The Best And Worst States For Retirement: All 50 States, Ranked

Omaha, Nebraska (Joe Willman / EyeEm)

Retirement means no longer having to sweat over how to tackle your company’s latest project, what you need to land your next promotion or who microwaved fish in the office breakroom.

But the end of your career brings new questions including where to spend your days now that you no longer punch the clock.

Should you settle by a bright beach and humming population hub? Or maybe in a place where residents wave to each other and green grass grows?

Perhaps a place near the center of it all: Nebraska.

The Cornhusker State is the best state to retire, according to a new Bankrate study, followed by Iowa, Missouri, South Dakota and Florida. Maryland, on the other hand, comes in the last place in our ranking. New York and Alaska also might be better for retirees to visit than reside, according to the study.

For this study, Bankrate looked at affordability, weather and a number of other factors important to retirees. We also created an interactive tool that allows you to see how the results change based on your preferences in retirement.

Ranking of best and worst states for retirement State Overall rank Affordability Crime Culture Weather Wellness Nebraska 1 14 19 21 30 8 Iowa 2 8 15 20 34 12 Missouri 3 1 42 33 19 27 South Dakota 4 17 23 12 39 10 Florida 5 25 29 13 2 31 Kentucky 6 9 9 46 15 24 Kansas 7 7 39 37 20 21 North Carolina 7 13 28 28 12 33 Montana 9 16 31 2 45 20 Hawaii 10 45 24 9 1 9 Arkansas 11 4 46 39 9 34 Wisconsin 12 20 15 17 43 7 North Dakota 13 22 17 26 49 2 Vermont 14 42 1 3 44 1 New Hampshire 15 39 1 4 41 3 Alabama 16 10 44 44 7 31 Texas 17 24 37 50 4 13 Idaho 18 15 4 30 42 15 Mississippi 19 6 24 49 6 40 Wyoming 20 23 9 13 46 11 Oklahoma 21 11 41 43 11 35 Tennessee 22 12 46 34 14 35 Massachusetts 23 43 11 9 33 4 Michigan 24 1 22 35 40 43 West Virginia 25 18 18 27 24 39 Ohio 26 5 19 29 26 47 Rhode Island 27 44 8 5 28 16 Georgia 28 19 35 45 5 44 Indiana 29 3 27 41 25 46 Connecticut 30 46 7 8 29 5 Maine 31 35 3 1 48 18 Delaware 32 30 36 9 16 41 Colorado 33 36 32 22 37 6 Pennsylvania 34 28 13 15 31 28 Utah 35 21 21 47 32 17 Louisiana 36 29 48 48 3 25 New Mexico 37 26 49 38 21 22 Arizona 38 33 43 39 10 29 Virginia 39 32 6 36 17 42 Minnesota 40 31 14 31 47 14 South Carolina 41 27 45 22 8 50 New Jersey 42 48 5 16 22 23 California 43 49 34 17 13 19 Oregon 44 37 30 6 35 45 Nevada 45 34 40 17 27 48 Washington 46 41 37 25 36 37 Illinois 47 40 26 32 23 49 Alaska 48 38 49 24 50 26 New York 49 50 11 7 38 30 Maryland 50 47 33 42 18 37

The best state for retirement

Why should retirees pull the moving van off Interstate 80 and unpack in Nebraska?

The state has an average annual temperature of 49 degrees. So while the heartland can count on experiencing all four seasons, it’s no Hawaii, which had an average annual temperature closer to 80 degrees, according to the National Oceanic and Atmospheric Administration data Bankrate analyzed.

Nebraska lagged behind on weather compared with other states, but it fared well on the other measures in the ranking: affordability, crime, culture and wellness.

Wellness was especially a bright spot with Nebraska ranking No. 8 out of 50 states. Dialing in on health care specifically, Nebraska had 61 percent of the health measures that achieved the benchmark or better, according to the National Healthcare Quality and Disparities Reports. That’s a higher percentage than about two-thirds of the other states, the data show.

Wellness and affordability carried the most weight in Bankrate’s ranking. Nebraska ranked within the top 15 states for the cost category.

Nebraska is not for everyone, as the state recently boasted in an ad campaign. But Nebraskans can camp near Chimney Rock State Park, shop and dine near the Heartland of America Park and Fountain in Omaha or snap pics of the floral designs in Lincoln’s Sunken Gardens. And of course, those who want to hit the road in retirement have a nice central point to visit national parks in the West, head north to Mount Rushmore National Park or east on I-80 into the Midwest.

The best of the rest

• Iowa: In addition to teasing Iowa about having better corn, Nebraska can brag about beating The Hawkeye Eye state for livability for retirees. Iowa came in second in Bankrate’s ranking. The state ranked better for affordability (No. 8) and scored within the top 20 states for culture but was outperformed in other measures.
• Missouri: Third-place Missouri is more affordable and has a relatively moderate climate compared with other states. Unfortunately, sunshine and saving only go so far in The Show-Me State. Other states ranked higher for culture, wellness and especially safety.
• South Dakota: Fourth-place South Dakota ranks better than most states on every measure except weather. The state had an average annual temperature of almost 46 degrees, according to Bankrate’s study. The state performed surprisingly well on culture, ranking 12th, partly due to having the second-highest number of arts, entertainment and recreation businesses per capita.
• Florida: The Sunshine State has long been a haven for retirees. If you like a warm climate, Florida has the second-best right behind Hawaii. The state scores well on culture (No. 13). If you’re looking for retirement-age friends to play pickleball, you’ll have the best chance of finding them in this state where 19 percent of the population is 65 and older. That’s the largest share of 65+ folks of any state, the data show.

What matters in retirement

“Where to live is probably one of the most personal decisions one can make because it’s not just about preferences, it’s also about the financial considerations that are associated with it,” says Mark Hamrick, senior economic analyst at Bankrate.

It’s not uncommon for retirees to get a new address after they step away from work. Almost 570,000 adults 65 and older moved to a new state or the District of Columbia during the past year, according to the most recent data from the U.S. Census Bureau.

Almost 4 in 10 retirees (38 percent) say they’ve moved at least once since leaving work, reported a 2018 survey by the Transamerica Center for Retirement Studies.

When choosing where to live in retirement, retirees most value proximity to family and friends, affordable cost of living, access to excellent health care and hospitals, good weather and a low crime rate, the survey results found.

“Obviously, a primary area of concern for older Americans is health care costs,” Hamrick says. “The older we get, the more likely it is we’re going to have an increasing need for health care services. In some cases, there will be illness and, in some cases, there will catastrophic illness. That can be very expensive.”

A typical couple who retire this year at age 65 is estimated to need $285,000 in today’s dollars for medical expenses in retirement, according to Fidelity Investments. That hefty price tag doesn’t include what may be needed for long-term care.

Rising health care costs are proving to be an issue as Americans find fewer tools available in their retirement planning toolboxes. As pensions have disappeared, individuals have had to take more responsibility for funding their own retirements, Hamrick says.

“We urge Americans as early as possible in their working lives to plan for retirement by taking advantage of a 401(k) through an employer and trying to fund the retirement as aggressively as one can possibly afford,” he says. “The older one gets the more obvious it becomes how well they have been planning for retirement, and, unfortunately, if many Americans haven’t sufficiently saved for retirement then they have to seek at least part-time work in their senior years.”

Methodology

To construct our ranking, Bankrate looked at eleven public and private datasets related to the life of a retiree. The study examined five categories (weightings in parentheses): affordability (40%), crime (5%), culture (15%), weather (15%) and wellness (25%).

Affordability was calculated using scores from the 2019 Cost of Living Index from the Council for Community and Economic Research, the percentages of people who needed to see a doctor but could not because of cost in the past 12 months from the Agency for Healthcare Research and Quality and rankings for income, property and sales tax rates from the Tax Foundation’s 2019 State Business Tax Climate Index.

