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When should you remortgage your home in a volatile market?

With inflation still high after a 41-year peak in October 2022, and the bank base rate at its highest since the financial crisis of 2007-2008 pushing up mortgage rates, many homeowners are struggling with higher monthly mortgage payments. 

With so many factors still at play, when is it worth exiting a fixed-rate agreement early? Frank Wampamba explains

The latest figures from the Bank of England are concerning - and it’s clear to see why. It predicts that by the end of this year, the majority of 4 million homeowners expected to enter into new contracts as their fixed-term mortgages end will be paying an extra £220 a month. Worse still, it forecasts this figure will rise to £500 extra per month by 2026.

With the recent sharp rise in the cost of living, this is likely to leave many homeowners concerned about their future finances. So, what are your options to minimise your mortgage costs?

Can I leave my high-fixed rate mortgage early?

Many homeowners entered into higher fixed mortgage rates before inflation reached its peak last year. Their reasoning here is understandable; with the prospect of rising mortgage interest rates, why wouldn’t they seek to fix their mortgage payments before interest rates rise further?

However, with inflation now slowly easing and the prospect of the Bank of England looking to bring this down to target, it is anticipated that the base rate will remain above 5% until the summer of 2024 before starting to fall over the following years, which may lead to some borrowers regretting their decisions to enter into long term fixed mortgage rates. Should you as a result consider exiting your fixed-rate mortgage agreement early, please consider this carefully. 

Only if the saving to be gained from your current rate to a lower rate is sizeable is this worth pursuing. Remember, you’ll have to pay an early termination fee - so this is likely to offset any savings you may be relying on. 

With the Bank of England base rate currently at 5.25% and anticipated to remain so for the foreseeable future, there may not be many favourable lending rates out there translating into significant savings to justify earlier exit of a present mortgage deal. Ideally, you should wait until the BoE rate drops to between 3% - 3.50% or lower, after which point you are likely to see much steeper savings. However, this might take some time to achieve. 

What do I do if my mortgage renewal date is approaching?

If you’re having to make a decision about your next mortgage rate agreement, my advice would be to seek out a shorter term fixed rate deal of 2-3 years, over which time it is anticipated (not guaranteed) that inflation will be moderated enough to give the BoE enough flexibility to start reducing its base rate. Then we will start to see lenders bringing down their lending rates, including positioning some competitive long term fixed interest rate deals. 

However ,it is important to point out that 2-3 year fixed mortgage rates are currently higher than longer-term fixes, meaning that your mortgage payments during these periods could cost you more than if you signed up for a 5-year fixed-rate mortgage. My advice in this situation is to do your figures, or better still, sit down with a mortgage adviser to review and discuss all the options available to reach the most relevant one for your circumstances.

While it may be tempting to run with a variable rate in the hope that the BoE rate rises have peaked and the only way for interest rates from here will be downwards, be cautious; this could leave you open to higher mortgage payments should unforeseen market conditions or inflationary pressures persist and create a need to raise rates or maintain them at the current level for longer.

In times of such interest rate uncertainty, with everyone looking for the optimum interest rate solution for their mortgages, it can be extremely difficult to determine the best interest option on your own. One type of interest rate doesn’t work best for everyone, therefore, taking mortgage advice that considers all of your personal and financial circumstances to determine the optimal solution for your circumstances is critical. 

Get in touch with our specialist team today to discuss the most practical and pragmatic solutions for you.


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How to teach your children good financial management skills

How to teach your children good financial management skills

Written by Frank Wampamba, Financial Adviser

With almost three-quarters of Britons struggling with basic financial literacy, we often come across clients who don’t know much about managing their money.

While a financial adviser can help you overcome difficulties, everyone would benefit from some good financial education, starting from a young age.

By teaching your children the basics about money, you’ll put them in a great position once they start earning and developing financial commitments.

There’s certainly no ‘set age’ to start talking to your children about money, as every child is different in terms of development and maturity. However, as finance professionals, we’d recommend the earlier the better!

Schools don’t teach your children the value of money

Unfortunately, we tend to find that schools do not cover much at all when it comes to managing finances. Most institutions don’t teach important topics such as bank accounts, taxes, bills and mortgages, and if they do, it tends to be in very little detail. This often leads to many teenagers not actually knowing how their parents manage and maintain their family home, and the associated costs of becoming a financially independent adult.

