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Mortgage Blog

Private Wealth Mortgages wish to be the central resource of information for Mortgage industry related content. We want to provide our audience with valuable, useful information that is of interest to our audience to read, digest and even forward to others they feel it will be pertinent for. We will often draw reference to the information in this blog with in our site content and e-newletters. We hope you enjoy our blog.

Cheap certainly doesn't mean the best!

29th September 2016

Following the provision of a £90 will, a woman is seeking hundreds of thousands of pounds compensation from Barclays, claiming the bank's will-writing service resulted in her losing a stake in a valuable London home. Barclays is contesting the claim. 

But, in an interesting twist, Telegraph Money can reveal that when the complaint was previously assessed by the Financial Ombudsman Service (FOS), the bank was found at fault. The Ombudsman ordered Barclays to pay "a fair and reasonable settlement".

Unusually, Barclays decided to ignore the Financial Ombudsman's recommendation.

The matter has now gone to the High Court.

Court documents detail how in 2007 Ebenezer Aregbesola used Barclays' £90 will-writing service to create a will dealing with his various assets including homes overseas and in London. His will instructed half of the London home to be given to his daughter, Tinuola Aregbesola, on his death.

The property was owned jointly by Mr Aregbesola and his wife – who was not Tinuola's mother. Because of the joint ownership, on Mr Aregbesola's death in early 2014, the property went wholly to his wife – in contravention of the wishes spelt out in the will.

In order for the will's conditions to have been fulfilled, Barclays should have severed the joint tenancy agreement, the court document alleges. This would have enabled half of the property's value to pass as instructed to his daughter. Because this severance process – which the Ombudsman describes as "a simple formality" – was neglected, the joint tenant, Mr Aregbesola's widow, is legally entitled to the whole property which she can now bequeath as she pleases.

The case highlights the danger of popular, cheap "DIY" wills which are often too simplistic to reflect accurately their owner's wishes.

In summing up the case the Ombudsman concluded: "The half-share in the property in London cannot be gifted to Miss Aregbesola in accordance with the late Mr Aregbesola’s wishes.

"There is no subsequent right for this to be contested with the co-owner in a court of law. Had the bank referred Mr Aregbesola’s will instruction form to its solicitors I am aware [the solicitors would] issue the notice of severance as a matter of good practise.

"In order to resolve the complaint we would usually ask the bank to put the consumer back in the position they would have been had the correct steps had been taken in the first instance.

"Unfortunately, the share in the property in Balham is incapable of being gifted now. Therefore, I would ask Barclays to come up with a settlement that would fairly and reasonably resolve the complaint – taking into consideration the value of the property and the intended gift."

But once it received this recommendation Barclays shifted position. It said that since its will-writing division was not regulated, it would not have to adhere to the Ombudsman's findings. The Ombudsman accepted this was technically correct.

In an emailed statement, Barclays told Telegraph Money: “The matters raised are the subject of ongoing legal proceedings. It would not be appropriate to comment on the specific points raised. We note that the Financial Ombudsman Service issued its latest decision in relation to the complaint raised by Ms Aregbesola on 19 February 2015. The Financial Ombudsman Service concluded that the matter was outside of the scope of its service."

The FOS confirmed to Telegraph Money that it accepted the case was technically out of its scope, once Barclays had insisted that it deal with an unregulated arm of the bank.

But the FOS stressed that so far as its adjudicator had been able to assess the case, its opinion remained that Barclays was at fault.

The legal position and how to avoid similar problems

Where parents remarry and enter into property transactions with their new spouse, wills bequeathing assets to children of former relationships need to be checked.

Sonita Hayward of solicitors Bolt Burdon Kemp warned of "a real lacuna in the law due to the fact that will-writing companies are not currently regulated". She said this is "particularly concerning when well known institutions such as Barclays offer such a service".

She explained that companies could afford to offer cut-price fees, such as the £90 charged by Barclays in this case, "because these organisations aim to profit from the fees generated by administering the estate as executor, after the testator’s death."

The image below is from an online Barclays' will-writing promotion.

