The best ways to pay for your new car

Whatever effects Brexit or general global economic stagnation may be having, it would appear that the automotive industry in the UK is carrying on its merry way. I know that neither of those were a consideration for me last December when i decided to upgrade my 5-series, the only thing that i thought about before taking the plunge, were my own personal needs and my budget.

And i’ve just learned that because of people like me, the number of cars on our roads continues to enjoy year-on-year growth in the region of half a million, bringing the total to more than 30 million. Not sure if thats a good thing or a bad thing but it does make for staggering reading, particularly for a country which forks out such a huge amount for public transport infrastructure. That said, the reality is that, outside London and other major cities, a car is simply a necessity. If you’re someone who is looking to either buy a car, or at least looking to upgrade significantly, you may be wondering what the best way to finance this may be.

There are a number of popular options, each with their own merits. Here’s a bit of background to five of them, and, hopefully, learning a bit more about them may allow you to zero in on the most suitable path for you.

Savings

Nothing technical about this option. If you have the savings to cover the cost of your new car, it is a very appealing way to go. Bear in mind, that with interest rates on current and savings accounts bordering on the derisory, there isn’t an obvious opportunity cost either. The two most important considerations are simply whether the savings spent on paying for the car could have been better spent elsewhere, and also to ensure that it doesn’t leave you short of cash in the immediate future.

Lease

Car leasing effectively amounts to long-term rental. Contracts tend to be in the region of three years, and you’ll be liable only for the monthly payment you make (and additional extras like insurance). Maintenance costs are usually covered by the agreement, and monthly payments tend to be competitive. The only two important factors to consider are that there will be a mileage restriction, while at the end of the term, you won’t actually own the car, or have any equity thereof.

Personal Contract Purchase

This is essentially a form of leasing, and most differences are generally cosmetic. The crucial distinction between the two though is that with a personal contract purchase agreement, you will have the option of buying the car at the end of it via a so-called ‘balloon payment’.

Hire purchase

This is an increasingly-used financing method which involves the customer putting up a deposit at the start of the agreement – usually 10 per cent. Thereafter, you make monthly payments in a similar fashion to the two schemes above. The important thing to note here though is that you don’t actually assume ownership of the vehicle until the final payment has been made.

Personal loans

Many people are quick to lump the any upfront costs of a car on credit card, but it can be rather foolhardy, given the rates of interest involved. Some might cite the convenience involved, but these days acquiring finance via a personal loan is incredibly quick and easy. Most platforms and providers allow you to complete the process entirely online, and pay outs are swift. The kicker though is that this increasingly competitive market has driven APRs down, so, provided you are comfortable with the level of debt you are taking on, this can be a very attractive car finance option.

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UK Money Art

After the Superhero Money Art post from a few weeks back, we thought it would be good to feature a post with just UK defaced banknotes. We’ve scoured the interwebs for a fortnight or so and come to the realisation that we Brits’ probably like money too much to vandalise it!!

Finding good examples was tricky to say the least, but here are the best we could find:

The all seeing eye!

 

Miss Winehouse… RIP!

 

Time for tea…

 

That sinister smile!

 

The Wicked Witch of the West!

 

The Troll!

 

Ghost Rider!

 

 

And our personal favourite, the People’s Princess!

 

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What we Know About the PPI Deadline

The deadline for making PPI claims has provided no small amount of confusion for many potential PPI claimants – not least because it is not a certain thing. The deadline has been under discussion for some time, but so far no firm date has emerged and many of the suggested dates are little more than rumours. Even so, there is enough useful and reliable information around to be helpful. Here is everything important that there is to know – so far at least – about the PPI deadline:

Will There Be a Deadline?

Some organisations and consumer rights activists have questioned whether there even should be a deadline for making PPI claims. The banks have cheated millions of consumers out of billions of pounds and it can be hard to even find out you’ve been cheated. In some people’s books, this means that introducing a cut-off point just gives dishonest a get-out-of-jail-free card for any refunds that have not yet been made and lets them keep the remainder of their ill-gotten gains.

