by admin | Sep 17, 2021 | Mortgage News
It’s lovely if you can pay off your mortgage before you retire. In reality, however, that isn’t always feasible. This means that it can be useful to look at your options for dealing with a mortgage while in retirement.
Downsizing
If you want to move to a smaller property anyway, then astute downsizing can go a long way towards dealing with an outstanding mortgage. The key word in that sentence, however, is “astute”.
To make downsizing work financially, you need to find a suitable property at a suitable price. This price needs to be low enough to make it worth your while to pay all the expenses associated with moving. Ideally, the property should also have low running costs. If not, then it should have the potential to be upgraded and this should be reflected in the price.
If all these conditions are met, then downsizing can be a way to release equity from your current home while still allowing you the benefits of home ownership. Even if it doesn’t pay off the mortgage completely, it should lower your repayments and hence make them easier to manage.
Selling up and renting
This is essentially a variation of downsizing. You swap mortgage repayments for more affordable rent payments. You also release the equity in your old home to use as you wish. Although you might feel hesitant about returning to renting it does have its advantages.
In particular, disposing of your property can make a significant difference to a future Inheritance Tax bill. If you choose to make gifts out of the equity now and live for a further 7 years, those gifts are excluded from IHT calculations. Even if you die within 7 years, the gifts may still be eligible for taper relief.
Equity release
Equity release plans come in two main forms. With a lifetime mortgage, you borrow against the value of your home. The interest can be waived until you die, at which point it is paid out of your estate. Alternatively, you may be able to make repayments during your lifetime.
With a home reversion plan, you essentially sell a stake in your home. When you move on, the proceeds from the sale of your home are split between you and the lender in an agreed percentage.
Although the basics of both products are simple, using either form of equity release can have major financial implications. For example, the cash you receive by releasing your equity can affect your entitlement to means-tested benefits. It’s therefore essential to get professional advice before making any decisions.
Retirement mortgages
Retirement mortgages are essentially variations of regular interest-only mortgages. The key variations are that there is no set term and that there is no need to have a plan to repay the capital. Instead, you make interest payments each month for as long as you remain in the property and then when you move on, the property is sold to pay off the capital.
It is, however, important to note that, as with regular mortgages, your home may be at risk if you do not keep up repayments. You can, however, exit the mortgage by selling the property. If you do, you could potentially benefit from capital appreciation although this is not guaranteed.
Monetising your property
If you don’t want to give up your property, you might want to consider turning it into a source of income. Possibly the most obvious way to do this would be to take advantage of the government’s “rent-a-room” scheme. Depending on where you live and the type of property you own, there may be others.
The disadvantage of this approach is that it could put you to some inconvenience you’d rather avoid. For example, you might not particularly want to have lodgers in your home. You may, however, decide that overall the pain is worth the gain.
For equity release products we act as introducers only
by admin | Aug 26, 2021 | Mortgage News
Life may not be easy for first-time buyers. You do, however, potentially benefit from several government schemes. That said, it’s vital to understand what these mean in practice. They have potential drawbacks as well as advantages. With that in mind, here is a quick rundown of the main options.
The Lifetime ISA
The Lifetime ISA is essentially a government-boosted savings scheme. You can save up to £4K each (tax) year and get a 25% bonus added. In other words, you can get up to an extra £1K per year.
Lifetime ISAs can only be used either for the purchase of a first home or to finance retirement. If you withdraw funds for any other reason, there is a 25% penalty applied to the whole sum. This means that you are effectively charged to withdraw the money you put in.
For example, you pay in £4K and get the £1K bonus. You then need to withdraw your money. The 25% penalty is £1250 so you lose £250 of your own money. This may be amended in future. For the time being, however, it is a consideration you should keep in mind.
The Mortgage-Guarantee scheme
This is often known as the 95%-Mortgage scheme and is essentially a reboot of the old Help-to-Buy scheme. It works along the same lines. If buyers can put down a 5% discount, the government will guarantee up to 15% of the remaining mortgage. This means that the effective loan-to-vehicle rate is 80% rather than 95%.
Keep in mind, however, that this guarantee is for the lenders rather than the borrowers. In other words, if you default, they will be protected to the extent of the guarantee. You will still have to deal with the standard consequences of default.
The Help-to-Buy Equity-Loan scheme V2
This is essentially the same as the original Help-to-Buy Equity Loan scheme. The two main differences are that it is only open to first-time buyers and that it has regional price caps. In short, if you can put together a 5% deposit, you can borrow up to 20% of the purchase price of your home from the government. You need to get a standard mortgage for the reminder.
There are, however, three key points to remember. Firstly, the Help-to-Buy Equity-Loan scheme V2 is only available on new-builds. Secondly, the government will own an equivalent stake in your home. This means that any increase in your home’s value will result in you paying more to buy out the government’s stake in it.
