Author: , CertPFS, CertCII(MP), CeRGI, CeLTM, CeRER
Last updated: February 2nd, 2023
After a few weeks of R&R for many it’s good to be back into routine and normality to some extent. As many face finding homes for new belongings and take a moment to reflect on the hustle and bustle of the festive period, it may also be a good time to reflect on last year’s financial habits.
Christmas especially opens many of us up to overspending and stretching our money perhaps a little further than we should. It could provide an opportunity to utilise New Years as a fresh start and give your finances an overhaul.
From debt consolidation to budget planning and life cover to remortgaging and everything in between, we’re here to help should you need it.
- In this month’s newsletter:
- Financial New Years’ Resolutions
- Tax Changes of 2023 to look out for
- Why are people opting for Private Healthcare?
- Debt for the over 55s
- Can you remortgage with bad credit?
- Mortgage Life Insurance. Decreasing Term vs Level Term
2022 undoubtedly wreaked havoc with many of our finances with the cost-of-living expenses rising and interest rates causing uncertainty in the mortgage market. So, with a New Year now underway, it isn’t too late to set our New Years’ resolutions for your finances to help combat the ongoing cost increases. Check out our handy list of 10 Financial New Year’s Resolutions that could help shape your finances for 2023.
Create an emergency fund:
It may seem difficult to envisage pots of cash stashed away while many of us our tightening our belts, but if it’s possible to squirrel away even small amounts to fall back on should you need it, this could provide comfort if tough times come calling.
Reassess your utility providers
While reassessing gas and electric providers may be a little out of reach while the prices continue to climb, other outgoings can be reassessed. From your TV packages to your broadband deal and even your mobile phone contract, when the current agreement ends, it’s worthwhile looking around at what other options are available. Sadly, loyalty is not often rewarded and new customers may see better introductory deals, meaning looking at alternate providers could save you a fair amount of money.
Plan for Retirement
If you are only in your 20s or 30s, or even into latter decades, retirement may feel an age away, but preparing your finances to accommodate a lapse in the income your used to when the time comes is essential. Sitting down and assessing your pension(s) and even looking to consolidate multiple pensions into one spot can help put your retirement finances in line ready for the years ahead.
Clear those debts
Many of us inevitably face debts following Christmas spending, from credit cards to loans and even store cards, it’s easy to accumulate debts through the seasonal overspend period. Look to overpay on your minimum repayments where possible to help clear the debts that bit quicker. Or even look at Debt consolidation options where you could secure an alternative loan to pay off the existing debts, creating 1 simple repayment monthly, rather than several spread out debts
Plan for the expected, allow for the unexpected
Making compensations for the price rises is something we can plan in to our budgets for the year ahead, but it’s important to ensure we expect the unexpected. What if rates rise? What if you lose your job? What if there is a resurgence of the pandemic? The unknowns could have significant impacts on our finances so it pays to be prepared. Have you considered income protection? Or repotting money into higher interest rate accounts? There are many ways to prepare should the worst happen- do get in touch to discuss further options.
Prepare a will
As with planning for retirement, planning a Will can seem unnecessary and a little uncomfortable, but if you have assets or loved ones to provide for after you’re gone, a Will is an essential part of forward planning. It is widely considered that many Wills are not fit for purpose, if they’re in place at all, so it is worth revisiting yours even if you have one in place, to ensure it is still fit for what you’d like it to do. *
Get your property valued
The last few years have seen house prices increase considerably, and although the rise is slowing, it could be worth taking a look at the current value of your home. Whether you own your home with a mortgage or outright, it’ll stand you in good stead for your new-year goals to know how much equity you have in your property. Knowledge is power and knowing exactly how much equity you’re sitting on can only help inform your personal finance decisions in 2023.
Improve your Credit Score
When it comes to any significant financial considerations, your credit score is likely to feature in whether you’re able to go ahead or not, so it pays to have it up to scratch. Lenders will use your Credit Score as a report on what your typical financial behaviours are and how they expect you’ll behave with your finances in the future. In simple terms this means your past could shape your future financially. So keep your financial behaviours in order to allow yourself future options for the year ahead.
Is this the year to invest?
Developing a portfolio of investments could be on your 2023 to-do list. Looking into property or stocks and shares could be where you choose to invest money you may have, but it could be important to secure advice on investing if that’s something your new to. If you’re a seasoned pro, consider what is likely to perform well among periods of uncertainty as we see costs growing.
Refine your spending habits
When buying anything, the first thing you should be asking yourself is whether or not you actually need what you’re about to buy. If the answer is no, then put it down and walk away. This can be tricky, but once you get used to it, you’ll find your spending habits starting to change naturally. Take a look at all your current subscriptions and cancel any that you don’t use or need. You can also unsubscribe from marketing emails to remove the temptation of browsing new offers, and leave credit and debit cards at home if you don’t need to shop while out.
