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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.

When loyalty costs

When loyalty costs

A super complaint launched by the Citizens Advice Bureau has found that loyalty costs UK consumers an additional £877 per annum; when compared to what new customers would pay for the same services. Their research found that five broad areas were affected by hiked renewal costs:

  • Mortgages;
  • Cash ISAs;
  • Insurances – income, sickness and protection insurances but particularly household insurance;
  • Broadband contracts;
  • Mobile phone contracts.

When loyalty costs mortgagees

A survey in late July by This is Money found that in some cases a building society was charging long-standing mortgage customers £4,020 more per year than new customers that signed up for the building society’s cheapest two-year fixed mortgage. Another building society brand was close behind charging an extra £3,156 to existing customers. Even the bank charging existing customers the least difference between charges for new customers had added an additional £1,788 in mortgage costs for loyal customers.

Many mortgage customers are getting caught-out by taking up good fixed-rate deals when they are new to a lender; only to find that standard variable rates – which are due at the end of the fixed-rate term, are much higher.

In fact; the gap between lenders best fixed-rate deals and standard variable rate has quadrupled in the past six years.

Typically banks and building societies offer fixed-rates from between two to five years. The same study found that the bigger the deposit in the first place 20%, 35% the greater the leap in cost from fixed-rates to variable rates.

We would recommend speaking to a mortgage specialist financial advisor about mortgage rates, especially if a mortgage has reached the end of its fixed-rate term.

Read our tips on how to prepare to meet an IFA.

However as regards mortgages, understanding any penalties eg early redemption fees, the mortgage terms and current property value are worth checking before booking a consultation with a mortgage specialist.

When loyalty costs cash ISA customers

Money Saving Expert found in June that banks offering loyalty reward Cash ISAs, were offering loyal customers dismal interest rates when compared to new customers. One bank was offering existing customers between 0.7% to 1.0% interest rates on a Cash ISA whereas, a competitor’s best buy instant Cash ISA was offering 1.3% interest rates to new customers.

Of course; the other benefit of ISAs is that investors do not pay tax on savings interest; or savers pay reduced tax on interest rates on investments including Capital Gains tax.

Cash ISAs are not the only Investment Savings Accounts that can be held. Investors can also save in Stocks and Shares ISAs which; provide investors with a way to invest individual company shares and money in a tax efficient way. Also; unit trusts, investment trusts, open-ended investment companies (Oeics), government bonds and corporate bonds. Can be included within these Stocks and Shares ISAs.

We would recommend speaking to an investment specialist IFA about savings and investments. Sharing financial goals with an IFA will help the investment specialist to tailor advice to help achieve a client’s financial objectives. Read our guide on how to prepare to meet an IFA here.

When loyalty costs insurances customers

Though the main findings of the super complaint launched by the Citizens Advice Bureau were against hiked home insurance prices, protection insurances also do not favour loyal customers. Many customers that purchase life insurance along with their mortgage may be paying more for their life insurance (level term life insurance) than they would if they had bought insurance from a different provider.

One such customer cancelled their existing policy, buying it again as a new customer from the same provider. In so doing they reduced their premiums to £9.00pm from £23.00pm; making an overall policy cost saving of more than £2,000.

If medical conditions have changed (for the better) after taking out protection insurances – income, sickness or medical insurances, some quite significant cost savings could be made. See our article on quitting smoking.

Again; we would advise that all life and protection insurances are reviewed regularly with an insurance specialist IFA. Preparing plan details including terms and premium costs will help the IFA to quickly see if the protection is right for the client and if any savings can be made.

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

To discuss pensions, retirement and investment plans (including ISAs) 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.

To discuss mortgages and mortgage insurances please ask to speak to James Mayne.

Giving up smoking is good for your health and wallet

Giving up smoking, for at least 12 months, is good for your health and wallet because – the health dangers associated with tobacco mean that smokers pay much more for the cost of life insurance and other protection insurances than non-smokers.

Insurance underwriters take the health risks posed by tobacco so seriously that a 30year old smoker’s premiums will be a third higher than those of a 30year old non-smoker and; up to twice as high when comparing 50year old smokers to non-smokers of the same age.

