Your Mortgage and Financial Protection

Sandeep Lahori

Rationale behind financial decisions

The number and complexity of products available in the UK financial market very often leaves a common person confused, as the difference among various products can sometimes be too blurry to comprehend. Quite frequently people make decisions which have little rationality and are influenced by certain psychological factors or even based on their gut feeling. Long ago, when purchasing my first home in the UK, I straightaway approached the bank holding my current account for the purpose of securing a mortgage. I was so excited that I did not even bother checking whether the mortgage type they offered was most suited to my needs or the interest rate they offered was the best I could get. I was not working in the financial services industry those days and relatively new in the country. All I could think of at that point was that the rate on offer sounded reasonable and that it fitted well within my budget. The bank required me to put down a deposit of 25% since I did not have permanent right to live and work in the UK (ILR). Luckily, I did have the funds available and proceeded with the mortgage. It felt like a big accomplishment then, even though it had been a bit hectic arranging meetings with the bank, compiling a large file of documents, etc. Later I realised that I could possibly have saved quite a bit of money had I done some research about all  options available in the marketplace, with better rates and even lower deposit requirements. Clearly, my decision making had been affected by some psychological inclination towards my usual bank – which was only made firmer by other people who shared some positive experience with the bank. It is actually very common to get influenced by such psychological factors and biases when making financial decisions – an area of study known as ‘behavioural finance’. In my case, it was something referred to as ‘familiarity bias’ owing to my long-term relationship with the bank and also ‘confirmation bias’ from what I heard from some other people. I would not like to delve deeper into the subject here. However, you may wish to do some study in your own time and find out what biases could possibly influence your decision making, e.g. – Over-Confidence; Herding Behaviour; Loss Aversion; Gambler’s Fallacy; Familiarity Bias; Anchoring; Confirmation Bias; Recency or Overreaction; Mental Accounting Bias.

My journey into financial services industry

Moving on, and following my passion, a few years later I decided to switch my career into financial services to become an advisor and attained all the necessary training and qualifications from The London Institute of Banking & Finance (LIBF), previously known as The Institute of Financial Services (IFS). UK is one of the top financial centres of the world and the amount of ever-changing legislation and evolving financial products requires continuous / ongoing training, which is also essential to satisfy the regulator’s CPD requirements. Therefore, most financial advisors work under a network who look after their training and compliance requirements. I too joined a network called New Leaf Distribution Ltd, who are very well known for the training they offer within the industry.

It has now been over 12 years since I started my journey of advising on and arranging mortgages and protection (insurance) products for my clients from all over the country. I am now trading through my own company, Greater London Financial Services Ltd, FCA No. 1023239 (company reg. 15942217), but continue to be part of New Leaf Distribution Ltd.

Benefits of using a ‘Whole of Market Advisor’?

Some of the key benefits are summed up as follows:

• Tailored Advice – Everyone’s circumstances are different, so advice is key in ensuring that any financial products chosen are most suitable to your needs
  
• Spread of Lenders – Access to over 110 lenders, with some offering exclusive deals. Many specialist lenders do not deal directly with retail clients
  
• Transaction management and support available throughout the process – resulting in better client outcomes
  
• Constant Reviews – Until completion deals are reviewed to secure better rates
  
• Insurance – Whole of market products with competitive, non-loaded premiums
  
• All regulated advice is protected and guaranteed.

Securing your Mortgage

A mortgage is probably the biggest commitment that most people take on during their lifetime. So, obtaining an independent advice in this area is vital in ensuring that you get a product with overall low cost, and which is suitable to your individual needs and objectives. I have access to over 110 lenders in the market, with over 15,000 mortgage products available on any given day. Over the years, the role of an independent mortgage advisor has grown significantly within the industry, and approx. 90% of all new mortgage applications now come through independent advisors like me.

Who can I help?

