Podcast No.66 – Buy-to-let shock, ISA advice, fund charges explained and building planning tips

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Transcript

Andy: Hello, and welcome to episode number 66 of The MoneyToThe Masses Podcast with your resident expert as always Damien Fahy, and me Andy Leeks. Damien, welcome back. How are you doing?

Damien: Good, Andy. It's good to be back. I must apologize to everybody listening to this podcast because they're probably thinking, "What happened last week? Why was there no podcast?"

Andy: Where's my fix?

Damien: Yeah, "Where's my fix?" And that was totally my fault. I have to say I let everybody down on that one. The loft, the much talked about loft. It was the final stages and all the snagging and everything that goes on. It was just becoming chaotic that I couldn't do anything really. Andy was trying to get the podcast done right up until the last minute. Weren't you Andy?

Andy: Yeah, I was happy to give it a go, and we did give our best shot. You did too, come on. Don't give yourself such a hard time.

Damien: I did but the positive news is this week's show will be even more amazing because there's going to be a lot more content as well because we had to roll it over. So how are you anyway, Andy? You' good?

Andy: Yeah, all good. Just getting on with it really, looking forward to Christmas, only a few weeks away now.

Damien: Oh good. So if anyone is thinking…if I sound different, I am in the loft. The loft is built. It is over, it's done. The three or four months of hell has come to an end. I'll talk about what's going to be on this week's podcast because there's a link there. We are doing a variety of reader questions and one of them is asking my advice for would be loft converters. We're not becoming a DIY podcast but this is just my view and some advice, because there's lots of people out there who are going to convert their loft. And we're going to also to cover the Autumn Statement. I don't know if you noticed but the Autumn Statement occurred this week, which is kind of like a mini-Budget that occurs in the autumn hence the name. So I'm going to touch on that very, very quickly, and one or two other investing bits and pieces and one or two tips. So there's quite a lot we've got to cram in. And so it's well worth listening to.

But before we do that, one of things I wanted to bring up is reviewing the podcast. Now, the reason I wanted to bring it up because I had an email from Sheila West. Sheila is a regular, she writes to me quite often on Facebook and listens to the podcast and she actually sent me a message and to paraphrase it, it pretty much said, "Well you always ask people to review the podcast, so I went to go and review it and realised I'd already done it and I can't understand why more people aren't reviewing it, what's going on?" And that is a good question Sheila because obviously...

Andy:  Sheila, you are singing our tune.

Damien: You are singing our tune because there are lots of people who listen to us. I get lots of emails from people who I always respond to, and we just need people to give us these glowing five star reviews because if you give us reviews on iTunes it pushes us up the charts. Then the more influential we become, the better for you guys because then we can actually start changing a few of the bad things out there.

But we did have another email, didn't we Andy? From Catherine Kelly, which kind of links in with this. I think one of the issues is people are finding it hard to leave reviews because it isn't as easy as you think. The only way you can actually leave a review on iTunes for a podcast you like is to go into the search function and search for the podcast. then when it comes up and it gives you a list of episodes, there is a button that you can press to go and leave a review. You, for some strange reason, can't leave a review if you just go into the subscribed podcast that you listened to. You have to go and search for it again.

So my tip is everybody grab your phones and go into the search function of your podcast app on your phone and search Money To The Masses. You will see the podcast come up and a list of episodes you then click on the review tab, then leave your own review. So do it, there's no excuses. I expect thousands of reviews this week.

Andy: And of course if you do, you can get a free copy of your book.

Damien: I should have mentioned it, but yeah, you get a free copy of my amazing bestselling book. There's always a plug at the end of the podcast that gives you more details. But going into Catherine's email, Andy. This is quite interesting, isn't it? Because Catherine had a particular problem.

