Financial advice in the news
Over the past few weeks, the financial world has been making headlines. The Budget announcing more flexible pensions. Then the Mortgage Market Review with lenders imposing more stringent criteria for lending. Reading the articles it would appear that the focus has been on the more extreme aspects, so here I am going to try and bring some perspective to what is actually happening.
The Mortgage Market Review:
You may have seen headlines saying that lenders were asking if people played golf, or if they ate steak! Although things have become more stringent, I certainly haven’t come across this yet. It is true, lenders are asking more questions.
One of the main focuses of the new rules is affordability, lenders have to make sure that people can afford the mortgage they are taking. Although the new regulations took effect only on 26th April most lenders were well prepared, they had been honing their systems in preparation for quite some time, gradually changing criteria to the point that most of us had already become used to the new rules.
A word of warning, if you are looking to take a mortgage soon, be prepared. Your lender will probably ask for a detailed account of your outgoings, they may also ask for bank statements which give a clear view of what you have been doing, and your lifestyle. So, perhaps steak should be off the menu for a while!
Flexible pensions:
Again, you may have seen headlines stating that “you would no longer have to buy an annuity”, but this has been the case for many years. Since 1995 people have had another option, at least until age 75.
They have had the choice to invest their pension fund into an income drawdown plan taking the income directly from the fund; although for most people there was a cap on the income you could take.
The cap has increased for this tax year, and will be completely removed from next year meaning people will be able to access their whole pension fund. (This aspect is still in consultation). The papers had pictures of pensioners with Lambourghinis, but would people really withdraw all their pension fund and blow it?
Firstly, I have found that most people are very sensible with their pension money, they realise that it has to last. Secondly, any money you draw out (after your initial tax free cash) is taxable. So, if you withdraw the whole amount as a lump sum you could end up paying higher rate tax.
This in itself will lead to people taking the money more gradually from their funds. Lastly, annuities will still suit many people, those who require the guarantees of an income for life.
If you require independent financial advice on any of the above, please call me Claire Cook on 01273 224667. I would be happy to assist.
Talk Money is a trading style of Best Practice IFA Group Ltd which is authorised and regulated by the Financial Conduct Authority. The value of investments can fall as well as rise and you may not get back the amount invested.