Changes to Income Tax
The freeze on the personal allowance, and the basic and higher-rate income tax thresholds in England and Northern Ireland will be extended to April 2028. The freeze on these taxes had been due to lift in 2025-26. While this freeze may not look like a tax rise on the face of it, having thresholds that fail to rise in line with salaries, you’ll still end up paying more tax on your income – particularly if you end up in a higher tax band as a result.
The biggest change announced in the Autumn Statement was the reduction of the additional-rate income tax threshold, dropping from £150,000 to £125,140 from 6 April 2023. It’s estimated around 250,000 taxpayers will be pushed into this higher tax band, paying 45% tax on any income above the new limit.
Chancellor Jeremy Hunt, said lowering the additional-rate means someone earning £150,000 will pay an extra £1,200 income tax per year.
What’s happening in Scotland and Wales?
During the Draft Welsh Budget, it was announced that Welsh taxpayers will pay the same amount of income tax as those in England and Northern Ireland from April 2023. The Welsh plan includes adopting the same additional-rate threshold change.
In Scotland, income tax rates will rise for higher earners. Under the Scottish Budget proposals, the higher rate of tax will rise from 41p to 42p in the pound, and the top rate from 46p to 47p.
The threshold for the top rate of tax will be reduced to £125,140, in line with the additional-rate tax band in place elsewhere in the UK. The personal allowance and other income tax bands (starter, basic and intermediate) will remain frozen.
National Insurance to stay the same
There were a lot of changes to National Insurance in 2022-23. First, on 6 April 2022, rates went up by 1.25 percentage points, as part of the government’s plan to pay for health and social care.
The levy was controversial, however, and as a result then-Chancellor Rishi Sunak raised the contribution threshold from £9,880 to £12,570, which came into force in July 2022.
Then, come ex-Chancellor Kwasi Kwarteng’s mini-budget in September, the levy was abolished altogether. Since 6 November, the rate employees pay on earnings between £12,570 and £50,270 therefore dropped back down to 12%, from 13.25%. Those with earnings above £50,270 now pay 2%, down from 3.25%.
After this rollercoaster, no further changes are expected for 2023-24.
Inheritance tax threshold frozen
Another threshold to be frozen is for inheritance tax. IHT is charged at 40% on assets or money you leave to your heirs after you die.
The ‘nil-rate band’ – the amount that can be passed on before IHT is due – will remain at £325,000 until April 2028. The allowance has not changed since 2010-11.
Similarly, the residence nil-rate band – which can be applied if your home is being left to direct descendants – will remain at £175,000.
This means, for example, if you leave behind an estate worth £500,000, the tax bill will be £70,000 (40% on £175,000 – the difference between £500,000 and £325,000).
Similar to the freeze on other allowances, by keeping the nil-rate band at a fixed point, rather than rising in line with price rises, more people’s estates will be dragged above the tax threshold.
Capital gains and dividend tax allowance cuts
Capital gains tax (CGT) is charged on the profits you make from selling an asset, such as a second property or valuable possession. The tax-free allowance is £12,300 for 2022-23, but from April this will be dramatically cut to £6,000. From April 2024, it will be reduced again to just £3,000.
From 6 April, the dividend allowance will also be cut from £2,000 to £1,000. From April 2024, it will be reduced to £500.
Council tax may rise for some
Many people could see their council tax bills increase from April.
For 2022-23, local authorities could raise council tax by up to 2.99% without the need to hold a local referendum. But for 2023-24, this is set to increase to 3%, with an additional 2% if they qualify for the social care precept. This means your council tax bill could increase by 5% without needing to go to a vote.
Proposals in the Scottish Budget also paved the way for higher council tax rates, as there will be no limit set on council tax bill rises for 2023-24. However, the Scottish government is urging local authorities to act responsibly and consider the impact of any potential rate increase on already stretched household budgets.
Stamp duty changes
The changes to stamp duty, which took immediate effect from the day of former Chancellor Kwasi Kwarteng’s mini-budget on 23 September, will remain until 31 March 2025.
Until that date, first-time buyers won’t need to pay stamp duty on the first £425,000 of the property they buy (up from £300,000), while existing homeowners won’t have to pay on the first £250,000 (up from £125,000).
If you live in Scotland, homeowners start paying land and buildings transaction tax (LBTT) on properties costing more than £145,000 (or £175,000 for first-time buyers).
Scottish Budget proposals set out plans to keep these thresholds unchanged in 2023-24. However, rates increased on 16 December for people buying a second home, as the additional dwelling supplement was hiked to 6%, up from 4%. This is charged on top of standard LBTT rates.
