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Interest only mortgages explained

Interest only mortgages explained

Interest only mortgages are homeowner loans where repayments only consist of interest charged on the total amount of capital borrowed. The Mortgage Market Review (MMR) of 2014 made changes to mortgage lending rules in response to the financial crisis of 2008. During 2014 interest only mortgages came under a lot of scrutiny. Changes to lending rules reduced the reliance on the anticipated value of properties at the end of a mortgage term – when the capital borrowed is due for repayment. And also reduced the reliance on expected inheritance for borrowers. At the same time there was an increased reliance on proof of sustained earnings, and a requirement for safety-net savings to cover unexpected reduction of income. As a result, the number of lenders offering interest only mortgages reduced.

Recently however, the variety of interest only mortgages that are available from lenders has increased; including lifetime interest only mortgages for people aged from 55 years’ old.

The appeal of interest only mortgages

For those borrowers with at least 25% deposit or equity in their property then interest only mortgages are an option again and can appeal.

In the southeast and in London where property prices are typically higher, buying a property with an interest only mortgage may mean that mortgage repayments are more affordable. Where mortgage applicants have irregular earnings; because they are free-lancers, self-employed or business owners, the lower monthly repayment commitments of an interest only mortgages might also hold more appeal.

For buy-to-let investors interest only mortgages can help to maximise rental yields, and for others an interest only mortgage may create an opportunity to get on the property ladder.

What to do at the end of an interest only mortgage term

For historic interest only borrowers, who do not have a repayment vehicle to repay the mortgage and do not want to sell; then there are options to mortgage again and remain in the property. If the borrower is aged 55 years’ old or older, they may be eligible for a lifetime mortgage or a retirement mortgage.

There are several types of repayment methods available with lifetime mortgages such as “interest roll” where the monthly interest payments are rolled up onto the outstanding debt instead of having to pay monthly interest. There are also Flexible Lifetime mortgages which allow borrowers to make voluntary payments towards the mortgage if they want to. Some of these plans have monthly interest payment options; but if borrowers decide that they do not want to make any payments at all, they do not have to and the interest will again be rolled up onto the outstanding debt. Another option is Drawdown Lifetime Mortgages which enable borrowers to release the money from their property flexibly, as and when they need it. They can choose to keep the money in a reserve account ready to drawdown whenever they wish.

Interest will not build up on the money held in reserve until the borrower has released it, allowing them to minimise the amount of interest paid, whilst having the safety of a cash reserve.

For ageing borrowers; the term of mortgages available typically shrink. However; more and more lenders are offering mortgage products into retirement and it possible to have a term that will take you to the age of 85. The mortgage term and interest rates available for interest only, and for repayment mortgages vary widely. There is a lot to consider regarding the type of mortgage to take out, combined with the age and financial goals of the applicant.

As ever we would urge homeowners and would-be homeowners to speak to a specialist mortgage or equity release IFA.

Please call our team of Chichester-based IFAs on 01243 532 635 to arrange a consultation.

To discuss mortgages please ask to speak to James Mayne.

To discuss life assurance, serious illness cover, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

To discuss pensions, retirement and investment plans (including ISA’s) with us please ask to speak to Richard Smith.

Mortgages, lifetime mortgages, home improvement loans that are secured against a property, and remortgages are subject to the same regulation.

Meaning that homes are at risk of repossession if mortgage repayments are not made.

Volunteering and charitable giving; how Marchwood IFA helps

Volunteering and charitable giving; how Marchwood IFA helps

The World Giving Index – is the UK a charitable country?

The World Giving Index is produced by The Charities Aid Foundation (CFA). The index rates 140 countries against three indices: helping a stranger, volunteering time and donating money. This year only half of what the CFA classifies as developed nations were in the top 20. For the first time Indonesia took the top place; with New Zealand and Australia being in the top three.  The UK took sixth place moving five places up the index since 2017; and resting just one place behind Ireland which is in fifth place.

Indonesia indexes as follows: 53% of residents said that they had volunteered, 46% claimed to have helped a stranger and 78% said that they donated to charity. The Charities Aid Foundation believes that the Rohingya crisis in 2017 contributed to Myanmar’s fall to ninth place; which left room for Indonesia to take the top spot.  Six of this year’s top 20 are in Europe. Half of the CFA top giving countries are classified by the United Nations as developed countries. In the UK 33% volunteered, 63% helped somebody and 68% donated money to charity.

