by admin | Apr 25, 2020 | Equity News, Investment, Mortgage News
Our financial situation can be a bit like a spider’s web. Decisions taken in one area of our financial lives can have implications for other areas of our financial life. In some cases this is obvious (if you spend money, you can’t also save it), in other cases, however, it can be much less obvious. For example, any decisions around equity release could have subsequent implication for anything from estate planning to access to means-tested benefits. With some people considering this as a way to help their families through coronavirus, here is some useful information.
The basics of equity-release
In principle, equity-release simply means tapping into the value of your home. In practice, it can mean different things to different people. In fact, it can mean different things to the same person at different stages of their life.
For younger people, equity release may mean increasing the loan-to-value ratio on their home. Essentially, they are swapping some of the equity they already own for cash in hand, but do intend to make monthly repayments of the loan principal until it is ultimately cleared.
For older people, equity release may mean swapping some or all of the equity in their home for a lump sum or income, without committing to making any repayments during their lifetime. The repayments are made out of their estate after their death, or when they move into permanent care and the house is sold.
Both forms of equity release can have significant implications and so it is strongly recommended to get professional advice before entering into either. Here are some ways they could impact your finances.
Inheritance
This is perhaps the most obvious way in which equity release could impact your finances and/or the finances of your estate. On the one hand, reducing the amount of equity you have in your home could lower the value of your estate and hence the amount of inheritance tax which is ultimately payable on it. On the other hand, if your heirs wish to keep the property, then it may result in them having to pay more to do so.
Tax
Tax laws can and do change and so it’s always advisable to check the rules in place at the time of taking out a financial product or service and to familiarise yourself with any changes which are likely to be in the pipeline. As a rule of thumb, however, if you have any income or assets there’s a good chance that HMRC is going to want to claim a share of them somewhere along the line. For example, even if a lump sum is tax-free, if you put it in a bank, then you may end up paying tax on the interest.
Investments
If you are planning on releasing equity from your home via a standard, repayment mortgage in order to fund the purchase of investments, then you have to be aware that the performance of an investment is not guaranteed whereas your mortgage repayments are an unbreakable commitment assuming you want to keep your home.
If, however, you are planning on releasing equity from your home via a lifetime mortgage, in other words, one in which repayments are only made after your death, then the situation is a little different. You are not at risk of losing your home, but you may be at risk of making a sub-optimal financial decision, which could leave you or your heirs worse off. This is definitely a situation in which professional advice is to be recommended in the strongest possible terms.
Pensions and benefits
Pensions are not currently means-tested, but should they become so then any funds received through equity release could impact your ability to claim them. As it currently stands, they may impact your ability to claim means-tested benefits. If you are considering the possibility of releasing equity from your home to build up your pension pot then, again, getting professional financial advice is strongly recommended.
For Equity Release we act as introducer only
Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration
Your home may be repossessed if you do not keep up repayments on your mortgage
For inheritance tax planning (IHT), estate planning, tax planning, investments and pensions we act as introducer only
The FCA does not regulate some forms of tax planning, inheritance tax planning and estate planning
by admin | Apr 19, 2020 | Mortgage News
The havoc being wreaked by the Coronavirus is not being contained within the walls of hospitals or even with the walls of people’s homes. It’s spreading into all aspects of life in the UK and hurting people emotionally and financially even if it is not impacting them physically. While there is little the government can do about the virus itself, at least for the time being, it is trying to help people manage their finances during this difficult time and, in particular, to allow them to stay in their own homes.
Help for renters
As of 26th March all proceedings for, and enforcement of, possession orders has been suspended for a period of 90 days. Also since 26th March landlords have been obliged to provide tenants with three months’ notice in advance of starting eviction proceedings. This measure is due to last until 30th September. Both measures could potentially be extended if necessary. Landlords themselves can apply for a payment holiday on their mortgage in the same way as people with residential mortgages.
Help for homeowners with mortgages
The Bank of England cut interest rates on 11th March (from 0.75% to 0.25%) and then again on 19th March (from 0.25% to 0.1%). This may not be great news for savers, but it could help borrowers who can “just about” make ends meet.
Borrowers who have been able to make ends meet (i.e. who are up-to-date with their payments) but who have experienced a loss of income due to the Coronavirus, can contact their lender and request a payment holiday of up to three months. They will need to self-certify that their request is due to being impacted by the Coronavirus.
