, including any severance pay, under £30,000 is not taxable.

If you’re made redundant, you may seek to claim benefit to support you in the short term. In March’s Budget, the application process for benefits was temporarily relaxed. Receiving some benefits will depend on your National Insurance (NI) contributions so it’s worth checking your NI record.

Chancellor Rishi Sunak’s Summer Statement also included measures to help people facing redundancy. Many of the steps focused on supporting young workers but there were some measures all could benefit from, including doubling the number of work coaches at Jobcentre Plus and a job-finding support service for those out of work for less than three months.

The Chancellor is expected to deliver the Autumn Budget in the coming weeks, which may include further measures as the situation progresses.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Is your business protected with a Lasting Power of Attorney?

Is your business protected with a Lasting Power of Attorney?

When we discuss financial planning, ensuring long-term security for you and loved ones is often a priority. But for business owners, they also need to ensure they protect their firm in the event of something happening to them. If you haven’t already taken steps to name a Business Lasting Power of Attorney, it’s something you should consider.

A personal Power of Attorney gives someone you trust the ability to make decisions on your behalf should you lose mental capacity, for instance, through illness or an accident. These decisions could relate to medical care or ensuring you continue to meet financial commitments. It’s a process that improves your security should something happen.

A Business Power of Attorney is less well-known but works in a similar way.

As a business owner, the firm likely relies on your skills and knowledge, as well as the decisions you make on a day-to-day basis. If a sudden illness affects you and you’re no longer able to make these decisions, it can have serious ramifications for the firm, employees and your long-term livelihood.

Even if you have someone you trust, without a Business Power of Attorney in place, they may not be able to access bank accounts or sign off contracts. The delays can lead to the demise of a business or significantly harm prospects.

Do you need a Business Power of Attorney?

If you were unable to make decisions, how effectively could your business run? If it means decisions relating to day-to-day operations or even long-term plans aren’t made, what would the effects be?

Depending on how your business is set up, there may be a whole range of things you might do that someone else can’t. This may include overseeing bank accounts, signing new contracts, paying employees and invoicing, or handling tax matters. If you were unable to make decisions it can have a serious impact on the business.

No one wants to think about not being able to make decisions themselves. But much like naming a personal Power of Attorney, naming one for your business is a precautionary measure.

Without a Power of Attorney, the business would have to rely on the Court of Protection to give someone the ability to act. However, this can be a lengthy process that takes months. It means some damage may happen before the Court of Protection names a deputy on your behalf. There’s also no guarantee that the Court of Protection will appoint the same person you’d have chosen.

It’s natural to have reservations about setting up a Business Power of Attorney but it offers protection.

Through a memorandum of wishes, you can set out how the attorney should operate the business. This can give you peace of mind that the business will proceed and move forward in line with your plans. You may also worry that using a Power of Attorney means you could lose permanent control of the business. However, where the loss of capacity to make decisions is temporary, the powers given to an attorney are too.

You need to carefully consider who you’d name as a Power of Attorney too. It should be someone that you trust but they also need to have the skills and knowledge to effectively make the decisions they need to. As a result, it may be someone inside the business that suits this role. It’s worth reviewing this regularly, as the right person may change over time.

Protecting your wellbeing

A Business Power of Attorney isn’t just about protecting business interests either. It can also provide you with security.

It protects your livelihood and ensures you have a business to go back to when you’re ready. Safe in the knowledge that someone you trust can make decisions, you don’t have to worry about going back to the business as soon as you can. Instead, you’re able to focus on your recovery and ease back into the role of business owner when it suits you.

If your business could benefit from a Power of Attorney, seek legal advice. A legal professional will be able to help you understand what permissions should be given to an attorney to ensure the business continues to run smoothly. They can also help you draft a memorandum of wishes that outlines how the business should run if needed.

For many business owners, their personal financial plans are often intertwined with their business. As a result, it’s worthwhile reviewing your financial goals and situation alongside taking these steps.

Ultimately, a Business Power of Attorney can support the long-term security of the business, employees and your livelihood. Please get in touch if you’d like to discuss this further.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.