Thirdly, if you can’t repay the loan within 5 years, you will have to pay interest on it. Currently, any repayment has to be at least 10% of the home’s market value at that point. If you can’t afford that, then you will have to keep paying interest on the full amount until you can (or you sell).
The First-Homes scheme
The First-Homes scheme currently only applies in England. It offers first-time buyers a discount of 30%-50% on new-build properties. The standard discount is 30% but local authorities have the option to increase this to a maximum of 50% as long as they can justify the decision. The discount must be passed on to any future buyers.
There is a price cap of £250K outside London and £420K inside London. There is also an earnings cap on candidates of £80KPA outside London and £90KPA inside London. Local authorities have the option to prioritize certain groups of first-time buyers for the first three months of property marketing. After this, they must allow any qualifying application.
The main potential disadvantage of the First-Homes scheme is that it may be very hard for regular first-time buyers to qualify for it. For example, local authorities may use it to encourage key workers to stay in higher-cost areas.
For advice, please get in touch.
by admin | Aug 20, 2021 | Insurance News
Many of us lead very busy lives. This means it’s entirely understandable that people often just leave things “ticking over” unless there’s a reason to change them. Often, that’s not just perfectly fine, it’s very sensible. Sometimes, however, it’s a mistake. With insurance, especially protection insurance. It can be a huge mistake.
You need the right level of cover for your situation
Think of insurance as cover for life’s rainy days. Now think about how you dress for a rainy day. If you have to go out when it’s absolutely pouring, you’re going to want your best (and longest) waterproofs. If, however, you’re just popping out into a light shower, an umbrella on its own might be absolutely fine.
The same principle applies to insurance. Admittedly, you can’t change your insurance policy as quickly and easily as you can change your clothes. You can, however, definitely change it and you should, indeed, must change it as your needs change. The good news is that your needs are unlikely to change as quickly as the weather.
Major life events are indicators to check your protection cover
Many forms of insurance are subject to annual review. Some forms of insurance, however, can run for two or three decades. This is particularly likely with protection cover, especially life insurance. Just because they can, however, it doesn’t mean that they should. In fact, they almost certainly shouldn’t. A person’s life can change significantly over that length of time and hence, so can the amount of cover they need.
Protection cover should be assessed at an individual level
In simple terms, if you have dependents, you need protection cover. Even if you don’t have dependents, you may benefit from some forms of protection cover such as critical illness cover. If you share responsibility for dependents (e.g. parents) then everyone involved in caring for the dependents should have their own protection cover. This applies regardless of whether they are earning an income. What’s more, everyone involved in caring for the dependents needs the right level of cover for their situation.
It is impossible to overstate the importance of making sure that each carer has the right level of cover. The reason for this is that the level of cover each person needs may surprise you. For example, let’s say a couple has pre-school children. One parent goes out to work. One parent stays at home to look after the children.
The parent who goes out to work may not need cover to replace all of their income. The parent who stays at home to look after the children will need cover which will pay for someone else to take over their childcare responsibilities. In fact, the home-maker may need a higher level of cover than the breadwinner due to the cost of childcare, especially during the pre-school years.
It can be useful to have protection cover for children
For the most part, children are impressively robust. It is, however, a sad fact of life that some of them will be involved in accidents and/or become sick. Some will even die. For those who do recover, the road back to health can be long, arduous and expensive. When children have their own protection cover, the extra funds can go a long way to ease the burden on parents (and other siblings).
You need to think about how you want to receive any payouts
Some forms of cover may offer protection either as a lump sum or as an income, possibly for a set period (or a combination of both). If so, you need to decide what is right for you, or, in the case of life insurance, your heirs. You also need to think about whether or not you want to put any life insurance payout into a trust, especially if children are involved.
For mortgage & protection advice, please contact us.
by admin | Aug 6, 2021 | Mortgage News
The saga of mortgage prisoners has been rumbling along since 2014 (when the recommendations of the Mortgage Market Review were implemented). Understandably, it has rather taken a backseat to both COVID19 and Brexit. It now appears to be back on the agenda with the industry, the FCA and the houses of parliament.
News from the mortgage front
Back in April, the plight of mortgage prisoners was highlighted, again, due to a brief skirmish between the government and the house of Lords. When the Financial Services Bill was presented to the Lords, they backed an amendment calling on the government to cap the Standard Variable Rate (SVR) lenders could charge mortgage prisoners.
This amendment was, however, rejected by parliament, leaving mortgage prisoners stuck with the status quo. In July, however, both the Treasury and the FCA made public statements indicating that the matter was still very much in their sights. In fact, the FCA is due to submit a review to parliament in November.
What will the review contain?