Marchwood IFA supporting local sports clubs and Snowdrop

In keeping with the UK’s giving nature here at Marchwood IFA we support local sports clubs and charities. The team at Marchwood IFA dedicate over 300 hours per annum in sports coaching for Chichester Cricket Club Juniors, Chichester Hockey Club Juniors; and Chichester Rugby Football Club Juniors. We also sponsor sports equipment, sports kit and sports clubs to raise funds and reduce the cost of participating for young people.

Our chosen charity of four years’ is the Sussex Snowdrop Trust; a local Chichester-based sick children’s charity Snowdrop.

Help and care is provided to sick children and their families in the home by Snowdrop. Currently there are 76 Snowdrop children that have life-shortening illnesses. The Sussex Snowdrop Trust was set up to provide care for children in the home. There are five Nurses and a Counsellor working on the Snowdrop team. In many cases families want to learn how to use medical equipment, such as nasal gastric tubes for feeding, and need the support of a qualified nurse. Having a sick child can also put a strain on the family’s time; medical carers are able to give parents, guardians and siblings a much-needed break.

Approximately £350,000 is spent annually on direct family care, which includes paying the wages of the Snowdrop Care at Home Team. Very often a family member may have to give up work to free up time to care for a sick child, which means that financial help is needed. Caring for a sick child and getting to hospital can be very costly. By way of example a return taxi fare to Great Ormond Street for a bone marrow or a kidney transplant costs over £160. Parents travel thousands of miles to take their children to hospital; Snowdrop has Family Volunteers who take families to and from appointments in their own cars to ease this burden. Snowdrop has bereavement counsellors and continues to grow expertise in this area.

If you would like to make a donation to the Sussex Snowdrop Trust please click here.

If you would like any advice on critical or serious illness policies, many of which offer automatic children’s cover payable as a lump-sum please contact MarchwoodI FA on 01243 532 635 to arrange a consultation.

As ever we would advise you to speak to an Independent Financial Advisor about your finances. We have specialists that are able to discuss specific options with you.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

Stay and improve versus move for more

Stay and improve versus move for more

The number of homeowners choosing to stay and improve; rather than move for more, has jumped from 3% to 15% in the last four years. With Brexit uncertainty growing by the day, this trend looks set to stay. A recent study conducted by insurance firm Hiscox; has found that:

  • The number of homeowners choosing to stay has increased fivefold in the last four years;
  • one in four millennials would rather stay and improve;
  • Over 10% of those surveyed said that Brexit uncertainty had led them to opt to stay put.

Other factors influencing the decision to stay and improve, or move were:

  • high property prices,
  • increased stamp duty fees,
  • concerns that the interest rate might change,
  • a slow property market (properties now take an average of 10 months to sell).

Lloyds bank surveyed second-steppers; homeowners that are starting a family and need more space, finding that the price gap between their first home and their second home was £135,985 on average; making the move for many unaffordable.

Paying for home improvements or home moves

For some there is no option to create more living space in the current home.

If this is the case individuals should consult with a mortgage specialist IFA. Consideration can be given to raising additional funds through existing assets or family and friends, but we would recommend talking options through with a financial specialist.

There are a range of funding options for those considering home improvements.

  1. Home improvement loan with the existing lender;
  2. Remortgage with a new lender – take equity out of the property to fund home improvements;
  3. Equity release – also known as lifetime mortgages.

More about equity release and lifetime mortgages:

Lifetime mortgages are designed to help homeowners that are nearing retirement or approaching later life to release property value. Lifetime mortgages are restricted to UK residents aged 55 or older. Equity release enables homeowners to take loans out that are secured against their homes. The loans are paid back when either the homeowner dies or goes into long-term care. Lifetime mortgages are extremely popular and are used in the main to fund home improvements.

We would strongly advise anyone considering a lifetime mortgage to speak to an equity release specialist IFA.

Adding value is not guaranteed

But, staying and improving; even when additional living space is added, does not always guarantee adding value. This is because properties have a ceiling price. The development needs to fit the area and the house.

As an example; a basement excavation in a mid-terraced house in Kensington, West London; where other extensions – up, out or back, are not possible, would add significant value to a million pound plus house. Extensions such as these are popular in affluent areas of London, where space is commoditised, these developments do not price properties out of their local market.

According to Money Supermarket; in most cases adding an additional bedroom or converting loft space adds the most value to houses from 7 to 9%.  Improving flooring and landscaping gardens can also add value from 3 to 6% in most cases.

