Welcome to Your Quarterly Update

After a few weeks of R&R for many it’s good to be back into routine and normality to some extent. As many face finding homes for new belongings and take a moment to reflect on the hustle and bustle of the festive period, it may also be a good time to reflect on last year’s financial habits.

Christmas especially opens many of us up to overspending and stretching our money perhaps a little further than we should. It could provide an opportunity to utilise New Years as a fresh start and give your finances an overhaul.

From debt consolidation to budget planning and life cover to remortgaging and everything in between, we’re here to help should you need it.

  1. In this month’s newsletter:
  2. Financial New Years’ Resolutions
  3. Tax Changes of 2023 to look out for
  4. Why are people opting for Private Healthcare?
  5. Debt for the over 55s
  6. Can you remortgage with bad credit?
  7. Mortgage Life Insurance. Decreasing Term vs Level Term

2022 undoubtedly wreaked havoc with many of our finances with the cost-of-living expenses rising and interest rates causing uncertainty in the mortgage market. So, with a New Year now underway, it isn’t too late to set our New Years’ resolutions for your finances to help combat the ongoing cost increases. Check out our handy list of 10 Financial New Year’s Resolutions that could help shape your finances for 2023.

Create an emergency fund:

It may seem difficult to envisage pots of cash stashed away while many of us our tightening our belts, but if it’s possible to squirrel away even small amounts to fall back on should you need it, this could provide comfort if tough times come calling.

Reassess your utility providers

While reassessing gas and electric providers may be a little out of reach while the prices continue to climb, other outgoings can be reassessed. From your TV packages to your broadband deal and even your mobile phone contract, when the current agreement ends, it’s worthwhile looking around at what other options are available. Sadly, loyalty is not often rewarded and new customers may see better introductory deals, meaning looking at alternate providers could save you a fair amount of money.

Plan for Retirement

If you are only in your 20s or 30s, or even into latter decades, retirement may feel an age away, but preparing your finances to accommodate a lapse in the income your used to when the time comes is essential. Sitting down and assessing your pension(s) and even looking to consolidate multiple pensions into one spot can help put your retirement finances in line ready for the years ahead.

Clear those debts

Many of us inevitably face debts following Christmas spending, from credit cards to loans and even store cards, it’s easy to accumulate debts through the seasonal overspend period. Look to overpay on your minimum repayments where possible to help clear the debts that bit quicker. Or even look at Debt consolidation options where you could secure an alternative loan to pay off the existing debts, creating 1 simple repayment monthly, rather than several spread out debts

Plan for the expected, allow for the unexpected

Making compensations for the price rises is something we can plan in to our budgets for the year ahead, but it’s important to ensure we expect the unexpected. What if rates rise? What if you lose your job? What if there is a resurgence of the pandemic? The unknowns could have significant impacts on our finances so it pays to be prepared. Have you considered income protection? Or repotting money into higher interest rate accounts? There are many ways to prepare should the worst happen- do get in touch to discuss further options.

Prepare a will

As with planning for retirement, planning a Will can seem unnecessary and a little uncomfortable, but if you have assets or loved ones to provide for after you’re gone, a Will is an essential part of forward planning. It is widely considered that many Wills are not fit for purpose, if they’re in place at all, so it is worth revisiting yours even if you have one in place, to ensure it is still fit for what you’d like it to do. *

Get your property valued

The last few years have seen house prices increase considerably, and although the rise is slowing, it could be worth taking a look at the current value of your home. Whether you own your home with a mortgage or outright, it’ll stand you in good stead for your new-year goals to know how much equity you have in your property. Knowledge is power and knowing exactly how much equity you’re sitting on can only help inform your personal finance decisions in 2023.

Improve your Credit Score

When it comes to any significant financial considerations, your credit score is likely to feature in whether you’re able to go ahead or not, so it pays to have it up to scratch. Lenders will use your Credit Score as a report on what your typical financial behaviours are and how they expect you’ll behave with your finances in the future. In simple terms this means your past could shape your future financially. So keep your financial behaviours in order to allow yourself future options for the year ahead.

Is this the year to invest?

Developing a portfolio of investments could be on your 2023 to-do list. Looking into property or stocks and shares could be where you choose to invest money you may have, but it could be important to secure advice on investing if that’s something your new to. If you’re a seasoned pro, consider what is likely to perform well among periods of uncertainty as we see costs growing.

Refine your spending habits

When buying anything, the first thing you should be asking yourself is whether or not you actually need what you’re about to buy. If the answer is no, then put it down and walk away. This can be tricky, but once you get used to it, you’ll find your spending habits starting to change naturally. Take a look at all your current subscriptions and cancel any that you don’t use or need. You can also unsubscribe from marketing emails to remove the temptation of browsing new offers, and leave credit and debit cards at home if you don’t need to shop while out.

Changes to Income Tax

The freeze on the personal allowance, and the basic and higher-rate income tax thresholds in England and Northern Ireland will be extended to April 2028. The freeze on these taxes had been due to lift in 2025-26. While this freeze may not look like a tax rise on the face of it, having thresholds that fail to rise in line with salaries, you’ll still end up paying more tax on your income – particularly if you end up in a higher tax band as a result.

The biggest change announced in the Autumn Statement was the reduction of the additional-rate income tax threshold, dropping from £150,000 to £125,140 from 6 April 2023. It’s estimated around 250,000 taxpayers will be pushed into this higher tax band, paying 45% tax on any income above the new limit.

Chancellor Jeremy Hunt, said lowering the additional-rate means someone earning £150,000 will pay an extra £1,200 income tax per year.