Andy: Yeah, that's right. Catherine has got in touch and she says, "Hi, Damien. I've been listening to the podcast for a while now on the website. Do you know if they're available on Android?" And actually yes, we are available on Android. We use Libsyn, they're our hosts. And our podcast is fed through various sort of networks of RSS feeds and everything else. And yes, you can get us on Android. So If you've got an Android phone, you just need to search for various…There's lots of different apps out there, some are free, some you pay for. But it depends what you're looking for really. But get yourself a podcast app and simply type in in the search function the podcast title and you will find us. There might be some that we're not showing up on, but if we're not, go and download a different one for free and find us. There's no excuses.

Buy-to-Let Shock

Damien: Right, that covers that off, let's get on with the podcast. So the first thing I want to talk about is the Autumn Statement. Now, to be honest the Autumn Statement was a bit of a non-event. There was a lot of stuff in there about the economy and about making the nation's books balance. But there wasn't really anything too dramatic in there that's going to affect your finances going forward. So all I want to do is just chuck out two quick things that were worth pointing out. One of the things that occurred in the Autumn Statement was that the tax credit cuts that were being talked about quite a lot in the press have now been scrapped. So we don't need to talk about that.

The other small thing, well maybe small is debatable. But if you're a buy-to-let landlord or you want to be, going forward you're going to have to pay far more stamp duty than you do currently. What they've done is as of April next year, 2016, they're going to add an extra 3% onto any band of stamp duty. So it means that basically buy-to-let landlords are going to have to pay more money. And the idea is I think they're trying to take the steam out of that area of the market. But while there's been lots of people up in arms because obviously last year in the budget they also reduced the tax relief that buy-to-let landlords could claim from their mortgage payments.

The only thing is I would say for buy-to-let landlords out there, before everyone gets too upset about it, there is a slight loophole to all of this because buy-to-let landlords can offset stamp duty, costs when they eventually sell their property. So if you end up paying this higher tax rate when you buy a buy-to-let property next year, when you come to actually sell the property, you can then offset that against the profit. So it's one of those slight loopholes, but I don't think it's a bad thing. So anyway if you're a buy-to-let landlord, you probably already know about it because you're sitting there thinking, "Oh my God."

Andy: What about those people who are just looking to get in to just have one extra property, will we see them being slightly more creative in how they're declaring those properties and how they're managing them?

Damien: Well they could be but they're impacted by it. It isn't just buy-to-let, it's a second property. So your second property is all the same, so you're going to start being hit by a much higher tax rate.

Andy: Brilliant. Okay. I didn't know that. Yeah, good stuff.

Loft conversions, ISA advice & fund charges explained

Damien: Good. Right. Rather than dwell on George Osborne for too long, I thought we'd actually do a number of reader questions. I always say reader but we're getting to the point we're lots of people contact us in writing each week and I answer the questions and I love it. So what I want to do is a bunch of those people have written to me and it's easy for me to cover them all off on a podcast. So we're going to fire through quite a few of these now. The first one, which is topical me talking about lofts is one from Mark Senior, and you've got the question there, haven't you Andy?

Andy: That's right. So Mark has said, "I've heard a lot about your loft extension and I know someone who's seriously thinking of having a loft extension themselves. Like you, they have a small daughter who's just over two. Would you be able to pass on any tips and any information that you've gleaned during your experience?" So are we sort of covering personal requests now?

Damien: Well we do do kind of personal requests, always have done, Andy. People who've got personal requests send them in because you'll find a number of these questions in there going on about investments and stuff like that. One person wants the answer, you can guarantee there are loads more that do.

My tips, I won't spend too much time on this but there are some tips I've learned partly from just pure experience and the hard way. When you're starting out to do a loft, then the first thing is get plenty of quotes because the range in prices can be quite incredible. You've got to have at least three people come round and look at it and then make a judgment call, because then you can see where the price should lie.

The other thing I would say is that whatever you think the price is you've got to add 10% to 20% more because you're always going to go over budget, and it's not just because the builders are going to keep adding things on, but it's because as you go through the process, there will be things that you hadn't envisaged. It may be for example that you decided to have an extra window put in because you suddenly realized that it might be too dark. So although you have the plans and the blueprints, you do tend to change things as you go along and sort of they hit snags and then maybe you have to suddenly move things. I know people who are doing other building work have had to move drains and all these things mount up.

