Alternative Finance is a recent channel of finance that has become increasingly popular over the past decade since the Financial Crash of 2008.
This is because it can democratise lending and borrowing by connecting the two factions whilst removing the intermediary of the traditional banks, which, as a result of the aforementioned Financial Crash, were offering increasingly low interest returns on lending.
Described by Wikipedia as “financial processes and instruments, like Crowdfunding and P2P lending, that have emerged outside the traditional finance system such as regulated banks and capital markets”, it has grown substantially, particularly for small and medium-sized enterprises.
The United Kingdom currently leads the way for the Alternative Finance Industry within Europe, as, according to the 5th UK Alternative Finance Industry Report from November 2018, it grew by 35% year on year to reach £6.19 billion in 2017.
However, France, Germany and The Netherlands are now the three largest Alternative Finance markets outside the UK, and Forbes predicts that although still a long way behind, growth in Europe is currently faster than the UK (Forbes 26/01/2018 Europe’s Alternative Finance Sector Accelerates).
An Anti-Money Laundering (AML) check is a formal assessment carried out by a business to make sure that an investor or client is who they say they are, and that they are not investing on behalf of someone else. It refers to a set of laws, policies and regulations aimed at combating income being generated in a fraudulent way.
Completing AML checks form a large and important part of companies and platforms carrying out their Customer Due Diligence procedures in order to identify the people who are using the business.
These Customer Due Diligence procedures will be applied when any type of business relationship is established between a company and a customer or when an existing customer’s circumstances change, and records need to be updated.
Customers will typically need to provide:
Companies will sometimes conduct additional credit checks using credit agencies like Experian.
After these checks, should the company still have doubts over the legitimacy of the customer, they reserve the right to not deal or trade with them in any way.
Anti-Money Laundering procedures cover a huge range of implementers, and it is not solely businesses and Alternative Finance platforms who conduct the processes. Whole financial institutions, and even National Governments must adhere to the procedures, to prevent the transformation of profit from illegal activities into the proceeds from lawful sources, and to detect suspicious money transactions and activities in order to stop business crimes and financing terrorism.
A Bridging Loan is a short-term loan which generally lasts from around a couple of months to up to two years depending on the specific conditions of the long-term finance agreement.
It usually covers the shortfall between selling one property, and buying another. This means for example, that should you find your dream house which you want to secure quickly by purchasing it, all before managing to sell your current property, you may find yourself slightly short of funds. Therefore, a bridging loan may be the best option for you. It sounds like an attractive idea doesn’t it? Unfortunately, typical bridging loans have much higher interest rates, so the shorter term you can negotiate, the better.
Interestingly, unlike other forms of borrowing, the monthly interest is often simply added onto the end of the loan, meaning there are no monthly instalments to pay during the loan term.
For the purpose of raising funds quickly, bridging loans are very useful, but there are potential drawbacks aside from higher interest rates.
As the loan terms are usually very short, should you not repay the amount owed at the end of the term, the penalties can be severe. You could incur major repercussions such as the repossession of your property, as well as significant tribunal fees.
Capital is another name for the financial resources an individual or a company has that act as a cushion or shock-absorber against unexpected losses if someone fails to repay their loan.
It’s easy to consider cash and capital as the same thing, but it’s actually a common misconception. It’s like considering “Samsung” and “television” as the same thing, where in reality Samsung does not only make televisions, but produces many products. In the same way, capital includes cash, but it also includes many other things. It refers to the difference between your total assets and your total liabilities.
Scottish economist Adam Smith defines capital as “that part of man's stock which he expects to afford him revenue”, meaning that for a hunter, his bow and arrow could be considered capital, or for a tennis player, likewise his or her racquet.
Capital Gains Tax (CGT) is not as complicated as it sounds, though it is well worth learning about. It is the tax you have to pay on the profit you make when you sell an asset. It’s important to remember that it is not tax on the amount of money you receive from selling this asset, but just the profit made, so it is important to know for how much the asset was purchased. For example, if we imagine a Stradivarius violin as the asset in question, bought for £150,000, then sold for £250,000, you would be taxed on the profit of £100,000 made.
Before you despair at the thought of the government diving into your pockets just because you’ve completed a tidy deal, there are many circumstances when you don’t actually have to pay CGT. The gov.co.uk website informs us that you must only pay CGT on the gain when you sell:
However, you do not pay CGT on “gifts” to your husband or wife, civil partner or a charity. Neither do you have to pay it on certain assets, like gains made from ISAs or PEPs, Premium Bonds, or betting, lottery, or pools winnings.