Rip-off executor services have been the subject of previous criticism.

In 2011 the Office of Fair Trading said: "'The wrong decision when appointing executors could mean a potentially expensive professional service is chosen, when a family member or friend may be quite capable of handling the task either alone or with professional support."

At that point banks including Barclays undertook to review their will-writing services.

Clearly, problems with existing wills remain.

Ms Hayward has experience of joint tenancy problems such as that raised in the Aregbesola case.

"I see cases all too frequently where the problems with the terms of a will and failure to sever a joint tenancy only come to light after the death of the testator, at which point it is too late. Parties are then reliant on the good will of a third party, often a parent’s second spouse, to resolve the issues that they face.

"The difficulty with this is that a joint tenant is under no legal obligation to comply with a deceased joint tenant’s wishes where the joint tenancy has not been severed. The only redress open to the disappointed beneficiary is for them to sue the party that prepared the will."

"I have previously acted for siblings where one of their parents left them their half of a jointly owned house. The parent in question had remarried and owned the property jointly with their new spouse.

"The solicitors who prepared the will in that case did not take any steps to sever the joint tenancy which existed between the owners. As a result, following the death of my clients’ parent, the gift of the interest in the property failed and the spouse inherited the remaining share of the property.

"My clients had to bring a claim against the solicitors who prepared the will as they had no remedy against the new spouse. We were successful in recovering damages for them. Awareness of these types of claim arise at what is already a very distressing time and cause great additional emotional strain to families."

Daniel Winter of law firm Nockolds said: "The growing complexity of family structures, coupled with the rising value of estates, means that the administration of estates often calls for greater judgement than in the past."

“Cases where an individual or organisation has simply been negligent, and failed to grasp the legal responsibilities of administering an estate are becoming more frequent. We have also seen cases where a family member acting as fiduciary is motivated by greed and takes assets which should go to other beneficiaries, or seeks to ‘correct’ a perceived wrong that happened in the past."

COMMENT: Whatever the detail in the dispute between Barclays and the daughter of its late customer, there is another point at stake here.

This is about Barclays' decision to ignore the Financial Ombudsman's recommendation.

Barclays is, of course, a huge, reputable financial services group authorised and regulated by the Financial Conduct Authority. It is thus bound by a commitment to act on the Ombudsman's findings, even if it disagrees with them.

In this case Barclays has been found against by the Ombudsman and told by the Ombudsman to settle with the customer's family. But the bank has chosen to wriggle out of paying compensation by arguing that its will-writing division is technically a separate, unregulated business, and thus not beholden to the Ombudsman.

Barclays did a shoddy job and should pay. Instead it has forced a bereaved daughter to risk thousands of pounds mounting a battle through the courts.

See the original article of The Telepgraph website


12 things you NEED to know about credit scoring

29th September 2016

Boost your credit score for mortgages, cards, energy bills, mobiles and more 

We now live in a rate-for-risk world. The more creditworthy you are, the better deals you can get, whether it be mortgages, contract mobile phones, bank accounts, monthly car insurance or even how you pay for your energy bill.

So it's time to add 'manage my credit file' to your to-do list. To help, I've written my 35 Credit Score Boosting Tips, which anyone about to make a big application should read, but here are the top 15 that EVERYONE should know...

1. You don't have a universal credit rating; there's no blacklist. Each lender scores you differently & secretly to see if you meet its requirements as a profitable customer. Those whose history shows they're unlikely to repay at all are unlikely to be profitable, but good risks can be rejected too, if the lender thinks you won't make it money. Full info in Credit Scoring Debunked.

2. Credit Score Boosting your credit score's like going on the pull. There are lots of things you can try to do to make yourself more attractive to lenders, but there's no universal fix. Some people like a girl (or guy) in lots of make-up, some don't, and equally, different lenders are looking for different things. Yet below are some simple cosmetic changes that work for most:

a) Evidence of stability's good. Put a landline, not mobile, on applications.

b) Don't withdraw cash on credit cards. It's expensive & evidence of poor money management.

c) Never miss or be late on repayments. Use a direct debit to be sure, even if just for the minimum (then you can repay more on top).

d) Check for address errors. An old technically active but unused mobile registered to your old address could even cause a mortgage rejection.

