Simple Pound

It’s been quite some time that I last submitted an article to a Blog Carnival - mostly because I kept missing the deadlines - so I’m especially pleased to announce that my post about mortgage-related costs has been published as part of the most recent Carnival of Personal Finance (#146).

Blain @ Stock Trading To Go was this week’s host and did an excellent job of mixing a regular blog post (his own submission if you like) with the Carnival’s posts. This way you can learn what it takes to pick a good stock broker while reading everyone else’s thoughts on Personal Finance this week.

I strongly encourage you to have a look around and explore what else is out there. Not only because you might learn something, but also because you will probably encounter things of a little unusual nature like Financial Learn’s post about “Ten Things Women Wish Men Knew About Money“.

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It’s that time of the year again. No, I’m not talking about Easter and it’s certainly not time for Christmas again - the end of the financial tax year is nearing. And what does that mean? You have precisely until April 5th to open an ISA and make use of last year’s tax-free savings allowance.

While I certainly understand that you might be a little worried about entering the stock market at this point in time, there’s still always the option of opening a simple savings account - no more or less exiting than any of the other accounts you might have knocking around, but with the crucial difference that it will earn you at least 20% more interest over time (even more if you are a higher-rate taxpayer).

For the current tax year (2007/2008) you are allowed to put up to £3,000 into a tax-free savings account and if you’ve walked past any high-street bank branch recently you will have noticed that the competition out there is fierce. Seemingly every bank or building society is now trying to get you to open an account with them, and it’s important that you carefully consider the different options available to you before committing your hard-earned cash.

Comparison sites like moneysupermarket.com should help you with the major undertaking of comparing the different accounts currently available. At the end of the day your best choice mainly depends on your individual circumstances and how happy you are to commit your cash for a longer term. Many accounts will require you not to withdraw any cash for at least 12 months (sometimes longer) in order to secure the best interest rates and it’s crucial that you do not ignore the fine print before you sign the dotted line.

My personal favourite at the moment is Barclay’s “Tax Haven ISA” which currently pays 6.5% AER and allows for instant access and no withdrawal penalties. You can open it from as little as £1 so there’s no excuse for having money in an account that you have to pay tax on while your ISA allowance is just waiting to be used. Bear in mind that you would need to earn at least 8.1% AER on a common savings account in order to achieve the same after-tax return on your money!

One word of caution - the rate is marked as variable so you can expect it to drop as soon as the Bank of England should cut interest rates. There’s no guarantee how the rate will behave in the year ahead but it’s certain to drop by 1% after 12 months as the 6.5% includes an introductory 1% bonus. Further, this offer does not allow you to transfer in your previous year’s ISA allowances from another provider. Hence, in order to secure a market-leading rate like this you must be willing to keep your ISA money in separate accounts.

Personally, I’ll be keeping my previous year’s ISA money in an account that I can trust to consistently pay a good rate which is at least matching the Bank of England base rate. Then I will take advantage of the Barclays offer for as long as it might pay more interest than my “regular” ISA account. As soon as this is no longer true, I can simply instruct my bank to transfer the “new” ISA money and add it to the “old” in order to consolidate my accounts into as few as possible while not sacrificing a decent rate of return. After all, no one is paying you for your loyalty… (at least not yet).

Let me know if you have any questions about ISAs and I will try to help as much as I can! Just please do something with your allowance before April 5th.

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The further the year progresses, the nearer the time comes that my boyfriend and I have set ourselves for buying our first property. And since I love planning and organising stuff I also have a tendency to get overly involved before it’s even necessary. For example, I started to monitor rental prices in London at least weekly (if not daily!) almost a year before we would actually have to move. That meant that I wouldn’t just waste hours sifting through property websites (which is fun!), but also panic about things that were completely out of my control (e.g. whether we’d ever find a flat that I liked within our price range).

Despite the assumption that human beings are capable of learning and hence avoiding past mistakes, I’m doing it again. I get weekly property updates from a range of websites and spent hours more searching for places that might fit our criteria. However, this time, I’m trying not to panic too much in advance, but simply use this flood of information to be as prepared as possible in order to avoid nasty surprises. By now (almost a year before we’re planning to make this buying commitment) I already have a reasonably good idea of the property prices in the area I’m considering, the mortgages that are available and the maximum amounts we will be able to borrow. Yet, beyond saving for a deposit, I’ve never had a closer look at what costs we’ll be facing as part of the process.