Lastly, the CGT rate varies depending on your income and which income tax bracket you are in. For people paying basic income tax, the CGT rate is 10% or 18% on a residential property. Those on higher income tax rates will pay 20% on chargeable assets and 28% on gains made from a residential property.
The Capital Stack is best described graphically as a tower which details the specific tiers of the investment into which the investors invest their money. These tiers portray the different levels of risk involved as a direct consequence to the subsequent level of returns gained. It is a hierarchy of creditors listed in ascending order under the hypothetical, but very possible situation of a loan defaulting. It is normally divided into four categories:
The most important points to remember to understand how the Capital Stack works are that each level has seniority over all the capital sources located above it in the stack. Correspondingly, each capital source is subordinate to all the other levels located below it.
It must be noted that should a loan default, if there are insufficient funds to fully repay all the capital, as the risk increases the higher up the stack you move, then losses are incurred from the top down. As a result of this, potential returns on investments will increase the higher up the stack you invest.
Debt-based Investment – The debt-based investments that you can find on the CrowdLords platform will either come secured via a 1st charge or a 2nd charge. These charges are directly linked to the Capital Stack (hyperlink to capital stack blog/section). Debt investments secured via a 1st charge form part of the Senior Debt, and should the loan default, investors will be repaid before any other level of the stack, should there be enough funds to do so.
Debt investments secured via a 2nd charge form part of the Junior, or Mezzanine Debt, and though considered lower risk than an equity investment, in case of indebtedness, investors will only receive any repayments after the Senior Debt obligations have been met.
As a result of this hierarchy, the interest returns for Mezzanine Debt are slightly higher than Senior Debt, but the risk is considered slightly higher.
Very simply, when you invest via debt-based investments, you are simply loaning the money to the borrower and receiving a rate of interest when the borrower pays back the money at the end of the term.
With a debt investment, your profit is not directly related to the performance of the borrower. If you buy a £5,000 corporate bond from a company and that company then makes a record profit, your profit is the same as they had earned no profit at all. On the other hand, there is always a risk with debt investments that the borrower will be unable to pay back the debt. If the borrower doesn’t have the money to pay their lenders or if they file bankruptcy to legally avoid paying their lenders, you could be faced with a complete loss of your investment.
Dividends – From the Latin “dividendum”, or “thing to be divided”, put simply, a dividend is a sum of money paid by a company to its shareholders, usually once a year. The payments come out of the annual profits of the company, and upon receipt of the transfer into their account, shareholders would then pay income tax on any earnings over £5000. Anything under this amount was taxed at 0%, which was the Dividend Allowance.
However, although this allowance has recently fallen to £2000, according to Westlake Clark Chartered Accountants, “the government expect that even with the reduction in the Dividend Allowance to £2000, 80% of 'general investors' will still pay no tax on their dividend income”.
Even so, any dividend payments received over £2000 will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers.
The shareholders always receive their fixed amounts depending on the number of shares they hold in the company.
Equity Investment – When you invest via equity, you could consider yourself as being more financially committed than debt-based investors. Investors become shareholders in an SPV which owns the property and their returns depend on the profits generated by the development project, in proportion to how much you invest. You even enjoy shareholders’ rights. This means that the risk is higher, but the rewards can be greater.
As with debt investments, there are different types of equity investments with varying degrees of risk involved. Preferred equity, as per the Capital Stack is considered less risky than Common equity because in the case of a default on the loan or even bankruptcy, Preferred equity investors will be repaid before Common equity investors, should there be sufficient funds to do so.
With equity, put simply, if you buy a hot-dog stand, your profit is based upon the net revenue of that hot-dog stand. If you become the part-owner of a company by investing in equity, you enjoy the potential growth of the company, or suffer the losses it incurs.
Equity based investments are seen as higher risk and therefore typically earn a higher rate of return than debt investments.
The Financial Conduct Authority (FCA) is a regulatory body in the UK which operates independently of the British government, in order to maintain the integrity of the financial markets within the United Kingdom. All P2P lending and Property Crowdfunding platforms which are operated by a regulated firm, or are the appointed representative of a regulated firm, must announce on their websites that they are “authorised and regulated by the FCA”. This is intended to aid in the protection of consumers from fraud and scamming as the FCA can ban financial products for up to a year, and exercise its power to instruct firms to retract or modify promotions which it finds to be misleading. However, it should be noted that FCA authorisations or appointed representative status is not itself a guarantee of the success of an investment or investor protection. Whilst a firm may be regulated or may be the appointed representative of a regulated firm, that does not mean that a particular platform or investment is itself regulated.