Crime was calculated using the property and violent crime rates per 100,000 inhabitants for each state from the FBI’s 2017 Crime in the United States report.

Culture was calculated using the number of arts, entertainment and recreation establishments per capita, restaurants per capita and adults 65 and older per capita from the U.S. Census Bureau.

Weather was calculated using the average daily temperature from 1985 through 2018 from the National Oceanic and Atmospheric Administration. Hawaii’s temperature was calculated using the available data from the Honolulu weather station.

Wellness was calculated using the rankings from the Gallup-ShareCare Wellbeing Index, the number of places providing services for the elderly and people with disabilities per capita from the U.S. Census Bureau and the number of health care benchmarks states achieved or exceeded in the National Healthcare Quality and Disparities Reports provided by the Agency for Healthcare Research and Quality. For this study, Bankrate only looked at the benchmarks that included data for all 50 states.

6 reasons to refinance when rates are rising

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Rising rates tend to discourage homeowners from refinancing, but there are good reasons to refinance even when rates are going up, and even if refinancing means paying a higher rate than you currently have.

“The direction of interest rates shouldn’t impact your decision. Instead, you should refinance when it makes sense to you and based on how long you expect to hold on to the mortgage and property,” says Brian Koss, executive vice president at Mortgage Network in Danvers, Massachusetts.

With that in mind, here are six scenarios for refinancing while rates are rising.

1. Lower your rate and payment

If you don’t already have a super-low rate, you might still be able to get a rate that’s lower than your current one.

“Rates in the 4 percent to 5 percent range are still very attractive,” says Chuck Price, vice president of lending at NEFCU, a federal credit union on New York’s Long Island.

You also should consider the costs. If your new mortgage had costs of, say, $5,000, and monthly interest savings of, say, $200, your payback period would be 25 months.

“If you planned to sell in 10 years, this would make sense, as opposed to if you planned to sell in two years,” Price says.

The risk is chasing a lower rate while extending your term, which could mean paying more due to the longer repayment period, says Kevin W. Hardin, a lending officer with Bank of America.

2. Lock in a fixed rate and payment

All mortgages come with an initial rate that’s either fixed or adjustable. A fixed rate never changes. An adjustable, or variable, rate can change over time. Adjustables, known as hybrids, have a rate that adjusts only after three, five, seven or 10 years.

Adjustable-rate mortgages, or ARMs, have monthly payments that can move up and down as interest rates fluctuate. Most have an initial fixed-rate period during which the borrower’s rate doesn’t change, followed by a longer period during which the rate changes at preset intervals.

An adjustable rate exposes you to the risk of a higher payment. The closer you are to an adjustment and the longer you plan to keep your home, the riskier the adjustable-rate mortgage is. If you refinance into a fixed rate, the risk goes away.

3. Stop paying mortgage insurance

Private mortgage insurance, or PMI, protects your lender if you don’t pay back your loan.

You’ll usually have to pay for PMI if you make a down payment that’s less than 20 percent of your home’s purchase price when you buy or your equity is less than 20 percent of your home’s current value when you refinance. (VA loans guaranteed by the U.S. Department of Veterans Affairs don’t require PMI.)

Some loans allow you to stop paying for PMI once your equity reaches a certain percentage of your home’s value, either because you’ve paid down your loan or because your home’s value has increased. Other loans require PMI for the loan’s entire term unless you sell or refinance.

Refinancing from a loan with PMI to a loan without PMI might make sense even if your rate is higher because you won’t have to pay the monthly mortgage insurance premium, sometimes abbreviated as MIP.

4. Remove a borrower

Whoever is a named the borrower on a loan is responsible for making the payments. That’s true even if you and your spouse get divorced and your divorce decree assigns responsibility for a loan you and your wife got jointly to you or her solely.

Your lender has no obligation to remove you or your former spouse from your loan, regardless of your divorce agreement. If you’re the one who’s solely responsible, your agreement might require you to refinance to remove your former spouse, even if rates are rising.

If you have a home equity conversion mortgage, or HECM, often called a reverse mortgage, and your spouse was too young to qualify or you got married after you got your HECM, you might want to refinance to add your spouse.

Otherwise, your non-borrower spouse might not be allowed to remain in your home if you die or move out, or for health reasons.

5. Get cash to spend

Another potential reason to refinance your home is to extract cash from equity. The cash can be used for any purpose, such as remodeling or making repairs to your home, starting or expanding your own business, paying off other debt or paying medical, legal or education expenses.

Expensive needs and wants exist regardless of rates, which suggests homeowners might want to refinance to take cash out even if their rates are rising.

Whether cashing out makes sense depends on your perceptions of the benefits and risks.

“All good reasons to refinance can become bad if done at the wrong time,” Hardin says.

Another option might be to get a home equity loan or line of credit instead of a new first mortgage. The rate for your second loan might be higher, but the principal will be less and the term shorter.

6. Get cash to invest

Rising home values create opportunities to refinance and extract cash to invest in other assets.

This strategy could make sense if you can pay your new mortgage without counting on your investment gains, take advantage of the income tax benefits, afford to lose the money you invest, have excellent credit and plan to keep your home a long time, says Mike Windle, financial adviser at C. Curtis Financial, an investment advisory firm in Plymouth, Michigan.

That’s a lot of ifs, and there are multiple risks as well. Your investment returns might not exceed your interest expense. You might lose a significant chunk of your principal. Or your house could decline in value and you might not be able to sell it for enough to pay off your loan.

When It's A Good Idea To Refinance Your Mortgage

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Homeowners who are considering refinancing their mortgages have one advantage to count on – interest rates remain low.

Refinancing from a 30-year or adjustable rate mortgage (ARM) to a lower rate can help consumers save money each month and cut the total amount that goes towards interest payments.

Here’s how to determine whether you will benefit by refinancing your mortgage. 

Here are the two major types of refinances:

1. Rate-and-term refinancing to save money. The majority of homeowners refinance the rest of the balance on their mortgage for a lower interest rate and an affordable loan term. (The loan term is the number of years it will take to repay the loan such as 15 or 30 years.)

2. Cash-out refinancing where you obtain a new mortgage for more than what you owe. The difference is often used to pay for renovations or to retire credit card debt.

Other reasons consumers refinance include to replace an adjustable-rate mortgage with a fixed-rate loan, eliminate FHA mortgage insurance or to settle a divorce.

Some consumers refinance to lower their monthly payment and have more money each month for bills, groceries or an auto loan.

“If a borrower is refinancing strictly to lower monthly mortgage payments and closing costs are $2,400, the borrower should expect to save at least this amount in interest payments for the duration they plan to have the loan,” says Richard Liu, a mortgage consultant for C2 Financial Corp., a San Diego-based mortgage brokerage.

Check today’s low rates on a mortgage refinance.

Determine how long it will take to break even

Mortgage closing costs add up to thousands of dollars. To decide whether a refinance makes sense, calculate the break-even point, which is the time it will take for the cost of the mortgage refinance to pay for itself.

“If you can shave one-half to three-quarters of a percentage point off your mortgage loan by refinancing, you should look into it,” says Greg McBride, CFA, chief financial analyst for Bankrate. “Just be sure the cumulative savings on monthly payments is enough to offset the costs of refinancing. If you’re planning on moving in the next year or two, it might not.”

Break-even point example

Break-even point = Total closing costs ÷ monthly savings

Example:

30 months to break even = $3,000 in closing costs ÷ $100 a month in savings

If you plan to keep the house for less than the break-even time, you probably should stay in your current mortgage.