But; some improvements can reduce the value of a house; swimming pools are costly to maintain and could, in the wrong property, make a house sale more unlikely.

Please call our team of  Chichester-based IFAs on 01243 532 635 to arrange a consultation.

To discuss mortgages please ask to speak to James Mayne.

To discuss life assurance, serious illness cover, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

To discuss pensions, retirement and investment plans (including ISA’s) with us please ask to speak to Richard Smith.

Mortgages, lifetime mortgages, home improvement loans that are secured against a property, and remortgages are subject to the same regulation. Meaning that homes are at risk of repossession if mortgage repayments are not made.

Affordable first time buyer mortgages

Affordable first time buyer mortgages

The Department of Housing, Communities and Local Government recently said that we are seeing the highest number of first time mortgages granted in over a decade. The government and mortgage lenders have taken a pincer approach to get more people on the property ladder.

Here are some ways in which first time buyer mortgages have become more affordable:

  1. Help-to-Buy and Lifetime ISAs – saving schemes for deposits where the government tops up savings;
  2. Shared ownership – where a percentage of the property is purchased rather than all of it;
  3. Less expensive and more widely available 90% and 95% mortgages – where a 10% or 5% deposit is required;
  4. Family mortgages – where wider family assets are brought into the mortgage calculation;
  5. Acceptance by mortgage lenders of gift deposits from family members and/or loved ones.

More on Help-to-Buy and Lifetime ISAs

Both savings schemes are designed to help would-be homeowners save for a mortgage deposit.

Help-to-Buy ISAs:

  • Must be a first time buyer
  • Must be at least 18 years’ old
  • Can save as a group – Help-to-Buy ISAs are available for each first time buyer not each home
  • Savings are tax free
  • You can start off your ISA with an initial deposit of £1,000
  • The government will top up contributions by 25% up to the contribution limit of £12,000.

Lifetime ISAs:

  • Designed to help 18-39 year olds save for a first home or for retirement
  • Must be a first time buyer if using the ISA for a first home
  • Tax free savings or investments accounts
  • The government will contribute a maximum of £1,000 per tax year on £4,000 of savings, until the saver turns 50 years’ old
  • Savers can invest in either stocks or shares
  • Lifetime ISAs sit within the overall ISA limit of £20,000 (Tax Year 2018-19)
  • Up to the age of 60 cash from the ISA must be used to purchase a property
  • From 60 the money can be spent as the ISA owner sees fit
  • A spouse or civil partner can inherit the ISA value.

More on shared ownership

Part of a government scheme to assist lower-income families and first time buyers to purchase a property; shared ownership enables home buyers to take out a mortgage for 25%-75% of the property value, whilst paying rent on the other proportion.

Shared ownership:

  • Eligibility – where a household income is £60,000 pa or less and the would-be homeowner is either a first-time buyer or a previous homeowner who cannot now afford to buy. Alternatively would-be homeowners are renting either a council or a housing association property, or have a long-term disability under HOLD (government’s Home Ownership for People with Long-Term Disabilities)
  • The government offers Shared Ownership schemes under its Help-to-Buy mortgage scheme. Those living in council or housing association homes can apply for Social Home Buy where a share of the home is bought and rent is paid on the rest
  • Shared ownership schemes are not the same as shared equity schemes. Shared equity schemes offer a low-interest loan on part of the home in exchange for a share of equity in the home.

More on 90% and 95% mortgages

Mortgages where a lower deposit of 5% or 10% is required are widely available for first time buyers and some home-movers in the UK. These mortgages can make home ownership more affordable as the deposit is smaller. Deposits saved as Help-to-Buy ISAs or Lifetime ISAs or deposits that are gifted by friends and family are acceptable to mortgage lenders.

More on family mortgages

Many people struggle to save for a deposit because they are paying expensive rent. A family mortgage may be an option for them because what a family owns in savings, property and investment can be used as a replacement to a traditional deposit for first time buyers, or home movers.

Family Mortgages:

  • Benefits buyers by reducing interest on mortgages and therefore monthly payments, increasing buying power so that a higher value house can be purchased
  • Families’ benefit from avoiding gifting money outright, and instead put assets to work as buyer security.

Affordable opportunities to help people to be homeowners do exist. We would urge readers as always to speak to a mortgage specialist IFA.

Please call our team of Chichester-based IFAs on 01243 532 635 to arrange a consultation. To discuss mortgages and insurances please ask to speak to James Mayne.