Shown below are insurance firm Royal London life assurance premium costs for smokers and for non-smokers which were published on 11 March 2018.

Applicant age Term of life assurance in years Monthly premium non-smoker Monthly premium smoker Non-smoker savings over 25 years
30 25 £14.00 £29.47 £4,641
40 25 £17.11 £41.06 £7,185
50 25 £23.90 £55.71 £9,543

Source Royal London 11 March 2018

The reason for the increased cost of protection insurance and life insurance premiums is that sadly, smokers are more likely to make a claim because they suffer either a critical illness or an early death, or both.

What is classed as smoking?

Insurers assess whether or not you are a smoker based on simple criteria…

…If you have smoked in the last 12 months you are a smoker.

This is an all-encompassing definition – smoking within the last 12 months includes:

The occasional cigar, vaping, e-cigarettes and other nicotine replacement products, and smoking 20-a-day.

Are there any exceptions to the smoker classification?

Yes, if the applicant has unusual circumstances, wants to insure their life for a large amount, or is elderly the policy and its cost will be tailored to the applicant.

We would advise for any protection insurances including life assurance, sickness and income protection insurances that applicants consult with a protection insurance specialist IFA.

The more information an applicant can provide about their medical history and, in many cases, their family’s medical history the better-able the protection insurance specialist is to advise the applicant. The applicant should also share their lifestyle and financial goals with the IFA, so that advice and planning can be tailored to meet the client’s needs.

See our tips on how to prepare to meet an IFA.

Medical information – how important is it?

When it comes to filling in information to apply for protection or life insurance it is critical that applicants include as much information as possible.

We would strongly advise against being tempted to leave any details out that may affect the cost of premiums. Insurance providers run random checks on around 20% of applicants where their medical history is accessed to see if it matches details on the application form.

As regards dishonesty about tobacco use, if a policy holder where to fall critically ill with an illness associated with smoking eg cancer, insurers would investigate medical records, and could either refuse to pay out, or reduce how much was paid out to policy holders.

Do premiums go down after giving up smoking?

Yes, insurance companies will check the cost of insurance premiums if the policy holder says that they have given up smoking. Insurance companies usually seek a report from the policy-holder’s GP. They may also require the policy-holder to have a chest X-ray. The value of the policy and the age of the policy-holder will also be considered.

Assessing the cost of protection insurance premiums and updating medical history is definitely worth doing. But we would advise you to do this with an Independent Financial Advisor who specialises in protection insurance.

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

To discuss Life, serious illness, 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.

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

How degree subject and university choice add value

How degree subject and university choice add value

Over 1.7m UK students will start a degree at a UK university in September. Many have made subject and university choices based on what they are interested in and also what they excel at. Research from the Institute for Fiscal Studies has shown how degree subject and university choice can add value; but also, that gender and social background have an impact on earnings potential.

In general women that are degree educated can expect to earn on average £250,000 more over their lifetime than non-degree educated women. For men the impact is smaller adding £170,000 to the average expected increase of lifetime earnings when compared to non-degree educated men. However, male graduates earn on average 8% more than female graduates one year after graduating, and the upward trend continues; after five years they earn on average 14% more than female graduates. The factor that is influencing earnings is not so much gender as it is subject choice. Women on the whole choose subjects that pay less, for example: psychology, nursing, creative arts, sociology; whereas men choose better paid subjects such as: computing, architecture and engineering.

When well-paid subject choice and Russell Group university choice are combined eg University of Oxford and Economics, or Imperial College and Engineering; graduates earn on average 40% more than graduates with humanities degrees (eg philosophy) from non-Russell Group universities such as The Open University.

Over time the earnings potential gap widens; male students of management studies, law, or economics that studied at the London School of Economics can expect to earn over £300,000 per annum when in their 30s.

Both male and female graduates from households where the income is over £50,000 will earn 20% and 14% more respectively than male and female graduates from households with lower incomes, by the time they are in their early thirties.