Mind the term in rate-and-term

The formula above doesn’t measure your total savings over the life of the new mortgage. A refinance can cost more money in the long run if you start your new loan with a 30-year term.

Example:

Kris has been paying $998 a month for 10 years. If Kris doesn’t refinance, the payments will total $239,520 over the next 20 years.

With a refinance, Kris could pay $697 a month to repay the new loan in 30 years, or $885 a month to pay it off in 20 years.

$697 x 360 months = $250,920

$885 x 240 months = $212,400

In the example above, Kris borrowed $186,000 at 5 percent. 10 years later, Kris had a remaining balance of $146,000, and refinanced at 4 percent.

Use Bankrate’s mortgage calculator to compare your own loan scenarios:

• See what happens when you input different mortgage terms (in years or months).
• Reveal the amortization schedule to see how much total interest you would pay.

Good credit can save you lots of money on your mortgage. Check your credit score for free at myBankrate.

Pros and cons of cash-out refinances

Cash-out refinances often are used to pay down debt. They have pros and cons.

Imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you’re reducing the interest rate on the credit card debt. On the con side, you may pay thousands more in interest because you’re taking up to 30 years to pay off the balance you transferred from your credit cards to your mortgage.

But the biggest risk in this scenario is in converting an unsecured debt into a secured debt. Miss your credit card payments, and you get nasty calls from debt collectors and a lower credit score.

Miss mortgage payments, and you can lose your home to foreclosure. Home equity debt that’s added to the refinanced mortgage always was secured debt.

How to create a passive income stream

If you’re worried your salary is not enough to help you save a deposit for your first property or prepare you for retirement, building wealth through passive income is a strategy that might appeal to you.

What is passive income?

Passive income is a source of revenue that continues even after the work is complete, for example, royalties from a book or film.

We’re not suggesting you go out and write a book (not very passive) or make a blockbuster movie (not very savvy), but some of the below options do require a little effort in the beginning to then pay you in the long-term without you needing to lift another finger.

What we’ve tried to highlight here is how to make your money (that you’ve already earned) make more money (without you having to do much), so they do rely on you having some initial capital already behind you.

Some of these strategies involve an element of risk. If you are not fully comfortable with that, it might be more advisable to go down the slightly more labour intensive route of selling your stuff on eBay, setting up a side business or writing that bestseller after all.

What ways can I earn a passive income?

Here are eight strategies for creating a passive income stream:

1. 1. Switch your bank account
   2. Earn interest on savings
   3. Use a cashback or rewards credit card
   4. Buy via cashback websites
   5. Try out robo-investing
   6. Rent out a room (or parking space)
   7. Invest with peer-to-peer lending
   8. Purchase dividend-yielding stocks

1. Switch your bank account

Loyalty to your bank is a thing of the past, and banks know it. That’s why so many offer cash switching incentives (the current highest is £200 from HSBC) for current accounts, many of which link with savings accounts, some with interest as high as 5%.

Not all banks are part of the switching scheme, but those that are guarantee all direct debits and standing orders are transferred to your new account within seven days.

If they fail to do this and you wind up with a late payment charge from your old account, your new bank should cover it.

Most bank accounts have a minimum pay-in and a two direct debits requirement – make sure you meet them to reap the full benefits of the switching rewards.

Some charge a monthly fee, so watch out for that when you switch over as you do not want to pay out more than you earn.

2. Earn interest on savings

In today’s low interest climate, the best rates on savings are often reserved for fixed-rate accounts or bonds. These are savings accounts that lock away your money for a set period of time. Generally speaking, the longer it’s locked away, the higher the rate.

Only use these if you are comfortable with not having access to your money. If you suddenly realise you need it before the bond is up, you will most likely have to pay an early withdrawal fee.

One way to avoid this is to get a current account with a high interest rate as we mentioned above.

Today, the best returns on savings are from Lifetime and Help to Buy ISAs where the government pays you a 25% bonus on your funds. The Help to Buy ISA pays this on withdrawal, whereas the Lifetime ISA pays in the bonus annually.

3. Use a cashback or rewards credit card

If you are going to spend on a credit card anyway (which you may need to do to build up your credit history), you might as well get one that gives you cash bonuses to do so.

There are a few cards out there that offer cashback or that operate reward schemes that could give you discounts in certain stores or earn you air miles.

However, always approach credit cards with caution – they are a debt product after all. If you do not think you will be able to pay it back in full every month, your interest repayments will very quickly outpace any cashback or rewards.

4. Buy via cashback websites

Cashback websites are essentially third party portals that you visit before clicking through to a website from which you were already going to buy something.

Using the cashback site’s link rewards them with money, some of which they pass on to you. How much you could get is usually shown as a percentage of the total amount you spend, but you are not always guaranteed to get that amount.

Like with a cashback credit card, only use a cashback site if you were planning to spend that money anyway – that way, you really could be getting something for nothing.

5. Try out robo-investing

Robo-investing is one of the slightly riskier ways to make a passive income, especially as you cannot specify where your funds get invested.

Unlike with traditional savings accounts where your money just sits there earning (or not earning much) interest, here it gets invested so you could reap bigger financial rewards. Remember, you could also experience a loss, so proceed with caution.

Robo-investing, open banking apps like Moneybox round up your spending and invest the difference.

For example, if you bought something costing £2.80, Moneybox rounds it up to £3 and invests the spare 20p. You can pick from three levels of risk: cautious, balanced, or adventurous.

The idea is, the amounts are so nominal you do not notice them not being there – it’s like putting your spare change in a piggy bank rather than having it jangle around in your pocket.

However, if you are someone who likes to keep an eye on every penny, this may not be the best way for you to earn a passive income.

6. Rent out a room (or parking space)

Buying and then renting out an entire property is a good way to earn a passive income, but it’s an expensive one and requires a lot of work.

For starters, you’ll have to pay an extra 3% in stamp duty (if it’s your second home, otherwise you pay the normal stamp duty rates), need a 25% deposit and – if you’ve already exceeded the tax-free income threshold (£12,500 in 2019/2020) – you’ll have to pay income tax on any earnings.

However, if you have a spare room in your current property or have an empty parking space in an area where parking is an absolute premium, you can rent it out.

Again, this is something you will need to report to the tax man, but if you are not using the space, it could be a great way to earn passive income.

7. Invest with peer-to-peer lending

Peer-to-peer (P2P) lending consists of a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Zopa or Funding Circle.

As a lender, you earn income via interest payments made on the loans. But because the loan is unsecured, you face the risk of the borrower defaulting on payments.

To minimise that risk, you should do two things:

• Diversify your lending portfolio by investing smaller amounts over multiple loans
• Analyse the historical data on the borrowers to make informed picks

It takes time to master the metrics of P2P lending, so it’s not entirely passive and because you’re investing in multiple loans, you’ll need to pay close attention to payments received.

Whatever you make in interest should be reinvested if you want to build income.

8. Purchase dividend-yielding stocks

A dividend is a sum of money paid to shareholders out of a company’s profits. Shareholders in companies with dividend-yielding stocks receive payments at regular intervals from the company.

Since the income from the stocks is not related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money.

The tricky part is choosing the right stocks. To try and minimise loss, thoroughly investigate the company you’re thinking of investing in. Do not rush into anything!

If you are unsure of what to do, it might be worth speaking to a financial advisor. They will explain the risks meaning you can make an informed decision about the best course of action.

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Last updated: 18 April, 2019

What happens to bank accounts after death?

Dealing with the death of a loved one is always going to be hard. Here we explain what happens to their bank accounts and what steps you need to take to get their financial affairs in order.

When someone dies, it is illegal to access their bank accounts unless you are a joint account holder on that particular account.