By talking openly about money with your children from a young age, they will learn to be more responsible - learning to plan how to use it, and why it is so important to know its value. It’s also vital for them to understand how it can be difficult to obtain money, and therefore to spend it wisely, using it on things that are important - the ‘needs’ first, rather than the ‘wants’.

It doesn’t have to be complicated

A great way to teach your children more about money is to use life events such as their birthday or Christmas time - as many children don’t know what it actually involves and the sacrifices made for them to receive their presents.

If your child receives a monetary gift for their birthday, why not encourage them to set up a junior bank account to deposit their money into and save up? This then provides a great opportunity to simply explain what banks are and how they work, whilst making it an exciting experience. By turning it into a fun trip out to set up an account, your child is more likely to be engaged and learn.

There are many choices when it comes to junior savings accounts, which all allow you to have different levels of control over your child’s spending - allowing you to relax or take control, as needed. Our list below includes some great articles, reviewing the top junior bank accounts currently on the market.

Not sure where to start? Here are some ideas

It can be difficult to know how to begin when it comes to learning about money, as there are a lot of different aspects to becoming a financially responsible individual. We’d recommend starting as simple as you can, and then as your child gets older and more mature, you can chat about more complex topics.

Here’s a list of ideas to help you:

Where money comes from, and how it is earned

The importance of saving money and earning interest

Using pocket money as a way to teach saving

Allow your children to ‘earn’ - give them chores with monetary rewards

Allow them to make decisions about spending their money, and learn from them (maybe those expensive trainers weren’t worth it after all…)

Write a list of costs and ask them to categorise into ‘needs’ and ‘wants’

Using electronic money, by setting up a monitored bank account

Teaching them about debt and credit cards

Do budgeting exercises. For example, go to the supermarket and give them a budget to spend on dinner!

Explain more about how to buy a house, and how a mortgage works

What tax is, and why we have to pay it

Encourage part-time jobs when they reach the required age

Use the 50/30/20 rule for money - 50% to be spent on needs, 30% on wants and 20% to be saved

Online resources are a great tool to help

Here are some great online resources that can help you and your child to learn:

12 way to teach your children about money, Barclays

Teaching kids about money, The Times

Best junior stocks & shares ISAs, The Times

Top children’s savings accounts, Money Saving Expert

Best children’s bank accounts 2023, Which?

Online resources are fantastic, and a great place to start - however, we’d also recommend getting in touch with our knowledgeable team of advisers for some additional, more personalised advice.

Contact us today to find out more about how we can help you and your family.


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Increasing pension savings: lump sum vs regular contributions

Choosing the right pension payment strategy

When planning for your future, consider increasing your pension savings. But should you do this through a lump sum or by raising your regular contributions? In this article, we look at each option.

Why invest in your pension plan?
First, it’s crucial to recognise the advantages of investing in your pension plan. Saving for your future is essential for your future financial independence and security, and your pension plan is one of the most tax-efficient ways to do it.

Pension tax relief on your contributions, employer contributions (especially if they offer a matching scheme), and investment growth potential are just a few of the benefits of investing in your pension plan. All these factors make contributions to your pension plan an effective way to maximise your savings.

Should I make a lump sum payment into my pension plan?
If you suddenly receive a large sum of money, such as an inheritance, work bonus, or tax refund, should you invest it in your pension plan?
Exceeding your regular pension contributions can bring you closer to achieving your retirement savings goals. A lump sum payment is a quick and straightforward method to enhance your plan while utilising your pension annual allowance before the end of the tax year.

Investing your lump sum as soon as possible allows it more time to grow, giving you more money during retirement. Additionally, depositing a work bonus into your pension plan could save you on tax and National Insurance deductions.

However, ensure that your payment doesn’t exceed your pension annual allowance to avoid tax charges. For the 2023/24 tax year, the pension annual allowance is set at £60,000, and this is the total value that can be paid into all your pensions each tax year before triggering a tax charge. Lower limits may apply if you’re a high earner or you’ve already accessed a pension,

Should I increase my regular pension contributions?
If you can’t afford a lump sum payment but still want to save more for your future, consider increasing your regular contributions. This is an excellent habit to develop, as even small increases can accumulate over time when combined with tax benefits and potential investment growth. Additionally, regular contributions can benefit from pound cost averaging.