And I’m horrified.

The list is seemingly endless: moving costs, legal costs, surveys and mortgage fees all have to be researched and compared in order to cut the best deal. And trust me, it’ll be absolutely crucial to get the best deal possible as the costs can mount up to almost 4% of your property’s purchase price. That is a lot of money. All along, I was hoping we could commit to a deposit of roughly 10% of the property’s purchase price. After my cost analysis, it looks more like 5% unless I start saving so much more aggressively than I have done in the past. Especially as there are further implications with not hitting the 10% deposit mark – many mortgage lenders won’t be willing to offer you their most competitive interest rates unless you can commit at least 10% of the purchase price.

In any case, check out the following list for an estimate of the magnitude of the costs you’ll be facing if you’re considering the purchase of a property. The property I’ve based the calculation on is a flat with leasehold and a purchase price of £400,000. Bearing in mind that the average house price in London is somewhere around £375,000 (depending on which source you query), it’s not that extortionate and probably represents the maximum amount we could afford anyway (optimistically speaking).

Moving costs

• Insure possessions against accidental damage during move (the following calculation is based on an estimated premium of 50% - 100% of our current contents insurance – I haven’t actually checked with them but I doubt it would be more than 100% our annual premium) - £50,- to £100,-
• Hire medium-sized van for a weekend (this will be cheaper than hiring a removal company, especially as the flat we are currently renting is furnished which means we will have very little heavy furniture to move – just tons of DVDs and books *grins*) - £120,- to £200,-

Legal costs

• Conveyance solicitor fees (this will depend hugely on whether you’re looking to buy a house – i.e. freehold – or a flat which is commonly on leasehold; to a certain extent it will also depend on the value of the property you’re looking to buy) - £300,- to £700,-
• Local authority searches (this search has to be carried out to establish whether any matters such as planning, environmental problems, building regulations etc. affect the property) – £100,- to £120,-
• Land Registry fee (this fee is payable to the Land Registry for them to put down your name as owner of the property in their records; tedious but important) – £220,-
• Land Registry search (as far as I can tell this search is conducted to purchase the registry plan and registry title (at £3,- each) from the Land Registry to ensure the property you’re being sold actually belongs to the seller) - £6,-
• Bankruptcy search (to ensure that the property you’re buying has no history of bankruptcy or financial difficulties which could affect your credit rating) - £2,-
• Stamp duty (this is by far the largest chunk of the costs you will have to put up with and is calculated as 3% of the purchase price for any property above £250,000 and below £500,000) - £12,000,-

Survey costs

• Home buyers’ survey (the main purpose of this survey is to ensure you’re paying a fair price for the property; you’ll be told about any defects that might affect your decision to proceed with the purchase or which may affect the price you’re willing to pay – a useful tool for price negotiations later on!) - £480,- to £550,-
• Valuation report (survey conducted by your mortgage lender to establish whether the price you’re quoting them for the property is justified and whether they feel save accepting the property as a collateral for your loan) - £525,- (you might be able to get this free as part of a mortgage deal)

Mortgage costs

• Deposit (as discussed, ideally you want to put down at least 5% - 10% to get the best interest rates from your lender of choice) - £20,000,- to £40,000,-
• Product fee (covers the initial mortgage setup and whatever else the bank can come up with to possibly justify a further grand of expenses) - £500,- to £1,000,- (possibly less depending on what mortgage you pick)
• Application fee (because they can) - £100
• Bank transfer fee (and more costs just to get the money the seller’s account asap) - £35

This brings us to a whopping total of between £14,440 and £15,560 in fees for the purchase of a £400,000 property. That number obviously doesn’t cover the additional 10% you want to put down as a deposit. If I include the 5 – 10% range, we reach a final sum of anywhere between £34,440 (with 5% deposit and all the best deals the street offers) and £55,560 (with 10% deposit and higher fees).

