Fergus Muirhead answers your consumer questions
I'm Fergus Muirhead and I'm here to answer any questions you may have about any money or consumer issues.
I'll be dealing with a selection of your queries every other Wednesday on Scotland Live, on Reporting Scotland and here on the BBC Scotland news website.
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. My wife and I are considering Equity Release. We have a mortgage that is 10% of our property value. It is interest only and we will not be in a position to pay off the principal amount when it is due. I have already dismissed a lifetime mortgage due to the fact that by the time we die there will be little left to hand on to our sons. Harry Rowe.
A. You are correct when you say that you would have to hand over the deeds with a home reversion agreement. With these schemes you are effectively selling your home, or a portion of it, to a home reversion company and so if that idea does not appeal to you then you would have to look for another option. You are correct when you say that with a lifetime mortgage you will be "rolling up" interest that will be paid when the house is sold, either on your death or when you move into care, and that could have an impact on the inheritance you leave your sons. There may be another option however that would allow you to continue to live in your home, and continue to pay the mortgage on an interest-only basis until your death, at which point the outstanding loan would be repaid and the balance could be paid to your sons. That way the amount owing will not be any greater than it is today. You would be best speaking to a specialist mortgage broker in your area - you can find one at www.unbiased.co.uk
Q. I am an 18-year-old undergraduate student and have numerous savings. I also currently have a part-time job while I study at university. In the current economic climate and uncertainty about the jobs market, do you think it would be worthwhile opening up a pension now so that at least I have something started when I leave university? Something like a stakeholder pension only requires at least a £20 investment per month. Jack Fraser.
A. It's a really good question Jack and I've just read an article in one of today's papers telling me that more than 25% of people are going to retire with nothing but the state pension to live on, so the fact that you are starting to think about making some sort of pension provision so young is great. As you rightly say you can start to invest into a stakeholder pension with as little as £20 per month and that will be increased when it is invested since your pension company will reclaim basic rate tax on each £20 you invest. The benefit of starting to invest in a pension now is that you will be saving (at least under current legislation) until you are at least 55 which means that your money has at least 37 years to grow, and it will grow in a fund that is currently mostly tax free. So the plusses of investing in a pension at the moment are that you should benefit from long-term growth (although the market is fairly fluid at the moment and you may see some short-term losses if you invest in particularly adventurous funds) and that you will receive tax relief on any investments you are making. The downside is that you will not be able to access your cash until you are at least 55 - or maybe older if legislation changes between now and then - and you will not be able to have all of your cash back as a lump sum. Currently you will be able to take up to 25% as a tax free cash sum with the balance being taken as income. Of course when you start work you may find that your employer offers a pension scheme, at which point you may want to move the stakeholder scheme you are thinking of setting up now into your employer's scheme. If you then moved it, it would be easier to administer going forward and it might be easier to manage the investment strategy you adopt via one plan rather than two. It is also the case that stakeholder pensions are flexible enough these days that you can change the level of investment that you make to cope with your own circumstances, so if you need to stop investing for a while because you are not working then you can take a break from your pension and pick it back up again when you start to work. The amount of money you can invest is dependent on your income on a year by year basis so you will have the flexibility to increase or decrease as your income changes.
Q. I am looking for some advice concerning my finances which I am having some problems with. I have two credit cards both with a couple of thousand on them and then another couple of loans for my car and bathroom. Those together with my mortgage and normal finances are crippling me at the moment and I have absolutely no room to move, save or even think about a holiday. I am a teacher so earn a relatively good wage. As I am currently paying nearly £100 a month on each of my credit cards and then have my other loans, I am wondering if I should take out another loan to pay these things off and basically consolidate my finances? I tried to shift to another credit card but was refused by one bank and didn't want to keep trying as I have had a few late payments. I am hoping to move house at the end of this year to be closer to my mum who has an ongoing illness. I thought that this would be a good time to move because of house prices and then I could consolidate my finances at the same time, but it has become an emergency as I can't afford to do any improvements to my house to sell it. So although I know that there are pros and cons to consolidating, given my present situation would it be wise to do it? I can't even pay a little more into my credit cards or anything as I literally have no room to move. Anon.
A. There are so many areas to look at in your question. You don't give me any details of the amounts owed on your loans or the amount of your mortgage in relation to the value of your house. If you want to drop me another note with a more detailed breakdown I will be happy to help you. As a starting point you need to have a detailed budget prepared that compares your income with all of your outgoings to let you see exactly where you are on a month by month basis, and whether there are any expenses that can be cut out of your budget. As you rightly say, if you have missed some loan payments in the past then you will find it difficult in today's market to get any new credit - and other readers should take note of the importance of maintaining existing payments and keeping them up to date. Once you have cut any unnecessary expenditure, if there is any, you could start by looking at whether you have enough equity in your home in order to release some, but you need to make sure you understand the consequences of doing this. Interest rates are low at the moment but they are only going one way and your mortgage payments will also only increase as interest rates rise. And of course if you have been behind with some payments you might not find a lender willing to advance any more money at this stage. If consolidation is not an option - and I would be loath to suggest it is your best option until I had much more information - then you need to look at perhaps extending the terms of your existing loans, or to ask if any of your lenders will come to an arrangement where they will accept lower monthly payments until you are back on the straight and narrow. They are unlikely to contemplate helping you in this way until they have sight of an accurate budget, which is why stage one above is so very important.