A simple and short question

princeofpounds

This is very wrong.

I think the financial advisor is leaving themselves open to all sorts of financial ombudsman claims based on recommending products with totally inappropriate risks, probably in order to pocket a fat commission in the short term.

Either that or they are a very bad and slightly deluded advisor.

I'm basically involved in providing financial advice (not on a personal basis) and I can think of a number of issues here that would conflict with the FSA principles, but I'm afraid I don't know specifics about how IFAs are regulated.

Chris2685

I'm thinking the problem is that they were not independant, and involved in the sale.

RenovationMan

Chris2685 wrote: »

Is it right for a financial advisor to even contemplate advising you to proceed on buying a property if it means:

A) Using up ALL your savings for the desposit/costs, still leaving you with a shortfall of £10k, and then encouraging you to ask 'the bank of mum and dad' to make up the rest - knowing nothing of their circumstances I might add, leaving you with no 'rainy day' money.:eek:
When I mention that that will leave no rainy day money, they then suggested that was what savings are for, and why have them if you're not going to use them. :eek:
C) Stretching yourself with a 40 year mortgage (which can obviously be re-arranged at mortgage renewal) just to keep the monthly repayments down.:eek:

I found it pretty shocking that she was even giving this as advice and really encouraging it.

Thoughts? Am I being too cautious? Or am I being sensible?

Perhaps you gave off signals that you really really wanted the house you are considering buying? I know we did when we bought ours and so we spent every single penny we had. In fact when we started the proceedings we didnt even have enough in savings to pay for everything. I just hoped I would earn it quickly enough. In the end I got a bonus from work and my wife's income went up a bit. We just about managed to pay off all of the stamp duty, removal costs and a couple of items we bought from the previous owners.

The IFA we had just told us how we could get the money together to afford our dream home, whether he thought it was a good idea wasnt discussed. He was being paid to get us that house at all costs, not to treat us like kids. On the day we moved I have £50 left in my bank accounts, the exact same situation when I bought my very first house. :rotfl:

You're the adult and it's up to you to decide whether you want to take a risk or not or whether you can get money from other sources or not. All the advisor is doing is advising you how to get enough money to buy your house. The only bad advice he gave you was in arranging a 40 year mortgage. I would advise you to get an interest only one because you're going to pay virtually nothing off your mortgage balance with that sort of repayment duration anyway. Once you get your finances under control you can change to a repayment or just start making overpayments that are the equivalent of a repayment mortgage.

So, the question is do you really want that house enough to take a risk or not? It's your decision.

Herbie_Hancock_I_wish

40 years. Madness. I have a mates son in the building game. Hopefully on £20k a year but who can say. Girlfriend a year younger, he is 22. £190k for a shoe box!!!!!!! £1,000 a month mortgage.

Jennifer_Jane

Agree with RenovationMan. I also bought and took the risk, and had to really keep things to the minimum to pay the mortgage. A Financial Advisor should advise keeping 3 months' salary at least for emergencies. I never did, though.

I don't understand the problem about the 40 year mortgage. Can't it be repaid earlier? If not then do what I did and go interest-only and pay off the 10% per annum (or whatever is allowed). Paid off mine after 9 years (OK I'm older and had retirement money coming through to do that). But I could not have afforded to pay off a monthly mortgage repayment that was based on a short period of time. Clearly you don't keep the mortgage for 40 years, that is a heap of money. You need to check penalties for moving your mortgage too.

And I also understand that Financial Advisors don't advise on mortgages. Maybe things have changed since I got my FPC3.

I also wouldn't buy a flat, and don't like shared ownership.

Graham_Devon

I have to disagree with rennovation man. A proper financial advisor is not someone who gets you what you want at all costs. That's not the remit of a financial advisor.

A financial advisor should advise on planning, risk, and also help you achieve what you wish to achieve. There was no planning in the above, which was clear as it was only luck which got you through.

It's up to the individual in the end, but no financial advisor should leave you with advise to buy something you simply cannot, and don't know how you will afford.

IMO, interest only mortgages are pointless. It's basically the borrower saying "I can't afford this", but I hope to be able to one day. The advice is to have a payment plan in place and pay in monthly.....thats fantastic, but half the time you are taking the interest only route as you can't afford to pay anymore. So the monthly payment plan goes out the window. If people can afford to save alongside paying the mortgage, why not just get a repayment in the first place and save yourself the hassle?

RenovationMan

Graham_Devon wrote: »

I have to disagree with rennovation man. A proper financial advisor is not someone who gets you what you want at all costs. That's not the remit of a financial advisor.

A financial advisor should advise on planning, risk, and also help you achieve what you wish to achieve. There was no planning in the above, which was clear as it was only luck which got you through.

It's up to the individual in the end, but no financial advisor should leave you with advise to buy something you simply cannot, and don't know how you will afford.

IMO, interest only mortgages are pointless. It's basically the borrower saying "I can't afford this", but I hope to be able to one day. The advice is to have a payment plan in place and pay in monthly.....thats fantastic, but half the time you are taking the interest only route as you can't afford to pay anymore. So the monthly payment plan goes out the window. If people can afford to save alongside paying the mortgage, why not just get a repayment in the first place and save yourself the hassle?

Financial Advisor is a very broad term. I think an IFA on the finance and investment board, dunsten(?) said that mortgage advisors are separate from IFAs due to different training, quals, etc.

IO mortgages are the most flexible mortgage product you can get. Overpay during the good times and pay the minimum during the bad. What could be better?

Graham_Devon

RenovationMan wrote: »

Financial Advisor is a very broad term. I think an IFA on the finance and investment board, dunsten(?) said that mortgage advisors are separate from IFAs due to different training, quals, etc.

IO mortgages are the most flexible mortgage product you can get. Overpay during the good times and pay the minimum during the bad. What could be better?

I dunno, seen a close family member lose their home and not have enough equity to buy another on an interest only. Simply couldn't afford to buy the house at the end so had to sell up.

Had a plan and everything, just didn't work out. I guess sticking religiously to a plan that long is very difficult when theres so much else in life. They have now moved in with their son, which has worked out ok, but is hardly ideal.

I'd guess the problems interest only bring are too common, hence the FSA mooting the idea of banning them.

nearlynew

The majority of interest only mortrgages are not taken out by people who are "financially savvy" and have done so as a result of weighing up the alternatives.
They are taken out by people who want to keep their monthly payments low enough to enable them to buy the house they want.


I asked in post #15 whether we are talking about a financial advisor or a mortgage broker.

It hasn't been answered but makes all the difference.

Chris2685

Thanks for all the responses, well reasoned arguments for all the cases there.

I dunno what we are going to do, maybe see if we can find somewhere cheaper (maybe even relocate back up north) and buy or maybe just stick out renting a little while longer.