How to manage the finances of a deceased person

Aside from arranging the funeral, there are a number of steps you need to take before you can deal with the deceased’s financial affairs:

1. Register the death
2. Apply for probate
3. Remember inheritance tax!
4. Contact banks, utility companies and insurers

1. Register the death

When someone dies, you should register the death within five days.

This is the only way to get a death certificate which you must have in order to access bank accounts of the person who died.

2. Apply for probate

If the deceased left a will, they should have named an executor or administrator who will be in charge of handling the estate – that’s property, savings and belongings.

Once the executor has the original copies of the will and the death certificate (no photocopies allowed), they can apply for probate – the legal right to deal with the deceased’s estate.

If someone dies without a will, the application process is the same, but you’ll get ‘letters of administration’ rather than a ‘grant of probate’.

3. Remember inheritance tax

You’ll need to estimate the value of the estate and report your findings to HMRC to determine whether or not inheritance tax (IHT) is owed.

IHT won’t be charged if the inheritance is left to a spouse, civil partner, charity, or amateur sports club – otherwise, IHT will apply on any estates valued at over £325,000.

For the 2019/2020 tax year, the minimum tax-free threshold increases to £475,000 if the estate was left to children or grandchildren, including step and adopted children.

It is usually the estate – not you as the executor and/or inheritor – who pays inheritance tax, which is due six months after the death.

4. Contact banks, utility companies and insurers

Now you have the official will, death certificate and grant of probate (or letters of administration if there was no will), you can inform any banks, building societies, utility companies and insurers of the death.

Current and savings accounts

Bank accounts remain open until all the money is retrieved and the account formally closed. However, direct debits and standing orders will be cancelled.

Remember, it is illegal to withdraw money from an open account of someone who has died (unless you are the other person named on a joint account) before you have informed the bank of the death and been granted probate. This is the case even if you need to access some of the money to pay for the funeral.

As the executor, it is down to you withdraw any money and distribute it to the beneficiaries according to the will. A solicitor will be able to help you with the process.

If someone died without leaving a will, rules of intestacy apply.

There is, of course, the real possibility you do not know the details of all the deceased’s bank accounts or that some details have been lost. In that case, there are online tools that can help you discover lost accounts.

Debts

Debts such as mortgages, loans or credit cards are not passed on to the inheritors, but must be paid off before the remainder of the estate is distributed as per the instructions laid out in the will.

If you are unsure of what or how much money is owed, you’ll need to place a notice in The Gazette – the official public record of deceased estates. If you fail to do this and a creditor later comes forward with a claim against the estate, you might personally be liable for the unidentified debt.

Two months and one day after the notice is published and provided no other creditors have come forward, you can distribute the remaining estate amongst the beneficiaries.

Any debts taken out in a joint name become the sole responsibility of the survivor when one of you dies.

Insurance companies

Any open insurance policies need to be cancelled – remember, unless a claim is made, insurance companies do not pay out, so you will not recoup any payments the deceased made as part of their policies.

However, if they had any kind of life insurance (including mortgage life insurance and PPI) you can make a claim and the policies end.

Pensions

If the deceased was receiving their State Pension before they died, contact the Pension Service to stop the payments.

You may be able to claim their personal or workplace pensions (if they had any), but how much you’re entitled to largely depends on the type of pension they had.

Trusts

If a bank account is held in a lifetime trust, the successor trustee named in the trust document can present the death certificate and a copy of the trust to the bank to take it over.

How to get your affairs in order today

While much of the advice in this article is about how to manage someone else’s finances once they have died, there are several small things you can do for yourself or the person you are caring for now.

Special counsel at Foley & Lardner, Jamil G. Daoud, offers the following tips:

• Get hard copies of bank statements. Online statements have become the norm for current and savings accounts. Try to obtain detailed records by printing off online statements or requesting paper ones.
• Consolidate accounts. This might not be possible if the person has created a complicated web of savings accounts, but if there is a savings account here and a current account there, merging them could simplify matters.
• Add names to individual accounts. Determine exactly how the account is titled while the person is still alive. If you have power of attorney for someone, consider the following steps if your powers allow: Add one or more joint owners to the account; designate one or more payable-on-death beneficiaries for the account; transfer the account to the owner’s revocable trust.
• Pre-plan your funeral, if you can. One of the main reasons people need quick access to a person’s bank account after they have died is to cover the arrangements. Planning ahead alleviates that stress during an emotional time.

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Last updated: 18 April, 2019

How to spot and avoid financial scams

Online fraud and cyber crime has cost people and businesses in the UK an estimated £28 million in just six months, according to figures from Action Fraud.

It received over 12,000 reports of cyber crime between October 2017 and March 2018, with hacking of social media and email accounts the biggest problem.

Katy Worobec, the economic crime chief at UK Finance, said the finance industry prevented £1.4 billion in unauthorised financial fraud in 2017.

However, she said criminals were now targeting individual customers, and £236 million was lost to authorised push payment scams where customers were duped into making payments.

“We have a trust reflex,” she said. “It makes us forget things and it makes us lose control.”

This is particularly problematic when it comes to financial scams, with criminals changing their tactics to prey on that trust reflex.

“The line is that there is suspicious activity on your account and you need to move your money to a safe account,” she explained. “It might involve having to make a transfer.”

When our judgement is faulty

Dr Jane Cox, an international human performance specialist, and wealth psychology expert, says when it comes to money and trust, we walk a thin line.

“Of course at some stage we have to trust people with our money in order to be able to make investments, or know where our money is more likely to grow,” she says. “We also need to trust people to get into business with them, and very often our ‘gut instinct’, which is where a lot of our trust is based, will be a good guide when it comes to figuring out the type of people you can connect with, work with, make decisions alongside.”

However, the big harm with the trust reflex when it comes to finances is that often we are desperate to make more money, especially when things have been tight. It is then that criminals are most able to exploit our weaknesses, she says.

“This is where our desire to hear something positive, or believe something has come along that will get us out of our financial constraints, does tend to exert an influence.”

When you are desperate for some cash, it is very easy to hear what you want to hear. You dismiss any doubt or use of common sense to temper that initial reflex. This can cost us dearly.

Are some people more susceptible to scams than others?

Some people are more trusting than others, particularly those who may have been a little more sheltered and exposed to less fraud, or deceit, during the course of their lives.

“Unfortunately the ‘school of hard knocks’ plays a big role for many people when it comes to making more discerning financial choices,” Cox says.

“Very often that comes after a few wrong choices have been made, or the wrong people were trusted.”

Some people are more vulnerable than others. The elderly may be less knowledgeable about the prevalence of financial fraud and how it is conducted.

Young people might have the belief that they are the ones who will be able to make their millions before they turn 30, and that they will be able to do it quicker and easier than anyone else.

The cost of the cons

UK Finance estimates that people who are duped into transferring money to fraudsters lose an average of £3,000 each.

A total of £236 million was lost last year, with banks unable to return nearly three-quarters (74%) of it.

One of the most popular and effective scams involves tricking people into thinking they are moving money into a solicitor’s bank account for a house purchase, or to a builder. The criminals hack into genuine email accounts and send out false requests for payment.

By the time the people who have made the payment have discovered their mistake, the money has disappeared and the account into which they made the transfer has been closed down.

UK Finance said that in 2017 there were 43,875 reported cases of these scams, with 20% of the victims being businesses who lost an average of £24,355 per case.

Now read our digital banking guide

Make yourself harder to scam

Before you make a large payment, it is important to double-check the details, and you can do this by ringing the payee and confirming their bank details.

When it comes to all aspects of your finances, it is important to stay alert and think things through, says Cox.

“Do your due diligence when it comes to making a big financial decision,” she says. “Don’t believe everything you hear.”

Remain involved with your money and keep an eye on how it is working for you. Hands off investors are very vulnerable to losing out. If it sounds too good to be true it probably is too good to be true.