3. Use a bizarre trick to (re)build your creditworthiness. Credit scoring is all about trying to predict your future behaviour based on your past. So rejection's likely if your history makes you look a bad credit citizen. Yet equally, those who've never had credit get rejected due to a lack of data. After all, would you lend to someone you knew nothing about? The bizarre solution is to get a credit card, just to do around £50 a month of normal spending on it (never withdraw cash), then repay IN FULL each month so there's no interest. Do this preferably by direct debit so you're never late. After 6mths to a year, you'll start to look a better credit citizen.

4. When did you last check your credit file? Get PAID to do it. Even small errors on your files at the three credit reference agencies - Experian, Equifax, Callcredit and noddle (view our credit agency page) - can kibosh applications. Check them all line by line at least once a year, plus before any big application, focusing on the one that the lender you're applying to uses.

5. Get on the electoral roll. If not, getting credit's tough, as it can cause ID and tracing issues. Don't worry about getting lots of junk mail though - you can opt out of the 'open register' element, which stops this but still means you count for credit scoring purposes. 

6. You need to know what they know about you. Lenders assess you with three key pieces of info:

(i) Your application form tells them your salary and more.

(ii) Any past dealings you've had with them. So a lender you've banked with has more info on you - sometimes good, sometimes not.

(iii) Your credit reference files, which include electoral roll info, products you have, court judgments & more.

7. Avoid lots of applications in a short space of time. Almost every card or loan application leaves a footprint on your credit file. Too many of these, especially in a short space of time, hurt future applications - meaning the system is anti-shopping around, as if you get rejected or are offered a worse rate than that advertised, you'll want to apply elsewhere. So space out and prioritise applications. Eg, if you're due to apply for a mortgage, don't apply for minor things like cashback credit cards in the week before.

8. Ensure you time it right. Major problems like CCJs, defaults or bankruptcy stay on your file for 6 years. Applications for products stay on for 1 year. So if they'll soon lapse, it can be better to wait before applying.

9. Get unfair defaults removed from your file. If there's a default on your file that isn't fair (eg, you didn't pay a catalogue loan as it failed to deliver the goods), it's important to get it removed - or it can kibosh most future applications.

10. Beware payday loans, they can kill mortgage applications. They're dangerous in their own right, but some mortgage underwriters simply won't lend to anyone who's had one.

11. Beware joint mortgages, loans and bank accounts. It's not whether you kiss, live together, hold hands or are married that links credit files. It's simply whether you have a joint credit agreement (mortgages, loans, bank accounts and sometimes utility bills - joint credit cards don't exist). This means their credit history can be looked at when assessing whether to lend to you. If theirs is bad, avoid any joint products. If you're now financially independent from an ex, see How to Delink Your Finances.

12. Be consistent, even on different applications, to avoid fraud scoring. Fraud scoring is credit scoring's secret cousin. Among other things, these specialist agencies map how consistent your applications are, even to totally different firms. So be consistent if you've a couple of mobiles or job titles - use exactly the same one every time you apply.


Trusts in Inheritance Planning

15th June 2015

The introduction of the transferable nil rate band (TNRB) in October 2007 appeared to take away the need for married couples to undertake nil rate band tax planning on the first death using Will Trusts.

However, there will still be cases where such Will Trusts are appropriate and it is important that the adviser can identify the situations in which they may be appropriate – especially now that the nil rate band has been frozen at £325,000 until 5 April 2018.

This will enhance the relationship between the adviser and client and may lead to further business in the shape of investments for the Will Trust and the writing of joint lives whole of life assurance to cover the inheritance tax (IHT) liability.

Facts and analysis

Making a Will is the first step in any estate planning strategy. The priority for most married couples will be to make sure that the surviving spouse will have financial security after the first death. With assets held in joint names, on a joint tenancy basis, these will automatically pass to the survivor. But it is very dangerous to assume that the survivor will inherit everything irrespective of whether a Will has been executed or not because this will not necessarily happen under the intestacy provisions. Therefore, unless all assets are in joint names in joint tenancy, it is essential for each married couple to make a Will leaving assets to the surviving spouse. The transfer of assets on the first death will be covered by the inheritance tax spouse exemption.

