MTTM Podcast Episode 494 – Improve your odds of getting a mortgage, maximising pension income & energy price hack

Listen to Episode 494

On this week's episode, we explain how to improve your chances of getting a mortgage. Then, we look at how you can maximise your retirement income by using a combination of annuities and drawdown. Finally, Andy highlights three websites that can help predict upcoming changes to the energy price cap before revealing that it's not too late to fix your energy tariff and avoid the likely price increases.

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Episode 494 Podcast Summary

Improve your chances of getting a mortgage

Summary:

In the first section of the podcast, I provide a checklist of strategies to enhance your prospects of securing a mortgage, whether you're a first-time buyer or looking to remortgage. The key focus was on proactively managing your financial profile to align with lenders' criteria. This included thoroughly reviewing your credit report across all three major agencies to identify and rectify any errors, as well as carefully monitoring your debt levels to maintain a healthy debt-to-income ratio. I also emphasised the importance of avoiding new credit applications in the lead-up to your mortgage, as this can negatively impact your credit score. Additionally, I advised listeners to be mindful of their online presence, as lenders may scrutinise social media activity. Streamlining your finances by reducing unnecessary commitments, saving diligently for a larger deposit, and maintaining a stable employment history were also highlighted as crucial steps. Ultimately, I strongly recommend speaking to a mortgage advisor early on, as they can provide invaluable guidance to help you navigate the process and secure the most favourable deals available.

Key Insights:

• Thoroughly check your credit report with all three major agencies to ensure accuracy and address any errors.
• Manage your existing debt levels carefully, keeping your debt-to-income ratio below 50% if possible.
• Avoid opening new lines of credit in the months leading up to your mortgage application.
• Be mindful of your social media presence, as lenders may review your online activity.
• Streamline your finances by reducing unnecessary direct debits and standing orders.
• Save as much as you can for a larger deposit, as this will unlock better mortgage deals.
• Maintain a reliable employment history and provide all required documentation.
• Consider speaking to a mortgage advisor early on, as they can guide you through the process and help you secure the best deals.

Maximising your pension income - What are your options?

Summary:

In the second section of the podcast, I delved into the topic of maximizing your pension income in retirement. I explained the key differences between annuities and drawdown, highlighting the recent surge in annuity sales and the rise in annuity rates. To provide a more in-depth analysis, I discussed a study conducted by Standard Life that compared three different scenarios: a traditional level annuity, an RPI-linked annuity, and a phased annuitisation approach combined with drawdown.

Key Insights:

• Level annuities offer a guaranteed income for life, but can be impacted by inflation over time.
• RPI-linked annuities provide income that increases annually to protect against inflation, but have a lower initial payout.
• The phased annuitisation approach, where a portion of the pension pot is used to purchase multiple annuities over time while the remaining funds are kept in drawdown, has the potential to provide the highest total income by age 90.
• This combined strategy allows for flexibility, the ability to benefit from rising annuity rates as you age, and the potential for growth in the drawdown portion of your pension.
• Ultimately, I emphasise the importance of speaking to a financial advisor to explore the various options and develop a personalized retirement income plan.

Latest energy price cap predictions - 3 websites you need to check

Summary:

In the final part of the podcast, Andy discussed the latest developments in predicting changes to the energy price cap set by Ofgem. He highlighted that major energy providers, such as Eon Next, EDF, and British Gas, are now regularly publishing their own predictions for the upcoming price cap updates.

Key Insights:

• Energy providers are able to make fairly accurate predictions on the energy price cap changes by analysing the same wholesale price data that Ofgem uses to set the cap.
• The latest predictions from these providers suggest the energy price cap will increase by around £100 per year for the average dual-fuel household when it is updated on April 1st.
• Compared to the current price cap level of £1,738, the predicted new cap ranges from £1,830 to £1,859, representing a roughly 5-7% increase.
• Andy emphasized that with these predicted increases, consumers who haven't already fixed their energy tariffs should consider doing so, as the current fixed deals available can be around 5% cheaper than the upcoming price cap.
• By combining the potential price cap increase with the savings available from fixing, consumers could see up to a 10% reduction in their annual energy bills, which equates to around £200 in savings.

Episode quiz 

1. Which of the following is NOT one of the tips Damien provides for improving your chances of getting a mortgage?

a) Check your credit report
b) Increase your credit utilisation ratio
c) Avoid opening new lines of credit
d) Manage your existing debt levels

2. What ratio do mortgage lenders use to assess your ability to manage monthly payments?

a) Affordability ratio
b) Credit utilisation ratio
c) Loan-to-value ratio
d) Debt-to-income ratio

3. Which of the following is NOT a recommended strategy for managing your finances before a mortgage application?

a) Paying bills annually instead of monthly
b) Reducing unnecessary direct debits
c) Increasing your discretionary spending
d) Avoiding going into your overdraft

4. In the phased annuitisation approach, how often did the individual purchase a new level annuity?

a) Annually
b) Every 3 years
c) Every 5 years
d) Every 10 years

5. What was the key trade-off between level annuities and RPI-linked annuities highlighted in the podcast?

a) Level annuities have higher initial income, RPI-linked have better inflation protection
b) RPI-linked annuities have higher investment risk, level annuities are more secure
c) Level annuities always have a fixed end date
d) RPI-linked annuities have shorter payment periods

Answers

1. b) Increase your credit utilisation ratio
2. d) Debt-to-income ratio
3. c) Increasing your discretionary spending
4. c) Every 5 years
5. a) Level annuities have higher initial income, RPI-linked have better inflation protection

Resources

Links referred to in the podcast:

• Speak to a Mortgage Broker
• Mortgage Comparison Tool
• How to find a financial adviser you can trust
• Energy Price Cap predicted to rise again in April
• What is the cheapest fixed-price energy tariff
• Should I fix my energy prices
• British Gas - Energy price cap prediction
• EDF - Energy price cap prediction
• Eon Next Energy price cap prediction