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Whilst we aim to ensure that the details in the following blog entries are correct at the time of writing. However , please be advised that any references to legislation and taxation may become out of date.

 The assumption is often made that when people reach retirement age, if they are to move home it will be to downsize to a smaller and typically lower value property.


For many homeowners in later life moving home is a lifestyle choice, for example moving nearer to relatives or to a bungalow near the sea. Often this involves moving to a more expensive property.

Many would like to make this lifestyle change but do not have sufficient capital to make the “trade up”.

For these people taking out a home reversion simultaneous with purchasing a new property could be the answer.

Let’s take the example of a 70 year old male who owns a 3 bed roomed semi detached house in the Gosforth area of Newcastle worth £180,000 who for this example we’ll call the client Ron Smith.

The house was a good family home as it was close to the children’s school and local amenities and offered an easy commute into work. Now that the children have left home, Ron has retired, with more time to indulge his love of gardening and long walks by the sea. He would like to move to a detached bungalow in Tynemouth with a large garden, on the market for £340,000.
 

Mr Smith does not have the money to fund the £160,000 shortfall between the sale price of his current home and the bungalow in Tynemouth. In addition to the shortfall he needs an additional £4,000 to put towards moving costs, so a total of £164,000 is required.

If Ron took out a 100% reversion on the new property worth £340,000 he could release £164,000 at completion, this combined with the sale proceeds from his current home would enable him to purchase his dream home and leave £4,000 to help with moving costs.

Naturally if Ron decided to move to a slightly less expensive property he would retain an element of equity which would guarantee an inheritance for his estate.

If you know someone like Ron, are they aware of this type of solution?

Posted: 29/03/2011 16:09:20 by Mark Williams | with 0 comments


 Mortgage lenders are continuing to increase the set up fees that they charge for their fixed rate mortgage deals as consumers look to protect themselves from future base rate increases.

 

According to inflation data just published by the Office for National Statistics, the cost of "miscellaneous goods and services" was being driven upwards by mortgage arrangement fees and foreign exchange charges.

 

Although interest rates remain at a record low, consumers are having to pay more in many cases to secure the cheapest home loan deals.

 

Typically an arrangement fee will be in the region of £1,000, but we have started to see the odd deal come in with a £1,500 or £2,000 charge. These deals will typically charge lower interest rates, though.

 

Leeds Building Society had recently launched a two-year discount deal with an upfront fee of £2,999, he said. This loan charges a current interest rate of 2.54pc, although the rate will rise as and when the Bank of England pushes up interest rates.

Skipton Building Society has also increased its fees. Rather than charge one arrangement fee, it now levies an upfront "application fee" of £195, followed by a further "completion fee" of £995 once the mortgage is secured. This, has pushed up the total fees paid by customers.

 

Most big lenders now offer a range of interest rates and fee options, so home owners can pick the deal that suits them best.

 

For those with larger mortgages it can make sense to pay a larger upfront fee if this secures a lower mortgage rate, however there was a growing trend for mortgage providers to charge a percentage fee, where the arrangement fee was 1.5pc or even in some cases 2.5pc of the amount being borrowed. Clearly this can be costly for those with larger mortgages.

 

In the past many lenders allowed people to add this fee to their mortgage. Now some require customers to pay it upfront. Clearly, given the economic situation, some people will struggle to find this money, so may end up going for a mortgage with a lower fee but higher interest rates as a result – which in some cases will cost them more over the long term.

Posted: 23/03/2011 09:04:11 by Mark Williams | with 0 comments


Older homeowners are turning to the wealth tied up in their property to help them make ends meet. Growing numbers are releasing equity from their homes to pay off loans and credit card debts, or even clear mortgages they are carrying into retirement. 
 
Bridgewater Equity Release, a specialist in home reversions, says that 43 per cent of its customers last year were releasing money to pay off mortgages while 27 per cent said they wanted cash to pay off other debts. These figures are up from 30 per cent and 15 per cent respectively in 2009. 
 
A third of those aged 75 or over owe money on their credit cards, for example, according to insurer Aviva. And Prudential found that two-thirds of those due to retire this year were considering carrying on working because of financial pressures. 
 
For many people it is about helping to maintain a lifestyle, rather than transforming it. In fact we're seeing people in later life hit hard by high inflation and low returns on savings.
 
One way to free capital from your property is to buy a smaller or cheaper home. But many older people are reluctant to leave the home they feel comfortable in and do not want the expense and upheaval of a move. 
 
Specialist equity release products instead give them cash today while allowing them to stay in their home for life. These are generally cost-effective only for those 65 or over and are better value from 70 onwards. 
 