To discuss pensions, retirement and investment plans with us please ask to speak to Richard Smith.

To discuss Life, serious illness, equity release (to provide for retirement income) and income protection insurances please ask to speak to Hamish Gairns.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Autumn budget was one for the young

Autumn budget was one for the young

In many ways Chancellor Hammond’s autumn budget was one for the young; especially for those that aspire to be homeowners. In the recent general election 60% of voters aged 18-24 voted Labour whilst 61% of over 64’s voted Conservative. It is unsurprising that the budget addressed this Labour voting group.

How the budget helps young people in work

Key to keeping young people in work; is the requirement that they are able to live a commutable distance from jobs. As the majority of work is located in cities, there were changes made to housing provision in urban areas. The plan the Chancellor said is: “ to build high-quality, high-density homes, in city centers and near transport hubs.”

  • An enquiry into planning permission was launched on 22 November. The enquiry will look into affordable housing and brownfields developments where wasteland could be freed up if planning restrictions were lifted. The enquiry results will be delivered before the spring budget.
  • Commuting budgets will stretch further with the introduction of a rail-card for 25-30 year olds. Plans to ensure that new homes are built with electric car charging stations have been put in place. A commitment of £400m has been made to a new ‘charging infrastructure fund’ for electric cars. An extra £100m has been put towards helping people to buy electric cars. Though fuel duty is frozen there will be a temporary rise, from April 2018, on Company Car Tax and on Vehicle Excise Duty on all new diesel cars. This does not affect commercial vans used by tradespeople.
  • There will be tougher penalties for development companies that acquire land and ‘bank’ it, without building on the land. Councils will also be given the power to charge 100% of council tax on empty properties that are located in sought-after areas.
  • Five new garden towns will be created in the Oxford-Milton Keynes-Cambridge areas as part of an economic growth initiative.
  • In keeping with the extension of garden towns the Transforming Cities initiative £385m will be pledged to projects to 5G and full-fibre broadband.
  • Stamp duty up to £300,000 is abolished on homes under £500,000 for first time buyers. The first £300,000 is exempt from stamp duty only, after that normal stamp duty rates apply. For example on a £500,000 home 5% stamp duty would be due on the remaining £200,000.
  • A pledge to build 300,000 new homes per year until the mid 2020’s was made, with an additional £15.3bn in this budget taking total housing budget to £44bn.
  • The minimum wage was increased to £7.83 per hour.
  • Also increased is the personal tax-free allowance which; will go up to £11,850.
  • The 40% tax threshold will increase to £46,350.

Thankfully there were no more changes since last years’ autumn budget to ‘pension freedoms’ that were introduced in April 2015.

The NHS will receive an additional £6.3m of funding.

Duty on beer, wine, cider and spirits is frozen.

An additional £1.7bn will go towards improving transport in English cities.

As ever we would advise you to speak to an Independent Financial Advisor about your finances. To discuss your finances with one of our local Chichester IFAs please call 01243 532 635 to speak to one of our experts. We have specialists that are able to discuss specific options with you.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

The Southeast housing market remains strong

The Southeast housing market remains strong

Though the rate of house price growth in Q3 (July, August & September) in London has fallen by 0.6% year-on-year; house price growth in the Southeast has remained strong at 3.9%. The average house price growth rate in the UK was at 2.2% for the same quarter, the UK average house price being £210,982. In the Southeast the average house price is £277,519, compared to £471,761 in London.

Looking at the bigger picture the rate of house-buying (residential transactions) has slowed to around 5% and is level with 2013 transaction rates. After the 2008 financial crisis homeowners were reluctant to move. The rate of transactions fell to its lowest rate ever in 2009; during this period, a house would typically change hands every 25 years.

How has homeownership changed?

Restrictive planning policies mean that there are 50,000 less new-builds per annum than there were in 1981. As the cost of living has risen and wages have fallen or stagnated houses have become less affordable for many young and working-age people. Saving for stamp duty, estate agent fees and a deposit is a challenge. The average deposit for first time buyers is now roughly equivalent to a years’ salary. An ageing population is a less mobile one; retirees are reluctant to downsize when, for many, their home is their most valuable asset. Council tax was last updated over 20 years’ ago in 1993; the most expensive homes are taxed relatively leniently which disincentives homeowners to move. At the other end of the spectrum stamp duties have risen substantially amounting to a 30% increase per residential transaction, since 1997.