“Small risks tend to reap small returns, whereas riskier investment reap the bigger returns,” she says. That’s why it can be tempting to take a big risk, especially if you are down on your financial luck.

“However keep a balance, and always try and spread your investments over lower and higher risk returns. Never risk more money than you can afford to lose.”

How to prevent being scammed: Stop and think

Take Five to Stop Fraud is a government initiative to help you spot and prevent a financial scam.

It recommends you are vigilant in the following situations:

1. Requests to move money: Your bank, utility providers, and other big companies will never contact you directly to ask for your PIN, password, or to move money to another account. You should only ever provide personal or financial details when you actively consent to it – when you sign up for a new service, for example – or when you are expecting to be contacted by someone from a financial institution or service provider.
2. Clicking on links or downloading files: Never click on a link or download a file from an unexpected email or text. Odds are, a criminal is trying to load malware onto your device that will give them access to your personal and financial details. If in doubt, phone up the person who messaged you and ask if they really sent it.
3. Personal information: Likewise, be very wary of unexpected requests for any kind of personal info via phone, email, or text. Instead, contact the company or person directly using a known email or phone number and confirm that they need your personal info.

Now read our guide to staying safe online

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Last updated: 12 July, 2018

How Brexit will affect your finances

In less than a year from now – on March 29, 2019 to be precise – the UK is scheduled to leave the European Union.

Although much of the political debate has been over the rights of citizens to move within Europe and the pros and cons of the Single Market, Brexit will also have an affect on our everyday finances.

Here we look at how this might affect savings, business and credit cards in the UK.

Interest rates

On May 10, the Bank of England announced it was not changing interest rates, which would stay at 0.5%, amid fears that the UK economy was too fragile to cope with a rate rise.

This is good news for borrowers, including those people with credit card debt and mortgages, but bad news for savers. Consumer price inflation is currently at 2.5%, which means that the real purchasing value of savings is being eroded.

Fitch, the ratings agency, said the household savings ratio (relative to income) was now 4.9%, a historical low. It forecasts that the UK base interest rate will rise gradually to reach 1.25% by the end of 2019.

“The impact of the Brexit referendum on real wages may be fading, but Brexit uncertainty creates risks of a bigger shock to growth and employment,” it says in a Special Report “Weakening UK Household Finances Pose Risks” published on May 8.

Foreign exchange rates

The value of your holiday pound, and the exchange rate you get when you use your credit card to spend abroad, are affected by foreign exchange (forex) fluctuations.

As of May 2018, sterling is worth just over 1.13 euros, compared with May 2016, when it was worth 1.3 euros, and July 2015 when it reached a ten-year peak of 1.44. Since July 2016 it has traded within a range of 1.08 to 1.12 and has recovered from its low of 1.07 soon after the Brexit result.

GBP vs. EUR for the last five years

Xe.com

When you make overseas purchases using your credit card or debit card, your provider applies a foreign currency conversion rate. This rate will be affected by the variations in the value of the pound, and any volatility in exchange rates.

If the Brexit talks look as though the UK is failing to secure a good deal, sterling may fall again. The Bank of England may have to raise interest rates to protect the pound.

Angus Dent, CEO of ArchOver, a peer to peer lender, said: “With Britain’s GDP growth at just 0.1%, it’s no surprise that the Bank of England has kept interest rates at 0.5%. [The] decision is yet another result of the uncertainty surrounding the UK’s financial health. And keeping rates so low means savers lose out once again.”

Credit card rates and rewards

While interest rates remain low, credit card companies are unlikely to increase their own interest rates. However, the era of rewards and benefits for holding a card seems to be at an end, says Andrew Hagger, founder of MoneyComms, the money information service.

“The only decent rewards you get now is if you use a card to buy items within a certain store – for example using a Tesco card to shop instore. If you use the Tesco card, or ones from M&S, John Lewis and Sainsbury’s outside their own shops, the rewards are slim. I don’t see any major changes in the pipeline.”

Credit card fees

Until the Brexit deal is finalised, the government in the UK has to comply with EU directives. After Brexit, all existing European law will be incorporated into UK law.

This includes a ban on credit and debit card surcharges and applies to all purchases made within the European Economic Area (EEA). It means airlines can’t add hidden charges for online bookings. There are unlikely to be any changes in the short term, as Teresa May has heralded this move as a victory for consumers.

Savings compensation

If you have savings with a bank or financial institution that goes bust, you’ll be compensated by the UK’s Financial Services Compensation Scheme (FSCS).

The compensation limit is £85,000, equivalent to the €100,000 deposit protection limit in the EU. Similar terms are likely to be included in UK law when the changeover happens. Read more about compensation limits on the FSCS website.

Interchange fees

The EU put in place a 0.3% cap on credit card interchange fees that was aimed at reducing the cost of card payments. The UK Cards Association estimated that almost £900 million in savings should be passed onto consumers.

Interchange is a fee paid by the retailer’s card acceptance provider to the consumer’s card issuer each time a card payment transaction occurs.

The cap on fees applies on most product types within the European Economic Area (EEA).

This will become law in the UK after Brexit, and is unlikely to change, says Andrew Hagger, of MoneyComms.

“All the EU laws will be incorporated into English law and then the government will look at which ones need to be changed. Interchange fees aren’t going to be a priority as there are many other issues they will need to look at, so I anticipate things staying much as they are for several years at least.”

Business and the economy

There are still some concerns about the health of the economy, which is why the Bank of England decided not to increase interest rates this time.

Brian Johnson, Insolvency Partner with the accountant HW Fisher, said that the economy had been affected by concerns over Brexit, and would continue to do so while the uncertainty remained.

“Immediately after the Referendum there was doom and gloom, and then the stockmarket recovered and the pound came down which made exports cheaper and interest rates stayed low,” he said. “That was a false dawn, with people saying that Brexit was not a problem.”

Behind the scenes, businesses were delaying decisions on investment and recruitment until the negotiations were concluded, he said, and there would be more insolvencies among businesses. This was not necessarily a bad thing, as poorly-run companies would be taken over by more efficient managers.

Now read: How to find the best current account

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Last updated: 28 January, 2019

How to sell (or buy) a home without an estate agent

With the average highstreet estate agent charging between 1 and 3% of your property price to sell your home, it’s well worth investigating alternative ways to sell your house and save some money.

And if you’re looking to buy, it’s worth knowing about some of these alternative home selling methods too, so you know where to look to find a good deal!

Here’s how to buy or sell a home without using a traditional estate agent:

1. Use an online estate agent
2. Do it (mostly) yourself
3. Ebay and Gumtree
4. Facebook
5. Buy from (or sell to) a friend
6. Go chain-free with an advance
7. Raffles
8. Auctions
9. Offer a freebie

Use an online estate agent

Rightmove and Zoopla provide massive online directories for property sales and lettings. Getting your property listed on one of these sites is a great way to sell – but you can’t upload the listing yourself; only estate agents can do it.

The good news is, you can now find online-only estate agents that provide all the usual services of a traditional highstreet agent – photography, viewings, etc. – but at a lower price point.

Do it (mostly) yourself

An alternative is to use a company like HouseSimple or Emoov who will list your property on the main property websites like Rightmove, Zoopla and PrimeLocation – but you’ll usually have to manage more of the process yourself, such as viewings.

For example, HouseSimple charges £995 upfront, which would save you around £6,500 on the sale of a £500,000 property, for which you get a home visit for valuation and management of the sale through to completion. You can pay extra for managed viewings, mortgage broking, etc.

Purple Bricks offers a fixed fee option for £849 (£1,199 in London) with the option to have accompanied viewings for an extra £300.