What’s happening in Scotland and Wales?

During the Draft Welsh Budget, it was announced that Welsh taxpayers will pay the same amount of income tax as those in England and Northern Ireland from April 2023. The Welsh plan includes adopting the same additional-rate threshold change.

In Scotland, income tax rates will rise for higher earners. Under the Scottish Budget proposals, the higher rate of tax will rise from 41p to 42p in the pound, and the top rate from 46p to 47p.

The threshold for the top rate of tax will be reduced to £125,140, in line with the additional-rate tax band in place elsewhere in the UK. The personal allowance and other income tax bands (starter, basic and intermediate) will remain frozen.

National Insurance to stay the same

There were a lot of changes to National Insurance in 2022-23. First, on 6 April 2022, rates went up by 1.25 percentage points, as part of the government’s plan to pay for health and social care.

The levy was controversial, however, and as a result then-Chancellor Rishi Sunak raised the contribution threshold from £9,880 to £12,570, which came into force in July 2022.

Then, come ex-Chancellor Kwasi Kwarteng’s mini-budget in September, the levy was abolished altogether. Since 6 November, the rate employees pay on earnings between £12,570 and £50,270 therefore dropped back down to 12%, from 13.25%. Those with earnings above £50,270 now pay 2%, down from 3.25%.

After this rollercoaster, no further changes are expected for 2023-24.

 

Inheritance tax threshold frozen

Another threshold to be frozen is for inheritance tax. IHT is charged at 40% on assets or money you leave to your heirs after you die.

The ‘nil-rate band’ – the amount that can be passed on before IHT is due – will remain at £325,000 until April 2028. The allowance has not changed since 2010-11.

Similarly, the residence nil-rate band – which can be applied if your home is being left to direct descendants – will remain at £175,000.
This means, for example, if you leave behind an estate worth £500,000, the tax bill will be £70,000 (40% on £175,000 – the difference between £500,000 and £325,000).

Similar to the freeze on other allowances, by keeping the nil-rate band at a fixed point, rather than rising in line with price rises, more people’s estates will be dragged above the tax threshold.

Capital gains and dividend tax allowance cuts

Capital gains tax (CGT) is charged on the profits you make from selling an asset, such as a second property or valuable possession. The tax-free allowance is £12,300 for 2022-23, but from April this will be dramatically cut to £6,000. From April 2024, it will be reduced again to just £3,000.

From 6 April, the dividend allowance will also be cut from £2,000 to £1,000. From April 2024, it will be reduced to £500.

Council tax may rise for some

Many people could see their council tax bills increase from April.

For 2022-23, local authorities could raise council tax by up to 2.99% without the need to hold a local referendum. But for 2023-24, this is set to increase to 3%, with an additional 2% if they qualify for the social care precept. This means your council tax bill could increase by 5% without needing to go to a vote.

Proposals in the Scottish Budget also paved the way for higher council tax rates, as there will be no limit set on council tax bill rises for 2023-24. However, the Scottish government is urging local authorities to act responsibly and consider the impact of any potential rate increase on already stretched household budgets.

Stamp duty changes

The changes to stamp duty, which took immediate effect from the day of former Chancellor Kwasi Kwarteng’s mini-budget on 23 September, will remain until 31 March 2025.

Until that date, first-time buyers won’t need to pay stamp duty on the first £425,000 of the property they buy (up from £300,000), while existing homeowners won’t have to pay on the first £250,000 (up from £125,000).
If you live in Scotland, homeowners start paying land and buildings transaction tax (LBTT) on properties costing more than £145,000 (or £175,000 for first-time buyers).

Scottish Budget proposals set out plans to keep these thresholds unchanged in 2023-24. However, rates increased on 16 December for people buying a second home, as the additional dwelling supplement was hiked to 6%, up from 4%. This is charged on top of standard LBTT rates.

 

It’s hard to escape news stories of NHS wait times, A&E crisis points, nurses striking, low numbers of NHS doctors and nurses and even winter flu reducing NHS staff availability, so the increase in those looking towards securing private health care shouldn’t come as a surprise to many.

The pandemic has no doubt caused a knock-on affect further exacerbating already lengthy wait times for NHS treatments, meaning many are choosing to skip the queues and secure private treatment. And it isn’t just hospital treatments that are suffering under the NHS pressures, but access to GPs is also under strain, pushing more people to secure alternate options.

The beauty of Private Healthcare is that it is built to compliment NHS provision, as we are all entitled to NHS healthcare. But as we see a significant increase in companies offering healthcare benefits and incentives to their employment packages as well as individuals seeking their own private options, is it the start of a new Hybrid era for healthcare?

What can Private Medical Care be used for?

The benefits offered by employers typically offer dental, optical and basic treatments as a standard package, but private healthcare is available for a huge range of illnesses and ailments. Different health insurance providers offer different kinds of coverage, but typically health insurance covers a range of acute conditions, diagnostics including scans and x-rays, GP appointments, cancer treatments, physiotherapy, and in more recent years, mental healthcare.

Roughly 1 in 4 adults in England* are battling some form of mental health condition including anxiety and stress, and the World Health Organization recently reported a 25% increase in anxiety and depression worldwide. Insurance companies are recognising the need for good mental health coverage now more than ever, and with mental health conditions on the rise, it’s no surprise that some people are deciding to go private to get the help they need.

If you would like to discuss securing Private Health cover for yourself, or even for your employees, get in touch today to discuss the options available.

