This is where your finance takes place

The buy to let phenomenon is one of those incredibly successful ideas that crops up every now and then and makes a handful of people a phenomenal amount of money. But how did this method of making enormous profits work? The theory is relatively simple, take out a mortgage in order to buy a property and then rent it out to tenants. The rent covers the mortgage repayments and as the price of the housing soars, the capital value of the property increases each year. This investment process has been so successful that in just nine years the amount of money borrowed in buy to let mortgages has gone from nothing to £108bn. One investor even saw his initial £950 investment multiply countless times over the last five years into a portfolio that is now worth almost £8m.

In the current climate, however, it’s not so easy to turn a profit. Property prices have increased 182% over the last decade, and it seems as if the market has become overvalued. This, coupled with a worsening world economy, has meant that even optimistic predictions for the next year are that prices will stay the same, with some suggesting a decrease of up to 20%. Many buy-to-let investors have found that house prices are so high that the money they recoup from rent is not enough to meet the dual cost of the mortgages and their additional duties as the landlord.

In other areas there have been a huge amount of buy-to-let properties on the market, driving down the cost of rent, and therefore further reducing the amount of profit that investors can make. Because there are so many rentable flats available, many prices have been driven down and there is less capital to be made when the time comes to sell.

One possible solution is to try and purchase the houses at a rate far below that of market value because homeowners need to sell fast, often in cases where people have defaulted on their mortgage, and the former owners are then offered the opportunity to be tenants on their home. Obviously, though, with large numbers of buy-to-let investors looking for the same opportunities, these severely reduced prices can be pushed back up by the competition.

In reaction to the credit crunch, lenders are also less willing to take risks, and many now refuse to lend on new-build properties, particularly in city centres where the property market is awash with new-build flats. Others are demanding much higher deposits of about 25% to ensure that there is some equity in the property in case of the investor defaulting.

So what is the future for the buy-to-let market? With rising mortgage rates, and a certain slowdown in the increase of housing prices, the potential for making profit has been markedly reduced. For the moment the future does not particularly bright, until the current global credit problems are resolved. Unfortunately the profitability of such a scheme requires on a steady increase in house prices, which are already at untenably high levels and out of the range of a number of first time buyers. Many people have made large profits from the buy-to-let scheme, but it looks increasingly like the bubble may have burst.

If you’re investor and you’ve just seen a great opportunity, then it’s still worth looking into the market. Take a look at Alliance and Leicester’s buy to let mortgages for some of the lowest APRs for buy to let investors on the market. It’s also worth taking a look at their mortgage calculator to see what you can afford.

For your average student going away for a weekend, or even a week, travel insurance is rarely regarded as an essential. The general perception exists that the principal purpose of travel insurance is to cover medical costs abroad in the eventuality of something going horribly awry. No one intends to be hurt or fall ill whilst travelling, and in general as the odds of anything adverse happening is low, insurance can – and often is – perceived as an extra and unnecessary expense.

Of course, the point of insurance is that it is there to provide cover if the unlikely happens, and the more times that it is unnecessary the better. This is not a reason not to have it though, because for the ten times that the insurance policy is not required, there will be one time when it suddenly becomes the most essential item you could possibly have taken with you.

So, how to get around this problem of people travelling without any insurance? Well firstly the above-mentioned misconception needs to be addressed. Yes, medical costs are a large component of the cost of a policy, but it also covers emergency evacuation to excess rental car damage and just about every possible disaster (big or small) in between.

Broadly speaking, when you choose to take the step from hotel to hostel you expect a certain drop in standard to go along with the drop in price. Sometimes, unfortunately, that drop in standard comes in the form of the security of the rooms. Nearly everyone knows someone who has had something stolen whilst travelling - although, it is curious how often something that is ‘lost’ eventually gets represented as something that was ‘stolen’ when hostels are involved. At any rate, the fact remains that things do go missing when travelling, and the smaller the budget that you’re travelling on, the greater the risk of things going missing. For this reason, it is always worth budgeting for travel insurance; it is a small investment that will provide protection against accidental damage and loss, or theft. AA Travel offers a single trip insurance that pays out upon the occurrence of any holiday mishaps.