Emoov.co.uk charges £795 upfront (£995 for London and inner M25) or £1,495 if you pay on completion of the sale (London £1,995), with no fee charged if the property is not sold.

Ebay and Gumtree

There are currently more than 600 property listings on Gumtree and 1,200 homes listed on eBay. However, many of them are overseas properties and some of them uploaded by estate agencies rather than private sellers.

If you are hoping to sell your house online without an agency, bear in mind that while it’s simple and cheap to upload a few photographs of your home, you’ll also need to arrange viewings and negotiate the price yourself.

Facebook

You could set up a Facebook page for your property but it’s unlikely to reach much of your target audience. However, if you live in a popular area where property sells quickly, you could advertise your home on a local Facebook group which would generate local interest.

Or you could live stream a virtual open day via Periscope…

Buy from (or sell to) a friend

It’s also possible to sell to a friend or private buyer, or from a local builder while they are doing up the house but before it goes on the market.

The advantage of this approach is that you are unlikely to get gazumped by other potential buyers and you can move at a speed that suits you both.

You’ll need to agree a mutually acceptable price, which you might agree on after valuations from a couple of local estate agents.

You’ll need to appoint your own solicitors, as it is not advisable to try to do the legal work and searches yourself. Your mortgage company will want to carry out their own valuation.

Even though you may know the house well, it could be worth organising a survey, as there may be issues that the buyer is unaware of that might affect the condition of the property going forward.

When it goes well, this can be a cost-effective and lower-stress option than normal house buying. It gets tricky if there is something wrong with the property and you want the seller – who might also be your friend – to reduce the price. That’s why it’s better to have the discussion about what to do if a problem comes up in the survey as early as possible, and before you have committed a lot of money in terms of solicitor fees.

Go chain-free with an advance

If you are trying to sell your home but you’re stuck in a chain, then there are companies that will advance you up to 98% of your home’s market value in order to enable you to proceed with your purchase.

It’s not a cheap option, though. For example, Nested will advance you 95% of your home’s value, so you can look around for a new property chain-free. In the background, Nested will try to sell your property like an estate agent. But if you take the advance before your property sells, the fee to Nested is 3.5%; otherwise it’s 2.5%.

It is aimed at people whose onward purchase might fall through if they can’t sell their current home, or who need to sell their home quickly, and as an alternative to a bridging loan.

Raffles

There have been a number of houses which have hit the headlines because they have been offered for sale as a prize in a raffle.

This approach requires caution. Unless you run the raffle in the correct way you could be liable for fines and even imprisonment under the complex rules which govern lotteries and raffles by falling foul of the Gambling Act 2005.

The Gambling Commission points out that many homeowners need to be aware of staying within the law.

You’ll need to pay for proper legal advice and make it clear what happens if you don’t sell enough tickets.

The scheme can work – Melling Manor was sold after former owner Dunston Low sold £2 tickets and raised £900,000 – but other property online raffles have been stopped by local councils and you need to have a fall-back plan if your campaign doesn’t sell enough tickets.

Auctions

Generally speaking, property sold at auction tends to be either in need of a lot of renovation work, difficult to value, hard to get a mortgage for, or very unusual.

If you are buying, it’s a place to pick up a potential bargain, although most auction properties come with some potential issues and so it’s better for experienced buyers or people looking to develop properties for letting. Once the hammer has fallen, you are obliged to buy, whatever state it is in, so do your research properly and in advance.

For sellers, it is an expensive way to put your property into the open market, with commissions likely to be in the 2.5% range. For this reason, it’s not the best option for traditional sales.

Leaflet the locals

If you have your eye on a particular area or street, and you are prepared to do a private sale, then you could put your contact details through the letter boxes of the current owners.

It’s a strategy which works in sought-after streets where houses are snapped up quickly or sold within hours of coming onto the market. Be prepared to have your finances in place, and to use a solicitor to do the conveyancing.

You can also approach local builders who are renovating a house on a street you are interested in. They may be willing to sell before the property is completed to maximise cash flow, although you’ll probably have to pay asking price.

Offer a freebie

If you are really keen to sell, you could sweeten the deal by throwing in extras, such as a car, furniture, or even pets, although this can also put potential buyers off.

More information

Citizens Advice has some further info on how to organise a private sale. Here on Bankrate you can read our complete mortgage guide, learn about stamp duty, and whether you should get a mortgage broker or go direct.

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Last updated: 30 January, 2019

When should I remortgage?

Remortgaging is when you get a new mortgage on your current home. It’s a very important decision that could impact your finances by thousands of pounds every year.

Why should I remortgage?

Before you look at the when, you need to first consider the why. Why should you remortgage if you can afford the monthly repayments, are happy with your lender and are not planning to move house?

We go into this in detail in our Should I remortgage? guide, but in brief:

1. Your current deal is about to end/has already ended (which most likely means you’ll be on your lender’s costly standard variable rate, known as SVR)
2. You want to save money
3. You want to release some of the equity in your home to make changes to it, like renovations or an extension
4. You want to pay off your mortgage earlier
5. The value of your property has gone up significantly
6. You want to switch from an interest-only to a repayment mortgage
7. Economic uncertainty

When should I remortgage?

In general, you should start looking for a new mortgage around three months before the end of your current mortgage’s promotional deal. For example, if you have a three-year fixed rate mortgage, you should start shopping around when you’re 33 months into the 36-month promotional period.

When a lender offers you a mortgage, you usually have between three and six months to accept it – after that, you’ll have to reapply. That’s why you should start looking for a new mortgage when your current mortgage deal has around three months to go.

If you don’t find a new deal, you’ll automatically revert onto your lender’s SVR when your promotional period ends, which is often far more expensive than if you’d shopped around for a new fixed rate or discount rate mortgage. In fact, mortgage broker London & Country recently discovered that a third of mortgage customers are on their lender’s SVR.

According to financial data site Moneyfacts, the average two-year fixed rate mortgage in the UK is around 2.52% compared to the average SVR which is 4.9%. Using these figures as examples, if you had a £300,000 repayment mortgage over a 25 year term, your monthly payments would go from £1,349 to £1,736 – that’s an increase of almost £400 each month, or £4,800 per year.

Of course, with Brexit looming the economy is currently somewhat unpredictable, so it could be beneficial to see what mortgage deals are out there even if yours isn’t coming to an end. But don’t forget to look at all the costs because early repayment charges (to leave your mortgage before it ends) and set-up or arrangement fees (payable when you’re setting up a new mortgage) could cancel out the financial benefit of getting a new, low fixed-rate offer.

This need for security is made clear by the fact there has recently been an increase in popularity for longer-term fixes, like five and 10 years as opposed to just two or three. Plus, the similarity between the two-year (2.52%) and five-year (2.93%) rates shows how lenders are reacting to this shift from borrowers and how hard they are trying to remain competitive.

Mortgage analytics specialist at Moneyfacts, Darren Cook, says: “We have seen the margin between the average two-year fixed and five-year fixed rates narrow as competition gathers pace in the five-year fixed rate landscape. Historically, competition on rates has been strong in the two-year fixed rate market and it seems that rates in this sector have been cut to a bare minimum and the five-year fixed rate sector is the next option for mortgage providers to compete in, causing rates to fall.”

Fixing your mortgage for longer not only means you have prolonged certainty when it comes to your payments, but it also means you will not need to think about changing your mortgage for longer periods of time. However, if you’re unsure whether or not you’ll remain in your current property for the length of the new mortgage deal, make sure it has the added bonus of being portable, which means you can take it from one property to another without (or with minimal) fees.

How to get the best remortgage deals

When it comes to remortgaging, your loan to value (LTV) is primarily based on the amount of equity in your home – plus, if you have some savings put aside, you can put those into the new mortgage deal as well.