According to fca.org.uk, the FCA is responsible for about 58,000 businesses which in turn employ 2.2 million people, contributing £65.5 billion in annual tax revenue to the UK economy.
The Financial Services Compensation Scheme (FSCS) was set up by the Financial Services and Markets Act in 2000 to compensate lenders in the event of an insolvency of any authorised financial services firm. Its compensation scheme covers deposits, insurance policies, investments and mortgages to name just some branches, and though it doesn’t cover investment losses, it protects investors if they have been mis-sold any kind of policy or mortgage. According to Wikipedia, the FSCS “has helped more than 4.5 million people and paid out more than £26 billion”.
High Net Worth Individual – Being a High Net Worth Individual (HNWI) is actually an official classification. If you have over $1 million dollars in liquid net worth, regardless of your status of birth, you classify as a HNWI. United States Dollars is the official currency gauge of determining whether you qualify or not, so although you have a One Million Zimbabwe Dollar bank note in your back pocket, it only relates to £2282.13 and the banks won’t grant you your membership card.
If you’re unsure as to how many USD you own in liquid assets, have a look on the table below to see where you may fit in:
$1,000,000.00 is equal to:
*these values are correct as of 30/08/2019 and are subject to fluctuations
The banks will only classify an individual as a HNWI if their liquid assets total over $1million. Therefore, your property, or more likely properties, will not be included in making up the $1million.
Most of the world’s HNWIs are based in either New York City or London, around 393,500 and 353,600 respectively. The Far East (Tokyo, Hong Kong and Singapore) make up the next three cities in the top five, then back to the USA (San Francisco, Los Angeles and Chicago), then the Far East again (Beijing and Shanghai) complete the top ten. This information is telling about how wealth is distributed globally, with the combined total of all HNWI’s net worth at an estimated $29.7 trillion, or 13% of the wealth on Planet Earth all situated in the same few areas.
The Individual Savings Account (ISA) allows UK residents to save money tax-free into a cash savings or investment account. Although there are numerous different types of ISAs, the Jargon-Buster will try to simplify the definitions for the purpose of clarity.
Cash ISAs – basically the same as a traditional savings account for anyone over 18 years of age, but with a limit on the amount of cash you can deposit in each tax year (£20,000), and no tax is paid on interest. Cash ISAs are divided into:
Instant-access cash ISAs – you can pay in money and withdraw money at any time
Regular savings cash ISAs – usually pay a fixed rate of interest over a certain time on the proviso that you pay in a certain amount of money each month. (You can contribute £1666 each month without breaching the £20,000 annual limit)
Fixed-rate cash ISAs – you’ll need to commit to locking your money away for a fixed amount of time in order to be rewarded with a higher interest rate. Generally, the longer the term, the more interest you’ll earn.
Stocks and shares ISA – this is an investment account where all capital gains are protected from tax. As with a cash ISA, you can pay in £20,000 during one tax year. Usually, you can choose between managing your investments yourself, or, for a fee, having them sorted for you. There are risks involved with stocks and shares ISAs, and as with any form of investment, you may get less capital back than the amount you put in.
Innovative Finance ISA – known as an IFISA, this is used frequently by borrowers who did not want to get a traditional bank loan, maybe for property development projects or small business looking to expand. It connects them with lenders, who will receive a rate of interest when the borrowers pay back the money invested. Normally, the higher the interest rate, the higher the investment risk.
Help to Buy ISA – is a government-backed ISA savings account to help first-time buyers get on the housing ladder. Upon opening the Help to Buy account, you can deposit up to £1200, then pay in £200 a month thereafter. This means that in the first year, you can save up to £3400. The government then pays a 25% bonus on what you save up to a maximum of £3000.
Lifetime ISA – aimed at anyone between the ages of 18-39, this is another government-backed scheme to help people in their retirement. The government will pay a 25% bonus on whatever you save up to a maximum of £1000 each year. If you’re using this ISA for your retirement, you can only pay into the account until you’re 50, and must wait until you’re 60 to be able to withdraw it.
Junior ISA – the Junior ISA is for under 18s and offers an option for a parent of legal guardian to pay in money each year until the child is 18 years old, when it then turns into a normal adult ISA.