Nonetheless, unless there’s a quite sudden and significant about-face from the Financial conduct Authority (FCA), there most certainly is going to be a deadline for making PPI claims. The only question really left on the table is when that deadline will be.

When is the Deadline Likely to Be?

A few possible dates have either been mentioned by the FCA or flown around as rumours at one time or another. In late 2015, a deadline of Spring next year was being talked about. Much more recently, it was suggested by the FCA that the deadline could be set for the middle of the following year – perhaps sometime in June 2019.

This is the latest concrete suggestion of a timeframe in which the PPI deadline could fall. However, at the time this suggestion was made it was expected that we would have an announcement by now. Since then, the FCA has declared that it will take another couple of months to announce a firm date for the deadline. Some have suggested that the deadline itself will be pushed back proportionally, suggesting a mid-late 2019 date. This is essentially speculation, but is not completely unfounded.

When Will We Know?

While there is no firm date for the announcement any more than there is for the deadline itself, things are a bit clearer in this regard. The short answer is that we can confidently say that, barring further announcements to the contrary from the FCA, we will finally know the Payment Protection Insurance deadline soon.

Originally the FCA was planning to reach a decision and announce it to the world by the end of last year. However, due to the very large volume of contributions and responses the regulator received, it pushed back this announcement a little in order to allow time to properly assess them. The announcement is now expected within the first quarter of this year. We don’t know exactly when we can expect a decision, but it should be before April.

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Superhero Money Art

It’s been a while again since the blog was last updated. Life get’s busy and some things get neglected… so we’re kicking off 2017 with a Superhero inspired post…

 

Yes, it’s a rather scary looking Hulk… but he is our favourite Superhero so we’re starting here!

 

The Dark Knight looking moody and broody as always!

 

Who doesn’t love their friendly neighourhood Spiderman??

 

Can you imagine what this would do to Tony Stark’s already over-inflated ego??

 

The first Avenger, Captain America… we love this guy!

 

Ashamed to say that I’d never heard of Starlord until Guardians of the Galaxy dropped, but I’m a fan now!!

 

 

“I am Groot”

 

Always on target… Hawkeye!

 

Gotta be one of our favourite money transformations… great work!

 

The hammer of the gods… Thor and Mjolnir!!

 

Cowabunga dude… Raphael is the one for me but Donny will do!

 

The force is strong with this one!

 

We’re still on the lookout for others, so please feel free to get in contact if you have something that you would like to have featured!

 

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UK Credit Ratings Downgraded

The UK has seen a downgrade in its credit ratings in the wake of the Brexit vote. Ratings agencies took the decision to downgrade the UK’s ranking as a borrower following the public’s vote in favour of leaving the EU and the resultant economic turmoil.

One of the main credit rating agencies, S&P, previously gave the UK a AAA credit rating, the highest offered by the agency. It has now downgraded the credit rating assigned to the country to AA, two levels below the previous rating. Previously, S&P had been the only credit rating agency to maintain a top-level rating for the UK. The agency said that the UK public’s decision to exit the European Union was likely to “weaken the predictability, stability, and effectiveness of policymaking in the UK” and this was reflected by the downgrade in the country’s credit rating.

Another major credit agency, Fitch, reduced the UK’s former AA+ credit rating to a lower AA. As a key reason for the decision to downgrade, Fitch cited the expectation that the short term would see an “abrupt slowdown” in the UK’s growth.

The downgrading of credit ratings for the UK by S&P and Fitch follows a previous move by Moody’s, another ratings agency. On Friday, following the revelation that the UK had chosen to leave the EU, Moody’s downgraded the credit outlook of the UK from “stable” to “negative.” In explanation for this move, Moody’s talked of a “prolonged period of uncertainty” that was likely to follow the vote in favour of a Brexit, and said that the result of the referendum was likely to have “negative implications for the country’s medium-term growth outlook.” The negative impact on economic growth would, Moody’s predicted, outweigh any financial benefits gained from not paying into the EU.