The other thing is you always forget that when you've built something, you've got to put things in it. So you've got to add in the likes of a bathroom or even furniture. If you've got a room that's different to every other room in your house, it doesn't really work just to move furniture up if that makes sense. Also you might not be able to because if it's a loft room you might not have the access. So all I would say is that whatever you think the final amount of money you're going to need, take what you're quoted and add at least 10% or 20% on top. If you do that, you're probably going to be covered for all eventualities and won't be caught out.

I would also say on the planning note. Do you know you don't need planning permission for a loft if it's within a certain size, and I would always say that that's not a bad thing to try and keep within planning permission. You notify your local authority what you're doing, but then you can't have it rejected. You basically can build a loft and no one can stop you. So that's a good thing.

I think it's much better to probably reign in your ambitions and do something a little bit easier. This is being cynical but I've heard it anecdotally that some councils will reject nearly all planning applications on the way through first time because they make more money by you keep reapplying and making tweaks. So you are unlikely to get it through first time. So that's what I've heard from various different people who've had projects go through and architects have said it. So you're going to have to budget for that if you're doing it.

Another thing I would mention is the subject of third party wall agreements. Basically if you're attached to somebody and you're going to have to do something to an adjoining wall you will need to get your neighbours agreement. This can just be in the form of a letter that they sign to say that you agree that if you damage their property as a result of what you do, you'll repair it.

Or what can happen is that the other person is entitled to make you instruct a surveyor before and after the event and check that everything is okay with their house. If they say they want a surveyor, then it's probably going to cost you an extra £1,500 on top of your job. So budget that in. I know somebody who's had that twice with two different neighbours who insisted. So if you can convince your neighbour not to do that and you can be amicable about things, it'll be much easier. Funnily enough in the street that I live in I know of neighbours who've had epic fallings out about that sort of stuff, and about the noise, and the work and everything. So if you can try and get on with your neighbours beforehand and let them know what's going on. That's worth its weight in gold because they can make it difficult for you. They can make you end up just out of spite costing you thousands of pounds just because they don't like you. So that is one of my other tips.

Also make sure you know what you're getting for your money, because some builders will build everything, some won't paint it, some won't put bathrooms in, some won't tile it. The chances are you will not be getting a complete room unless your contract stipulates that and you set that out. So you need to know what any potential costs will be, there will always be extras somewhere along the line to budget for. But don't forget that you're going to probably have to buy blinds, you're going to have to buy a whole bathroom suite, or you might have to even alter drains and things like that.

Andy: What about things like light fittings, skirting boards, the bits that you would think when you walk into a say a bare house, a bare room, a sort of shell, you'd expect the light fittings in there, the plug sockets, the skirting boards. Does it finish to that degree normally?

Damien: Yeah, it is but then what you don't realise is what is considered standard because you might be thinking dimmer switches and certain types of skirting board or whatever. Quite often it's actually just a basic standard that you'll get. So if you want anything that's a bit more, then that's extra money normally. So what you need to do is to be good terms with all the different workmen that come around and they'll just chuck in favours, make lots of tea, that's my biggest tip. Makes lots of tea, the more tea you make, the more favours you get from the builders and plasterers. It was my trick.

Andy: They're a simple breed.

Damien: Yeah, just like me make them a bacon sandwich every now and then and they'll chuck in a spare light, that happened. So you might be thinking of spotlights but they're thinking of normal pendants, that's the sort of thing you need to get. It seems a bit too much to get into the detail of but even down to radiators and do you get valves and all this sort of stuff because trust me, they want to make a profit, so they're going to scrimp back on all this, make as many savings as they can. Even down to skips, will you have a skip outside your house because some of them won't, they'll actually take your rubbish and put it in other people's skips, not randoms but jobs they've got elsewhere because the more skips they have the more they pay. So they're my tips basically, is just know what you're getting into and pin down every detail.