Historically, one of the downsides to leaving all of the estate to the surviving spouse on the first death was that both estates would then be bunched in the estate of the survivor and suffer an inheritance tax liability which is calculated after the deduction of only the survivor’s nil rate band.

For this reason married couples were encouraged to each use their nil rate band on death by, say, leaving assets to the children on the first death. Based on a nil rate band of £325,000 this could save inheritance tax of £130,000 (i.e. £325,000 @ 40%).

A problem with such planning is that the surviving spouse then loses access to the capital and income of the assets left directly to the children on the first death.

To overcome this problem, a Discretionary Will Trust could be used. This would enable the first to die to utilise his/her nil rate band (by leaving assets to the trust) but still enable the surviving spouse to be a beneficiary by virtue of being a potential beneficiary under the trust. In effect it enables both spouses to use their nil rate band without affecting the surviving spouse’s financial security.

The introduction of the concept of the transferable nil rate band (TNRB) on 9 October 2007 caused many advisers to believe that the Discretionary Will Trust was no longer necessary. Under the TNRB, a surviving spouse inherits the percentage of unused nil rate band on the first death and so, if on the first death all the deceased’s assets pass to the survivor, the survivor would then have a double nil rate band to set against his/her estate on death. So why bother using a Discretionary Will Trust on the first death? Well, there are still some very good reasons.

Why still use a Discretionary Nil Rate Band Will Trust?

The following circumstances give examples of situations when a first death Discretionary Will Trust may be appropriate:

  • The spouses may each be in a second marriage and each of the couple may wish to benefit his/her children from a former marriage on the first death. Alternatively, it may just be that each of the couple does not want the survivor to have complete legal and beneficial control of the assets following the first death. Whilst this could technically be achieved using a life interest trust in the Will – known as an immediate post-death interest trust -,(with income payable to the surviving spouse and capital held for the children from the first marriage), that route lacks flexibility especially if there is an intention to make capital payments to the widow/widower by way of interest-free loans.
  • There may be a desire to avoid assets being available to the local authority in the event of the survivor going into care. By leaving assets to a trust on the first death those assets will not count as part of the surviving spouse’s resources for the purposes of the local authority charge. Indeed, the split ownership of certain assets between a trust and surviving spouse may reduce the value of the assets in the hands of the surviving spouse - for example in the case of a private residence.
  • It may be desired to avoid children inheriting assets outright. By passing assets to them via a trust it will mean that they are protected from the claims of creditors and ex-spouses.
  • Further IHT savings could be secured by the trustees of the Will Trust making loans to the surviving spouse if and when funds are needed which create debts and so reduce the taxable estate of the survivor on his/her subsequent death. Here, one would need to identify whether the surviving spouse had previously made lifetime gifts to the deceased because in those circumstances there could be a restriction on the ability to deduct the loans from the survivor’s taxable estate. (see section 103(1) Finance Act 1986)
  • Where a person has remarried after his/her former spouse has died without using his/her nil rate band, the surviving spouse may have a nil rate band of, currently, up to £650,000 available on his/her death first. Clearly, it would be important to utilise this because otherwise up to £325,000 of the nil rate band could be lost on the survivor’s death.
  • It may be felt that investments made subject to the Will Trust on the first death will increase in value at a greater rate than the increase in the nil rate band.

Also, even if a Discretionary Will Trust does come into existence on the first death and, after the first death, this is not required there would, within 2 years of death, be scope to change the position.

In such circumstances, for example, if the surviving spouse feels that he or she would have had a better inheritance tax position by having available the whole of the nil rate band of the first to die, and the trust is a discretionary trust, the trustees can within 2 years of its creation (on the first death) make an absolute and irrevocable appointment in favour of the surviving spouse.