“Total debt held by over-55s up by almost 20% in five years”

Recent research carried out by Later Life Lender more2life and economics consultancy Cebr has revealed that that the total amount of debt owed by the over-55s will rise to £294bn this year, up from £272bn in 2021 and £209bn in 2017. This is a leap of two fifths (41%) in five years and the total is set to soar even further over the next decade, to £402bn by 2032. This is a significant rise of 92% in just 15 years.
Over 55s are not the only demographic to be pushed towards credit and loan options following the increases in the cost of living and rising bills, but this significant rise

“55–64-year-olds bear the brunt of later life debt”

Most of this debt is held by younger retirees aged 55-64 who are typically still working while repaying mortgages and supporting children. Total debt held by this group is expected to rise from £196bn last year to £210bn in 2022. Indeed, half (50%) of 55–64-year-olds say that they are currently in debt or have been in the past five years, equating to 4.4m people.

“Unsecured debt to rise by over a third this year”

Unsecured debt amongst the over-55s grew rapidly from less than £20bn in 2015 to over £25bn in 2019 but contracted slightly over 2020-2021 as spending reduced during the pandemic. However, unsecured debt is expected to rise by over a third (34%) in 2022, reaching £20bn, as the cost-of-living drives many to borrow to make ends meet. Currently, almost 40% of retirees have spent more than they receive in income in some months in 2022 (with 8% saying this often or always happens), which will likely only rise further as this debt level increases.
Again, those aged 55-64 are most likely to have larger unsecured debt levels in 2022, with the average credit card debt of those with debt standing at £2,800. Other types of unsecured debt levels are expected to average £10,700 per individual with debt. Higher interest rates are unlikely to deter this rise in unsecured borrowing in the short term, but by the next decade should see the total amount plateau at £19bn.

“Nearly 5m over-55s struggled with credit card debt in the past five years”

More than one in five (22%) over-55s revealed that they had credit card debt in the past five years which they had not paid off in full each month, equating to 4.7m people. The second most common type of debt was an overdraft, with 9% (1.9m people) noting that they had used this solution over the same period.
Following this period of growth in debts among over 55s, it’s important to understand that there are options available that could not only support those facing escalating debts but that could also support loved ones as their outgoings rise too. It’s important to speak to us to understand the options available for the finances of you and your families.

If you’d like to discuss your options in the face of debts, please get in touch today

 

While having bad credit can certainly make it more difficult to get a mortgage, it’s not impossible. When you have a poor credit history, you are more limited on which mortgage deals you can access, in turn this can lead to more costly options.

What is bad credit?

If you have ‘bad credit’, or a poor credit rating, it usually means that you have missed (or been late with) some payments in the past. This could be payments on utility bills, loan repayments or any other situation where you failed to pay on time or in full.
Another thing that can harm your credit record is applying for credit a lot, or being ordered to pay someone money as the result of legal action. Ironically, never applying for credit can also damage your rating (as you don’t have a proven record of repaying money)
Your credit history is one of the key factors that lenders use to assess whether they’ll give you a mortgage, and how generous that mortgage deal may be. The good news is that lenders do offer mortgages for first-time buyers and homeowners with bad credit, and the process for getting one is similar to a ‘regular’ mortgage application.

Getting a mortgage with bad credit

Whether you want to buy a house or remortgage, remember that there are different types of ‘bad credit’ and these are treated in different ways. So first you need to get an idea of how your particular credit situation will appear in the eyes of a lender.
A lender will be reluctant to approve your mortgage if you have:

  • defaulted on a loan (including a payday one)
  • had items repossessed
  • been issued a county court judgement (CCJ) in the last 12 months relating to debt that is secured against a property or asset.

However, after a year or two has passed, lenders may be more willing to accept your application. You might still need a large (25 per cent or higher) deposit or (if you are remortgaging) a lot of equity. This will make you less of a lending risk. Anything else you can do to convince lenders that you are low-risk is worth trying.

Lenders may be more willing to lend if your adverse credit relates to unsecured finance. This means that although you had a debt you failed to repay, it wasn’t secured against any property or assets. Lenders are often happy to accept mortgage applications if you have late payments, defaults and CCJs for unsecured finance. Even applicants who have declared bankruptcy may find success, but again you are likely to need at least a 25 per cent deposit.
It is also possible to have a good, steady source of income, but still have a poor credit history. Lenders love reliable incomes because it means you are more likely to make every payment, but the type of bad credit you have could still affect your application.

How can I get a mortgage with bad credit?

There are a couple of clear strategies for improving your credit score, but no quick fixes. Most importantly, make a real effort to pay back your debts (especially secured debts). Also get rid of things like old phone contracts or shared bank accounts that could be affecting your rating. It will take time for your credit score to recover, but making these changes now will have an impact.
Second, because you know you will be seen as a risky proposition to lenders, prepare as much as possible. Try to save a large deposit, as your lender could require you to have at least 20 per cent of the property’s value. It can be a tough decision, especially for first-time buyers, but delaying your plans by six months to focus on improving your credit score can have a big impact on the interest rates you are able to get.

Another option, if you can get help from your family, is to look at a guarantor mortgage where someone else (e.g., a parent) agrees to cover any repayments you may miss.

If you’re looking to discuss mortgage options, despite having a less favourable credit score, get in touch today.

Your home or property may be repossessed if you do not keep up repayments on your mortgage. You may be charged a fee for mortgage advice.

 

What is mortgage life insurance?

When we think about life insurance, we typically think of the large cash pay outs should the worst happen, but a mortgage life insurance product is created specifically to cover the outstanding mortgage should those events unfold.