Despite ‘Love Island’ being a quicker route to wealth than Oxford or Cambridge – as reported in the Financial Times on 26 July – a degree does add value to earnings potential.

We would advise parents and grandparents that are considering funding further education for offspring to consult an Independent Financial Advisor.

Having the right level of protection assurances such as life, critical illness and income protection policies is important when considering a further education funding plan. As house value is changing fast in the current economic climate; revisiting mortgage terms including life assurance policies with a specialist IFA is recommended.

Cash ISA investments may have been made when children were young, very often they attract an initial fixed interest rate and then after a pre-set term fall back on the providers’ variable rate, which can be quite low. All investments including Cash and Stocks and Shares ISAs should be reviewed to check that they are performing as expected or as planned for.

Planning to fund further education for family members may coincide with retirement and Inheritance Tax planning.

We would recommend speaking to a retirement planning financial expert, and having prepared a budget plan of outgoings and income for the consultation (see our tips on How to prepare to meet an IFA). It is a good idea to consider goals and ambitions for the life-stage that is being entered, this will help the IFA to give specific advice so that desired outcomes can be achieved.

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

To discuss pensions, retirement and investment plans (including ISA’s) 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.

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

How to prepare to meet an IFA

How to prepare to meet an IFA
Before preparing to meet an IFA, it is a good idea to take stock of finances. The more detailed the budget or finance plan is, the better able the IFA will be to give specific advice. Using a spreadsheet to list income, and costs or outgoings in one place; can help individuals to see how much disposable income they have. When drawing up a finance plan it is important not to forget finance and insurance costs.
Useful information to include in a finance plan about loans, credit card debt and mortgages is detailed below:

  • The loan or mortgage term – when the loan or mortgage ends
  • Any penalties for paying off the loan or mortgage early
  • The loan or mortgage monthly payments
  • The loan or mortgage interest rate
  • What the outstanding loan or mortgage amount is (include a date)
  • Any existing credit card debt (include a date)
  • And – if you are planning around a mortgage – what the approximate value of the property is.

Judging property value can be tricky. A local estate agent should be able to provide a market valuation, or if a more general figure is sought comparing prices online via a property listing site such as Rightmove or Zoopla may be sufficient.
Life assurance, savings, investments and pension valuations including death benefits should all be listed as assets. Though if an amount is paid monthly for a pension, investment, ISA or for insurance; it should be listed above as an outgoing.
As with loans or mortgages for any investments, ISAs, insurances (including any life, critical illness, income protection and buildings and contents insurance) and/or pension; You should include:

  • Term – when payment/final sum value is due
  • Current valuation (include a date)
  • Value to a spouse (if different to value to investment holder)

all monthly premiums/contributions should all be detailed.

All the above information is very useful to have prior to meeting with an IFA or when seeking a consultation with an IFA for the first time. It helps the advisor to properly assess and fully understand the current situation of the person, or people seeking advice. Knowing more about goals, aspirations and future objectives also allows the IFA to give you more ‘holistic’ advice, that is in keeping with lifestyle choices. The IFA’s approach when making their recommendations will be influenced by the individual’s thinking about what they want from their current or next life stage.
For targeted and tailor-made specialist advice we would recommend that people specify as best they can what they actually need.

When looking to maximise disposable income many people can cost save; even though changing the cost of living or increasing earnings may not be possible.

Cost saving tips
Many people regularly save hundreds of pounds per year on utility bills, household and car insurance, media streaming and television viewing deals, internet and mobile phone network and device costs; by checking the price to renew contracts with an existing supplier. A lot of businesses want to attract new customers. This means that though the first-year deal may be good value, often by year two or three the costs are higher than they would be with another provider. It might be worth diarizing anniversaries for the range of services as listed above. Companies such as Which? and uSwitch can help with reminders about service costs and renewals.

Although most advisors cannot give guidance on utility bills and TV deals they may be able to help with reducing monthly costs for protection assurances such as life, critical illness and income protection policies. Cash ISAs often attract an initial fixed interest rate and then after a pre-set term fall back on the providers’ variable rate, which can be quite low.
As well as reviewing household bills we would recommend reviewing: Cash ISAs, and protection assurances including life, critical illness and income protection policies.