These cuts to the country’s credit rating mean that the UK is now perceived as having a higher risk profile when borrowing. This can make it more costly for the government to borrow money. In international financial markets, as with credit for individuals and businesses, a poorer credit ratings tend to be reflected by higher interest rates.

Just shortly before S&P and Fitch announced the downgrades in the credit ratings issued to the UK, Chancellor George Osborne sought to issue reassurance about the future of the British economy. He insisted that though there would be a need to “adjust” to a new situation, the UK economy would approach its future “from a position of strength.”

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Facebook to Pay More Tax in the UK

Facebook-LogoFacebook is to see its UK tax bill increase by millions of pounds following a huge reform of its tax practices. The social networking giant implemented the reforms following heavy criticism of the practices it uses to minimise the amount of tax it pays on its UK advertising revenue.

Previously Facebook, like a number of other major companies, used complex business structures to divert its UK profits through overseas offices. As such, though the profits were generated in the UK, they were largely recorded as taking place overseas. Effective rates of tax paid to the UK government by multinational companies using these tactics can be extremely small, with tax on UK profits instead being paid in other jurisdictions that offer lower rates of corporation tax.

The announcement that Facebook will be paying more UK tax follows not long after another company that has used similar tactics, Google, attracted fresh controversy. The search specialist reached a deal with the UK government which saw it continue to pay very low effective rates of corporation tax, leading some to accuse the government of offering “mates’ rates.”

Facebook was diverting profits for advertising revenue generated from sales to many of its biggest advertisers through Ireland, a jurisdiction also favoured by many companies using similar tactics such as Google. This included revenue generated through advertising for large-scale businesses such as Sainsbury’s, Tesco, WPP – a major advertising specialist – and Unilever.

Advertising sales from smaller businesses will still be routed through the company’s international headquarters in Ireland when advertising is booked online without significant involvement from Facebook staff. However, the decision to cease this practice with regard to the bigger advertisers will see the full rate of UK corporation tax paid on the majority of the company’s UK profits. The resultant increase in the company’s tax bill for its UK operations is expected to reach into the millions.

Facebook is one of a number of multinational companies to attract criticism for avoiding UK tax on its earnings. Facebook is a multi-billion pound company, usually taking only around three months to generate in excess of £1 billion in profit. While it is not known exactly how much of this comes from UK revenue, it is known that the UK is one of the company’s biggest markets. In spite of this, it was revealed late last year that Facebook’s total corporation tax bill for 2014 came to just £4,327.

The changes to Facebook’s tax structure will take effect in April as the new tax year begins. As a result, the company’s first tax bill under the new arrangement will be payable next year.

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Surge in Buy-to-Let Lending

To LetFigures recently show a significant surge in buy-to-let lending in the late stages of 2015. Mortgages granted to buyers of residential investment properties in November were up by more than a third compared to the same time in 2014.

Buy-to-let lending in November was down 6% on the previous month, but still up by 35% on November of the previous year, compared to 9.3% for the mortgage market as a whole. In total, 23,300 loans were granted to fund buy-to-let investment. This may come as a surprise to many, given the number of tax reforms announced last summer that will constitute a crackdown on the buy-to-let sector over the next few years.

In the July budget, George Osborne announced a number of measures and changes affecting the way second homes and property investments are taxed. These were designed to tackle what the government perceives as a property market that favours landlords over owner-occupiers. The changes, due to be rolled out in stages and should be fully in force by 2020, will severely impact the profitability of buy-to-let for many investors, primarily those who are higher rate taxpayers, and could leave some with unprofitable or even loss-making properties. Naturally, this led to predictions that existing landlords may cease buying additional properties, and that both established investors and would-be new landlords will be put off of making further investment purchases.

The fact that the number of buy-to-let loans advanced in November showed such a significant year-on-year increase seems at first to run contrary to such predictions. However, the rise in activity may be partially a result of the changes. A separate, more recent measure announced is an imminent increase in stamp duty on second home purchases. Investors who fall outside the scope of the other reforms or who have a strategy to weather them may be rushing to get purchases completed before this takes effect.

