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Case study 1 - Coggle Diagram
Case study 1
Topic 3
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Otto and Kim are first time buyers, mature adults and on low incomes.
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Will have a number of costs at time of purchase such as insurance, furnishing costs, survey of property, legal fees.
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Amount they can borrow is connected to how much they can afford to repay and is then connected to the couples income.
LTI = ratio of the size of the loan to the income of the customer. (lower someone's income, less they can borrow)
When borrowing money on a mortgage, they will make two payments: capital and income.
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The couple have decided to go for fixed rate mortgages = These fix the interest rate for a number of years at the beginning of mortgage.
If interest rates rise, budgeting will be affected.
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At the end of fixed rate period, interest rate becomes variable for the remaining tem of the mortgage.
Most fixed rate mortgages have an early repayment fee meaning that if the borrower decides to repay or switch the mortgage during fixed rate period, they will pay a fee to provider.
When budgeting they need to take into account the interest rates that can happen in the future as it can affect their budget for a home.
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Topic 9
Need advice before making the decision to purchase the property as it will help them make an informed choice.
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Financial service firms may provide the couple with information and advice about their own products but will not recommend other competitors.
Detailed marketing advice about the 'small print' can be hard for customers to understand and may need someone to interpret this for them.
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Provider websites
Give information on a range of products and allow prospective customers to buy and manage the products online.
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Have a facility for a prospective customer to make an application online so the couple (Otto and Kim) should be sure they have researched the product and obtained sufficient information before making their decision.
Newspapers
Usually have a personal finance/money section on paper or online. They contain stories of personal financial products and also warnings against problems and scams.
Include best buy tables, articles about new products and consumer advice.
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Financial advisers
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Family and peers
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A person who wants advice might feel confident that someone who is close to them may have good knowledge of their personal circumstances, personality, wants and aspirations.
If they have never used the product themselves they will know only what the person they are advising could find for themselves for any sources.
Mortgage advisers will:
- Check specific lending and affordability criteria - less chance of being rejected which can have a negative impact on credit history.
- Exclusive deals
- Help with paperwork - faster application
- Get best possible deals - save money in the long run
- Charge a fee or commission
- Some lenders have exclusive deals directly with them.
Other sources they have used:
- Comparison sites
- Own personal research - financial press, newspapers etc.
- Advice and tips from social media
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Topic 5
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Cash flow forecast = financial plan of expected incomings and outgoing over a several time period such as 3 or more months.
Drawing up a budget allows the couple to manage and keep control of their finances and objectives they have set themselves.
Otto and Kim may be planning because of factors such as financial situations, personality, attitudes to risk and family situations
Should allow for unexpected events in their financial planning which could be either positive or negative.
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Otto becoming self employed:
- Can earn more with his business becoming self-employed - higher earning to help with the cost of raising a family
- Can enable Kim to take a career break, although loss of her earning may be risky depending on how much Otto increases his income by.
- Business set up costs - they may need to start saving again once they purchase their home or can decide to take out a loan.
- Depends when Otto would like to do this
- Interest rates are rising therefore loans will become more expensive over the next couple of years.
- On the other hand, they may not be able to afford to save
- Kim may need to be employed whilst Otto settles in his business meaning they will have once reliable source of income.
- starting a business is more risky than being employed - however the rewards are longer term therefore making it higher and secure.