Much in the same way that a larger deposit gives you access to better mortgage rates on your first home, more equity equates to lower interest rates. If you have a repayment mortgage, and the value of your home has stayed the same or gone up, you should have a decent chunk of equity in your home.

For example: you originally bought a £200,000 property with a £20,000 deposit – i.e. you borrowed £180,000 at an LTV of 90%. Since then, your property has increased in value to £250,000. You’ve also paid off £10,000 of your mortgage debt through your monthly repayments, so you only owe the lender £170,000. This means your total equity in your home is now £80,000: £20,000 from the deposit, plus £10,000 in debt repayments, and a final £50,000 from the increase in property value.

With £80,000 in equity on a £250,000 home, and only £170,000 left to repay, you’re in a very strong position for remortgaging. You will have an LTV of 68%, which will give you access to some of the best mortgage rates. If you contributed another £7,500 – from a savings account, perhaps – then your LTV would move down to 65%, where you likely get an even better mortgage rate!

Why can’t I remortgage?

If the value of your property has dipped below your outstanding mortgage debt, you’ll have what’s known as negative equity. For instance: In 2017, you bought a house for £300,000 with a £270,000 mortgage on a two-year fixed-rate deal. The deal is coming to an end, but the property has decreased in value to £250,000.

Most lenders will not allow you change mortgages while you’re in negative equity, so you could end up paying its costly SVR until the property goes up in value.

One way to partially remedy this in the interim is to overpay your mortgage, that is, make payments over the monthly requirements. Generally speaking, this should be doable if you’re already on the lender’s SVR (higher rates usually mean greater flexibility) – but if you’re in negative equity whilst on a fixed-rate deal, you must check the terms and conditions before you overpay. Although most fixed-rate deals allow you to overpay by 10% per year, they’ll charge you a penalty for anything over that.

Try to remortgage to a cheaper deal as soon as you’re out of negative equity.

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Last updated: 28 April, 2019

How Much Can I Borrow? Mortgage Affordability Calculator

Use our how much can I borrow calculator to work out how much you can borrow in the UK as a first time buyer, moving home or remortgager, even with no deposit or bad credit. Explore our guide to learn how much you can afford based on your financial situation. Plus, understand how lenders assess your affordability and decide how much you can borrow in the UK.

How much mortgage can I get?

How much you can borrow for a mortgage in the UK is generally a maximum of 5 times your income - or 5 times your joint income, if you're applying for a mortgage with someone else.

Use the how much can I borrow mortgage affordability calculator above for an estimation on how big a mortgage you can get in the UK.

Mortgage lenders always conduct affordability checks before loaning you any money to ensure you can meet the monthly repayments. Since the 2008 financial crash, mortgage lenders are far more strict about who they lend to. They judge your affordability based on an in depth discovery of your income, all your outgoings and your total debt. They also scrutinise your credit file.

Lenders also want to know you could afford the repayments should the interest rates increase by 4% above the Bank of England base rate. This is known as stress testing.

You may only be able to get the maximum amount if you already have a current account with the lender, or you have a very large deposit.

To get a more accurate maximum mortgage figure, apply for an agreement in principle (AIP). An AIP is not the same as a formal mortgage offer. It is a theoretical figure of what a lender may be willing to lend you.

Most estate agents will not take an offer seriously without an AIP. You can secure one quickly online or via a mortgage broker.

How much mortgage can I afford?

How much mortgage you can borrow and how much mortgage you can afford are slightly different. Before you borrow the maximum amount, you should think about whether you can afford the monthly repayments on a large mortgage.

A general rule of thumb is that you don't want to spend more than 30% of your take home salary on mortgage repayments. Any more than that and you risk being "house poor" - where you own a house, but lack the money to do other important things (like build up your savings, go on holiday, etc.)

In London, where house prices are very high, it can be hard to keep your repayments under 30% of your income.

Before getting a mortgage, you really should do the maths on what the total cost of home ownership. If your mortgage payments and household bills look like they will take up 40 or 50% of your income, you should consider getting a smaller mortgage.

How much mortgage can I get with bad credit?

If you have bad credit you may still be able to get a mortgage, but it will be harder to find a lender willing to give you a loan.

You will likely need a larger deposit if you have a history of bad credit, and the best mortgage rates won't be available to you.

Generally the best way to find a bad credit mortgage is to talk to a mortgage broker.

How much deposit do I need to get a mortgage?

In most cases, you will need a minimum of a 5% deposit to secure a mortgage, meaning you’ll need a 95% mortgage loan. The size of the loan versus the property value is referred to as loan-to-value ratio, or LTV.

If you are able to save more, for instance a 10, 15 or 20% deposit, you’ll increase your chances of being accepted for cheaper mortgage products. Lower interest rates (and small set-up fees) equal cheaper mortgages.

The cheapest mortgages are generally only available if you have a big deposit, or – if you’re remortgaging or moving house – a large amount of equity in your property.

How much can I borrow with no deposit?

If you have no deposit - otherwise known as 100% LTV - you can still get a mortgage, but your options will be much more limited than if you had a deposit of 5, 10 or 15%.

No-deposit mortgages generally have a much higher interest rate, which means you'll pay a lot more in interest over the long term.

While 100% LTV mortgages are available for first-time buyers, you can find better and cheaper products if you can save up a deposit of at least 10%.

How do lenders assess my affordability?

Most AIPs only require a soft search on your credit file, which means other lenders will not see it. A real mortgage application will leave a mark on your file that all other lenders will be able to see. Generally, having more marks can count against you because it could suggest you are desperate for credit. Being turned down for a loan product will have a negative impact on your credit file.

Mortgage lenders will review your credit file in depth to make absolutely sure you could afford the monthly repayments of the mortgage you’ve applied for. Each lender has their own scoring system – it does not see the score you do, that’s just for you – and may check one or more of your credit files (from Experian, Equifax or TransUnion), so it is vital you check all three before you apply for a mortgage.

Lenders want to know how stable an investment you are by looking at how long you’ve been in a job, lived at your current address and had a bank account.

Income vs. outgoings

On application, mortgage lenders will look at your salary, guaranteed bonuses, pension, investments and any other income you have. You’ll need to prove your income with payslips and bank statements. If you are self-employed, there are some additional hoops to jump through (see below for more details).

Lenders will also closely examine your outgoings. More than just your rent (or current mortgage repayments if you’re remortgaging), which is likely your biggest monthly expense, they’ll look at other regular bills (credit cards, mobile phone, broadband, utilities) as well as your living expenses.

If you are down to £0 the day before pay day, or worse still, you’re in your overdraft, and your bank statements show you eat at restaurants four times a week, you could find it very hard to get a mortgage as it will look like you cannot manage your money.

For that reason, it’s worth trying to get your finances in order at least six months before you apply for a mortgage.

“Stress testing”

You might be able to afford the monthly payments if you secure a mortgage with a low interest rate, but what would happen if rates increased to 3% above the lender’s standard variable rate (SVR)? The average SVR today is 5.11% – so you would be stress-tested on an interest rate of around 8%. This is known as “stress testing”.

Could you afford the repayments should your personal circumstances change? That is not just what a lender considers, but something you will need to ask yourself too.

Having enough savings to cover three months of mortgage payments could really be worth your while in case your circumstances change – for instance, if you lose your current job.

Lenders may limit the amount you can borrow based on their findings.

Should I borrow the maximum amount?

It can be tempting to borrow your maximum mortgage amount and buy the most expensive property you can afford – but that may not be the right thing to do as it leaves you little wiggle room if rates go up or your income goes down…or both!

To begin with, one of the easiest ways to lower your monthly repayments is to borrow less money, giving you a lower LTV. If you have £20,000 as a deposit, that’s only 5% of a £400,000 property, but 10% of a cheaper £200,000 property.