On the increase too is the number of single homeowners now at 30%. Not surprising then to learn that one in three of Britain’s housing stock has two or more spare bedrooms. Overcrowding, the number of people compared to the number of bedrooms, however is rising. The number of people willing to commute to work for two hours or more rose by one fifth from 2011 to 2016 according to property analysts Hudson and Green. Holding onto a good job and the property that is afforded by it seems to be a priority.

What are the options to save for a deposit?

There are some specific options to save into an Individual Savings Account (ISA) that earn a government bonus 25%. This is to encourage both saving and homeownership.

Which ISA is suitable depends on whether a would-be homeowner is a first-time buyer, or a buyer that is aged over 18 years but under 40 years’ old.

Help to buy ISAs are for first-time home buyers. They are for each individual buyer not for each individual home; meaning that groups of buyers can save for a deposit together. Individuals can save up to £200 per month and can open the ISA with a deposit of £1,200. The government will top up the Help to Buy ISA with a maximum of £3,000 if the total savings are at £12,000.

Lifetime ISAs can be used to buy a first home or to save for later life. Individual savers must be aged between 18-40 years’ old, and can save up to £4,000 per annum until they are 50 years’ old. The capped savings of £4,000 per annum count towards an individual’s annual ISA savings limit. The government will add a bonus to savings of 25%, a maximum of £1,000 per annum. The Lifetime ISA can be invested in stocks and shares or held as cash or invested as a mix of cash and stocks and shares.

Can mortgage repayment terms be lengthened?

Longer mortgage repayment terms are increasing in popularity, however the interest that is paid back over a longer term is significantly higher that if the mortgage is paid back over 25 years or less. Here are some examples of monthly mortgage payments and total interest on a repayment mortgage of £150,000 with longer repayment terms.

Longer term repayment mortgage comparison of £150,000 mortgage with an assumed interest rate of 2.5%

Term Monthly payment Total interest
20 years £794.85 £40,764
30 years £592.68 £63,365
40 years £494.67 £87,442

*Source L&C Mortgages

As ever we would advise you to speak to an Independent Financial Advisor about your finances. To arrange a consultation with Marchwood IFA please call 01243 532 635. We have specialists that are able to discuss specific options with you.

To discuss mortgages & insurances please ask to speak to James Mayne.

To discuss Life, serious illness and income protection insurances (to protect a debt such as a mortgage or to make sure that your family is well looked after financially after the death of a parent/partner) or equity release to help you plan for income in retirement please ask to speak to Hamish Gairns.

To discuss retirement and investment plans with us please ask to speak to Richard Smith.

Housing market news; white paper reforms

Housing market news; white paper reforms

In February 2017 communities’ secretary Sajid Javid presented a housing white paper entitled ‘Fixing our broken housing market’ to government. According to Christine Whitehead of the London School of Economics there have been about 200 governmental housing initiatives since 2010, however; this paper does go some way to tackle planning permission, land banking and green belt development. All three issues are new-build supply blockers. The UK’s new home build target is 250,000 per annum, which was last met in the year 1979-1980.

New-build supply blockers

 ‘Fixing our broken housing market’ aims to force councils and big developers to boost the supply of new homes.

  1. The white paper proposes a new standardised framework for calculating what needs to be built by councils.
  2. Councils that miss their agreed new-build target may have to surrender ‘planning control’ to central government.
  3. Owning plots of land with planning permission on them and not developing them in a timely fashion (land banking) will result in ‘use it or lose it’ punishments where councils will be able to compulsorily purchase land.
  4. Extra help will go towards SME construction firms as regards bidding for new-build contracts.
  5. Higher charges will be levied against developers.

Many criticise the white paper for not going far enough the elephant in the room being the absence of any green belt development reforms. A late decision was made by the government to stand by existing green belt development restrictions ahead of the white paper being presented. Director general for the Institute of Economic Affairs Mark Littlewood said: “The only surefire way to bring down housing costs is to relax our highly restrictive planning laws. Not all greenbelt land need be sacrosanct so it’s a shame to see politics trump sensible economics.”

Regeneration expert Barney Stringer believes that releasing 60% of green belt within 2km of a railway station would create space for 2m new homes. Britain has the highest proportion of urban dwelling citizens, at 90%, of any large Western country. This is unsurprising as the majority of jobs are in cities and towns; and it now takes an average middle-income household 20 years to save up for a deposit for a house.

Long-term renters get some help

Some attention has been given to long-term renters or generation rent. The rate of homeownership, particularly amongst the young (25-34 years’ old), has fallen by 30 percentage points since 1992.