• First-time buyer – Buying your first home can be both exciting and daunting at the same time. If you are one of those aspiring to get on the property ladder, particularly, if you are new in the country and still on a work visa or just need someone to talk to, please feel free to get in touch. I will personally guide you throughout the process from setting your budget and securing a mortgage ‘agreement in principle’ before you can start searching your dream home and finally going through the whole legal or conveyancing process. I will ensure that you are never left on your own till you get keys to your dream home.

• Re-mortgage – If you are an existing property owner looking to re-finance your property to simply get a better mortgage deal or raise some capital for any legal reason, like home improvements, buying another property, paying-off your equity loan or other debts, holidays, etc.

• Rate Switch / Product Transfer – I can also secure you a new deal with existing lender and sometimes have exclusive deals available. I will also continuously monitor rates to ensure you get any better deal available before completion.

• Buy to let (BTL) mortgage – Whether you are a first-timer or an experienced landlord, looking buy a standard property (house or flat) or a multi-unit freehold block (MUFB), I can help you secure a competitive mortgage.

• Limited Company mortgages – In recent times, there has been a big increase in BTL purchases via limited companies (SPVs) due to long-term taxation and succession planning reasons. I can help with your mortgage requirements from a range of specialist lenders in this area.

• Houses in multiple occupation (HMOs) and Holiday Let mortgages are also where I can help you secure a competitive mortgage.

Pairing with the right lender

All lenders have their own lending criteria to follow, and I can match you with the right lender based on your needs and personal circumstances. It is quite possible that an ‘unwanted client’ for one lender may be the ‘dream client’ for another. There is also a big difference in the way various lenders assess clients’ affordability while considering different types of income from employment and self-employment, contractors, people working in the construction industry (under CIS scheme), zero-hour contracts, agency workers, etc. As an example, recently a self-employed client, who is a company director, was offered a mortgage of only around £250,000 from their own bank, but I got them a mortgage of over £725,000 with another lender and that too at a slightly cheaper interest rate. The big difference was down to the way they were drawing income from their company and how two different lenders treated the income while assessing affordability. While their own bank only considered the salary and dividends they received, a different lender also took into account their retained profit within the company to assess their affordability.

Similarly, lenders have different criteria in other areas like adverse credit history, foreign nationals without ILR, expats, property construction types, rental stress test calculations for buy-to-let mortgages, etc.

Protecting your family and lifestyle

While getting on the property ladder as quickly as possible is what most people dream about, we must always prioritise having adequate financial protection in place against the uncertainties of life. Financial protection refers to insurance policies taken to safeguard your family and lifestyle, cover any financial commitments / debts – like a mortgage, or even keeping provision for any other objectives, like paying for your children’s education, etc. A lot of people wrongly think of protection only when buying their home to protect their mortgage debt, while the fact is that someone living in a rented accommodation needs even more protection as they are at a greater risk of losing a roof over their head.

Financial protection is a must for anyone, even more so for those having financial dependents / young children. You should consider having adequate protection in place when young and healthy. This is because as you grow the premiums will only rise, and any future health conditions may make it difficult, or sometimes impossible, to get insurance. A recent survey by Association of British Insurers (ABI) found that 57% of adults did not have any protection policy in place – putting themselves and their families at huge risk.

So, what exactly is the risk?

There are certain risks in life that we cannot afford to take, irrespective of their level. Everyone is different, and some may be more at risk than others based on several factors. One of the largest mutual insurers, Liverpool Victoria (LV=), has designed a simple calculator to show the likelihood of three events happening before someone’s retirement: i) chances of passing away, ii) being diagnosed with a serious / critical illness, and iii) being unable to work for two months or more due to an accident or illness. You can check the results for yourself in less than 30 seconds by clicking https://riskreality.co.uk/gen. Of course, the risks shown in the report are only based on general statistics in the UK and only take into account your age and smoking status. However, it is still a good starting point to get you thinking about safeguarding yourself financially.