Andy: In terms of the finish date, how likely is it that it's going to be accurate? Did you find yourself being frustrated at the progress sometimes?

Damien: Yeah, again a good point. Whatever date they give you add a month at least, because the loft is meant to be done they'll say oh...Ambitious people say six to eight weeks. You've got to allow three months. What happens is at the beginning you've got people there all the time but towards the end you don't. Because when they're building it that's great, but when you're having plumbers, plasterers and things like that, they're not there every day, so things slow down, and that's frustrating. It's all about setting expectations, and that's what they need to do and probably aren't always great at. But you need to be realistic and they're going to be doing about a dozen jobs on the go as well as yours. So yeah, time wise is a good point, they're not going to do it as quickly as you think they are.

Andy: Good. Okay. What have we got next?

Damien: Well we've got Ian. Ian McKay emailed in with a question and this one is on ISAs.

Andy: Okay, yeah. So Ian goes on, "Hi, Damien. Enjoyed your podcast this week which has prompted me to ask you a question. I currently have an ISA which is a cash ISA with my credit union to which I contribute each month. I know the allowance went up to 15 odd thousand and I'm not going to put that much into it during this financial year, and I am anticipating a windfall next month. I was wondering if there's any way I can invest in stocks within this year's ISA without losing its tax status. I should say that the way the credit union ISA works is that it's continuous and I don't have to enroll each tax year. But I would worry that if I have to switch my current ISA to a different place, I might not be able to enroll in that credit union ISA next financial year because it's very popular and they limit the number." Did that make sense?

Damien: That does make sense.

Andy: Okay.

Damien: What Ian is basically saying is he has a cash ISA with a credit union. So it's an alternative to a bank effectively. That he contributes a certain amount, it may be monthly or whatever, yearly and they keep rolling on. For some people, they don't realise that they actually are getting different ISAs each tax year under the same account. But they just see it as one lump sum.

So what Ian is saying is that in days gone by you used to only be able to put so much into a stocks and shares ISA and so much into a cash ISA. What he's worried about is he's thinking well he's with a credit union that probably doesn't offer a stocks and shares because the difference between cash and stocks and shares ISAs disappeared. Effectively you can hold as much cash as you want now because they used to limit the amount you could have, only half your allowance could go into cash, and the rest had to go into shares. Where's now they've done away with that and they say you can put the whole lot into cash, the whole lot in stocks or somewhere in between, whatever you want.

What Ian is effectively saying is that I don't think his credit union offers a stocks and shares option. So does that mean he needs to now move somewhere else to be able to access that? The answer is no, he doesn't because you can actually hold more than one stocks and shares ISA with different providers as long as one of them is say you've got cash or you've got stocks and shares with another one. So it's effectively the same old cash and stocks and shares but with different people. So you can't have lots and lots of ISAs, but he doesn't have to close that one down. I think for him he could probably continue subscribing to the one he's got and he doesn't have to worry about that, he can keep doing that year on year, on year on year. But he can open a specific stocks and shares one with somebody else. As long as he doesn't go over the £15k limit when he combines the two together, he's fine.

Andy: It's crazy in a way. You've explained that really succinctly, really simply, and I would argue that there's probably lots more people out there that are in a similar position to Ian. But obviously that information is hard to come by and you've obviously answered it. Why do they make it so difficult? Why isn't that information out there?

Damien: The answer is it should be easier to find this stuff but unfortunately it's not. The next question is from Martin Deakin, who asks something that probably most people out there who invest money wonder. Martin's question is when you have a fund with let's say at 1.5% annual when is that charge taken? Is it taken once at the end of the year? Is it taken monthly? Daily? If you switch funds is that a problem, and does that mean that if you keep moving from one fund to another as when I do my 80-20 Investor, as I promote in my 80-20 Investor which is my DIY investment service about readily moving your funds and reviewing them, would that have an impact? Would you end up paying more charges and would get to incur extra daily charges?