Know Your Client (KYC) checks that companies carry out on their investors and customers also form an important part of platforms completing their risk assessment analyses and Customer Due Diligence processes. To avoid over-complicating things, we can say that the KYC check makes up one part of the bigger AML procedure, much like a smaller cog in a larger machine.
Therefore, the terms ‘AML checks’ and ‘KYC checks’ are not to be used interchangeably as there is an important distinction. Whereas AML procedures are used in the context of the overarching governance framework that a regulated entity constructs in order to meet its regulatory requirements, KYC is simply a set of tools and processes within the AML framework.
The implementers must gather information about their clients to verify their identities, in order to be certain that business partners and counterparts comply with anti-bribery standards.
Liquid and Illiquid Assets
Liquid Asset – The term ‘liquid asset’ conjures up worrying images of all your hard-earned possessions melting away. Although this is clearly not the case with this expression, the metaphor of liquid flowing freely and easily is not too inaccurate a description.
Liquid assets are simply assets that are easy to turn into cash in a short space of time, as they’re deemed attractive or desirable. Within the P2P lending sector, some of these attractive and desirable assets which are easy to sell quickly would be jewellery or precious stones, gold, luxury watches, classic cars or even some fine art. They are all things for which you can imagine finding a buyer fairly rapidly would not be too difficult a task.
Liquid assets are important in case of financial emergency. Should the unfortunate situation of you needing to find cash very quickly arise, you probably won’t have the time to put your property up for sale, dealing with all the necessary bureaucracy with which that comes. What you’ll need is quick access to funds in order to keep the bailiff from the door.
In order to maintain a healthy financial profile, having assets which can easily be turned into cash in the event of a crisis will not only offer peace of mind, but will also potentially facilitate a rapid exit from unwanted financial problems.
Illiquid Asset – Having analysed what ‘liquid assets’ are, we can maybe safely assume that ‘illiquid assets’ are the opposite. They are assets that are somewhat trickier to convert into cash within a short space of time, loosely accepted at being around a year or more.
Perhaps the most obvious example of an illiquid asset is property of any description. Wherever you rest your head, whether it’s your three-bedroom semi-detached in commuter-town suburbia, your end-of-row village cottage, your top-floor penthouse apartment in the centre of London, or your isolated farmstead thrust miles from civilisation, property, in general, is considered illiquid. Evidently, the spectrum is not black or white, and the scale of liquidity will increase depending on the more desirable your residence is. However, it will probably not sell as rapidly as a liquid asset like your solid gold watch.
Illiquid assets are important to offer diversity to your financial profile, thus mitigating risk. Whereas liquid assets are vulnerable to fluctuating markets, illiquid assets offer much more stability.
Loan-to-value (LTV) Ratio – Within the Property Crowdfunding sector, this is another initialism that regularly crops up because it is specifically to do with purchasing properties. It stands for Loan-to-Value ratio, and when buying a house, as moneyexpert.com (expertly) describes: “the LTV ratio is the ratio between the value of the loan you take out and the value of the property as a whole, expressed as a percentage. The remaining value is paid as a deposit.”
The Office of National Statistics recently released some data showing that the average salary in the UK is £29,009.00. In another study conducted by them, the average UK house price in 2019 is £229,431.00. It doesn’t take a Mathematician to work out that it would take many years of fairly disciplined saving to buy a home outright. Therefore, logically, some kind of loan in the form of a mortgage is necessary.
To use a numerical example, if you want to buy a house for £350,000.00, and you’ve saved up £50,000.00 in your account as a deposit, you’ll need to borrow £300,000.00 in order to purchase the property. Therefore, your LTV will be 85.7% as the bank will have to loan you 85.7% of the property value (£300,000 divided by £350,000, multiplied by one hundred to get the percentage).
Although largely considered to be a matter of opinion, depending on lending terms, interest rates, the exit strategies established, to whom and from whom the loan is being set up, and how illiquid the asset is, generally, an LTV below 80% is considered “low risk” from the lender’s point of view, but over 80% would be “high risk”.
As the risk is higher with higher LTV ratios, as expected, the interest rates are also higher. The less initial capital you have, the more you have to borrow, and the more interest you’ll pay on it.
Negative Equity – In essence, this is bad, and if you’re a homeowner, you certainly do not want to have negative equity on your house. It is when the market value of the house falls below the outstanding amount of the mortgage left to pay. This renders the property very difficult to sell without making a huge loss, as trying to sell it with a depreciating value is only slightly less frustrating than continuing to pay the (expensive) mortgage off knowing that the house is not worth what you’re paying the bank each month.It’s caused by falling property prices and within the UK, some regions are far more affected than others. One area of the UK where the problem has escalated rapidly is Northern Ireland, where around 40% of every property bought after 2005 is in negative equity.
