Today I’m speaking with Sara Sheppard, founder of SLS Wills and More to discuss why it’s SO important for you to have a will.

Will writing is not offered as a service under my business proposition and any queries would be referred to a suitably qualified third party.

However, I have approached an expert to give an insight into this important subject. Please note that Will writing is not regulated by the Financial Conduct Authority.

Sara is vastly experienced and an expert in her field, with over 30 years in the industry and sits on the Society of Will Writers Professional Standards Board as an associate member

04:15-06:23

Rules of intestacy will determine how your estate is distributed.

-         Assets held in joint names will pass to the other surviving party automatically. However, assets in a sole name or property held as tenant in common – would be subject to the rules of intestacy.

If there is a spouse or civil partner and children, the spouse or partner would receive first £270,000 of the assets (as of the rules in March 2022).

Anything above this amount, would be divided into two equal shares –

• half to spouse / civil partner,
• other half divided between the surviving children.

Therefore the house could end up being jointly owned by spouse and children, which can be particularly complex if children are below the age of 18.

-         If single, your assets could pass to your parents, or siblings, or if you don’t have either, it could pass to people you don’t know about after following bloodlines (possibly even at cousins 3 or 4 times removed!).

06:25-10:52

-         You have control over what happens to your assets – tempered with the fact that you must make provisions for those financial dependant on you, for example, you can just cut out your spouse and children without a very good reason!

This is also why it’s wise to get advice when setting up a will and not just doing yourself without guidance. Use an expert, like you would with a mechanic for your car.

A will is one of the most important documents you’ll ever prepare and naturally you won’t be around to make any corrections at that point.

-         Wishes for your funeral

- Wishes for who would look after your children. Without a will, THEY COULD END UP IN CARE – they wouldn’t automatically be looked after by your family!

Things happen more often than you think and as a married couple, something could happen to both of you – for example a car accident and neither of you survive

10:53-12:47

-         Recommend every 3-5 years, or

-         On a lifechanging event, such as:

o Moving Home

o Birth of child or Grandchild

o   On Retirement

o After inheriting money

o Divorce

o   Death of a family member

You can change as often as you like, provided you have mental capacity.

12:48-14:06

This is particularly relevant for blended families, with children from different partners and can get very complex and without a will in place could...

It might sound like a really simple concept, and ultimately it is - is something affordable? 

In a mortgage context, the concept of affordability is a relatively new term and concept.

Historically - income multiples determined how much you could borrow.

Background

In the early 2000s, lenders used to lend you 2.5 x your combined annual income if applying for a mortgage as a couple or 3 x your income if applying alone.

With the explosion of house prices in the last 25-30 years, there is a need to have greater flexibility when it comes to affordability. 

Regulation in this industry has increased during this time, initially by Financial Services Authority (FSA), and more recently renamed the FCA (Financial Conduct Authority).

As a result - affordability was introduced – which goes a step further than simply looking at income multiples, which was quite a crude measure of how much you can borrow. 

Whilst many lenders still use income multiples that sit behind their calculations, there's very much more emphasis placed on the affordability on a monthly basis – i.e. how much is coming in each month and how much is going out.

In very simple terms, affordability is what’s left after deducting your outgoings from your income.

It’s rarely this simple though as there are so many different types and parts to your income.

In the simplest example, you might be an employee with a fixed basic annual salary.

However, you might have additional income such as:

• Bonus (monthly, quarterly or annual)
• Commission
• Overtime
• Allowances (Car, Shift etc)

If self-employed, you could be a sole trader, a limited company director, contractor or Limited Liability Partner (LLP). We saw in episode 21 how lenders may use different income depending on your set up and their own internal rules.

You may receive other types of income such as; child benefit, tax credits, child maintenance etc

Lenders often have a different approach to each other too – which explains why you may be offered differing mortgage amounts from different lenders.