The aim of a mortgage insurance product is to provide reassurance that should you or your loved one pass away, the remaining partner and any possible children would be catered for and have one less thing to thing about while going through grief and loss.

Typically, there are 2 types of mortgage insurance; level term and decreasing term, but what do they both mean and which suits your needs best?

Level Term Life Insurance

A Level term policy fixes the amount paid out for the length of the policy.

These policies tend to be more expensive, as they pay a defined lump sum if you die within a fixed time, for example, £200,000 if you pass within the next 18 years. However, this could be better if you want to leave a lump sum for your dependents to cover more than just your mortgage, for example other debts and/or ongoing spending.

Level-term is also likely to be a better bet if you have an interest-only mortgage, as the lump sum would be available to cover the capital rather than just the repayments.

Decreasing Term Life Insurance

This is the most common, and usually the cheapest, as the amount you’re covered for decreases as you pay your mortgage off (though your monthly payments stay the same). This leaves your dependents with enough money to pay the rest of the mortgage.

It’s therefore designed for repayment mortgages – the most common type where the amount you borrow is fully repaid at the end of the term.

Do you need Mortgage Life Insurance?

If your income is being relied on to ensure the mortgage payments are covered then and they would likely struggle without it, then securing life insurance could be a good value option.
While Life Insurance is not a compulsory requirement, it could be worth weighing up the options and seeing if its right for you. There are a couple of things to consider:

  • If you don’t have dependents, you don’t need life insurance.

You may not need to get a mortgage life insurance policy (or indeed any other sort of life insurance) if no one relies on your income to pay the mortgage, eg your partner and/or children. It would mean, however, that whoever inherits your property may need to sell it, unless they’re in a position to pay off your mortgage, or get a mortgage on the property themselves.

  • If you’ve already got a life insurance policy, you could already be covered

You may not have ‘mortgage insurance’, but if you already have a level-term life insurance policy then this will give your dependents a lump sum if you die. However, they would want to use the insurance sum to pay off the mortgage, you’ll need to ensure the amount you’re covered for exceeds the amount you owe, and the policy is in force for as long as your mortgage term.

If you’d like to discuss your Life Insurance options, do get in touch today to give yourself some New Year reassurance, just in case.

What’s the best equity release scheme?

As an Equity Release specialist, these are questions that I am asked very frequently (“Reverse mortgage” is the American term for equity release, which can cause initial confusion)! The simple answer? There isn’t one.

Why? Equity release is a complex process and the results can vary depending on your home, your age, your current financial situation and how much cash you want to withdraw. Without careful consideration, any equity release scheme – or reverse mortgage – can be a fantastic opportunity or a financial disadvantage – which is why it’s so essential that you take professional, impartial advice before signing up.

When is equity release a good idea?

Over the last decade or more, house values have increased at a staggering rate while incomes have struggled to keep pace. This means that a vast number of homeowners have more wealth tied up in their homes than in their savings accounts.

Once retirement hits, those relying on a state pension may find that their reduced income causes a significant drop in quality of life and that they can no longer afford the larger purchases they are used to. Equity release provides an alternative source of funds, converting the wealth that’s locked up in your home into cash – without you having to move out.

There are two main options with equity release; lifetime mortgages and home reversion plans. In either case, any money that you borrow will not need to be repaid until you move into long-term care and sell your home, or pass away.

What is a lifetime mortgage?

In a nutshell, a lifetime mortgage is a form of tax-free equity release that secures a loan against your home based on its value. Lifetime mortgages offer some flexibility in terms of payment structure, with a lump sum or monthly instalments allowing you to receive money how you’d like.

With the security of keeping your home, you typically have the option of releasing between £10,000 and £100,000. Use our equity release calculator to see how much you could release. If there is still some mortgage to pay on your home, the money you release will pay this off first.

Once the outstanding mortgage has been redeemed, it’s up to you how you spend the money after that. Common uses for lifetime mortgage equity include home improvements, travel and helping your children to get on the property ladder.

  • Tax-free lump sum
  • You keep ownership of your home
  • Flexible equity release; lump sum or regular instalments
  • Continue to live in your home or you are free to move house

Home reversion plans

Home reversion plans allow homeowners to sell some or all of their property for cash in retirement while still living there until death or going into care. It applies to over 65s, provides a tax-free lump sum or income and your family gets your share of the proceeds from the sale of your home when the time comes.

The exact figures should be calculated by a financial advisor but it’s common for 25% of your home’s current market value to be released. This percentage may rise depending on your age, with more becoming available to those who are older. Home reversion plans can be used to pay for your care, pass on as inheritance or help make the most of your retirement.

Both options allow you to protect a certain portion of your property value so that it can be passed on through inheritance and, depending on the scheme you choose, you may be able to pay back interest or small amounts to limit the final repayment sum. However, the main difference is that a lifetime mortgage means your home remains yours while a home reversion plan means you no longer own all of it.

When might another option be more suitable?

Downsizing is a popular alternative to equity release, although it comes with the requirement of leaving your family home, which not everyone is prepared to do. Households that are currently receiving (or are planning on receiving) any means-tested state benefits may also find that equity release impacts their eligibility.

There may be many factors as to why certain equity release schemes will or won’t be suitable, which is why it’s essential to talk your decisions through with family members, close friends and – most importantly – an impartial financial advisor.

Contact me for more information

The UK equity release market is growing by about a quarter each year. If you are considering the potential of equity release (or a ‘reverse mortgage’) to enjoy a more comfortable lifestyle in your later years, there is a wealth of different products and schemes available to suit all kinds of situations.