Obviously, the exact contents of the review will only become public when it is complete. It is, however, safe to assume that it will include an estimate of the size of the problem. The FCA previously estimated that there were around a quarter of a million mortgage prisoners (in July 2020). It now acknowledges that the number may be greater.
The FCA has also indicated that it will look at the effectiveness of the steps already taken to release mortgage prisoners. Presumably, this will provide some level of insight as to what is and is not working at the moment. It may therefore inform any changes the government may choose to make.
What changes could the government make?
Realistically, the government only has two options. The first is to change the affordability criteria, at least for mortgage prisoners. The other is to take steps to make it easier for mortgage prisoners to satisfy standard affordability criteria. Both options raise clear questions and potential issues.
The first option raises the question of who will be responsible if a former mortgage prisoner defaults on a mortgage they would never have given under current rules. If this risk is placed on the lender, then lenders might choose to play it safe and decline the application. This would therefore effectively send mortgage prisoners right back to square one.
The government could get around this by offering some kind of guarantee to lenders. There is certainly precedent for them doing so. The government already offers support to first-time buyers and certain other buyer groups. They could extend this to mortgage prisoners.
The issue here is that subsidising one group of buyers effectively gives them an advantage over other groups of buyers. This does not necessarily go down well with those other buyers, especially not if they are paying for the subsidy through their taxes.
What options are likely?
The government has to deal with the financial consequences of COVID19 and Brexit along with wider issues such as social care and major projects such as HS2. It, therefore, seems safe to assume that it will wish to avoid taking on any more financial commitments than it can help.
This would suggest that the path forward may be to restructure affordability rules albeit with heavy caveats. For example, the government may allow lenders to relax affordability rules if a borrower is already making repayments of the same amount or more. Obviously, the borrower would need to demonstrate a consistent track record of making those repayments.
Another option might be to insist that borrowers have some form of insurance to cover their repayments at least for a certain period. This requirement could potentially be waived for borrowers who have a minimum level of equity in their homes.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
by admin | Jul 30, 2021 | Mortgage News
If you want to sell a home quickly, you need to figure out what potential buyers are likely to want and then show how your home can deliver it. If you’re using a full-service estate agent, they’ll probably help a lot with this. It can, however, still be helpful to know the right approach. With that in mind, here is a quick guide on how to sell a home quickly.
Do your research on your local market
You need to find out what the current generation of buyers in your area is likely to want. This could be a mixture of national trends and localised trends. The property press will generally cover national trends. They may also cover broader local markets such as major cities. For local trends, keep your eye on your local news.
Work to create a great home listing
In modern home sales, it can be best to think of home listings as a succession of teaser, trailer and sales pitch. Your teaser is the thumbnail on the search results in property portals. Your trailer is the main listing on the sales portal.
Pre-COVID19 the main sales pitch generally came in the form of a physical viewing. The lockdown, however, encouraged sellers (and their agents) to create an intermediary step. Essentially, this means providing even more information digitally. With lockdown easing, it remains to be seen if this will continue. There is, however, a lot to be said for it.
In simple terms, the more you can pre-qualify buyers, the fewer real-world viewings you are likely to need to organise before you find a buyer. This can make life a lot easier for everyone, including you. You don’t need any technical skills to create a basic website and/or YouTube channel. You don’t need to spend any money either, a free website package will be fine.
How to create a great home listing
A great home listing basically works as a sales funnel. As such, it provides exactly the right type of information at each step. It also goes into the right level of detail.
Your thumbnail
Arguably, the most important feature by far is the price. There are two reasons for this. Firstly, buyers can search;/filter on price/price range. You, therefore, want to make sure that your home will be picked up in the right searches. Secondly, there is a reason for the expression “priced to sell”. Homes are major purchases and, quite bluntly, price does matter a lot.
The next most important feature is the thumbnail picture. This should generally be an exterior view of your home (even if you live in a block of flats). It needs to present your home as its “best self”. In other words, it needs to be realistic but as attractive as possible.
Your portal listing
The photos on your portal listing are your chance to highlight your home’s main selling points. They are hugely important so it can be helpful to have a professional take them. As a minimum, use a proper camera and read up on how to photograph real estate to sell.
Put your home into “show” condition before the photos are taken. Remember that space and storage tend to be major concerns for modern buyers so make sure that you declutter thoroughly. Also remove anything remotely controversial (think sports, religion and politics). Then consider whether to rearrange your belongings to make your home look more appealing.
Use the text space to give a rundown of relevant practical details. If you wish, offer a link to a YouTube video and/or a website with more information about your home.
Additional information
If you opt to show more information then use the opportunity to sell the location and lifestyle as well as the property itself. You may want to link to other sources but try to keep the key information on your own page so viewers have as much as possible in one place.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
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