There are two options. Equity-release loans  -  known as lifetime mortgages  -  charge interest on a loan from day one. The interest rolls up and is added to the outstanding debt. The whole debt does not have to be repaid until a property is finally sold after someone dies or moves into care. The longer you live, the higher the interest bill. Rates are fixed for the life of the loan, with today's rates typically between 6.5 per cent and 7.5 per cent. At these rates, the overall debt doubles in roughly ten years. 
 
Customers can take a lump sum upfront, but most now use a flexible loan that allows them to borrow a bit at a time. Three-quarters of new mortgages are arranged on this drawdown basis.
 
The alternative is a home reversion plan. This allows you to sell some or all of your home while you retain the right to live there. As the company may have to wait years to cash in, it pays only a proportion of today's market value. 
 
Peggy and Gordon McGrath, both 70, turned to equity release to help clear debts from his roofing business, which suffered after customers went bust in 2008 and 2009, leaving thousands of pounds of bills unpaid. Peggy, who still works as a part time office manager, says: 'We took out bank loans and had borrowed on credit cards, but it was becoming a huge strain. I was getting phone calls from people chasing us for money and having sleepless nights.' But the couple knew they had wealth tied up in their £230,000 two-bedroom semi in Finchampstead, Berkshire, where they have lived for almost 30 years. 

Last October signed up for a £50,000 equity release plan. Peggy says: 'It wouldn't have been our first choice because I know the loan will grow over time, but it has taken away the worry.' 

Posted: 21/03/2011 16:01:36 by Mark Williams | with 0 comments


In a survey of more than 1,500 UK homeowners, 25% believe current interest rates are either higher or the same than they have been in the past or simply don’t know.

Within the 25% who are unaware, 9% of mortgage holders believe interest rates are slightly higher than they have been in the past, whilst 4% believe they are much higher than they have been previously.
The housing and homelessness charity is highlighting the research, conducted by the Council of Mortgage Lenders last year.
Shelter is warning the equivalent of 2.8 million homeowners may be completely unprepared for the costs of rising interest rates based on their lack of awareness about where they are currently.
Campbell Robb, chief executive of Shelter, says: “Even for those who have been managing to stay afloat so far, we know only too well that just a small increase in some people’s monthly outgoings will be the trigger that finally pushes them over the edge into a spiral of debt, repossession and possible homelessness.
“Millions of homeowners could be pushed to the brink unless they start making preparations now. We are urging people to find out if rising interest rates will affect them and prepare themselves for increasing mortgage costs by seeking advice early to help avoid putting their home at risk.”
Posted: 11/03/2011 12:01:08 by Mark Williams | with 0 comments


 Legal & General Investment Management (LGIM) has forecast that the Bank of England will increase base rate to 1% by the summer, hitting nine out of ten mortgage borrowers.

Its research suggests that far more households are now exposed to rate hikes, estimating 90% of all mortgages in the UK are variable rates, up from 60% in 2007, and well beyond the FSA's estimate of 68%.

The investment division of L&G said that the first rate rise will come in May and will likely be followed by another increase by the summer, then remaining on hold throughout 2012.

LGIM warned that consumers will experience "a meaningful impact to their cash flow" if banks choose to pass on the rate rise to borrowers.

Tim Drayson, economist at LGIM (pictured), said the MPC faced an extremely difficult task, with inflation running at double its target, but economic growth going into reverse.He said higher interest rates are needed to calm inflation, but warned that the economy is on a knife edge and could easily tip back into recession if the MPC raises rates too much, too soon. Drayson said: "I can see a couple of rate hikes by summer this year, but nothing beyond that because the economy would not be able to handle it. I wouldn't want to be on the MPC right now, because the risk of a policy error is so high."What is clear is that the growth and inflation trade-off has massively deteriorated in the UK. It will be very difficult to balance and inflation will return to target only slowly."

 

LGIM said that the markets are now expecting four rate hikes over this year and into 2012. However, it said expectations over how far base rate will rise appear "excessive" and it did not believe the MPC "needs to inflict this much pain on the economy".Drayson said that increasing interest rates is likely to slow economic growth more than the government is expecting and cause unemployment to rise to 10%, so putting a halt to further rate rises.

 

LGIM noted that the current difference in opinion among Committee members, with a four-way split at the last meeting, is extremely rare.

A key player within the Monetary Policy Committee could be moderate Charlie Bean. Drayson said that if Bean votes for an increase in interest rates, he could well take other committee members with him.

 

Posted: 10/03/2011 10:23:57 by Mark Williams | with 0 comments


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