Perhaps more significantly, it is reported that the larger part of buy-to-let lending activity is made up of landlords remortgaging properties they already hold. This could be a direct response to one of the biggest and most impactful of the impending reforms. For many landlords, the most costly tax change due to be rolled out is the loss of mortgage interest relief. In order to reduce the impact of such a change, many landlords are looking to take out new mortgages, taking advantage of continued low rates and locking themselves into such a rate for a longer period in order to keep their mortgage as manageable as possible.

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Insurance Tax Rising: The Impact on Consumers

InsuranceIn his July budget, George Osborne announced that the tax paid on insurance products (Insurance Premium Tax or IPT) is to rise by more than half. This will take effect in November of this year. But how significant is this change going to be at the consumer level?

The change will certainly be a noticeable one. Both vehicle and home insurance premiums will increase as a result of the higher level of tax. However, fortunately the impact on consumers is not likely to be bank-breaking. Currently, tax only adds 6% to the pre-tax value of a premium, so it only represents a fairly small portion of the total that people pay. Only this modest tax portion is experiencing an increase, rising to 9.5% of the premium’s pre-tax cost. The increase to the amount that consumers pay will therefore be noticeable, but not massive.

As IPT, like the vast majority of taxes, is charged as a percentage of the total, those who already pay higher premiums will be worst-hit. The larger the pre-tax premium, the greater the value that will be added to it by tax. The single worst-hit group is likely to be young, newly-qualified drivers who can find that their first insurance premium comes to well over £1,000. The average newly-qualified, 17-year-old driver pays £1,869 for their first year of cover, according to the Confused.com/Towers Watson Car Insurance Price Index, and the tax increase would add an extra £60 to this figure.

The average comprehensive car insurance premium across the board, according to the same index, is £600. A premium of this value will increase by £20 after the higher rate of IPT takes effect.

The reason for the increase in IPT, Osborne claimed while delivering his budget, is to bring the amount levied on insurance premiums closer to the levels charged in the world’s other major economies. Britain’s current, outgoing IPT rate of 6% is, he claimed, “well below tax rates in many other countries.”

Many types of insurance are subject to IPT. The most common products on which this tax is charged are vehicle insurance policies and home insurance, including contents insurance. Other kinds of insurance, such as many kinds of health insurance and all standard life insurance products, are exempt from this tax and should therefore be unaffected by the changes.

Still other types of insurance are subject to different rates of tax instead of IPT. Travel insurance, for example, is subject to a different tax charged at 20% of the policy’s pre-tax value. This should also theoretically be unaffected by the changes, as only IPT is being increased.

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A Quick Guide to Apple Pay

Apple Pay, a new payment solution from the tech giant behind the iPhone and iPad, has just launched. However, not everyone can use it and a lot of people simply aren’t sure exactly what it is or how it works. Here’s a quick guide to the essentials of Apple Pay:

What is Apple Pay?

Apple Pay is essentially a way of using your Apple device (phone, tablet or watch) in place of your physical card at participating retailers and on London’s transport network. Your card details are stored on the device, and payments made through Apple Pay will be charged to that card even if you don’t have it with you. It’s a useful backup if you forget your card, or a way to avoid bringing both your phone and your card out with you at the same time.

To use it, you simply hold your device over a reader just as you would when using a contactless card. At the same time, either press your device’s Touch ID sensor or, in the case of the Apple Watch, double-press the side button to confirm you want to make payment. You can also use Apple Pay to quickly pay for purchases made through certain apps. Spend limits are set by stores; many have no limit, while others only accept the new service for payments of up to £20.

1Is it Secure?

As long as Apple’s security promises are upheld, Apple Pay doesn’t seem excessively risky. It works much like a contactless card, but offers extra security over that payment method as it requires a fingerprint ID.Bear in mind, though, that anybody else whose fingerprint is registered on your device, such as a family member, could potentially use Apple Pay with your device as well. It is also more secure by virtue of the fact that only Apple actually accesses your card details, instead of every retailer you make a payment to.