For more information, please contact me or email me at

john.whyte@therightequityrelease.co.uk and we can take a look at your options. Initial consultations are always free of charge and without obligation, and you are welcome to visit our office in Worthing or I can arrange to meet you at your home.

What happens to my equity release plan if I go into long-term care?

Equity Release is a popular financial product for the over-55s that can help unlock the value built up in your home. At John Whyte Equity Release, we have many years’ experience providing expert advice, so you get the right equity release plan for your individual needs. You can use the money in any way you wish, there’s no need to move out and you will still own your own home. But what happens when you are no longer able to live there?

At some point in the future, moving into a residential home or nursing home could become a necessity, should you no longer be able to live unassisted in your own home. While this could well be the best solution for your physical health and mental wellbeing, it would mean having to move out of your home. Importantly, if you have a Lifetime Mortgage, this would be affected.

Single or joint equity release?

For individual equity release plans – i.e., agreed by a single homeowner whose name is the only one on the property deeds – moving into long-term care will bring the agreement to an end. This means the final balance (the amount borrowed plus any accrued interest) is now due for repayment in full.

For joint equity release plans – i.e., agreed by both parties whose names are on the property deeds – the agreement does not end when one homeowner moves into long-term care. While the provider must be notified that one of the plan holders no longer lives there, the other plan holder can carry on living there until they move into care themselves or pass away.

In all cases, the equity release mortgage will come to an end when the final occupant moves into long-term care or passes away.

What happens when the plan ends?

Winding up an equity release plan after the last occupant has left the property will be the responsibility of whoever is dealing with your affairs, or the executors of your will. The process involves

  • Choosing a preferred estate agent and obtaining a current market valuation
  • Marketing the property and agreeing the sale
  • Ensuring vacant possession upon completion of the sale

Interest on the Lifetime Mortgage will accumulate until it is repaid, which makes a speedy property sale a desirable outcome for all concerned.

The equity release provider will normally allow a timeframe of 12 months for your executors to complete the property sale and repay the debt in full. If this is not achieved, there will be a review of the case. If no other agreement can be reached, the property could ultimately be sold by the lender.

No Negative Equity Guarantee

In the unlikely event that the value of the property and the sale price achieved is less than the outstanding loan, the No Negative Equity Guarantee comes into play. The mortgage lender will then take charge to ensure that the property is sold for the best possible price to minimise their losses.

If you have a Lifetime Mortgage through John Whyte Equity Release, be reassured that we are members of the Equity Release Council, meaning we provide a No Negative Equity Guarantee on all our equity release plans.

This guarantee offers valuable protection against negative property price fluctuations that could otherwise leave your family out of pocket when it comes to repaying the loan. In other words, with a No Negative Equity Guarantee, the beneficiaries will never have to repay more than the property is worth when it is sold.

Does the property have to be sold?

When the equity release plan comes to an end, selling the property is the obvious solution to repay the Lifetime Mortgage. Once the debt is repaid, any remaining proceeds can then be shared among your family members or heirs. However, the sale of the property is not the only option. Your family can retain ownership of your home if there are other funds available to settle the mortgage repayment in full within the stated 12-month period.

Do bear in mind that the above only applies to Lifetime Mortgages. If you have a Home Reversion Plan, an alternative type of equity release that involves selling a share of your home rather than taking out a loan against it, ownership of the property will revert to the lender when you move into long-term care or pass away. The property will then be sold, and the proceeds shared in accordance with the lender agreement. Any money left over will go to the homeowner’s family or heirs.

Get in touch

For more information about Lifetime Mortgages and to help you decide which plan is best for you, John Whyte Equity Release is always available for expert advice. Call us on 01903 890660 or message us your enquiry here.

To understand the features and risks of a Lifetime Mortgage, please ask for a personalised illustration.

Downsizing vs. equity release: the pros and cons

For many people, their home is their most valuable asset. While it is good to have a valuable property, it can also leave homeowners in the situation where they would like to access some of the money tied up in their home to fund them into their retirement.

In this situation, homeowners have two main options. They can either choose to downsize by selling their property and buying a less expensive home, or they can opt for equity release. Equity release comes in two forms: the lifetime mortgage and the home reversion plan.

A lifetime mortgage involves taking out a mortgage secured with your property. A home reversion plan involves selling all or part of your home in return for regular payments or a lump sum.

Both downsizing and equity release have a range of potential benefits and drawbacks depending on the specifics of your circumstances and what you are looking for. In this blog, we look the pros and cons of downsizing and equity release to help you understand which one might be right for you.

The pros and cons of downsizing

Downsizing is the process of selling a large expensive property and buying a cheaper (and usually smaller) one, using the difference to fund your lifestyle or for any other spending.

There are a number of advantages here. The first is that as the income comes from your main home, you don’t need to pay any tax. So, you keep every penny of the difference between your old property and your new one. Additionally, as the money is entirely yours, there is no limit to what you can spend it on.

You also get the double benefit of downsizing that you will likely reduce your household bills. The home may also be more suitable for your lifestyle in later life.

However, downsizing does come with a couple of potential issues and challenges. The first is the stress and inconvenience of moving home. Moving home is one of the most stressful experiences for anyone, and this is especially true when you are moving from the property that has been your family home for many years.

It is also worth noting that downsizing incurs the natural costs of buying and selling properties. These come in the form of stamp duty, solicitors’ fees and moving costs – these will eat into the amount of money you take from the downsizing of your home.

The pros and cons of equity release

Probably the major advantage of equity release is that you get to stay in your home for as long as possible. Many people will have strong emotional attachment to their home; equity release allows you to hold onto it while still accessing some of its value.

