1
Q
Hugo + Sarah’s situation
A
- 28 = young adults (personal life cycle)
- full time teachers
- live in a rural area - likely to both have a car as school is 20/25 miles away - cost of running the car?
- looking to move closer to school - these transport costs will fall
- depends on how long they stay at the same school - if ambitious may leave for a promotion
2
Q
Personal consideration for mature adults?
A
- are they planning on having children?
- are they planning to look for a promotion? - could’ve been teaching for 4/5 years - for some that is time to look for promotion
- are they going to be looking for a bigger house after this one? - most don’t stay in the first house they buy -> they try to scale up as they grow equity + salaries rise
3
Q
Savings
A
- lived with Sarah’s parents to save in essential spending
- implies they lived rent free in+ didn’t pay gas, electricity, water, council tax
- may have also not have paid as much towards food = as,e to save the targeted amount
4
Q
How have house prices changed?
A
- have increased since the time of writing of the article
- but interest rates are also increasing = house prices likely to fall soon
- article written when interest rates were 4.25% -> now 5.25%
- but this will generally be short term - the big picture for the UK economy is house prices tend to rise as demand outstrips supply
5
Q
Inflation (in article)
A
- article suggest inflation was caused by covid
- economy emerged from lockdown restrictions - households had savings + money to seen as they previously didn’t have to opportunity to go out
- = inflation as businesses were unable to increase supply to meet demand
- some workers had left, fallen ill or been made redundant following could
6
Q
Inflation (additional knowledge)
A
- Russian invasion of Ukraine led to increase in oil + grain prices
- Increase in inactivity in labour market -> skill shortages pushed up costs for firms + made it difficulty for businesses
7
Q
Impact of increased interest rates
A
- increase inflationary pressures led to increase in interest rates
- loans are more expensive = borrowing is reduced + consumer spending
- less economic activity so demand in the economy falls + prices become more stable
- bank rate is the base rate set by the MPC - 4.25% in article + 5.25% today
8
Q
Impact of increased interest rates on Hugo + Sarah
A
- increase in interest rates = increase in mortgage rates
- mortgage repayments increase - reduced demand for housing
- greater pressure on budget + cash flow forecast
- likely that if interest rates continue to rise = house prices will fall at some point
- ‘analysts have warned house prices could fall by as much as 15%’ - hugely beneficial to them as it means less deposits + have to pay less back to the bank
9
Q
What should Hugo + Sarah do?
A
- may be sensible to wait + delay buying a house if they think house prices will fall
- they could continue to rent + build up their savings rather than buy a house which could fall in value in the short term
- smart move would be wait until house prices had fallen to their lowest amount + then buy - but not an easy decision to get right
- however, the risk is relatively low as if house are held over the medium term likely to appreciate in the uk
10
Q
What is the usual deposit amount for a mortgage?
A
somewhere between 10% and 20%
11
Q
Length of mortgages
A
- can be 5 years, 10 years or the whole 25 years
- if you agree on a 5 year mortgage you pay that rate for 5 years - 4.4% in this case
- when the five years is up the customer can sign up for another mortgage with any provider (usually a fee for this) or the customer can stay on the standard variable rate with First direct
- shorter period mortgages = usually lower rate + higher SVR
- so a shorter length mortgage option is better for people who think rates will fall + be lower in 5 years
12
Q
Vernon building society
A
- 90% loan to value, 10% deposit
- lifetime - 25 years
- interest rate = 0.15% below the standard variable rate
- so if the SVR comes down so will the mortgage rate but if it goes up it will go up too
- no fees
- could overpay up to 10% without a charge but unlikely to be in a position to do this in the short term
13
Q
Nationwide Building society
A
- 10 years
- £999 fee
- fixed at 5.25%
- fixing it at this rate is advisable if it is predicted the bank rate will continue to rise but ill advised if it is though the bank rate will fall
14
Q
First direct
A
- 5 years
- fixed 4.4%
- £490 fees
- best option for Hugo + Sarah
- cheaper repayment - £91 per month cheaper than Nationalwide, £23 per month than Vernon
- they will have a combined income of £60-70k as teachers earn between £30-35k
15
Q
Which mortgage should they choose?
A
- first direct
- has cheaper monthly repayments
- fees are considerably lower than nationwide
- in 5 years time interest rates are likely to be lower
- in 5 years life may have changed for them - pursuing promotions or considering having children
- they would have more equity in the first house + are likely to have higher incomes - will sell + buy a different property —> this would be easier to do without being tied to a mortgage deal
16
Q
Impact of inflation on Hugo + Sarah
A
- rise in petrol prices by almost 50% - they have a long commute to worm
- rise in household costs - Ukraine wait = not buying Russian gas anymore
17
Q
Impact of increased demand for Hugo + Sarah?
A
- demand for properties outside cities has increased
- Hugo + Sarah live in rural wales
- = increased competition for housing = pushing up prices
18
Q
What will their decision be dependent on?
A
- attitude to risk
—> if they want to security of the 10 year fixed with nationwide
—> or the 5 year first direct which is half of the term = risked as they won’t know their financial position in the future
19
Q
Additional costs
A
- no stamp duty if house prices up to £225k in wales
- other costs might include solicitor fees, surveyor fees, moving fees
LIBF Unit 2
flashcards
Decks in class (10)
# Cards
-
1. Needs, Wants And Aspirations82
-
2. Savings And Investment Products114
-
3. Borrowing Products107
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4. Dealing With Long-term Risk77
-
5. Financial Planning45
-
6. Financial Planning + Infomed Choices73
-
7. Dealing With Unforeseen Events53
-
8. Ethics And Sustainability62
-
9. Sources Of Information + Advice0
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Case Study19