That is a lot of free capital you need to have available before committing to a house purchase. I will seriously have to review my savings pattern to assess how I can possibly squeeze more money out of my budget for savings…

In case you want to read more about this evil topic, I suggest the following sites:

• 4Money’s guide to buying a home
• WhatPrice (actual cost estimates slightly outdated)
• Adviceguide (for a description of the whole buying process)
• DirectGov
• Complete Guide to Homebuying (the clue is in the title; slightly outdated but informative)

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I finally fixed the links section in my sidebar so you can have a peek into my Google Reader to see how I start my day (or end it ).

Here are my favourite blogs that deal with Personal Finance in one way or another:

• Dividend Money
• Fat Pitch Financials
• Get Rich Slowly
• I Will Teach You To Be Rich
• Money Watch (UK)
• Money, Matter, and More Musings
• My Open Wallet
• My Wealth Builder
• No Credit Needed
• Punny Money
• The Digerati Life
• The Dividend Guy Blog
• The Finance Buff
• The Simple Dollar
• This is Money (UK)
• Well-Heeled
• Wise Bread
• UKMoneyPot

And naturally I can’t forget to mention P-2006, my boyfriend’s website, which I obviously have to read diligently - despite living with him. And yes, he has to read mine too…

I hope you enjoy these blogs as much as I do. Do you have any others that I should know about? Share your favourite blogs in the comments! I’m curious what else is “out there” that I haven’t discovered yet.

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I can’t believe it’s been another month. Admittedly a short one, but a full month nevertheless. In any case, the upcoming review was a good opportunity to sift through all my receipts from my trip to Malta a week ago and categorise them as usual in my oh so beloved spreadsheet.

The financial end result of that rather lengthy exercise was a decent 2.46% increase in my overall net worth which translates into a 1% step towards my next goal (as shown in the progress bar to the right). While this is certainly not bad at all, I have decided to grow my money a lot more aggressively than I used to. I’m currently saving 10% of my take-home pay at most, which is just not good enough if I’m seriously considering the purchase of a flat in London in a year’s time (and I am). Hence next month’s mission will be to bring my net worth from 38.5% to 40% of my current goal. In order to do that I will have to save at least double of what I used to. Wish me luck…

I have also taken the opportunity to review my first budget and check how well it actually reflects my needs (and wants!). This was part of an exercise to figure out where I could save more and spend less than originally thought. In the process, I have made the following adjustments:

• I have doubled my expected interest income as my original estimate was a far too conservative. Based on the initial figure, I would have managed to earn a year’s worth of interest within the first 4 months. This wouldn’t really encourage me to save more (since I could have comfortably met my target just by keeping my existing savings) and hence I have made it a little more difficult for myself. The reason I haven’t tripled it (as you would expect knowing that my initial figure would have been satisfied after 4 months) is that I expect the Bank of England to reduce interest rates further which in turn will eventually reduce the savings rates available in the market.
• I have increased my phone (i.e. landline) budget by £10 as I hadn’t really budgeted all the phone calls I would have to pay on top of our free evening & weekend package. Most of those additional phone calls are used up when I speak to my parents abroad, which is an unavoidable expense as I am fairly close with my family at home.
• My household budget was reduced by 20% after I realised that most of our major expenses for the flat should by now be dealt with and there was no need to mirror last year’s expenditure.
• The budget for council tax was increased slightly to allow for a potential rise in the rate that may or may not happen - better save than sorry.
• Based on the last two month’s pattern, I have increased our food budget by 20%. There are two things in life that I don’t really like to compromise on - one being how well I sleep at night, the other what food I eat. If our spending suggests that we need roughly £240 to £250 a month then so be it.
• I’ve reduced my clothing budget by 33% and even though this means I have overspent in the first two months of the year, I think it shouldn’t be too difficult to cut down there in favour of knowing my flat’s deposit is happily growing. Even after the cut, the budget of £1,000 is still fairly generous and should accommodate any major shopping spree
• My gifts budget was increased by about 25% as well given the amount I have spent in this category in the first two months of the year. What can I say, I’m just too generous

That’s it for this month’s reflections. As usual, I have updated the Progress and Best Of page for your information and entertainment…

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