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Stocks and shares ISAs - mortgage lender insisting I have one, and I'm a complete novice. Help?!(13 Posts)
Following on from the very helpful advice I received on another thread, I will soon be paying off a large chunk of our interest-only mortgage.
I've been in contact with my lender, and everything's looking straightforward. I do however need to set up a stocks and shares ISA to satisfy the lender that we have an 'acceptable' repayment plan in place to cover the remainder of the balance. Even though I intend to pay off chunks from time to time, and possibly take in a lodger to help pay off the remaining capital, the lender still needs to see evidence of this repayment vehicle as a formality.
I'm familiar with cash ISAs (I have several), but not stocks and shares ISAs. I've been looking on the Money Advice Service and am getting my head around them - slowly - but still feel somewhat as though I don't know where to start.
Which do I choose? How quickly can I set one up? Are they even likely to grow much for a while, after some of the key markets had such a good year last year? What kind of thing would be good to invest in at this point in time?
I'd really appreciate some advice with this, as I'm massively out of my sphere of knowledge.
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I suggest you read how to choose an advisor before plumping for the first one you read about. Some are sharks. monevator.com/financial-advisors-swindlers-and-leeches/
"If you'd like to set up an EZ ISA just let me know- it only takes about 15 mins over the phone with me and I can email you confirmation that it's in place that you can pass to your mortgage provider."
15 minutes over the phone!!! This sounds extremely dodgy. BEWARE
My stocks and shares ISA is an index tracker from Virgin Money. It's given me a decent return over the years. Worth considering as an alternative to an actively managed fund.
I have been looking into this recently, largely because the rate on my cash ISA was so dire I felt that I had better explore the option of a stocks and shares ISA. I agree, it can be hard to know where to begin. I have started cautiously with a small amount in an actively managed fund by one of the big ISA stocks and shares brokers but having done more research I am now inclined to the view that an index tracker is probably the way to go and would probably look to go that route. I think once you decide where to put your money it can be set up very quickly.
I do worry that there is a stock market bubble building and with savings rates generally so crap everyone is jumping on s&s bandwagon which is pushing the market higher and higher. There is a risk with this sort of ISA- the return is not guaranteed so I wonder why your lender is insisting on stocks and shares and not a cash ISA as a repayment vehicle?
As I understand it, OP is asking about how to invest to cover the repayment capital on an interest only mortgage - this is hugely different to a simple stocks and shares isa
Just skim read your other thread, if you aren't getting sufficient advice from your existing IFA, get a second opinon, surely he should be talking about projections of growth rates, what to put in the isa - whether shares /funds/bonds/ and risk analysis etc, tailored to your personal circumstances. It's not a simple matter of bunging a few grand at one fund or another.
The bank only wants you to jump through hoops, NOT to protect you, but to protect itself, so there's no chance of you claiming misselling or bad advice from the bank in future, so that the bank can claim your house and sell it if you cannot repay the mortgage.
You need to get some proper independent advice, on a fee basis. Your house and your financial security is at stake. You need to think long term, not just how quickly you can set it up.
typo should read - how to repay the capital on an interest only mortgage (I do know the difference)
If you want to keep it simple and low risk, eg no more risk than the stock exchange, take a look at Hargreaves Landsdown or one of their competitors, and buy an indexed fund through them. Fees for such platforms are low, it is easy to set up and you don't pay for advice. You can then withdraw on line or in a single phone call.
Also as you add your annual allowance you can diversity a little by putting some into say an Asian index. I am a new investor looking after funds for a family member as an Attorney. We are seeking to replicate the balance of different regions as help in my husbands conservatively run pension fund.
Part of avoiding managed funds or paying for advice is knowing too many horribly well paid city folk some of whom seem to lack even standard levels of common sense. I would not want to pay my own money for advice from them! Plus the advice my relative had received from a Private banker in a High Street bank was almost certainly inappropriate at the time (though the bank disagrees) and has proved a problem since.
Another accessible and clear source of advice is the DM's This is Money website.