  1. Planning regulations are being changed to favour construction of affordable rental properties over homes to buy.
  2. Echoing a Labour party policy to extend rent tenancies, the white paper proposes three-year tenancies for some renters.

House prices and mortgage options

The price of houses in London has slowed, which has dampened the market for the whole of the UK. One year ago London house prices were rising by 15% year-on-year. However, from March 2016 to March 2017 house prices in London grew by 1.5%.

House prices across the UK as a whole for March 2017 were down 0.6% compared with February. The average cost of a home is £215,848 which; has been the case for almost a year.

The drop in prices is good news for would be house hunters and the government has developed three finance products to suit the changing homeowner market:

  1. Help-to-buy ISA – the applicant must be saving up for a first home. The government will contribute up to 25% on top of savings up to the value of £3,000 on top of individual ISA savings totaling £12,000.
  2. Lifetime ISA – the applicant must be a UK resident aged between 18-39 years’ old. One lifetime ISA per person per tax year may be opened with a maximum investment of £4,000 per tax year. The government will top up savings by £1,000 tax-free, per tax year (25%); if you have saved £4,000.
  3. Lifetime mortgages for over 55’s – the applicant must be a UK homeowner aged 55 or over, mortgages can be used to unlock house wealth, whether applicants are retired or not.

With a general election looming, we are sure that there will be more changes to housing policy and mortgage finance options. We would advise you to speak to an IFA. Here at MarchwoodIFA we have specialist mortgage, ISA and lifetime mortgage financial advisors. Please call 01243 532 635 to arrange a consultation.

Time to assess finances before the tax year changes

The start of the calendar year is always a good time to assess finances. It gives businesses and individuals two to three months to seek and implement expert finance advice.

In recent budgets the government has looked to remedy:

  • Low homeownership amongst young people (those that are in their 20’s and 30’s)
  • Rich retirees (over 55’s that own their own property or properties and have income from pensions and other investments)
  • Business start up and running costs (with additional help for tech companies and city-based firms where a Local Enterprise Partnership sits)
  • Low income (particularly for young people and working families).

In other words the remedies are far reaching, they impact allowances and tax for all age groups and income types eg PAYE, self-employed, pensionable and business owner; we urge individuals to seek advice from their IFA.

Low homeownership – budget changes

New Help to Buy ISAs were launched in April 2016 to help first time buyers save for a mortgage deposit. The Help to Buy ISA differs from other ISAs because the government will add a 25% cash bonus on savings between £1,600 and £12,000 to help first time buyers save more.

Help to Buy ISAs explained:

  • First time buyer definition: A UK resident aged 16 or over who has never owned or had an interest in a residential property, either inside or outside of the UK, whether it was bought or inherited
  • First time buyers can save up to £1,200 in the first month, and then £200 per month after that
  • The £200 per month saving investment can be topped up if missed, but cannot equal more than £2,200 in the remaining 11 months
  • The State adds 25% tax free to whatever is in the ISA when you use it for a deposit. There are two exceptions to this: there must be a minimum of £1,600 in the ISA, and, the maximum the State would add would be £3,000 tax-free on a £12,000 ISA. If the ISA is worth more than £12,000 it can be kept as a savings account
  • The current scheme will pay out as described until December 2030 and is available as described until the end of this tax year.

This is good news for first time buyers, and parents or grandparents that may want to help offspring get onto the property ladder. The Help to Buy ISA can be contributed to by groups of people. UK Mortgage lender the Halifax recently reported the highest first time buyer’s homeowner figure (at 335,750) in nine years, and they report that this trend is running on into 2017.

At the other age-end of the spectrum rising house prices are catching out some property owners.

Inheritance Tax Planning

In 2015/16 HM Revenue and Customs (HMRC) took a record £4.6 billion in inheritance tax (IHT); which represents a 21% increase from the £3.8 billion that was taken in 2014/15. Despite the threshold for IHT being fixed since April 2009 at £325,000; increases in London and Southeast property values are causing more individuals to get caught by the tax. The government has new plans to introduce a higher probate fee for properties valued at over £2million. The fee was £215 but will become £20,000. This heralds the start of tiered probate fees that will keep pace with rising property values.

Individuals could consider products such as Investment Savings Accounts (ISAs) or Enterprise Investments Schemes (EISs) when Inheritance Planning, we would recommend seeking expert advice from an IFA.