The other thing to consider is that mortgage products are usually arranged in a tiered fashion, with a lower interest rate offered every time your LTV goes down by 5%. So, 95% LTV mortgages generally have higher interest rates than 90% LTV mortgages, which have higher rates than 85% LTV mortgages and so on.

If you’re looking at buying a property and your LTV would be 87%, you might consider raising a slightly larger deposit to push yourself over the 85% LTV threshold, otherwise you’d be stuck at 90%. Likewise, it might be worth looking at a slightly cheaper property, where the same size deposit would provide a better LTV and allow you to keep some money aside.

Borrowing the maximum amount possible could leave you “house poor” – where you own a house, but you have no funds left to pay for everyday stuff without going into debt.

How can I drop my LTV band if I’m remortgaging?

If you’re remortgaging your home, the exact same rule of thumb applies – you want to aim for the lowest LTV possible – but instead of raising a big deposit you get to use the equity in your home.

For example: you raised a deposit of £40,000 and borrowed £360,000 to buy a home valued at £400,000 (an LTV of 90%). Now the five-year fixed-rate deal deal has ended, you want to remortgage to a new fixed-rate mortgage. You’ve since paid off £40,000 from the principal debt – so you owe the lender £320,000 – and your home has gone up in value to £420,000.

Assuming you want to get a new mortgage for the same amount – £320,000, with £100,000 in equity – you would have an LTV of just 76%.

However, a 76% LTV mortgage will most likely have the same rates as an 80% LTV mortgage. To drop to a 75% LTV (and therefore lower the interest rates) you would need to add £5,000. Alternatively, you could try and get a slightly higher valuation for your home, which would help you drop to a 75% LTV.

If you’re remortgaging to unlock money for home improvements or other expenses, try to keep your LTV tier in mind. If you can stay within a lower LTV tier, perhaps by borrowing slightly less, you’ll save a lot more in interest repayments in the long-term.

How much mortgage can I get if I’m self-employed?

First things first, you can still get a mortgage if you are self-employed, you’ll just have a few more hoops to jump through than if you were a full-time employee.

Lenders will consider you more of a risk, so you will need to gather together at least two complete tax-years of business accounts and tax returns. Some lenders require that the documentation has been signed by a chartered accountant to prove that the information you’ve provided is reliable.

Your maximum mortgage will then be based on your net profit, not total turnover. The exact calculation will vary from lender to lender, and also on your legal status – self-employed is different from the sole director of a limited company, for example.

Some lenders may base your maximum mortgage on your past trading history, while others might want projections of future customers and income. Organise both, just in case.

If you’re self-employed, speaking to a mortgage broker is pretty much a must. They will know which lenders will most likely accept you, therefore cut the chance of a credit score-damaging rejection.

Edited by: Sarah Guershon. Mortgage calculator updated to version 1.11 on July 25, 2019.

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Last updated: 2 August, 2019

Should I use a mortgage broker, or go direct?

If you’re looking for a mortgage, you might be wondering whether or not you should talk to a mortgage broker or go directly to the lender.

These days, brokers do more than simply churn out a list of available mortgages for a hefty fee, so it could be worth your while to see what they can offer.

Why should I use a mortgage broker?

Legislative changes, most notably in the Mortgage Market Review in 2014, have resulted in a tightening of the rules with regards to mortgage “affordability” checks, the qualifications of all mortgage brokers, and the information brokers must provide to borrowers about their services and their fees.

Since the changes, both lenders and brokers must consider your financial situation and assess your affordability when suggesting suitable mortgages for you. Moreover, they must be able to prove they have done this.

Whilst this legislative revolution has made it harder to obtain a mortgage, it’s also made it far safer to use a mortgage broker.

You can now trust they will undertake a full comprehensive financial assessment and therefore only give you a range of mortgages you will almost certainly be eligible for.

With the huge expense of buying your first home or moving house, it may be tempting to consider the ‘cheaper’ option of applying for a mortgage with your own bank, or by going direct to another lender for your mortgage.

However, avoiding paying broker fees (though there are plenty of reputable fee-free brokers out there) to save a few pennies now could could cost you thousands over the next few years if you opted for a bad mortgage.

Even if you think you do not need the advice of a broker and know enough about the mortgage market without one, you may be missing a trick.

Some brokers have access to a larger range of mortgages (such as via exclusive deals with lenders) and can help speed up the application process by getting you fully prepared and steering you towards mortgages you will most likely be accepted for.

Can I get a mortgage directly from a lender?

If you have done your research and found your perfect mortgage, are confident that you have found the best deal, or you simply want the convenience of asking your current bank for a mortgage, then that’s your prerogative.

Indeed, there can be some merits to going directly to a lender for your mortgage…just be aware of the pitfalls too:

Pros

• Some banks offer preferential mortgage rates if you already have a current or savings account with them.
• Some lenders have exclusive ‘direct only’ deals that a broker would not have access to.
• You avoid paying broker fees.

Cons

• The advice you get from lenders will only refer to their own products rather than an unbiased view of the market as a whole.
• You will not gain access to any broker-only deals, even if they’re offered by your chosen lender.

How do I get a mortgage through a broker?

If you are planning to employ the services of a broker, do your homework first: ask friends and family for a recommendation, check the internet for reviews, and suss out their fee structure.

Ask them outright how many lenders they work with – the more lenders, the more options you have at your disposal and the more likely you could be to get a good deal.

Generally, there are three types of broker:

• Tied brokers: These are usually recommended to you by a particular mortgage lender and only offer deals from that one mortgage provider.
• Multi-tied brokers: These offer a limited range of mortgages from a panel of mortgage lenders.
• Independent brokers: Also known as ‘whole of market brokers’, these investigate the entire mortgage market to find the best product for you. However, “whole of market” does not cover every single deal, as the name suggests.
  This is because some lenders, like First Direct, do not work with brokers and only offer mortgages to borrowers directly.

Since the legislative changes, mortgage brokers have to state from the outset exactly what range of mortgages they can offer. For the most wide-ranging advice and products, it is always advisable to choose an independent broker that offers a ‘whole of market’ service.

Pros

• A broker’s advice will be tailored to your individual financial situation and needs and can therefore advise you on your suitability to all products.
• Can gain access to the whole of the mortgage market, meaning that they have a greater chance of finding that perfect mortgage for you.
• Have access to ‘broker only’ deals
• Do the searching for you and liaise with your chosen lender, which can save you huge amounts of time and stress.
• Expert in their field so could help you find the very latest deals and have in-depth knowledge of the habits and anomalies of different lenders.
  For example, if you are time-strapped, they may be able to tell you which lenders work quickest or if affordability is your main concern, brokers may know which lenders take certain expenditures into consideration during your affordability assessment (including school fees, childcare costs, commuting costs, pension contributions).

Cons

• Mortgage brokering is a business, and brokers may charge a fee for their services. This can be in the form of an hourly rate, a flat fee, a commission-based fee paid by the lender, or a combination of all three.
  Whichever way they charge, brokers are obliged to outline all fees in an initial disclosure document. If your broker is charging a fee and is paid a commission by the lender, it’s worth asking if they will offset some of their commission against the cost of your deal (you never know!)
• You may miss out on direct-only deals which could be cheaper than those offered via a broker. That said, a good broker may include these offers in any market assessment, but you will have to make the application directly.

When deciding on whether or not to use a mortgage broker, a balanced approach may be the best solution.

Do your own research online first, ask your current bank and other direct-only lenders what deals they have available and then speak to a reputable mortgage broker to see what else is available and suitable for your personal circumstances.

That way you’ll get the holistic advice and information you need in order to get the very best mortgage for you.

Edited by: Sarah Guershon

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Last updated: 8 May, 2019