The cost of living and earnings – what to expect
Despite enjoying economic growth and record-high employment figures, earnings in the UK are only just beginning to increase since 2008. In fact, in the three months to April earnings fell slightly by 0.1%, but they are just starting to recover.
According to the Office for National Statistics (ONS) average weekly earnings have increased throughout the second quarter of 2018 by 0.4%; when compared to the same period in 2017.
Mortgages and rent absorb the majority of debt for households. Currently the Bank of England has been able to maintain low interest rates, which means that predictions for the rising cost of servicing debts remain low. However; the finance media is speculating that interest rates may rise in August from 0.5% to 0.75% which will put more pressure on mortgage and rent payers alike.
But it is not all bad news; London used to top the bill as one of the most expensive cities to live in globally, but recent changes to the value of the dollar and pound have seen Paris, Zurich and Oslo topple London from a top 10 position. New York has fallen to 13th place on the ‘most expensive cities to live in’ list.

Though the UK economy is stable; the financial needs of the individual change depending on the life stage that they are in. A change to a life stage is very often what motivates someone to seek independent financial advice.

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

To discuss pensions, retirement and investment plans (including ISA’s) 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.

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

One in four consider lifetime mortgages

One in four consider lifetime mortgages

Leading mortgage lender Legal and General surveyed Britain’s homeowners and found that one in four are interested in lifetime mortgages. In 2017 the Equity Release Council (ERC) report that £3 billion was released by homeowners in the form of lifetime mortgages to fund improvements to later life.

Lifetime mortgages explained

Lifetime mortgages are designed to help homeowner retirees or those nearing retirement to release property value to fund later life. Lifetime mortgage eligibility can vary but applicants must be homeowners and must usually be a minimum of 55 or 60 years’ old.

Lifetime mortgages enable homeowners to take out loans secured against their homes. The loans do not need to be repaid until the homeowner dies or goes into long-term care. The Equity Release Council (ERC) regulates lifetime mortgages.

Lifetime mortgages can help homeowners to release house value from their homes, while still living in their homes; but also enable homeowners to ring-fence home value so that family inheritance is not compromised.

There are two types of lifetime mortgages

Interest roll-up mortgages – the homeowner gets a lump sum or can take an initial lump-sum and then regular payments. The interest on this loan is rolled up and paid when the home is sold. If the mortgage has a ‘no-negative guarantee’ this means that the final home value will never be less than what is owed on the lifetime mortgage. This stipulation is regulated by the ERC, lifetime mortgage advisors are aware of it.

Interest-paying mortgages – the homeowner gets a lump sum and makes either monthly or ad-hoc payments to pay off the interest and/or the capital on their mortgage. The amount borrowed is paid off when the property is sold or when the lifetime mortgage term ends.

How homeowners use equity release

The most popular use of house wealth was to fund refurbishments, renovations and home improvements. The good news about this reinvestment is that it is spent within the UK in the construction and manufacturing sectors. Legal and General Assurance Company has calculated that every £1.00 of house value released is worth £2.34 to the economy.

  1. Some later life homeowners use equity release to provide a Living Inheritance. By placing a debt on the house and gifting the money to their children, later life homeowners enable their children to receive part of their inheritance early. And subject to UK Inheritance Tax (IHT) regulations, can potentially reduce IHT liability for both the estate and for their offspring.
  2. In other cases house wealth can fund domiciliary care in the mortgagee’s own home. More people in need of care are now choosing to stay in their own home, rather than selling their house and moving into a care home.
  3. House equity can be used for home improvements. Homeowners in later life do not always have the means to carry out extensive repairs to their home. This is because they may not have the capital as a lump sum, or they may not have sufficient income to secure a loan. By using equity released from their homes they can afford home improvements.
  4. There is a need for some retired people to supplement their pension income due to low annuity rates. By releasing equity in a property, pension income can be supplemented through pre-planned staged payments, or drawdowns via a lifetime mortgage product.