Many different forms of outgoings and again may be treated in a different way by different lenders

• Credit commitments – loans, car finance, credit cards, store cards etc
• Childcare costs – nursery, childminder, nanny etc
• Child Maintenance
• Travel Costs
• Household expenditure

Lenders will tend to use the Office of National Statistics (ONS) data, when they factor in a lot of these, so that will tend to take an average. 

Lenders will balance two main things when deciding whether to grant your requested mortgage:

• Affordability - Ultimately, how much of your income is left over after all of the above outgoings is the important figure to them. Is it sufficient for your mortgage payment now and if rates increase?
• Credit Risk - is essentially the lender gauging the risk of you as a borrower not paying your mortgage back

They'll look at all sorts of data that they've got for people in similar situations to you historically, along with viewing the conduct of your credit agreements on your credit file before reaching their decision

As with affordability, credit risk policy will vary between lenders – explaining why some may provide different decisions

“DEFINITELY NOT A SILLY QUESTION” Feature

Q – I’ve got a loan I intend to repay before my new mortgage starts. Will this affect the affordability calculation?

A – It may do, depending on the lender. Most lenders...

“I’m self-employed, is it harder for me to get a mortgage” is a question that I'm often asked, and being self-employed myself too, I can see it from both sides. 

In this episode, I’ll be discussing how it does tend to be more involved and there are more things to consider when you're self-employed, but it certainly isn't impossible, and with a bit of help you can navigate the requirements and get the mortgage that you need

02:06-03:26

It's important to make a distinction between the different types of self-employment - the two that we're going to discuss today will be:

Sole traders / partnerships

Limited Company Directors 

There are other forms of self-employment that we’ll cover in another episode:

• Limited liability partner or an LLP, a common set up if you're a partner in a law firm, for example. 
• Contractor - such as an IT contractor where you invoice a company each week or each month and you organize your own tax. 

What income can be used for the mortgage? 

It depends upon the business set up (i.e. sole trader/partnership or Limited Company) and we’ll explain both in detail. 

One thing to be aware of - lenders will use figures that are disclosed to HMRC, so for those of you that don't disclose everything to the taxman, you can't have it both ways, income that is declared to the taxman essentially will be the income that will be usable from a mortgage perspective. 

03:27-09:01

You'll either be doing your own self assessments each year, or you'll have an accountant that does it.

Your financial year will be in line with the tax year(the fiscal year) which runs from the 6th of April through to the 5th of April. 

Self employment is quite different from being an employee where you have a set basic salary each month (and therefore easier for lenders to understand what you get paid now and going forward).

Being self employed, your income can be very up and down, and so lenders are making a judgement on your future income by looking at your track record - usually your last two years, possibly the last three.

As a sole trader, lenders look at your last two (possibly three) years’ Net profit figures. 

Not your turnover or total income, your net profit which comes after taking into account all of the expenses

Ordinarily, lenders will look at an average of your last two years figures, although if your latest year is lower, they'll tend to use that lower figure instead of an average.

They may also ask more questions, if it's quite a significant drop, to understand why that's the case, and more often than not, it might be a one-off capital expense (e.g. vehicle or equipment) which may give the lenders comfort that your profit next year will again be higher

 HMRC Documents

It depends on when we are in the year when applying for a mortgage, which determines which tax returns are required

For example - If we're in July 2022, most lenders would be fine accepting your tax return which ran to 5th April 2021 as your latest year. They appreciate you may not have completed your April 2022 return yet!

However, once we get to October 2022 – your tax returns for the period ending 5th April 2021 are now 18 months old and most lenders will want your 5th April 2022 tax return as the latest year. 

Worth bearing in mind and getting organized if mortgage time coming around.

Whilst your 5th April 2022 tax return isn’t required by HMRC until the end of January 2023, in our example, if lenders want it – this could be the difference between getting your mortgage and not!

Lenders didn’t historically ask for business bank statements every time, but since the beginning of the...