At which point, the fact that your travel insurance policy covers loss of personal possessions can be incredibly useful. The attitude that insurance is an unnecessary expense is one that swiftly reverses when the £7 saved on not having insurance is wiped out by having to spend £200 to replace items that have gone missing.

Ultimately, though, whether people take out travel insurance or not is something that is up to them – and there’s no way of enforcing that people do. For the benefits that travel insurance offers, surely the few minutes and the few pounds that are spent to get a policy is an investment worth making. For budget travellers, the appeal of a low-cost flight is highly appealing. Travelzoo pool together cheap flights from across the internet, so thrifty travellers can book with the knowledge they are getting the best deal.

Don’t be intimidated by the jargon. The financial world is awash with acronyms and money-speak but a little explanation can go a long way in breaking down the tasks and terminology associated with the purchase of a new home. What at first might appear complicated and confusing can be made relatively straightforward.

Here are a few explanations of expressions commonly encountered.

1. SVR - standard variable rate, is an interest rate determined by lenders above the Bank of England base rate. The difference between the base rate and SVRs has widened to a typical gap today of about 2%.

An estimated 40% of mortgage holders are currently on their lender’s standard variable rate (SVR) and will be most impacted by any rate cuts or rises. It’s worth remembering that lenders are under no obligation to pass on any rate cut.

A small handful of mortgages will track a different index to the base rate, often the Libor (London InterBank Offered Rate which is the rate that banks and lenders borrow on). It can be difficult to keep track of the rates on these loans, so they tend to be less popular with borrowers.

Many short-term mortgage deals revert to the SVR after the initial offer period, which usually means increased repayments.

2. Discount mortgage - this offers a certain percentage off the lender’s SVR for a set period, usually between one and five years. As the SVR moves up or down so do repayments on a discount mortgage.

3. Capped Rate Mortgages - lender will offer a ceiling or cap, above which repayments of interest cannot rise. Should the standard variable rate of the mortgage fall below the capped rate interest rate repayments will fall accordingly.

4. Collar - Most capped rate mortgages have a clearly set minimum rate (known as the collar) to which they can fall. It is imperative that borrowers are aware of what the collar on their loan is.

5. Tracker mortgage - also work on a variable rate, this time linked to the Bank of England base rate. Sometimes they last for the length of the mortgage, sometimes for only for a short period at the beginning of the loan. Some lenders offer discounted trackers, which have a rate that is a set percentage below the base rate, while others add a percentage to the base rate. Both deals move up and down in line with any changes announced by the Bank of England. This is great when rates are going down, but when rates are rising, so will your mortgage repayments.

6. Fixed-rate mortgage - this allows you to fix the rate of interest you pay on your loan for a set period of time, usually between one and five years, although longer term fixes are available. This is useful if you are stretching yourself to afford a property, as your repayments cannot increase during the fixed-rate period. Fixed-rate mortgages can save you money if interest rates are rising, but if the base rate falls you can end up paying more than borrowers on variable rate deals.

For some of the most competitive mortgage rates available in the UK, take a look at Alliance and Leicester. NatWest also come as a recommended supplier of mortgages.

How the Budget Will Hit Drivers

It was hardly unexpected, but Alistair Darling’s first budget has specifically targeted drivers, especially those of large and high-emitting vehicles. It has been estimated that nine in ten cars will face higher taxation levels, with popular family cars such as the Nissan Micra being hit the hardest. The move is designed to persuade people to drive more environmentally-friendly cars, with the policy being implemented in the key areas discussed below. Those seeking a detailed breakdown of the 2008 budget can find on the HM Treasury website.

