BOOSTING RETIREMENT INCOME

The original and popular reason for Equity Release.  Equity in your home can be release as:

  • A single lump sum
  • An initial lump sum with an additional drawdown facility
  • A lump sum with regular income
  • A regular income

Typically, income needs are higher in the early to mid years of retirement than in the later years and Equity Release can be tailored to accommodate this.  A Lifetime Mortgage or a Home Reversion Plan may provide a suitable solution as they don’t involve monthly repayments.  However, other factors including, is your additional income need temporary (perhaps because you anticipate receiving an inheritance in the future) or permanent, and, is retaining ownership of your home important to you, will determine which Equity Release arrangement will provide the most suitable solution for you.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below.  Please ask for a personalised illustration.

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REPAYING AN EXISTING MORTGAGE (including “mortgage prisoners”)

In 2018, the Financial Conduct Authority (FCA) reported that 1.67 million homeowners had either a part or full Interest Only mortgage, and that many of these mortgages which were soon coming to and end with no means of repayment.

The problem is that with retirement not very far away, switching to a Repayment mortgage is simply not affordable due to the severe increase in monthly repayments.  Consequently, the FCA warns that many homeowners could ultimately lose their homes as lenders are forced to take possession of properties in order to settle the mortgage.

The FCA has also identified a problem known as mortgage prisoner.  A mortgage prisoner is a homeowner who’s mortgage probably dates back to the pre-2008 global financial crisis who’s trapped in their current high interest variable rate mortgage and cannot change to a new lower interest rate because the lender no longer offers mortgages, nor can they remortgage to a new mortgage lender because their circumstances have changed which prevent them from passing a new lender’s affordability test.

If you’re approaching retirement and have an Interest Only mortgage coming to an end with no means of repaying it, or perhaps your mortgage term takes you past your retirement date and you’re worried about maintaining the monthly repayments, or perhaps you’re a mortgage prisoner, Equity Release could provide a solution, including:

  • Retaining ownership of your home and remortgaging to a Later Life mortgage or Retirement Interest Only (RIO)  mortgage, and paying affordable Interest Only payments
  • Retaining ownership of your home and repay your mortgage with a Lifetime Mortgage which will not require any ongoing monthly repayments although you can make voluntary payments if you wish to
  • Repay your mortgage via a Home Reversion Plan which will involve selling your home, or part of it, to a Home Reversion provider whilst retaining the right to remain in your property, rent free, for the rest of your life

Factors including your level of retirement income and whether you prefer to make monthly repayments or not, and whether you envisage being able to repay the amount needed in the future (perhaps from an expected inheritance), and is retaining full ownership of your home important to you, will determine which Equity arrangement will provide the most suitable solution for you.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below.  Please ask for a personalised illustration.

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REPAYING CREDIT CARDS OR PERSONAL LOANS

 Whilst Equity Release can be used to repay personal borrowings the advice is always to think very carefully before doing so.  This is because, these types borrowings are not secured on your home but in repaying them with an Equity Release arrangement will involve using your property is some way.  However, the problem looming is the monthly repayments a time when it may have become difficult to maintain even the minimum monthly payments.

An effective compromise could be to release equity via Later Life mortgage or Retirement Interest Only (RIO) mortgage which will require you to maintain monthly Interest Only payments and allow to make voluntary overpayments of up to 10% per year which will go towards repay the borrowings.  Over time you could therefore repay all the borrowing at an affordable rate.  If that isn’t possible then a Lifetime Mortgage or a Home Reversion Plan could be used which require no monthly repayments.

Factors including your level of retirement income and whether you prefer to make monthly repayments or not, and whether you envisage being able to repay the amount needed in the future (perhaps from an expected inheritance), and is retaining full ownership of your home important to you, will determine which Equity Release arrangement will provide the most suitable solution for you.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below.  Please ask for a personalised illustration.