If your device is stolen, then hopefully the need for a fingerprint ID will stop the thief running amok with Apple Pay. At the least, it seems unlikely that it would fail to at least buy you time to take further steps. The free “Find my iPhone” service allows you to wipe a stolen device remotely, including your card details. You can also remove cards from Apple Pay by logging into iCloud or asking your card provider.

Who can use it?

Arguably the biggest problem with Apple Pay at this early stage is the fact that many common cards are not compatible. Currently, the service can accept cards from:

  • Santander
  • Nationwide
  • RBS
  • Natwest
  • MBNA
  • American Express

Cards for HSBC and First Direct will be added to the service later this month, and Halifax, Lloyds Bank and TSB are also planned to follow in the Autumn. Other cards may be added in the future, but there are currently no firm plans.

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Renting Out a Property? The Financial Considerations

Although buy-to-let isn’t quite the “hot property” it was prior to the recent economic recession, there is still much interest in it. Indeed, with ever still property price rises combined with low interest rates on standard savings in the bank, many who have money to invest still see investment in property as the only way to go.

1

The foremost calculation in determining the profitability of a rental investment is calculating its rental yield – the amount of money that is received in rent in relation to the amount of money paid for the property. There are however, many considerations that potential and existing landlords fail to undertake which leaves them a much less clearer picture of the exact profitability of such investment. Here are some to consider:

Insurance:

Landlords must ensure that the property is insured correctly. The exact insured required (whether buildings, contents or both) depends on the property and its tenancy terms. This insurance can cost a few hundred pounds.

Legal Compliance:

Some legal requirements for landlords are one-off for each tenancy – such as the Tenancy Deposit Scheme. Some of the deposit schemes are free of charge for protecting the tenant’s security deposit, though many charge the landlord. Other legal requirements are ongoing, and require yearly spends on the part of the landlord, e.g. the annual Gas Safety Certificate. This must be carried out by qualified gas safe engineers and often costs around the £100 mark each time.

Property Repair and Maintenance:

There is a legal obligation under the Landlord and Tenant Act 1985 for landlords to maintain properties to a certain standard. This includes ensuring heating and boiler installations are working properly, as well the washing facilities in the property. Damage done by the tenant is not in the remit though any general repairs to the property are required and the landlord foots the bill.

Agency fees:

For those landlords who choose not to rent out and manage the property themselves, there is also the cost of using a letting agent’s services. They often charge a percentage of your annual rental income to let the property or to also manage the property and tenancy on a long-term basis too – though this is a good option to take if you can’t or don’t want to deal with managing the property yourself.

Do be careful of some agents who can charge large mark ups on contractor costs when it comes to repair or maintenance work. Also, for tenants it is very off-putting being charged re-let fees by an agent at the end of a tenancy period if they choose to continue their tenancy. Be very selective when choosing who to let your property with – research will pay off.

Empty periods:

It is best to try to keep tenants happy as high turnover rates mean properties can be left empty and therefore a loss of rental income for the landlord. Any empty periods will need to be factored into costings.

Taxes due:

Landlords must declare the income they make to HMRC, and like all types of income it is subject to tax. Certain deductions can be made from the annual income received in rent.

 

These were some of the additional financial details that should be considered when investing in property for the rental market.

One very large consideration financially however, which has not been looked at yet, is the long-term consideration – capital growth on the value of the property. We all know the price of property has been going up over the years, and this trend, although slowing, is set to continue for the foreseeable future.

Growth is not the same in every part of the country and varies region to region and area to area, and this growth, long-term, is key to property investment being so in demand. Researching and choosing an area carefully will pay off in the long-run. Castle Estates (South London), have noted, for example, that although an area like Wandsworth now has a lower rental yield of around 5% compared to the 7-8% it was 5 years prior (steeply rising property prices do affect the rental yield calculation), the planned development around the Ram Brewery area of Wandsworth Center which includes improved transport links mean that not only is there likely to be long-term tenant demand, but also continued capital gain on property value for that area.

Research and knowledge will ensure better informed choices, though it cannot be denied that for all the costs, property generally is still a lucrative business for landlords, and will probably continue to be so.

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