Help for borrowers
At the moment, help for borrowers is largely being provided by the lender themselves, which means it’s variable depending on what product you have and with which lender. The Financial Conduct Authority (FCA) is, however, attempting to bring some level of standardization to what is on offer. They have contacted lenders with the following suggested changes:
Customers who have already been financially affected by the coronavirus should be able to use arranged overdrafts on an interest-free basis for up to three months and all overdraft customers should be left no worse off than they would have been prior to the recent changes made to overdraft pricing.
Customers facing financial difficulties as a result of coronavirus should be offered a payment holiday for loans and credit cards. This should last for up to three months.
Customers who access these temporary measures should not see their credit rating adversely impacted.
While the FCA’s list is phrased as “proposals”, it’s rather hard to see how lenders could refuse, particularly since they could probably take it as read that these proposals could be turned into emergency legislation if they did. They could also reasonably expect a sharp backlash against their business given that the industry benefited from a taxpayer-funded bailout in 2008.
That said, the FCA’s proposals, while undeniably welcome, do raise further questions, particularly with regard to those in persistent debt. The FCA has already advised that credit card lenders should refrain from suspending the cards of people who’ve been in persistent debt for more than 36 months, which, in principle, offers them a lifeline. In practice, however, it could lead to them having to pay back even more interest, thus placing them in an even worse position further down the line.
Similarly, if people in persistent debt take payment holidays, but the interest continues to be applied to their account, then they could also end up substantially worse off, especially if they are near their credit limit and the interest pushes them over it so that further fees are applied, if not immediately, then later on.
The FCA does not regulate some forms of buy to let mortgages
Your property may be repossessed if you do not keep up repayments on your mortgage
by admin | Apr 3, 2020 | Mortgage News
Although the budget was dominated by the Coronavirus, it actually contained a much broader range of content.
With the situation as it is, some of this may change, but here is a quick guide to what it means for mortgages and property.
Interest rates have been cut from 0.75% to 0.25% (and have since been cut again to 0.1%)
Strictly speaking, this decision was taken by the monetary policy committee of the Bank of England, rather than the Chancellor Rishi Sunak, but the announcement was made on the same day and also influenced by the “economic shock” caused by the Coronavirus. This decision obviously has implications for mortgages and property, but as yet it’s unclear what they will be.
On the face of it, cutting interest rates should be good for borrowers, which includes anyone who has a mortgage and, in principle, should add stimulus to the property market. Certainly, anyone who currently has a tracker mortgage should see their repayments go down per their lender’s schedule for implementing changes to the rate charged. Fixed-rate mortgages, however, will stay as they are, basically, that’s the gamble you take with them.
In principle, if you already have a fixed-rate mortgage then you could take this as an opportunity to take out another fixed-rate deal. In practice, however, this may not be as straightforward as it sounds. First of all, it’s anyone’s guess how long this rate will last, which means that lenders are likely to take a cautious approach to offering fixed-rate mortgages at a rate which could leave them very exposed when interest rates go up. Secondly, you would have to go through the full remortgaging process.
Low-interest rates can feed into high inflation
If low-interest rates weaken the Pound, then imports will become more expensive. This could lead to higher prices for key consumer products, including food.
In principle, a weak pound could benefit exporters and the inbound tourism industry, but in practice, the Coronavirus (plus Brexit) could negate them.
High inflation is not necessarily totally bad news for homeowners, especially when it occurs alongside low-interest rates. If it increases the paper value of a property, it may make it easier for homeowners to remortgage at more attractive rates (or to get a better deal on equity release) but this, of course, does assume that the borrower’s own financial circumstances are good. In other words, that they meet the affordability criteria and can realistically service their mortgage.
There is a commitment to spending on infrastructure
Although HS2 was given the go-ahead before the budget, Chancellor Rishi Sunak had plenty of other infrastructure announcements to make. Probably the headline announcement is that he will commit £600bn to the improvement of roads, rail, broadband and housing by the middle of 2025. There will be a £1bn fund to remove all unsafe combustible cladding from all public and private housing higher than 18 metres. This has been dubbed the “Grenfell fund” and while some might criticize the government for taking so long, at least it has acted now, so credit where it is due.
There will also be £27bn for motorways and other arterial roads, including a new tunnel for the A303 near Stonehenge and £2.5bn to fix potholes and resurface roads in England over five years. Infrastructure improvements tend to boost the value of property in the vicinity, so all this is likely to be good news for homeowners. Property owners in rural areas may be particularly happy to hear that the Chancellor has committed £5bn to getting gigabit-capable broadband into the hardest-to-reach places.
There will be a 2% stamp duty surcharge on international property buyers
As of April 2021, anyone not domiciled in the UK will pay an extra 2% stamp duty if they buy a property in England or NI.
Your property may be repossessed if you do not keep up repayments on your mortgage
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