 

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MOVING HOME

It isn’t always the case that moving home in later years means downsizing.  You may for example want to move closer to your children, or to the coast, where perhaps property prices may be higher.  Equity Release can help.

Whilst Equity Release is generally associated with releasing equity from your current home, it can also be used to help you move home.  For example, you’re new house may be costing £40,000 more than you’ve sold your current home for and you require a £40,000 Equity Release arrangement to buy the new house.  So how would that work?  You simply apply for a £40,000 Equity Release arrangement on your new house and on moving day (completion) the Equity Release provider sends your solicitor the £40,000 just like with any other house purchase completion.

A Later Life mortgage or Retirement Interest Only (RIO) mortgage, or Lifetime Mortgage or Home Reversion Plan could provide a suitable solution depending on your circumstances and objectives.  Factors including your level of retirement income, and whether you prefer to make monthly repayments or not, and whether you envisage being able to repay the £40,000 in the future (perhaps from an expected inheritance), and is retaining full ownership of your new home important to you, will determine which Equity Release arrangement will provide the most suitable solution for you.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below. Please ask for a personalised illustration.

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PROPERTY IMPROVEMENTS AND ALTERATIONS

Whether it’s for a new kitchen, or a new bathroom, an extension, or alterations which will enable to continue living independently in your home for longer, Equity Release can help.  Along with garden landscaping, this is one of the most popular uses of Equity Release.

Typically, the minimum Equity Release sum is £10,000 so although people often think that Equity Release is for much larger sums, you may only require a modest sum to carry out the improvements or alterations you’d like to make to your home.  Or indeed, you may require a larger sum.

Once you’ve a clear idea of the cost of the work, Equity Release applications typically take around 6 weeks to complete so you’ll be able to get the work underway in no time.

A Later Life mortgage or Retirement Interest Only (RIO) mortgage, or a Lifetime Mortgage or Home Reversion Plan could provide a suitable solution depending on your circumstances and needs.  Factors including your level of retirement income, and whether you prefer to make monthly repayments or not, and whether you envisage being able to repay the equity released in the future (perhaps from an expected inheritance), and is retaining full ownership of your new home important to you, will determine which Equity Release arrangement will provide the most suitable solution for you.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below.  Please ask for a personalised illustration.

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PROFESIONSAL GARDEN DESIGN AND LANDSCAPING

It doesn’t have to be a new kitchen or bathroom, or a grand holiday, if you’re a garden lover and know your Anagallis Arvensis from your Helianthus Tuberosus, or a fan of flower shows or garden make-over programmes, Equity Release can help you create you very own dream garden.  Along with home improvements and alterations, this is one of the most popular uses of Equity Release.

Typically, the minimum Equity Release sum is £10,000 so although people often think that Equity Release is for much larger sums, you may only require a modest sum to have your garden professionally transformed.  Or indeed, you may require a larger sum.

Once you’ve a clear idea of the cost of your garden transformation, Equity Release applications typically take around 6 weeks to complete so it won’t be long before work can commence.

A Later Life mortgage or Retirement Interest Only (RIO) mortgage, or a Lifetime Mortgage or Home Reversion Plan could provide a suitable solution depending on your circumstances and needs.  Factors including your level of retirement income, and whether you prefer to make monthly repayments or not, and whether you envisage being able to repay the equity released in the future (perhaps from an expected inheritance), and is retaining full ownership of your new home important to you, will determine which Equity Release arrangement will best turn your dream garden into a reality.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below. Please ask for a personalised illustration.

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“BIG TICKET” PURCHASE (E.g. a luxury cruise, a car, caravan, motorhome, boat, etc.)

“Big ticket” purchases have long been a popular use of Equity Release, whether for a luxury cruise, a big family holiday, or a new car.  But often overlooked is how flexible many Equity Release products are and how they can be applied to certain kinds of big ticket purchases.