Well the answer is it isn't that simple, but if you move your money around, you won't keep getting charged. What actually happens is let's say you invested via the likes of Hargreaves Lansdown or Fidelity is that a portion of that 1.5% will be charged by Fidelity, and they'll probably take that every month, and that's done by them as a platform. It's a fee, it's service fee for using their basic investment supermarket. So that would come out every month, that would come out probably like a cash account, or they'll sell down one of your investments to take a small amount out every month. So that is monthly.

The rest of the charge for investing is deducted by the manager of the fund that you've invested in. The way they do that, they tend to adjust do it from the assets within the fund itself as they go along, so it'll be reflected in by the price of the fund. Basically if you're in a fund, you're being charged somewhere along the line, you won't get charged more by keeping moving around. Nearly all the big major fund supermarkets out there don't charge you for switching you just need to make sure that the fund that you're going into or out of don't apply some kind of initial fee or exit fee. But again, with the big major fund providers they tend to negotiate that those fees and charges are either got rid of or reduced. So I hope that answers Martin's question.

Andy: Yeah, interesting. Something I've always wanted to know. Good. Okay, what have we got up next?

Damien: The last thing I want to do is a bit of a tip for people investing, and in the last couple of podcasts we've sort of built up to it really. We've talked about working out what's in your portfolio in terms of where you invest and how to benchmark. I did a piece for 80-20 Investor members where I showed them the best way to benchmark your portfolio. So if you do a free trial, you can read that. It's important to understand about benchmarking your portfolio because that's how you know how well you're doing because just an absolute value doesn't have any real context.I

If the market is flying and if you're making lots of money but the market is making even more money, then absolutely you look at the number you think "great," but if you looked that the market has performed twice as well as you, then you're not doing that well at all. I explained to 80-20 members and given them mechanisms and tools to do this in great detail.

But if there is somebody who's looking to just have a bit of a smarter benchmark to see how they're doing, then have a look at the Vanguard funds. You get the Vanguard 20% Equity fund. And there's a series of tracker funds and Vanguard is the biggest provider of trackers pretty much in the world. They're based over in America, and what they provide are funds which have for example 20% in equity, so that's hence the name. They'll do a version that's got 40% in equities and they'll be global equities, and the rest will be in bonds etc.

So what you've got there is a kind of portfolio where you have 80% equities and 20% bonds, well if you're beating that tracker fund then you're doing pretty well because what you're doing is you're not investing passively, you're doing it actively yourself and you're beating that benchmark. Again, like I said, I provided the tools for people to work out exactly what their portfolio has, but if you just look at your funds broadly, if you're on a U.K. equity fund and you just assume that's 100% equities and go across all of them, you can get a rough steer by looking at the sectors alone.

It won't be exactly, but then you can look at the past performance. Put that performance up on your platform or wherever you can chart them, and you can see how that portfolio has done over time and compare it to yours. And then it'll give you a good idea of where you're headed, or in fact where your financial adviser, how they're doing because I know lots of people who listen to this might not necessarily run their own money but might have financial advisers. And if he's not beaten your benchmark, then bash him, sack him, whatever.

Andy: Send a strongly-worded email.

Damien: Send a strongly-worded email. You can sack your advisers. I don't know why people don't a bit more often to be honest with you. But there you go.

Andy: Good. Okay, are we done?

Damien: We are done, Andy. I think looking at the time we've gone through quite a lot, but there's more than enough there for people to get their teeth into.

Andy: No, it's nice to see you in your new location. I hope your new studio serves you well.

Damien: Yeah, I am thankful for that and everything has settled down,

Andy: Right, that's it until next week.

Damien: Yeah, until next week, Andy.

Don't forget to claim your free copy of Damian's bestselling book, "The 30 Day Money Plan: Sort your finances in just 5 minutes a day." Worth £4.99. Just go to MoneytotheMasses.com/podcast to find out how.