Here is our tips list when considering a lifetime mortgage

  • Draw up a quick budget planner. It should cover later life finances but also what you wish to do and how you can plan for it.
  • Always discuss your options with an Independent Financial Advisor or mortgage adviser that is properly qualified to give advice in this area.

Retirement planning is complex and you may need specialist advice to achieve your retirement dream.

  • You may also want to discuss your plans with your family.
  • Do not discount local authority funding and help, particularly regarding wheelchair access, disabilities or any other medical help or support.

To book a consultation with MarchwoodIFA equity release expert Hamish Gairns, please call 01243 532 635.

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

To discuss mortgages and insurances, please ask to speak to James Mayne.

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.

Update last chance to use 2017-18 allowances

Update last chance to use 2017-18 allowances

On 13th March Chancellor Philip Hammond announced the Spring Statement in just 26 minutes. Hammond claimed that growth is forecast higher this year at 1.5% (not 1.4% as predicted); and that debt, as a proportion of GDP, would fall from 2018-19. This is the first debt decline in 17 years. The slight upturn in fortune is attributed to an increase in tax collected from self-employed people which was £2.9bn higher than predicted. However, the OCED recently said that the UK economy will grow at a slower rate than any other advanced or emerging economy this year.

Though the Spring statement was not a mini-budget Mr. Hammond did detail consultations on future policies as follows:

  • A new Tech tax looking at how technology giants such as Google and Facebook are taxed;
  • The future of cash and digital payments – will we still need 1p and 2p coins?
  • Evidence on whether the use of non-agricultural red diesel tax relief contributes to poor air quality in urban areas;
  • A possible tax on single use plastic;
  • A reduction in tax for least polluting vans.

There will be an additional £1.7bn to deliver 26,000 affordable homes in London.

There will be a revaluation of business rates – brought forward to 2021, and thereafter, evaluations every three years.

Broadly speaking the opposition expressed concerns that additional NHS funding is not being considered now; the Autumn budget being too late. The same concerns where expressed about austerity measures in general – where an increase in public spending was called for.

Here is a quick recap on allowances available in the 2017-18 Tax year.

The 2017-18 Tax year closes very soon. It is important that you don’t lose out on any allowances. Here is what you are able to save and invest:

  1. ISAs are tax-free savings accounts for cash or equity-based investment savings such as Unit Trusts or OEICS. The total ISA allowance for 2017-18 is £20,000. The ISA can be a blend of a Help-to-buy ISA, an innovative finance ISA, cash or stocks and shares ISAs, or the new Lifetime ISA. But the total amount saved must not exceed £20,000 in this tax year.
  2. More on Lifetime ISAs – launched in 2017 savers can invest up to £4,000 pa in a Lifetime ISA. The state will add a 25% bonus on top, which is paid until you reach 50 years of age. The maximum bonus is £32,000. To qualify savers would have to open an account on their 18th birthday and save £4,000 per annum.
  3. More on Help-to-Buy ISAs – designed to help first time buyers save for a deposit for a first home, these ISAs can be grouped by individuals to fund a house purchase. Individual savers can deposit £1,200 in the first month and then £200 per month thereafter. The state will top up 25% up to the value of £3,000 when the ISA is used to fund a house deposit. If the total Help-to-Buy ISA value exceeds £12,000 the state will still only top up a maximum of £3,000.
  4. We shouldn’t forget Junior ISAs which; replaced Child Trust Funds in 2011. Parent or Grandparents can save up to £4,128 per annum on behalf of a child. The savings can be a blend of cash and stocks and shares ISAs, however cash JISAs can be held with one provider only. Children are able to take control of JISAs aged 16 but cannot access the JISA until they are 18 years’ old.
  5. The Lifetime allowance on pension contributions is still set at £1m; however, from April 2018 it will be increased by £30,000 to £1,030,000. This is the first rise since 2010. The value of savings is tested when pension pots are accessed, on death, or at the age of 75. Tax penalties are incurred if pension savers exceed their lifetime allowance.

With ever-changing predictions for the UK economy, it is clear that individuals would be well-advised to consult a local Independent Financial Advisor.

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

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.

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

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