Just as with selling your main property, equity release is tax-free so you will get all of the money that is owed to you via the scheme. This tax-free money can be used however you like; from funding your lifestyle, to making repairs and upgrades to the home.

Equity release will generally be a cheaper option for you than downsizing. There are no costs relating to issues such as stamp duty or conveyancing.

However, it is also important to understand that there are some trade-offs with equity release. Taking money from your home will naturally reduce the level of inheritance you have to give when you pass away.

It is also true that if you decide at any point that you want to pay off the equity release to functionally buy back the property, there are expensive early repayment fees.

How to decide between equity release and downsizing

What is perhaps most important to say is that it is vital that you should take advice on the best course of action for you. At John Whyte Equity Release, we provide professional and impartial advice relating to equity release. Get in contact with us today for more details.

To understand the features and risks of a lifetime mortgage, please ask for a personalised illustration.

9 myths about lifetime mortgages – busted!

Here at John Whyte Equity Release Sussex, we recognise that there’s much confusing and misleading information out there about lifetime mortgages. If you’ve read somewhere that equity release is best avoided, perhaps it’s time to think again.

Perceptions are changing, and there’s been a significant market growth and demand over the last few years – which should tell us something. As independent equity release experts and members of the Equity Release Council, as well as recently being accredited under SOLLA (Society of Later Life Adviser) and their new Later Life Lending Advice Standard (LLLAS), we feel well equipped to dispel some of the most common myths circulating. So, here goes:

1. Lifetime mortgages should only be used as a last resort

It is arguable whether this was ever true but even if it was, this is certainly no longer the case. In fact, a lifetime mortgage can be a very useful flexible financial option that allows you to tap into your property wealth to fund a variety of later life needs. Most people use the money to remortgage, make home improvements or as a gift to their children – but you can use the funds however you see fit.

2. You have to stay in the same property for the rest of your life

While the assumption is that you WANT to stay in the same property for the rest of your life, and you have the right to do so with a lifetime mortgage, you don’t have to stay there. Most lifetime mortgages allow you to move home. You can transfer the loan across to the new property as long as the mortgage provider’s terms and criteria are satisfied. A partial repayment may be required.

3. You will leave your family with debt when you pass away

A common misconception is that equity release erodes your inheritance, so that your heirs are left with debt. The truth is that, provided that all the terms and conditions of the lifetime mortgage are met, no debt is left to your estate. In fact, you will never owe more than the value of your home when it is sold, either when you move into long-term care or upon death.

4. There is no possibility to reduce the outstanding debt

Again, not the case. In truth, with some products you can make partial repayments up to a capped amount each year without incurring early repayment charges. Other products offer fixed early repayment charges that only apply for a set time period. Others again give you the option to make monthly interest repayments, though this won’t reduce the amount borrowed but merely slow that rate of increase of the capital loan.

5. You can’t get equity release if there’s an outstanding mortgage

This is not true. You can apply for a lifetime mortgage provided you pay off the existing mortgage balance, which can be done either with the funds released from the equity or by other financial means. You should be aware that using equity release to repay an existing mortgage may cost you more in the long term.

6. You can’t leave your property as an inheritance

Not necessarily. A lifetime mortgage is normally repaid via the sale of the property after you move into long-term care or upon your death. Once the loan has been repaid when the property is sold, any money left over can go to your beneficiaries. What’s more, some products allow you to ringfence part of your home’s equity to leave as inheritance.

7. Lifetime mortgages are unsafe and unregulated

This is not true. Lifetime mortgages are regulated by the Financial Conduct Authority (FCA). In addition, the Equity Release Council (ERC) was set up in 2012. This was when it was renamed, having previously been SHIP (Safe Home Income Plans) which started way back 1991, to provide consumer protection specifically for this market. Members, including ourselves, must adhere to the ERC’s standards of conduct and practice.

8. You will lose ownership and control over your home

No, there is no reason why you would lose control over your home. With a lifetime mortgage, you remain the owner of your property for as long as you want to live there, just as you would with a regular mortgage, as long as you meet the conditions of the lifetime mortgage.

9. Your debt will be greater than the value of your home

The ERC Statement of Principles contains a ‘No Negative Equity Guarantee’, which all members must offer. This means that you will never owe more than your property is worth once sold, even if this should be less than the amount outstanding. The guarantee applies when you meet the product’s terms and conditions, when you move into long-term care or upon death.

If you think a lifetime mortgage may be the right solution for your financial circumstances, speaking to an experienced professional adviser is key to help you make the best decision. Here at John Whyte Equity Release Sussex, we offer friendly, independent specialist advice to help you choose an equity release plan that’s right for you. If you would like to contact us, please send us a short message here and we will be in touch as soon as we can. Rest assured that any initial discussions or meetings are free of charge and without obligation.

Can I use equity release to buy a new property or a holiday home?

If you’re over 55 years old, equity release is a well-known financial vehicle that enables you to release the cash tied up in your home while carrying on living there. As an independent equity release expert with decades of experience in the financial services industry, I can help you find the right plan for your needs and circumstances.

You can use the money for anything you like – the holiday of a lifetime, a financial leg-up for your children, boosting retirement income and much more besides. But what about buying property? Is it possible to take out an equity release plan specifically to buy yourself a new home, or an additional holiday home?

The short answer is: yes, you can. Here are two popular scenarios:

Scenario A:

You would like to buy a holiday home, either in the UK or abroad, in addition to your primary residence. Using equity release, you can use the equity released from your home to help with this purchase, thus enabling you to spend time in both properties.

