Moving house?...that's for young people

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 that i can help them with ?

Lenders continue to increase the cost of fixed rates as consumers start the run for cover

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.

FSA will not ban interest-only | Mortgage Finance Gazette

FSA will not ban interest-only

"..it has taken away the worry"

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.' 

MyIntroducer.com | News | Higher stamp duty thresholds would have doubled if linked to house prices

Higher stamp duty thresholds would have doubled if linked to house prices

One in four borrowers don’t know the base rate

Recent research has shown that an amazing one in four mortgage holders are unaware that interest rates are at an historic low of 0.5%, research from Shelter shows.

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.”

Base Rate to be 1% by the Summer

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.

Equity release - what's the purpose?

Almost 25% of retired homeowners use equity release to help their families financially to the tune of £150m a year, according to new research.

It found that, of the 1,262 retired homeowners it surveyed, 23% released equity from their home to pay an average of £23,328 to their families. 

The money was used in a number of ways, from helping children clear debts to buying houses and cars.

A prominent provider’s representative commented : “Helping out family is a powerful motivation for retired homeowners and the sums being handed out are major amounts, with a total of nearly £150m given away last year.Retired homeowners have around £770bn of wealth tied up in their houses and many clearly feel financially comfortable enough themselves to be able to help others. It is crucial that families are involved when people take a decision to release equity from their home and if they are receiving the money all the better.”

The research found that retired homeowners in London give the biggest gifts on average, at £40,172, reflecting the higher property values in the capital.

Widows are the most generous to their families, handing out average cash gifts of £30,100. Married couples pay out an average of £20,258 to help out families.

The research also showed that sons are more likely to be the recipients of handouts than daughters. The average gift paid to sons alone was £21,131 compared to £18,625 to daughters.

If you know anyone over the age of 55, who you think may benefit from looking into equity  release, I am appropriately qualified to advise so please email me - 

'mark@themortgagemonkey.co.uk' 

Lenders' insurance products are 50% over priced

Mortgage applicants who take the life insurance deal offered to them by their mortgage lender could be paying 50% more than they need.

Research has found that life insurance and mortgage protection products being sold by the country’s biggest mortgage lenders do not always offer the best value.

In some cases, the research definitely points the finger at branch based advisers of pushing customers towards taking even more expensive options.

Using one typical example, the difference between the most expensive cover offered, by HSBC, and the cover available via an independent broker was £25.74 per month, or £9,266.40 over the term of the policy.

Researchers approached the biggest mortgage lenders for joint life insurance quotes to cover a mortgage. The cover requested was for mortgage protection cover (decreasing term assurance) of £200,000 for a 30-year term.

The typical male and female couple were non-smokers aged 35 and 30 respectively in low-risk occupations. The cover did not include additional critical illness cover or waiver of premium cover, and all premiums were guaranteed to remain the same throughout the term of the policy.

Halifax quoted £34.66, RBS,  Nationwide and Natwest all quoted £21.60, and Santander / Abbey quoted £16.35.

The Halifax and HSBC advisers would only offer two single life policies rather than a joint life policy. 

This means that both applicants would have £200,000 of cover each, whereas with joint life cover, £200,000 would be paid on the first death of either of the applicants and then the cover would cease. This option does provide more cover than was asked for, and more than the other policies quoted, but it is still an expensive option.

Mortgage customers are encouraged to seek independent advice.

what's the matter with 'EU' ?

A landmark ruling by the European Court of Justice means that insurance companies can not discriminate on the basis of sex when calculating premiums.

Insurance firms had an opt-out of a gender discrimination directive due to the wide use of sex in deciding premiums but the UK must now implement the policy into law by December 21 2012 at the latest.

In today’s judgement the Court points out that the European Union aims to eliminate inequalities and to promote equality between men and women.

Widespread use of differentiation between the sexes means the ruling will have a huge impact on the pricing of all insurance and protection products.

Matt Morris, Senior Policy Adviser, commented: “This is a horrible mistake by the European Court. It is essential for insurers to use gender to calculate risk based on solid actuarial evidence and statistics. It is price differentiation, not discrimination, as it is not a decision that comes down to the whim of an individual.

“The consumer will now suffer. Prices will go up across the board as insurance companies try to build in the new risk. Women currently pay more than men for Life Insurance, whereas men pay less for Income Protection.

“It is very unlikely premiums to meet in the middle because there will be huge costs to the industry of re-pricing and updating their systems so everyone will end up paying the higher rate. Everyone loses.”