The two types of big ticket purchases are, an “Experience” purchase such as a:

  • Luxury cruise
  • Holiday of a lifetime
  • Visiting family or friends who live on the other side of the world who you’ve not seen many years

and an “Asset” purchase, like a:

  • Car
  • Caravan
  • Motorhome.
  • Boat

It’s “Asset” purchases we focus on here, purchases which would be expected to have some level of future value when they are eventually sold and which very often involve taking up a loan or finance agreement.  The problem is that the price tag and monthly repayments are what put these longed for aspirations out of reach.  This is where Equity Release can provide a surprising solution.

Let’s take a motorhome as an example.  With new prices starting at around £40,000 and rising to well over £100,000, and pre-owned models maintaining good values, these are very significant purchases.  Did you know that a Later Life mortgage, a Retirement Interest Only (RIO) mortgage, and some Lifetime Mortgages, allow you to make voluntary overpayments?  It’s these overlooked features that can make Equity Release a flexible and affordable means of realising your big ticket “Asset” dream.  Here’s how:

Later Life mortgages and RIO mortgages are Interest Only mortgages and the required monthly payments maintain the mortgage balance at the original level.  But what if:

  • You are happy to pay a little more each month? Perhaps not as much as a motorhome finance agreement would be, but more than the required Interest Only payment.  The extra payment would be a voluntary overpayment, which you can stop or change at any time, and would go towards reducing the balance of the mortgage.  Consequently, the next month’s interest charge will be a little less which correspondingly will increase the amount your voluntary overpayment pays off.  If we then jump ahead to when you eventually sell your motorhome (or car, or caravan, or boat etc.), you can pay the sale proceeds into the Later Life mortgage or RIO mortgage and reduce the mortgage balance even further, probably by a significant amount.  At that time, if you carry on paying what you’ve always paid you‘ll see your mortgage balance come down even more each month, and even eventually repay the mortgage in full.

Or perhaps

  • You are happy with just paying the Interest Only payment? This will maintain the mortgage balance at the original level then when you eventually sell your motorhome (or car, or caravan, or boat etc.), as before, you can pay the sale proceeds into the Later Life mortgage or RIO mortgage and reduce your mortgage balance, probably by a significant amount, which will reduce the monthly interest charge.  But if you then maintain your monthly payment at the level you’ve been paying, it will now include a voluntary overpayment which will go towards reducing the mortgage balance and the monthly interest charge every month.  So over time you’ll pay off more and more of your mortgage balance.

With a Lifetime Mortgage no monthly repayments are required and therefore any payments you make are voluntary overpayments.  Depending on how much you pay the payment(s) will either, slow down the roll-up of interest, or maintain the mortgage balance at the original level, or actually reduce the mortgage balance.  Then, when you eventually sell your motorhome (or car, or caravan, or boat etc.) you can pay off some of the Lifetime Mortgage with the sale proceeds.

Either of these arrangements will have made the impossible, possible, and whichever approach you adopt, the long term mortgage balance will be less than it would have been, leaving a greater legacy for your loved ones.  However, whether you make any voluntary overpayments to any of these Equity Release options is entirely up to you.

(i)         Not all Lifetime Mortgages are suitable to be used in this way.

(ii)        Whilst a Home Reversion Plan could be used for a big ticket “Asset” purchase, it doesn’t offer the flexibility of a Later Life mortgage, (RIO)
              mortgage, or some Lifetime Mortgages as it involves selling a part, or all, of your property to a Home Reversion provider.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below.  Please ask for a personalised illustration.

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HELPING CHILDREN GET ON TO THE PROPERTY LADDER OR MOVE HOUSE

Buying a first home or moving to a larger property to accommodate a growing family has never been easy, and for each new generation it continues to get more difficult.  This has given rise to the phrase, “Bank of Mum and Dad”, or “BOMD”. The problems faced by young buyers include:

  • High house prices
  • Substantial minimum deposits because of high house prices
  • Tiered interest rates.  Lenders reserve their lowest interest rates for mortgages up to 60% of the property value, known as “Loan to Value” (LTV).  When borrowing more that 60% LTV interest rates increase in steps (tiers) with the highest rates for mortgages over 90% LTV, which is invariably first time buyer and first time home mover territory.