What worries most people about being in negative equity is whether you will lose your home. You will not, as long as you continue to keep up with your mortgage repayments. In fact, the faster you repay your mortgage repayments (some lenders accept overpayments if the borrower is financially capable), the faster you will be out of negative equity as the mortgage diminishes quicker, to be less than the value of the house again. Otherwise, with property prices fluctuating all the time, another answer is just to sit it out and wait until local house prices in your area rise again. Life, in the meantime, can be stressful and expensive though.
Lastly, once again, it seems to be people in the North as well as Northern Ireland who suffer more than Southerners. Statistically, if house prices were to fall by 10% in the whole of the UK, while about 10% of people in the North would be plunged into negative equity, just 0.03% of Southerners would suffer.
Peer-to-peer Lending (P2P) is when businesses or individuals facilitate lending money to other business or individuals using an online platform which connects the two, much like a type of “e-cupid”, with no other middle-man involved. Usually, loans funded by investors are secured against pledged assets that can then be sold at an auction to reimburse the investors should a loan default. As stated above, it is a rapidly growing sector due to banks becoming more conservative with their interest rates, but it should be stated that there are risks involved. Investors’ capital is at risk should they choose to fund a loan as investments are not covered by the FSCS.
Property Crowdfunding is a similar mode of Alternative Finance to P2P lending. You may be familiar with the term ‘crowdfunding’ and how it is simply the practice of funding a project by raising money from a large group of separate individuals or businesses, who each contributes a small amount of money to raise the total amount required. Property Crowdfunding uses this principle to develop plots of land and residential projects being built, or even homes that are fully built but being renovated, where investors can analyse different loans to fund and then lend the borrowers part of the capital they require. As in P2P lending, there are significant risks involved which should be taken into consideration. For more information on the differences between P2P lending and Property Crowdfunding, please see https://www.crowdlords.com/news
Now we have established the meaning of these three cornerstones to the Alternative Finance lexicon, let us address an initialism mentioned previously:
Secured and Unsecured Loans
Secured Loans – At some stage, most of us will become involved in applying for a secured loan whether we know the intricacies or not. Maybe the best example of a secured loan is the mortgage you pay on your house. To strip it down to the basics, it is a loan where the borrower pledges an asset as collateral which secures the debt owed to the lender. To use our mortgages as an example, the collateral is the house in which you live, and should you not keep up with your monthly payments, the lender, probably a bank, can take the asset away.
Secured loans are very common in P2P lending, and pledged assets can be of a very high value. P2P borrowers can pledge assets like jewellery, gold or classic cars, so that in the event of a loan defaulting, the assets can be easily sold so lenders recover as much of their funds as possible.
Although interest returns are not as high as unsecured loans* (*see below), this option of lending is safer for the investor as there is collateral to recover if the borrower cannot keep up with loan repayments. Conversely, for the borrower, the risks are high, as despite interest payments being lower, there is a possibility that they could lose the asset, one example being their home.
Unsecured Loans are loans that haven’t been secured by an asset. As they are much riskier for the lender as there is no collateral to recover should the loan default, interest rates are usually much higher. It is normally only the signed contract detailing the specifics of the loan that serves as the legal document protecting the lender, though should the borrower not keep up to date with payments, their credit rating may be severely affected. Before entering into an unsecured loan contract, lenders will thoroughly investigate the creditworthiness of the borrower to analyse their own financial risk.
Should the loan default and the borrower cannot pay the lender their money, it is likely that the case will go to court. To avoid circumstances like these from happening, often lenders involved in unsecured loans request that a guarantor (sometimes a member of the borrower’s family) promises to continue repaying the loan instalments in the case that the borrower cannot.
Despite being higher risk for the lender, recent data indicates that the unsecured loan market is growing. According to Investopedia, “Fintechs”, or Financial Technology Firms, accounted for 38% of unsecured personal loan balances in 2018, up from just 5% in 2013.
Another recent example of unsecured loans having become more commonplace recently are Payday Lenders offering loans that will tide the borrower over until payday. Payday loan companies offer loans to borrowers which are unsecured, but often on hugely exaggerated interest rates*. As the loans are unsecured, if the borrower cannot pay back the loan, the lender cannot recover any assets, for example; the borrower’s house or car. They are obliged to take other actions, usually seeking the services of Debt Collection Agencies, and even court action, where a tribunal may enforce that a percentage of the borrower’s wages are paid back to the lender for a specific amount of time until their financial obligations are met.