Mortgages for the over 55’s reach a 10 year high

2015 to 2016 is a record year for Equity Release or lifetime mortgage applications. Lending reached a 10 year high with over £198m in mortgages agreed between the first halves of 2015 and 2016, according to the Equity Release Council (ERC). Figures from the ERC show a record number of drawdowns (76%) on lifetime mortgages, to access housing wealth. The growth of equity release product choice for over 55’s mortgages is at 34% Year-on-Year, and has positively impacted pricing. Housing and property wealth is used to fund better lifestyles and home improvements to support retirement planning for people, who are typically aged, 56 to 74 years’ old.

However in efforts to curb rising house purchase and house rental prices; new measures effecting second homeowners were introduced in April 2016 and are being sustained into April 2020.

Landlord Tax effective from April 2017

  1. Tax relief on mortgage interest rates that are used to finance second homes is to be restricted to the basic rate of tax over four years to April 2020 commencing April 2016.
  2. Stamp Duty for buy-to-let properties is to be paid at the standard rate with an increase of 3% points on each Stamp Duty band.

Retirees pension pot reinvestment budget changes

New limits are to be placed on the reinvestment of pension pot savings. The new tax-free allowance falls from £10,000 to £4,000 in April 2017, affecting all of those who would wish to take money from their defined contribution pension pot.

Higher rate tax relief for people with incomes over £150,000 per annum has been curtailed since 2009 and fell to the annual allowance (AA) of £10,000 in tax year 2016-17. In addition Lifetime Allowance (LTA – the total amount you can hold within your pension without paying tax) fell to £1,000,000 in tax year 2016-17.

A new savings bond, with an interest rate of about 2.2% will be launched through National Savings and Investments. The bond will be available to those aged 16 and over, where a minimum investment of £100 and a maximum investment of £3,000 has been set. Savers must invest for three years. The new product will be available for 12 months from spring 2017.

Contact MarchwoodIFA to speak to one of our expert finance advisors: 01243 532 635

Kit funding gives asylum seeker Ezaz the leading edge

Community matters; cricket kit funding gives asylum seeker Ezaz the leading edge

At MarchwoodIFA we understand that we are a valued team within our local community, and not just from a financial ethics perspective. We get involved in community projects and social good ventures including local sport; because we cherish the discipline, respect and team building skills that sport so often brings. We also understand that increasingly, because of the squeezed budgets of schools and local authorities, access to kit, equipment and playing field areas can mean that some young people do not have the means to take part despite having the talent and the ambition.

We would like to share with you some work that we did with Ezaz, a young Afghan asylum seeker who came to the UK with his brother after the Taliban killed his father. His journey to flee his homeland started when he was about 14 years’ old, and it took him three years to make it to British shores. Walking from Afghanistan to Pakistan and then on to Iran, Ezaz often travelled without food, water or sleep. Following a route through Turkey, Bulgaria, Serbia, Hungary, Austria, Italy and then France, Ezaz was nine months in a Eurotunnel camp before boarding a lorry to the UK. He was found in Dover and given over to children’s services at Gatwick, where the county council’s leaving care department housed him with the Chichester Foyer housing centre for young people. Chichester Foyer reached out to Chichester Priory Park Cricket and hockey Club (Chichester Priory CC) as one of the few English words that Ezaz knew was “cricket”.

Happily Chichester Priory cricket club captain Jon Heaven could see that: “Ezaz had played cricket in Afghanistan and was a natural talent. He was very keen to watch others and learn.” Because of the strong links that Chichester Priory CC has with Goodwood Cricket Club Ezaz was able to get on the pitch on Sundays throughout September 2015. According to Heaven, in Ezaz first game he did well scoring six and taking two catches, this despite needing to: “adapt to the relatively slow green English wickets [which are] very different to the concrete like wickets of Afghanistan.”

Both Chichester Priory CC and Goodwood CC (captained by James Mayne) agreed to make Ezaz an honorary member. When the cricket season ended in September Ezaz enrolled at Worthing College to study English. In January Chichester Priory CC were able to start training ahead of April at Seaford College.

Though throughout last season Ezaz got by with donated kit from fellow team players, this year MarchwoodIFA team mates supported Ezaz by buying him new equipment and cricket kit. As an asylum seeker Ezaz is not allowed to take either paid, or unpaid work; so the donation was helpful to his continued cricketing success. Heaven said of Ezaz: “His cricket continues to improve, and he has produced some remarkable innings including a century against Arundel and many half centuries. We are confident he will remain part of the strong cricket community in Chichester for many years to come.”