It’s not just the sacrifice and time that it takes to save a minimum 5% or 10% deposit, young buyers are then faced with high mortgage repayments due to the higher interest rates on high LTV mortgages.   This is where the Bank of Mum and Dad has helped young buyers whereby parents and grandparents with spare savings have helped children and grand children towards a larger deposit in order to significantly reduce their mortgage repayments as a result of being on a lower interest rate tier and lower mortgage borrowing.  But for parents and grandparents who’d like to help their children or grandchildren, but who don’t have the necessary spare savings, Equity Release could provide a dynamic solution.  Here are two typical examples:

  1. Chris and Amy are first time buyers and have been approved for a 90% LTV mortgage
  • Releasing equity with a Later Life mortgage, a Retirement Interest Only (RIO) mortgage, or a suitable Lifetime Mortgage will enable Chris and Amy to increase their deposit and take up a lower mortgage at lower interest rate.  But with much lower mortgage repayments, Chris and Amy can afford the monthly interest payments on your Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage which will maintain your mortgage at the original level.  Or, they could even pay you an additional amount to go towards repaying your mortgage.  Combined, Chris and Amy’s lower mortgage payments and your Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage payments, will be less than the monthly payments Chris and Amy would have paid on a 90% LTV mortgage.

In the future, when the Chris and Amy’s property increases in value (assuming it does which is not guaranteed) they could increase their mortgage to repay your Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage as these Equity Release mortgages can be repaid early (subject to terms and conditions which will need to be factored in at the start).

  1. Phil and Zoe need to move to a more expensive area because of their jobs
  • Phil and Zoe are trainee professionals and as their training progresses and they become more qualified, their salaries will increase accordingly.  After selling their flat they’ll have £15,000 to put towards a new property and based on their current salaries their maximum mortgage is £185,000.  The problem is that suitable properties near Phil and Zoe’s jobs are around £250,000, which won’t be a problem in a few years time but £250,000 impossible now but they need to need to move.

Releasing £50,000 equity with a Later Life mortgage, a Retirement Interest Only (RIO) mortgage, or a suitable Lifetime Mortgage will enable Phil and Amy to move to a £250,000 property.  Furthermore, their £185,000 mortgage will now be equal to 74% of the purchase price so their mortgage interest rate will be at the lower end of the interest rate tiers, so their monthly repayments will be much lower than had they bought at £200,000 with a £185,000 mortgage.

With lower mortgage repayments, Phil and Zoe can afford the monthly interest payments on your Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage which will maintain your mortgage at the original level.  But they can also afford an additional amount to go towards repaying your mortgage.  Then in the future, when Phil and Zoe’s salaries have increased, they could increase their own mortgage to repay your Later Life Lending mortgage, (RIO) mortgage, or Lifetime Mortgage as these Equity Release mortgages can be repaid early (subject to terms and conditions which will need to be factored in at the start).

(i)         Not all Lifetime Mortgages can be used in this way.

(ii)        Whilst a Home Reversion Plan could be used to help children or grandchildren buy a property, it doesn’t offer the flexibility of a Later Life           
              mortgage, (RIO) mortgage, or Lifetime Mortgage as it involves selling a part, or all, of your property to a Home Reversion provider.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below.  Please ask for a personalised illustration.

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MITIGATING CAPITAL GAINS TAX LIABILITY ON DISPOSAL OF A PROPERTY PORTFOLIO

With the popularity of buy-to-let property as a retirement planning investment, eventually the time comes when attention turns to the disposal of properties which gives rise to the issue of Capital Gains Tax (CGT).  In addition, since the changes in tax reliefs on income from property came fully into force in April 2020, many landlords are looking to reduce their property portfolios.  However the problem faced by landlords is the potential CGT liability incurred on the sale of their properties as a result of the housing market boom over past decades.  Here’s a possible scenario:

Giles and Jenny are about to retire.  They have no mortgage on their home and have 8 rental properties.  Giles and Jenny built their property portfolio with the intention of selling their properties when they retire to enable them to buy a retirement holiday home and leave a capital sum to supplement their retirement income.  That time has now come.