Bear in mind that you will still need to live in your primary residence for at 50% of the year, and that you will probably be looking to buy the property outright, so there are no additional standard mortgage requirements to worry about. Don’t forget to factor in the cost of stamp duty for UK holiday homes, and currency exchange rate fluctuations if you buy abroad. Also, there’ll be solicitors’ fees to pay and any relevant local laws and regulations to observe.

Example:

Mr & Mrs Smith (both aged 60) have an outstanding mortgage of £35,000 on their home, which has a market value of £250,000. Based on their age, they are able to release a maximum of £90,500 which, once the mortgage has been cleared, leaves an overall budget of £55,000 for the purchase of a holiday home.

Scenario B:

You would like to move home but the price of your dream property is higher than you can afford. You have an existing mortgage you would like to pay off rather than borrowing more money and making larger monthly payments. With an equity release plan in place, you can use some of the funds to clear the outstanding mortgage when you sell your home, while the cash from the sale plus the remainder of the equity release will give you enough to purchase your new home.

The sale of your existing home, the redemption of your mortgage and the purchase of your new property are all finalised at the same time. The process is very similar to a regular property purchase, except that your new home will have an equity release later life mortgage on it.

You don’t have to make any payments to repay the interest, though you do have the option to do so, either with regular monthly payment or with ad-hoc voluntary payments.

Example:

Mr & Mrs Jones (both aged 60) have an outstanding mortgage of £35,000 on their home, which has a market value of £250,000. The net gain of the sale of the property is £215,000. Based on their age, they are able to release a maximum of £110,000 in equity as a standard lifetime mortgage, meaning they can afford to buy a new property worth £325,000.

If you are wondering what your personal budget would be, you can use our handy calculator to work out how much you could release. For a personal illustration and a free initial discussion, contact John Whyte Equity Release Specialist today.

Lifetime Mortgage: Why it is important to involve your family in the decision

Equity release may be an attractive financial proposition for many homeowners who wish to tap into the value of their property without having to move out. But before you sign on the dotted line to raise cash in your later years through equity release, please make sure you consider this huge financial decision within the context of your family. Decisions taken by you now will have an impact on your immediate family, which is why it is so important to involve your loved ones in the process.

What is a lifetime mortgage?

The most popular type of equity release plan is a lifetime mortgage. It is different to a regular mortgage in several respects, as is explained in a recent blog post here, and you need to be aged 55+ to be eligible.

As the name suggests, this is a mortgage that is redeemed at the end of your life (or when you move into long-term care). The loan is secured on your main residence while you retain ownership and carry on living there.

You have the option of ringfencing some of the value of the property as an inheritance for your family, and you can also choose to make regular repayments on the mortgage, or simply let the interest roll up. When you pass away, the loan and any accrued interest is redeemed. Since a lifetime mortgage affects the value of your estate after your death, it means there will be less to leave to your loved ones.

Why your family may have concerns

It is perfectly reasonable for your family to be sceptical of equity release. After all, they only want what’s best for you and you can’t blame them for wanting to protect you from being taken advantage of. It is also the case that equity release had a dubious reputation back in the 1980s which, thankfully, has now been put to rest. It is now a reputable financial strategy for older people with a property asset.

Importantly, the Equity Release Council was established in 1991 as the industry body for the UK equity release sector, and its members abide by Council rules. It “exists to promote high standards of conduct and practice in the provision of and advice on equity release which have consumer safeguards at its heart.” (Equity Release Council).

Another valid concern that your relatives may have is that taking out a lifetime mortgage will reduce the amount of their inheritance they would otherwise receive, since the mortgage is repaid through the proceeds of the sale of your property. However, you could use your tax-free lump sum obtained through equity release to help your family financially while you are still very much alive. Whether you gift a lump sum, help to pay the school fees or to get on the property ladder, they may not be missing out after all.

Explain your reasons for considering equity release

If you believe that a lifetime mortgage is the right choice for you, your family should know your reasons. Honesty and transparency are always the best policy, especially within the family. What are you hoping to achieve by releasing some of the equity tied up in your home? Are you looking to boost your retirement income or to go on a holiday of a lifetime? Perhaps you would like to pay off your existing mortgage, invest in a new kitchen or other home improvements? There is no reason why you should not use your wealth to make your retirement more comfortable.

Other motivations might be to pass a lump sum onto your family by way of a ‘living inheritance’, helping out financially when they need it most. From going to university to getting married and buying a first home – these are all expensive undertakings that parents and grandparents may wish to support. Talk to your family about their immediate needs and decide together on how you can best make a financial contribution.

What are the benefits of equity release?

It is unlikely that other members of your family will have done as much research into equity release as you have, which makes it your job in explaining to them the advantages of taking out a lifetime mortgage. These include

  • Receiving a tax-free lump sum to enable you to lead a comfortable life in your old age
  • Obtaining capital to help out family members financially and/or to spend on home improvements
  • The ability to carry on living in your home until you go into long-term care or pass away
  • Fixed interest rates, so you know exactly where you are financially without having to worry about market fluctuations
  • The option to make monthly repayments in order to reduce the final loan repayment due after your death
  • A ‘no negative equity’ guarantee which means you will never owe more than your house will sell for.

As with any financial decision, it is prudent to weigh up the pros and cons before making a commitment. Equity release is not the right choice for everyone, so it is important to show your family that you have thought long and hard about lifetime mortgages before reaching a positive conclusion.

Potential downsides to discuss may include:

Would you be able to move home with a lifetime mortgage? (The answer is yes, you can.)