Under section 144 IHT Act 1984 this will mean that such an appointment will be treated for IHT purposes as if the asset was left under the Will directly to the spouse on the first death. This will mean that the assets would be treated as passing directly to the surviving spouse on the first death and so the spouse exemption would apply and all of the nil rate band of the deceased would be freed up for use on the second death.

Three other points arise out of this:

  1. An outright appointment should not be made within 3 months of the deceased’s death because in those circumstances section 144 will not apply.
  2. If it was still desired to use a trust (to control the destination of assets after the survivor’s death) yet secure on-going entitlement to the whole of the deceased’s nil rate band, an interest in possession trust could be used. Technically this would be treated as an IPDI (immediate post-death interest) trust and would secure the spouse exemption.
  3. As ever, all the tax implications of the appointment would need to be considered – including capital gains tax.

Estate valuation

Where the combined estates of a married couple exceed twice the nil rate band, an inheritance tax liability will arise on the second death. Given that the nil rate band is set to remain at £325,000 until 5 April 2018, any asset growth will also be subject to IHT. It is therefore important to obtain an approximate value of the estate for IHT purposes. In doing this, the following points are relevant:

  • Business/agricultural property relief
    • Currently most business and agricultural assets qualify for 100% relief, subject to certain conditions being satisfied, which effectively removes the assets from the inheritance tax net.

  • EIS investments

    Holdings of shares in non-listed companies where the donor is not personally involved may offer significant planning opportunities – remember these also qualify for 100% business property relief after two years of ownership. This is a way of planning for IHT without the need to make gifts and/or sacrifice access to income/capital. However, care needs to be exercised because:
    • by their very nature such investments will involve more risk, and
    • should the definition of “listed” be changed in the future, shares held on certain markets, such as the AIM, might no longer qualify for relief

  • Other cash receipts
    • Other cash payments received by the surviving spouse as a result of the death of a spouse will also impact on the IHT payable on the death of the survivor.
    • Where such cash is likely to come from the proceeds of a life assurance policy, the problem can be easily dealt with by arranging for the policy to be placed in trust while the policyholder is alive. Typically, a discretionary trust will be appropriate with the surviving spouse being a potential beneficiary so that he/she may be able to benefit from the trust fund should access be required but with the cash not being in the survivor’s taxable estate.
    • Lump sum death payments from pension schemes can also cause additional IHT problems. Typically, the pension scheme member will have nominated the surviving spouse as a recipient of cash sums and, whilst payment to the spouse will not directly give rise to IHT (because payment is made at the trustees’ discretion), the cash will then form a part of the spouse’s taxable estate and potentially be subject to IHT on his or her subsequent death – even though the spouse may not have needed the cash.
    • A simple advance planning solution to such a situation is to use a spousal by-pass trust. Under this arrangement, the pension scheme member establishes a trust, for a nominal amount of, say, £10 during his/her lifetime and signs an expression of wishes form in favour of the trustees of that trust. Assuming the pension scheme administrator/trustees follow that expression of wishes, then the death benefits are kept outside of the taxable estate of the surviving spouse yet he/she can benefit via the exercise of the discretion of the trustees of the spousal by-pass trust. Indeed, if payment is made to the surviving spouse by way of interest-free loans repayable on demand, then it will normally be possible to gradually build up a debt on the survivor’s taxable estate for IHT purposes.

  • Protection
    • And let’s not forget that to the extent that a prospective IHT liability is left unreduced the provision for that liability through appropriate life assurance in trust can, in the right circumstances, provide a highly effective solution, meaning that personal representatives do not have to sell or mortgage assets to pay the IHT.

 

Next steps:

  • Make married couple clients aware that it is important to make a Will.
  • Inform them that because the IHT nil rate band is pegged at £325,000 until 5 April 2018, IHT liabilities are now more likely to arise on the second death.
  • Discuss with them the merits, as appropriate, of:
    • leaving all of the deceased’s estate to the survivor on first death so utilising the TNRB
    • creating a Discretionary Will Trust to utilise the nil rate band on the first death should any of the circumstances described above apply
    • appropriate investments that can be left to that Discretionary Will Trust