* According to The Money Advice Service, the average annual percentage interest rate could be up to 1500% compared to 22.8% for a typical credit card. Now, the cost of payday loans is capped by law under the Financial Conduct Authority.
Small and Medium Sized Enterprises (SMEs) are independent companies which specifically employ fewer than a certain number of employees. Frustratingly, the actual number varies depending on which country’s definition you are reading, but according to the European Union (which means in the UK, for the time being at least), the number stipulated for a medium enterprise is set at up to 250 employees. Small enterprises officially employ up to 50 employees.
In larger countries, the United States being an example, the numbers are understandably set higher, and an American medium enterprise would consist of 500 employees.
Similarly, because of population demographics, in smaller countries (or geographically large countries with relatively sparse populations), SMEs make up the vast majority of the country’s businesses. For example, in Australia and Chile, SMEs make up 98% and 98.5% respectively of those two countries’ businesses, and in Australia’s case, producing over a third of the country’s total GDP whilst employing 4.7 million people of the 12.5 million Australians that are in employment.Back home in the EU, there are certain types of assistance that SMEs can get if they apply for it:
Finally, we must establish that it is not solely the number of employees that determine an SME. Technically, according to EU regulations, an SME should not have an annual turnover exceeding €50 million (about £40 million) or an annual balance-sheet total exceeding €43 million (about £34 million).
Although relatively small in size, SMEs play a vital role in the economy. Being generally entrepreneurial, they help to shape innovation and for that reason governments regularly offer incentives and favourable tax treatment.
A Special Purpose Vehicle, almost always written as the initialism SPV/SPE (Entity), is a separate legal entity created by an organisation specifically to fulfil certain objectives. It is set up to be a distinct company with its own assets and liabilities as well as its own legal status. Usually, they are created to isolate financial risk from the organisation.
As it is a separate legal entity, if the parent company goes bankrupt, the SPV can therefore carry on its obligations. Investopedia describes this as being a “bankruptcy-remote entity”.
Stamp Duty Land Tax – The question “why is stamp duty necessary?” is one about which many homeowners could become quite vocal. It is often the final straw for people who have gone through the stress of looking for, bidding for, and negotiating over a property, whilst planning how to extend or redecorate it, suffering teeth-gnashing delays and setbacks, then exasperatingly paying out large sums of money to people whom you’ve never met but whose principal role in the whole process was to sign a piece of paper or send a form. Then, you are told to pay Stamp Duty.
Stamp Duty fees do vary however, and if you manage to find a residential property for under £125,000, you don’t have to pay Stamp Duty at all.
First-time buyers also get a discount on Stamp Duty Land Tax (SDLT), and if the property is under £300,000, there’s no SDLT to pay at all. This could mean that first-time buyers save thousands of pounds when everything is worked out.
Let’s say, for example, that you buy your second house for £275,000. SDLT is calculated as follows:
Despite all the reduction schemes and incentive programmes to reduce SDLT for people purchasing property, if you’ve shelled out a hypothetical £41,250 as a 15% deposit on a £275,000 house, then paid countless estate agent fees, solicitors, brokers, surveyors, removal companies etc, then £3750 extra when you think it’s all over, can seem deflating.
As if this isn’t enough, whereas we once had 30 days to pay the SDLT after completion of the purchase, this has been reduced to 14 days from 1st March 2019. Should you neglect to pay the SDLT, HMRC will contact you at your new address charging you penalties and interest.
Yields and Returns – Basically, a return is the gain or loss on an investment, whereas the yield refers to the income returned on the investment.
The return is generally retrospective as it shows what has been earned in the past. The yield looks to the future as it is an expression of what will be earned (generally expressed as a percentage).
Like “capital” and “cash”, it is a common misconception that they are the same thing, and are often incorrectly interchanged.
In financial terms, the yield, according to Wikipedia is as follows:
“In finance, the yield on a security is the amount of cash (in percentage terms) that returns to the owners of the security, in the form of interest or dividends received from it. Normally, it does not include the price variations, distinguishing it from the total return.”
The yield is a major decision-making tool used by both companies and investors alike, and is a huge influencing factor in financial choices made. The financial ratio indicates how much a company pays in dividend or interest to investors, each year, relative to the security price. Yield is a measure of cash flow that an investor is getting on the money invested in a security.