How does equity release affect your inheritance? (It enables you to share your wealth while you’re alive.)

Will taking a tax-free lump sum affect your other benefits? (You could draw down in instalments instead.)

Speak to an equity release specialist together

Taking out a lifetime mortgage is a big step. Not only does it need to be the right decision for everyone concerned, but you need solid expert advice from an experienced equity release specialist. I have been working in financial services for well over 20 years, and as a specialist equity release broker I am a proud member of the Equity Release Council.

Based on my deep insight into the marketplace, I can help you choose the best lifetime mortgage for your needs. Including your family members in your equity release decision is the best way to ensure that your requirements are met perfectly. Please feel free to get in touch to ask any questions you or your family may have and ask for a personalised illustration.

How does equity release affect your inheritance?

If you are considering equity release as a long-term financial vehicle to unlock the cash tied up in your property, you will probably already have plans on how to use the funds.

Whether you take out a lifetime mortgage , equity release enables you to free up some of the value tied up in your home and release it back to you as cash, either as a lump sum or as several cash payments.

You can use the money for whatever you wish – to boost your retirement income, carry out home improvements, go on a once-in-a-lifetime holiday, help your children get onto the property ladder, pay school fees for the grandchildren… the list is endless.

What happens to your equity release plan upon death?

When you die, your home will typically be sold by the executors of your estate, and some of the proceeds will be used to pay back the equity release plan.

Lifetime mortgages are the most popular form of equity release and they will have to be paid off upon death – either via the sale of the property or with other available funds. Your net estate will then be distributed to the beneficiaries named in your Will. If the beneficiaries choose to keep the property as an investment, they could pay back the lender with a buy-to-let mortgage.

What is inheritance protection?

Taking out an equity release plan may lower the amount of your inheritance, and many people are concerned that there may not be a lot left to leave to your beneficiaries. One way to protect some of the value of your home to make sure that your family will definitely inherit a portion of it is to choose an equity release plan with a protected equity guarantee, also known as an inheritance protection guarantee.

Building this option into your lifetime mortgage allows you to ringfence a percentage of the property’s value. However, do bear in mind that the larger the amount is that you wish to protect, the lower the amount that you can release from your home. In other words, if you choose to protect 20%, the maximum amount you can obtain under an equity release plan will also be 20% lower.

How does equity release affect inheritance tax (IHT)?

When you release equity from your property, you reduce the value of your estate. This will most likely reduce the amount of inheritance tax payable on your death. In some cases, this could take the value of the estate below the IHT threshold of £325,000.

You should also bear in mind that your main residence has an additional IHT allowance, currently £175,000 per person, that can be added to the £325,000 nil band. This means that a couple can potentially leave a family home worth up to £1 million before any IHT becomes payable.

That said, the extra nil band does not apply to the equity released from the home if you have not actually spent the money. In that case, it would remain part of your estate and might become subject to IHT in due course.

Can you use equity release for gifting?

Subject to careful planning, you can gift some or all of the equity release funds as a Potentially Exempt Transfer. If you live for more than 7 years after making the gift, the money will be IHT exempt. However, if you pass away within 7 years, the amount will be counted as part of your estate and will be subject to IHT.

If you gift money from equity release and you pass away within 3 years, the gift will be charged at the full 40% IHT tax rate. If you die within 3-7 years of the gift being made, a sliding scale ‘taper relief’ will be applied, meaning the more time passes between the date of the gift and the date of death, the less tax will be payable.

What to do next?

If you are thinking about taking out an equity release plan and are worried about the impact on your future inheritance, the most sensible thing to do is to speak to an equity release specialist. Give me a call on 01903 890660 or contact me here so I can answer any questions you may have and help you choose the most suitable equity release plan for your personal circumstances.

What does the temporary update to the Equity Release Council legal advice rules mean?

The COVID-19 pandemic and resulting lockdown has created a number of challenges for financial advisers. It has typically been a requirement that customers must be provided with face-to-face advice – but due to lockdown regulations and social distancing requirements, this is currently not possible.

This has led to the Equity Release Council publishing a temporary modification to its rules following a consultation process with its members and the industry as a whole. The modification is designed to allow equity release specialists and financial advisers to provide advice with appropriate product safeguards, whilst also doing everything possible to protect the health and wellbeing both of the customers and their advisers.

Advice can be provided remotely

The major change to the Equity Release Council’s rules is that it will now temporarily be possible to provide advice without a face-to-face meeting in person. Advisers will be permitted to provide their services remotely.

To ensure this is carried out both effective and safely, there must be a number of mandatory contact points between the adviser and customer before any commitment is made to take out an equity release plan.

The new rules set out that customers must receive a combination of written advice, and telephone or video calls – and this actually increases the number of interactions between consumers and advisers.

It is important that advisers able to continue to fulfil their duties to consumers – crucially in that they must fully establish the identity of the individual, ensure that they have the mental capacity to enter into an equity release product contract, make sure that the client is under any kind of coercion or duress, and where there is more than one party, ensure that both agree to the contact.

A temporary change

It is important to note here that this is a temporary revision that is only in effect for as long as the government directs the public to stay at home in order to contain the COVID-19 pandemic. When people are allowed to go about their lives as normal, it is expected that the revision to the rules will be changed back.

During this time, the mandatory physical witnessing of a client’s signature must be carried out by an independent witness chosen by the client. This process will be subject to identity checks and due diligence.

Need further details?

If you would like further information about taking out an equity release policy during the COVID-19 pandemic, please get in contact with John Whyte today. We can provide you with any information that you require, and provide independent unbiased advice on potential options for you.

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