You can also make contributions to your spouse’s or partner’s pension. These contributions will count towards their annual allowance, not yours - so it’s essential to make sure they have enough allowance left before making any payments on their behalf. You can contribute up to £2,880 a year to the pension of a non-earning spouse, partner or child.

What is pound cost averaging?
Pound cost averaging involves investing smaller sums at regular intervals instead of a more significant amount simultaneously. This strategy can reduce the risk and impact of investing a considerable sum just before potential market drops.

Let’s say you have £12,000 to invest. If you put the entire amount into the market and then experience a 10% drop over the next year, your investment would decrease in value significantly. However, if you decide to invest £1,000 each month across the year and the market experiences the same drop, you would buy into the market at a lower price each time. This means your overall investment may only decrease by 5% in total.

Of course, if the market rises instead of falls during that period, you’ll make smaller profits than you would have with a lump sum investment. But it’s important to remember that markets tend to recover long-term. While pound cost averaging might not necessarily yield better returns, it could make it easier for you to handle significant market drops.

It is a valuable investment strategy for those looking to minimise risk and manage the impact of market fluctuations. Investing smaller amounts at regular intervals can reduce losses and maintain a more balanced portfolio.

Which option is right for me?
Deciding on the best pension strategy for your future can be daunting. Ultimately, your best choice depends on your financial situation, goals, and risk tolerance. Take the time to assess your current circumstances and evaluate each option thoroughly. And keep in mind that the last day of the tax year is 5 April 2024; that’s your deadline for maximising your pension annual allowance for the 2023/24 tax year.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, 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.


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Think of life insurance as your safety net

Make sure your dependents have the money they need if you were no longer around

When it comes to ensuring that your family is taken care of in the event of your premature death, life insurance is invaluable. It’s important to recognise how life insurance can help protect your financial interests and those of your loved ones.

Life insurance provides a cash payment, known as a death benefit, which may be used to cover costs such as paying off a mortgage or other debts and funeral expenses. It can also provide a financial cushion to help your family maintain their lifestyle after you’re gone. Ultimately, it provides peace of mind knowing that loved ones will be financially supported.

Different factors
The cost of life insurance can vary due to different factors and will typically include the amount of coverage, policy type, age and health. The higher the coverage amount, the higher the monthly premiums. The policy type can also impact the cost, as term life insurance only covers a specific time frame while whole-of-life insurance does not have an expiry date.

Age can be a key factor, with older individuals often having higher premiums. Health also plays a significant role in determining premiums, with healthier individuals generally having lower premiums as they pose less of a risk to the insurer.

Health conditions
Insurers may review medical records, ask for basic health information, or require a medical exam to assess an individual’s risk and consider an individual’s family health history when calculating the cost of life insurance.

If an individual’s family has a history of health conditions such as heart attacks, strokes or diabetes, they may be deemed as more vulnerable to these conditions and thus end up paying higher premiums.

Individual’s lifestyle
Habits and lifestyle can also impact premiums, with insurers wanting to know about habits such as alcohol consumption or smoking. Occupational hazards also come into play, with some occupations deemed as more dangerous than others, such as those in construction, the armed forces or emergency services.

Finally, insurers may ask about hobbies outside of work, especially those that are deemed as dangerous or pose a risk to the individual’s health, such as rock climbing or extreme sports. The insurer assesses an individual’s lifestyle and hobbies to determine the risk of future claims under the policy .


Male and female in room

Mentoring Support at Matthew Douglas

Here at MDL we like to mentor and support aspiring financial services professionals of tomorrow. Riham is a case in hand. Although new to the country and its financial services system, Riham's ambition is to become a successful mortgage adviser.

To assist her in realising her objective, Frank wampamba, our mortgage expert has over the last 15 months supported Riham through the LIBF mortgage qualification course for which she hopes to sit her licensing exams in the near future. This has involved weekly reviews of the course work, including guidance, discussion and explanation of the structure and operation of the UK financial services industry and system, as well as sitting in and observing live advice and recommendations meetings to provide a more practical aspect of the financial planning and advice process.

In the course of her journey with us, Riham has been able to secure a permanent job opportunity with a strong UK financial services institution, and has put this achievement to the mentorship and support offered by MDL. We wish Riham the best of luck on her journey to becoming a Financial Services Professional.