If you start with that and reading financial pages you may in time feel more confident about making your own decisions. However I decided that this would end up quite time consuming and still no guarantee of beating the market.
I assume the mortgage company's demands are linked to the FCAs demands that all mortgages should have linked payment plans. Let them tick the boxes but then focus on repaying as much of your mortgage as soon as possible. We have only a year or two of low interest rates so the less you owe the better.
If you do want to do longer term saving a SIPP offers much better value because of some very generous tax breaks but you have to wait till retirement age to get any money.
I have not read your previous post but if you can establish a record of say a couple of years of over payments it might be worth having a talk with a big mortgage broker like London and Country to see if you are better off switching to a repayment or fixed rate mortgage. I have been using them for a BTL mortgage, which can be quite complicated, and have been really impressed. They don't charge fees so an initial consultation wont cost you anything.
Get an index tracker. Lower funds than managed funds and research has shown that over a long period the managed funds don't perform any better.
I've got UnIt index tracker monthly income fund with legal and general. Its performed well for the last ten years.
Hello, my last post was pulled pretty quickly! I'm brand new to this site and didn't realise I was overstepping the mark so apologies for that.
I am an IFA and most of the ideas on here are along the right lines.
Unfortunately if you are only investing small amounts of money it's true- the chances are the amount you pay for advice will be out of proportion from the benefit you're likely to get from it. It's a big frustration to most advisers but the FCA make us jump through so many hoops to give official advice, and we are taking on an endless potential liability, that unless (in our case) somebody has about £100,000 to invest we find it is not viable to go through a 'full advice' procedure.
The good news is that it has never been easier, or cheaper, to do it yourself. There is plenty of info online, and it is also quick, easy and cheap to set up S&S ISAs on an 'execution only' basis (i.e. no advice).
The problem with setting up a S&S ISA yourself is that you're faced with a bewildering choice of thousands of investment funds clamoring for your business, each with a sales pitch.
UK Index Tracker funds are a reasonable first port of call- they are cheap (you'll pay about 0.2% to 0.6%pa in management charges for one, depending where you buy it vs about 1.5%, or more, for an actively managed fund) which the argument runs will lead to out-performance over the long run. I used to be a big believer in them, and still am for certain clients in certain circumstances, but am less so now. These are cheap, but make no mistake- they are still extremely profitable for the people who run them- all they do is collect your money, replicate the market with a computer and keep the rest of the charge.
The problem with putting all your investment money here is that it's not brilliantly diversified. I'll grant that the FTSE 100 is actually quite global in its outlook (these massive companies derive much of their income from overseas and so are less sensitive than you may think to domestic ups and downs) but it's still only one 'asset class'- i.e. shares in big companies listed in the UK. Shares tend to be the riskiest things to invest in, and so having all your investment portfolio in just shares would be seen by the FCA to be actually quite high risk.
A good managed fund would also invest in bonds (loans to global government and businesses) as these can do well when shares do badly and so balance your returns (they did extremely well after the credit crunch), and maybe into commercial property and certainly shares in other markets around the world, and in smaller UK companies.
You can also get different 'flavours' of managed fund- i.e. cautious managed, balanced managed, adventurous, which might suit you.
My advice would be to invest in a few different funds on an execution only basis to start with, and get a feel for how it goes. It's normally free to switch funds further down the line if you change your mind, and it's not a problem to hold as many funds as you like.
While SIPPs (Self Invested Personal Pensions) can be a good idea in certain circumstances you should almost certainly get advice before setting one up- once the money is in there you can't get it back until at least age 55, and at that point you can only get a quarter of it straight back as cash, the rest as a restricted income.
Good luck with it!
Stocks and shares ISA's are a tricky one! I have a stocks ISA with Fidelity and it's great because not only do you have no income or capital tax to pay on what ever you invest in your stocks and shares ISA but they are really great at helping you pick the best investment account for you - https://www.fidelity.co.uk/investor/isa.page I would never open one over the phone or online though - best to speak to someone face to face and really get to grips with it before you sign up for anything! Good luck x
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