Road Tax: The amount of Vehicle Excise Duty paid by any given driver will, by 2010, depend on the efficiency of their vehicle. Owners of cars whose emissions exceed 255g/km of carbon dioxide will be forced to pay £950 for their first year of owning the car and then £455 for every year they own it after that. Drivers of more environmentally-friendly cars will face no such charge for their first year of ownership, and only a tax of between £20 and £95 annually after that. The Chancellor has also narrowed the tax bands, meaning there is less chance of cars with varying emissions attracting the same level of taxation. Two bands will even be added to the scale, at the top, hitting drivers of the cars with the highest carbon emissions. Previously, drivers of heavily emitting sports cars were paying the same as those of certain family cars which, though bad, were by no means as bad as those with which they shared a tax band.

Alternative fuels: In the same year, the rebate for biofuels will be halted. This will lead to an increase in prices for drivers who buy of biofuels such as bioethanol E85. It is hoped that this will only be temporary, as the government plans for its Renewable Transport Fuel Obligation to provide the incentives for biofuels in the future. Liquefied petroleum gas will see a one pence reduction in its duty, with another alternative, compressed natural gas, retaining its favourable duty until 2010. Meanwhile, an increased in the main road fuel duty has been postponed. This is only a temporary reprieve for drivers, however, as the increase will take effect in October. The delay is due to the current increase in petrol and diesel prices which has resulted from the recent increase in the price of crude oil.

All in all, research has demonstrated that the chances are high that most drivers will be affected at least in a small way by Darling’s budget, with family cars facing greater tax increases than sport cars such as the Rolls-Royce Phantom. As is the government’s intention, drivers seeking to avoid these increases will need to purchase and start driving a vehicle with lower emissions.

If you’ve bought a new car, low-emitting or not, take a look at ASDA Finance if you’re looking to save money by changing your car insurance provider. Co-operative Insurance also has a good reputation for supplying low priced car insurance quotes.

There are many different words and terms that are used to describe different aspects of personal finance. Not all of them, however, are commonly understood. It is important that people understand exactly what these terms mean, to make sure that they make the most of their hard earned money. This article will explain a number of terms that we come across nearly every day, but may not be sure what exactly they mean:

APR – or Annual Percentage Rate

APR is most frequently seen as a number on credit cards, loans and mortgages, and it represents the amount of interest that you will be charged on the balance of credit over the course of the year. It is generally thought that the lower the APR the better the deal as this will mean having to pay less interest. In basic terms, this is often true, but many financial products have differing APRs throughout their lives, especially mortgages. Often you can get a fixed rate mortgage, which then switches to a variable or tracker rate after the fixed rate period expires. It is important that you understand what the best deal is in the long term before making a mortgage application.

Another thing to look out for is credit card introductory offers. Many providers offer a 0% bonus rate for an introductory period – usually either 0% on balance transfers or 0% on purchases for a limited time. Once this time is up, they then charge interest at a rate of around 15%. If you’ve got a credit history, then it is possible to get cards with typical APRs lower than 10%, such as with Capital One. The Co Operative’s platinum credit cards have a standard interest rate of 9.9% APR, which becomes variable only after 5 years.

Interest and Interest Rates

Interest is one of the most common financial terms. APR is a type of interest rate, a rate that your lender will charge you for credit. Meanwhile, there is also AER, which is the rate of interest that your lender will give you for being in credit. The best AERs are normally found on savings accounts, or ISAs, which are also tax free.

The Interest Rate is the percentage of your own funds, or of the amount you borrowed that you either have to pay to a lender, or that you recoup from the bank. The higher the interest rate on a current account, the more money you will gain from it, the higher the interest rate on a loan, the more you will owe to the lender.

For some of the competitive interest rates for personal loans and unsecured loans, and savings in the UK, take a look at Alliance and Leicester.

Capital

Capital is the amount of money, or the amount of debt that you began with, before extra complications such as interest are added. The amount of money that you owe on a loan is your original borrowing (the capital) plus a certain percentage of that original sum (the Interest rate).

The general rule is that when it’s your own money you’re looking for the highest Interest Rates in order to make the most money, when it’s someone else’s money that you have, or are, borrowing, you want the lowest Interest Rates and APR so that you end up paying as little as possible.