It’s hard to escape news stories of NHS wait times, A&E crisis points, nurses striking, low numbers of NHS doctors and nurses and even winter flu reducing NHS staff availability, so the increase in those looking towards securing private health care shouldn’t come as a surprise to many.
The pandemic has no doubt caused a knock-on affect further exacerbating already lengthy wait times for NHS treatments, meaning many are choosing to skip the queues and secure private treatment. And it isn’t just hospital treatments that are suffering under the NHS pressures, but access to GPs is also under strain, pushing more people to secure alternate options.
The beauty of Private Healthcare is that it is built to compliment NHS provision, as we are all entitled to NHS healthcare. But as we see a significant increase in companies offering healthcare benefits and incentives to their employment packages as well as individuals seeking their own private options, is it the start of a new Hybrid era for healthcare?
What can Private Medical Care be used for?
The benefits offered by employers typically offer dental, optical and basic treatments as a standard package, but private healthcare is available for a huge range of illnesses and ailments. Different health insurance providers offer different kinds of coverage, but typically health insurance covers a range of acute conditions, diagnostics including scans and x-rays, GP appointments, cancer treatments, physiotherapy, and in more recent years, mental healthcare.
Roughly 1 in 4 adults in England* are battling some form of mental health condition including anxiety and stress, and the World Health Organization recently reported a 25% increase in anxiety and depression worldwide. Insurance companies are recognising the need for good mental health coverage now more than ever, and with mental health conditions on the rise, it’s no surprise that some people are deciding to go private to get the help they need.
If you would like to discuss securing Private Health cover for yourself, or even for your employees, get in touch today to discuss the options available.
“Total debt held by over-55s up by almost 20% in five years”
Recent research carried out by Later Life Lender more2life and economics consultancy Cebr has revealed that that the total amount of debt owed by the over-55s will rise to £294bn this year, up from £272bn in 2021 and £209bn in 2017. This is a leap of two fifths (41%) in five years and the total is set to soar even further over the next decade, to £402bn by 2032. This is a significant rise of 92% in just 15 years.
Over 55s are not the only demographic to be pushed towards credit and loan options following the increases in the cost of living and rising bills, but this significant rise
“55–64-year-olds bear the brunt of later life debt”
Most of this debt is held by younger retirees aged 55-64 who are typically still working while repaying mortgages and supporting children. Total debt held by this group is expected to rise from £196bn last year to £210bn in 2022. Indeed, half (50%) of 55–64-year-olds say that they are currently in debt or have been in the past five years, equating to 4.4m people.
“Unsecured debt to rise by over a third this year”
Unsecured debt amongst the over-55s grew rapidly from less than £20bn in 2015 to over £25bn in 2019 but contracted slightly over 2020-2021 as spending reduced during the pandemic. However, unsecured debt is expected to rise by over a third (34%) in 2022, reaching £20bn, as the cost-of-living drives many to borrow to make ends meet. Currently, almost 40% of retirees have spent more than they receive in income in some months in 2022 (with 8% saying this often or always happens), which will likely only rise further as this debt level increases.
Again, those aged 55-64 are most likely to have larger unsecured debt levels in 2022, with the average credit card debt of those with debt standing at £2,800. Other types of unsecured debt levels are expected to average £10,700 per individual with debt. Higher interest rates are unlikely to deter this rise in unsecured borrowing in the short term, but by the next decade should see the total amount plateau at £19bn.
“Nearly 5m over-55s struggled with credit card debt in the past five years”
More than one in five (22%) over-55s revealed that they had credit card debt in the past five years which they had not paid off in full each month, equating to 4.7m people. The second most common type of debt was an overdraft, with 9% (1.9m people) noting that they had used this solution over the same period.
Following this period of growth in debts among over 55s, it’s important to understand that there are options available that could not only support those facing escalating debts but that could also support loved ones as their outgoings rise too. It’s important to speak to us to understand the options available for the finances of you and your families.
If you’d like to discuss your options in the face of debts, please get in touch today
While having bad credit can certainly make it more difficult to get a mortgage, it’s not impossible. When you have a poor credit history, you are more limited on which mortgage deals you can access, in turn this can lead to more costly options.
What is bad credit?
If you have ‘bad credit’, or a poor credit rating, it usually means that you have missed (or been late with) some payments in the past. This could be payments on utility bills, loan repayments or any other situation where you failed to pay on time or in full.
Another thing that can harm your credit record is applying for credit a lot, or being ordered to pay someone money as the result of legal action. Ironically, never applying for credit can also damage your rating (as you don’t have a proven record of repaying money)
Your credit history is one of the key factors that lenders use to assess whether they’ll give you a mortgage, and how generous that mortgage deal may be. The good news is that lenders do offer mortgages for first-time buyers and homeowners with bad credit, and the process for getting one is similar to a ‘regular’ mortgage application.
