Fergus Muirhead answers your consumer questions
- 22 August 2012
- From the section Scotland
I'm Fergus Muirhead and I'm here to answer any questions you may have about any money or consumer issues.
Please drop me a line here at email@example.com with your questions.
You can also read more on money and consumer issues on my own blog.
Q. We have a house that we once had 20% equity in - now with house prices, it's more like 10%. It's on the market but not selling. We've now rented it out, which covers the mortgage repayments. We're desperate to buy, having tried living in rental accommodation ourselves. Where could we get a second mortgage or a loan from? Job is secure and wages increased since original mortgage taken out. Can you help? C Austin
A. There are a couple of options. Different lenders base your ability to afford a second home on different calculations. Some, for example, will add the two mortgages together and then compare that total borrowing to your income and expenditure. So if your current loan is for £100,000 and you want to borrow another £100,000 to buy a second home to live in, then they would effectively reckon that you would have a loan of £200,000 and you would have to have the income to support that level of borrowing. Other lenders will view the property that you are going to let as more of a 'business' and will, therefore, take into account the rental income you are likely to receive from it. That way you will probably be able to borrow more since the lender will want to make sure that potential rental income covers the mortgage. You will have to make sure that your existing lender will allow you to 'convert' your loan to one that is effectively buy-to-let. You may have done that already since you say your flat is already let, but if you are going to do this on a more permanent basis then it would be wise to check with your lender. You will also need to make sure that your insurances are all up to date and that you understand who is responsible for what when it comes to buildings and contents cover between you, your lender and your tenant. A lot to think about but what you suggest is becoming more and more common with properties becoming more difficult to sell and with a ready market in tenants being created by people who can't afford to buy at the moment.
Q. I have an Index Linked Saving Certificate with NS&I which matures next month. With interest, it will be worth £18,000. My question is: would it be advisable to carry on with another five-year certificate as it is linked with RPI or have you any advice on another no-risk investment? David Harrison
A. First of all it's worth pointing out that there are lots of changes happening to Index Linked Saving Certificates next month so the first thing for you to look at is when your current certificate matures. If it's before 20 September then everything will be as it is currently. If your existing certificate matures on or after the 20 September, and you decide to renew it, then you need to look at the changes that are being applied and see how they will affect you. You can find out more here but broadly the changes will mean on the down side fewer options when your certificate matures, a minimum investment of £100 and penalties for cashing in early. On the upside, there would be annual statements to help you keep track of your investment and a guaranteed rate of interest for the whole term of your investment. In terms of 'no-risk' investments, you have to remember that after a year or two your money won't be worth what it was because of the effects of inflation. So you may want to take a little bit of risk with at least some of your money to try to provide some sort of hedge against inflation.
Q. Can you help with a very straightforward pension query please? Can you take money from a pension fund before the age of 55 - yes or no? Wendy Elrick
A. Sorry, Wendy, but as usual with money there is no such thing as a 'yes' or 'no' answer. The simple answer, which is probably the one that you are looking for, is that it is usually only possible to access your pension fund after the age of 55. Up until a few years ago you could access your money - either the tax free cash or as an income - from 50 but the regulations changed and it is now 55 for the vast majority of people. There are still options to access cash in certain circumstances where ill-health is involved but you really need to speak to scheme administrators for more details of how this works. And there have been schemes advertised, particularly earlier this year, as 'pension loans' where you can borrow against the value of your pension before 55, or 'pension release' where funds are made available against the value of your pension before you reach 55. Regulators and consumer sites were almost unanimously critical of these schemes which were in the main expensive, complicated and possible illegal - and my advice would be to steer well clear! Sorry if that's a longer answer than you expected but I do hope it helps!