If you would like to know more about our community work at MarchwoodIFA please contact us via the online form, or call us on: 01243 532 635, or email us on: info@marchwoodifa.

Generation rent explained; homeowner options

Though the British economy has grown since 2010 by 10%, and the employment rate is now as high, at 74.4%, as it was in 2005; young people are unlikely to own their own home until they are 40 years’ old – hence the term ‘generation rent’. And despite job creation continuing to improve, the number of working families that also rent is growing as well. The lack of home ownership would not be a problem, if affordable housing was available to working people, young or old, with or without families. But housing is getting less affordable in real terms, particularly in urban areas where job concentration is high. The number of Local Authority owned houses has fallen by half since 2001. Of the 2m jobs created since 2008, two-thirds of them are in London where houses cost almost double the national average. In some London boroughs the ratio of prices to earnings is more than 20:1.

Despite England’s housing stock growing by 1m from 2008, owner occupation fell by 2%, and the private rentals market grew by 1.3m. If we lift the bonnet further, and look at British home ownership by age, we see that 80% of homes are owned by those born in the 1960’s, 70% are owned by those born in the 1970’s, 42% are owned by those born in the 1980’s and 8% only, are owned by those born in the 1990’s (remember houses are frequently owned by two people – hence the 200% total).

Our national obsession with home ownership is understandable given the financial gains that can be made from property ownership but according to Neal Hudson of estate agency Savills “the share of households owning their own home peaked in 2003 at 71% […] and has been in decline since.”

So, what are the options for home ownership?

The government recently launched a first time buyers ISA where single or groups of first time buyers can pool their money to save for a mortgage deposit. This is one of a range of new government schemes aimed at helping families and young couples or groups of individuals to buy their own home. For example a help to buy equity loan enables people to buy a new-build home with a cash deposit of 5%. In addition the government will lend up to 20% of the cost of the newly built home, meaning that would-be homeowners can take out a mortgage for the remaining 75% only. Special government schemes also exist for people and families that wish to buy a new-build in a London borough.

At the other end of the age spectrum over 55’s lifetime mortgages are growing in popularity. This is where older homeowners, perhaps parents or grand parents, want to release equity and house wealth from their homes. The money can be used in a variety of ways, in some cases because seniors or retirees may earn less and therefore cannot borrow money; the funds are needed for home improvements. But, of course, the house wealth could be invested in retirement income and towards inheritance tax planning where house values are high. Another way, that released house wealth equity can be invested by parents and grandparents, is in government help to buy schemes, where deposit money or funds for first time buyer ISAs investment are gifted to offspring.

As an alternative to traditional home ownership, a new housing option favoured by some young professionals that work in cities is: co-living. The Collective is a communal housing development that opened in London in April 2016. The Collective houses 500 residents, with shared cafes, bars, libraries, gyms, gardens, social and hot desk working spaces.

Are we more in debt because of high house prices?

Just before the 2008 crisis British household debt as a percentage of income peaked at 160%, average debt per household was at £64,000 after adjustments for inflation. The figure had fallen to 140% by 2014, and the number of Britons spending a third of their income struggling to pay off unsecured and mortgage debt had also fallen by 3% from 2008 to 2015. If we take a closer look at mortgage debt; interest rates have fallen to historical lows. Excessive mortgage lending was curbed following changes to legislation in 2014, and banks favour repayment mortgages not interest only mortgages. Just 1% of new mortgages were interest only in 2015 whereas in 2007 a third of all mortgages were interest only loans. This has contributed to fewer households being unable to pay their mortgages. This would suggest that most Britons have applied austerity measures to themselves. We should remember that the 2008 crisis was not caused by banks’ excessive domestic mortgage lending; the cause was excessive lending to the commercial sector. It is not just price that is fuelling the generation rent trend.

Young people spend longer at university in Britain, and may prefer to rent so that they can live where the better jobs are. Growing workplace skills deficiency would indicate that being well-education and gaining experience will pay off in the long-term. Today’s richer retirees are well-educated professionals that can still command high salaries for ‘service’ related work in the finance, tech, engineering and consultancy sectors. For generation rent other income investment options such as Stocks and Shares Investment Savings Accounts (ISAs) may help them prepare for a lifetime of flexible and varied work.

Contact Marchwood IFA to arrange a mortgage or an investment consultation. We specialise in investments, mortgages, pensions, equity release (lifetime mortgages) and life insurance.

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