Getting a mortgage with bad credit
Whether you want to buy a house or remortgage, remember that there are different types of ‘bad credit’ and these are treated in different ways. So first you need to get an idea of how your particular credit situation will appear in the eyes of a lender.
A lender will be reluctant to approve your mortgage if you have:
- defaulted on a loan (including a payday one)
- had items repossessed
- been issued a county court judgement (CCJ) in the last 12 months relating to debt that is secured against a property or asset.
However, after a year or two has passed, lenders may be more willing to accept your application. You might still need a large (25 per cent or higher) deposit or (if you are remortgaging) a lot of equity. This will make you less of a lending risk. Anything else you can do to convince lenders that you are low-risk is worth trying.
Lenders may be more willing to lend if your adverse credit relates to unsecured finance. This means that although you had a debt you failed to repay, it wasn’t secured against any property or assets. Lenders are often happy to accept mortgage applications if you have late payments, defaults and CCJs for unsecured finance. Even applicants who have declared bankruptcy may find success, but again you are likely to need at least a 25 per cent deposit.
It is also possible to have a good, steady source of income, but still have a poor credit history. Lenders love reliable incomes because it means you are more likely to make every payment, but the type of bad credit you have could still affect your application.
How can I get a mortgage with bad credit?
There are a couple of clear strategies for improving your credit score, but no quick fixes. Most importantly, make a real effort to pay back your debts (especially secured debts). Also get rid of things like old phone contracts or shared bank accounts that could be affecting your rating. It will take time for your credit score to recover, but making these changes now will have an impact.
Second, because you know you will be seen as a risky proposition to lenders, prepare as much as possible. Try to save a large deposit, as your lender could require you to have at least 20 per cent of the property’s value. It can be a tough decision, especially for first-time buyers, but delaying your plans by six months to focus on improving your credit score can have a big impact on the interest rates you are able to get.
Another option, if you can get help from your family, is to look at a guarantor mortgage where someone else (e.g., a parent) agrees to cover any repayments you may miss.
If you’re looking to discuss mortgage options, despite having a less favourable credit score, get in touch today.
Your home or property may be repossessed if you do not keep up repayments on your mortgage. You may be charged a fee for mortgage advice.
What is mortgage life insurance?
When we think about life insurance, we typically think of the large cash pay outs should the worst happen, but a mortgage life insurance product is created specifically to cover the outstanding mortgage should those events unfold.
The aim of a mortgage insurance product is to provide reassurance that should you or your loved one pass away, the remaining partner and any possible children would be catered for and have one less thing to thing about while going through grief and loss.
Typically, there are 2 types of mortgage insurance; level term and decreasing term, but what do they both mean and which suits your needs best?
Level Term Life Insurance
A Level term policy fixes the amount paid out for the length of the policy.
These policies tend to be more expensive, as they pay a defined lump sum if you die within a fixed time, for example, £200,000 if you pass within the next 18 years. However, this could be better if you want to leave a lump sum for your dependents to cover more than just your mortgage, for example other debts and/or ongoing spending.
Level-term is also likely to be a better bet if you have an interest-only mortgage, as the lump sum would be available to cover the capital rather than just the repayments.
Decreasing Term Life Insurance
This is the most common, and usually the cheapest, as the amount you’re covered for decreases as you pay your mortgage off (though your monthly payments stay the same). This leaves your dependents with enough money to pay the rest of the mortgage.
It’s therefore designed for repayment mortgages – the most common type where the amount you borrow is fully repaid at the end of the term.
Do you need Mortgage Life Insurance?
If your income is being relied on to ensure the mortgage payments are covered then and they would likely struggle without it, then securing life insurance could be a good value option.
While Life Insurance is not a compulsory requirement, it could be worth weighing up the options and seeing if its right for you. There are a couple of things to consider:
- If you don’t have dependents, you don’t need life insurance.
You may not need to get a mortgage life insurance policy (or indeed any other sort of life insurance) if no one relies on your income to pay the mortgage, eg your partner and/or children. It would mean, however, that whoever inherits your property may need to sell it, unless they’re in a position to pay off your mortgage, or get a mortgage on the property themselves.
- If you’ve already got a life insurance policy, you could already be covered
You may not have ‘mortgage insurance’, but if you already have a level-term life insurance policy then this will give your dependents a lump sum if you die. However, they would want to use the insurance sum to pay off the mortgage, you’ll need to ensure the amount you’re covered for exceeds the amount you owe, and the policy is in force for as long as your mortgage term.
If you’d like to discuss your Life Insurance options, do get in touch today to give yourself some New Year reassurance, just in case.