Giles and Jenny have always known that when they came to sell the rental properties that they’ll more than likely have some level of CGT to pay but over the years the properties have increased in value much more than they’d ever anticipated.  Consequently, if Giles and Jenny sell all 8 rental properties at once they’ll record a huge “capital gain” on which they’ll incur a huge CGT bill which will impact on them being able to buy a retirement holiday home and impact on their anticipated retirement income.

One of the allowable reliefs Giles and Jenny can use to reduce their CGT bill is their annual CGT Allowance, which being couple they can combine.  They could also do this if they weren’t married as they own the rental properties jointly.  However, in selling all 8 rental properties at once they’ll only be able to use this year’s CGT Allowances against the 8 properties.  But, if they could spread the sale of the 8 rental properties over the next 7 years, each year they’ll both have a new CGT Allowance to use against the CGT liability on each property sale.  Furthermore, doing so is likely to result in them paying a lower rate of CGT due to the lower capital gain.  This would be perfect solution for Giles and Jenny except that it means that they wouldn’t be able to buy their retirement holiday home until they’ve sold several of their rental properties.  Equity Release could provide a solution.

Releasing equity in their home with a Later Life mortgage, a Retirement Interest Only (RIO) mortgage, or a suitable Lifetime Mortgage could:

In the current tax year:

  • Allow Giles and Jenny to sell just one rental property and utilise their CGT Allowances against the single property sale to reduce or even nullify their the CGT liability this year
  • Allow Giles and Jenny buy their retirement holiday home
  • Fund any shortfall in retirement income for the coming year (if any)
  • Allow Giles and Jenny to continue to receive rental income from the remaining 7 properties

Then, in the second tax year:

  • Allow Giles and Jenny to sell the second rental property, utilising the their new CGT Allowances against the single sale
  • From the sale proceeds enable Giles and Jenny to make an overpayment of up to 10% to their Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage as a part repayment
  • Retain the remaining balance of the sale proceeds for retirement income whilst continuing to receive rental income from the remaining 6 properties

Then, in the third tax year:

  • Allow Giles and Jenny to sell the third rental property, again utilising their new CGT Allowances against the single sale
  • From the sale proceeds permit Giles and Jenny to make another overpayment of up to 10% to their Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage as a part repayment
  • Retain the remaining balance of the sale proceeds for retirement income whilst continuing to receive rental income from the remaining 5 properties

Thereafter:

  • In years 4, 5, 6, 7 and 8, allow Giles and Jenny to sell one rental property per tax year, each time utilising their new annual CGT Allowances against the single sale, and from each of the sale proceeds make an overpayment of up to 10% to their Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage as a part repayment. During these remaining years Giles and Jenny would retain the remaining sale proceeds for retirement income whilst continuing to receive rental income from the remaining properties until all the final property is sold

Then, finally:

  • When the Early Repayment Charge period on their Later Life mortgage, (RIO) mortgage, or Lifetime Mortgage has expired, make a final payment to fully repay the remaining balance of their Equity Release mortgage.

(i)         Not all Lifetime Mortgages can be used in this way.

(ii)        Whilst a Home Reversion Plan could be used to mitigate CGT liabilities, it doesn’t offer the flexibility of a Later Life mortgage, (RIO) mortgage, or
             Lifetime Mortgage as it involves selling a part, or all, of your property to a Home Reversion provider.

THE INFORMATION PROVIDED DOES NOT CONSITITUTE ADVICE AND SHOULD NOT BE ACTED UPON.  We would be please to help you with your Equity Release enquiry by clicking the button below.  Please ask for a personalised illustration.

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