Protection (Insurance) policies to ‘ring-fence’ volatility of life

UK is one of the most competitive and tightly regulated markets in the field of insurance. There are various types of protection or insurance policies that can be purchased to financially protect yourself and your family should the unexpected happen. Some insurance products are relatively simpler to understand than others.

Life Cover / Term Life Assurance: Designed to pay a cash lump sum if the policy holder passes away during the term of the cover. The term and amount of cover chosen generally depends on the underlying risk that someone wants to cover, like ensuring their mortgage debt is paid off, guaranteeing their children’s education is paid for or leaving a legacy to the surviving family, etc. One can also have a life policy designed to pay monthly income instead of a lump sum, which is referred to as ‘family income benefit’ or FIB. You can generally choose to have any amount cover on your ‘own life’ due to having unlimited ‘insurable interest’ on own life.

Critical Illness Cover: This policy pays in the unfortunate event of diagnosis of a critical illness as specified in the insurer’s policy documents. The products available in the market have evolved over the years and there can be a huge difference in the products available, even when purchasing from the same insurer. Some products are ‘core’ or ‘basic’ while others are more comprehensive, covering a greater number of illnesses or have better definitions for making a successful claim or even pay more for certain medical conditions.

Income Protection Cover: Your income is probably the single most valuable thing (in financial terms) that must be protected. What if someone is unable to work for a long period of time, months or even years, because of an accident or illness? It’s important to know if your employer will pay you while off work, and if they will, how much and for how long? Having a suitable income protection policy is designed to pay monthly income while someone is unable to work.

There are too many things / variables to consider while choosing a right insurance policy. It is vital to seek advice in this area from a financial advisor with access to whole of the market, offering competitive prices and most suitable products. One of the most important things is to write / place your policy under trust.

Why use a trust?

There are three main reasons of placing a life policy under trust –

1. Right Time: Where a life policy holder passes away, their personal representative will need to wait for ‘grant of probate’, which is a legal process to confirm who can deal with the estate of the deceased person before assets can be distributed in accordance with their will. This process can take several months, and life policy will not pay-out till then. If the policy is under trust, the plan proceeds can be paid to the trustees without having to wait for grant of probate.
   
2. Right Hands: Merely nominating a life policy beneficiary in someone’s ‘will’ does not avoid the process of probate. Moreover, a ‘will’ can be legally challenged. By placing a life policy in trust, a beneficiary or set of beneficiaries can be chosen by the policyholder to ensure that the money goes to the right hands. By placing the policy under trust, the proceeds are also protected from any creditors or someone else having a claim on the estate.
   
3. Right Money: Trusts play a huge role in the inheritance tax (IHT) planning as any policy proceeds paid into a trust do not form part of the deceased’s estate – which may in certain cases save as much as 40% tax otherwise payable by the estate.

Value Added Benefits –

Most insurers offer lots of value-added benefits to their policyholders. These include access to remote GP 24×7 via mobile app or telephone, second medical opinion in case you are uncertain of a diagnosis, physiotherapy sessions, access to legal helpline, annual health checks, mental health support, global treatment option, etc.

Reviewing your protection –

Having a good level of financial protection in place at the earliest possible opportunity is vital. However, an individual’s circumstances and objectives keep changing, and therefore, it is equally important to review your protection arrangements on a regular basis. Also, there could be insurance policies available in the future, offering better value or terms of the cover. As an example, if there was an exclusion on someone’s insurance policy, this may be removed in future if the person did not have any treatment or symptoms for the excluded condition for a considerable time period.

Getting in touch –

If you need any advice in relation to your mortgage, personal protection / insurance, private medical insurance, etc., please feel free to get in touch and I would be delighted to help.

Sandeep Lahori (MBA, DipFA, CeMAP)

Director / Mortgage & Protection Advisor

Greater London Financial Services Ltd

[email protected]
+(44) 770 108 1752