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How Can A Lifetime Mortgage Benefit Me?

How can a lifetime mortgage benefit me?

A lifetime mortgage is when you borrow money secured against your home, provided it’s your main residence, while retaining ownership. Interest is charged on what you have borrowed, which can be repaid or added to the total loan amount. Also called equity release.

How is equity release paid when you use a lifetime mortgage?

You’ll have two options as to how you receive your money from the lifetime mortgage. It can be paid all in one go, or as a smaller initial amount with the option to receive additional 

payments (drawdowns) later on. Choosing a single cash lump sum may suit your requirements, but you’ll be paying interest on the full loan amount from day one. This approach may also affect how much tax you pay and any means-tested benefits you receive.

What are the lending criteria for a lifetime mortgage?

A number of factors will affect your eligibility for a lifetime mortgage. Typically, you’ll need to be at least 55 years old, although in some cases it’s 60. If you’re submitting a joint application, the age of the youngest person will be used. The older you are the more you’re likely to be able to borrow, and having existing health conditions might also qualify you for a larger loan.

Some providers will require your home to be worth a certain amount, usually around £70,000 or more. They may also specify a minimum loan amount, often at least £10,000.

Benefits

  • Great if your savings and other sources of income are not enough to meet your needs in retirement. For example, as you get older a lot of people require specialised care. Care costs are very expensive, and the biggest downside of moving into a care home is leaving the comfort of your home and having uncontested privacy. A lifetime mortgage is a good way of releasing equity to fund care at home. Also, another scenario is it can be used as an alternative option instead of downsizing.

Disadvantages

  • Reduces family inheritance. You will end up repaying more than you borrowed, and with an interest roll-up mortgage, this amount could be far bigger. Your beneficiaries will therefore inherit less when you die.
  • Receiving a lump sum in cash could also affect any means-tested support you’re currently entitled to.
  • The cost of interest payments added to the loan may erode all the equity in the home depending on how long you live. That’s why the minimum age for a lifetime mortgage is 55.

Summary

In my opinion, there are better options for retirement planning if you start the process early enough. Effective planning like contributing to a pension scheme while working and taking out care-related insurance products might be better long term. Therefore I stress the importance of speaking to a financial advisor for the best advice for your situation.

Written by: Manjinder Badyal

Date: 14 October 2022

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WEBINAR – How To Build A Strong Retirement Plan

Building A Strong Retirement Plan – WEBINAR ALERT

On the 24th of November, Greg Armstrong one of our trusted Financial Advisers, has decided to offer his wealth of knowledge on retirement planning to those of you who are wanting to build a sound and solid foundation of security for your future.

Retirement is inevitable and it is one of those stages in life that can be very daunting to most. So building a solid foundation right from your first contribution is one of the key aspects of financial planning. If you have just started to save for retirement or if you are wanting to build onto your current retirement plan, then this webinar is for you. By attending this webinar you will get a better understanding of what you need to do in order to achieve your retirement goals.

 

What will be covered

  • Key assumptions to take into account
  • How these assumptions are changing
  • What factors to take into account (Age, income needed, key events and more)
  • Scenario-based planning
  • Maintaining and managing your retirement

Join Greg on the 24th of November for 45 minutes to and 1 hour of learning how to build up a strong retirement plan to suit your needs.

Those who register to the event will be sent a link to the webinar a day prior to the event reminder emails leading up to the event with the webinar links attached.

Please email info@ascotwm.com for any questions.

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Stamp Duty Land Tax

Stamp Duty Land Tax

Stamp Duty is a tax you pay if you buy a residential property or a piece of land in England or Northern Ireland over a certain price. The price is set by the government.

The amount you are due to pay depends on when you bought the property and how much you paid for it. Stamp Duty Land Tax (SDLT) only applies to properties over a certain value.

The Chancellor of the Exchequer, Kwasi Kwarteng, announced a change to Stamp Duty rates on 23rd September 2022. The starting threshold for paying Stamp Duty has been increased from £125,000 to £250,000. Homebuyers will not have to pay stamp duty on the first £250,000 of any property purchase. The new tax tiers for amounts above the threshold will be as follows.

Stamp Duty Rates

Old Stamp Duty Rates

First-Time Buyers

This is a person who is purchasing their only or main residence and has never owned a property in the UK or abroad.

First-time buyers will pay no Stamp Duty on properties up to £425,000. For properties up to £625,000 they will pay a discounted rate. They will pay no stamp duty up to £425,000 and then 5% Stamp Duty on the amount above £425,000 up to £625,000.

For properties over £625,000 the first-time buyer would no longer be classed as a first time buyer and would have to pay the standard rates of Stamp Duty. They will not qualify for first-time buyer’s relief.   

Stamp Duty On Second Home

Those buying an additional property or a second home will pay an extra 3% in Stamp Duty on top of the standard rates. 

Written by: Nwabisa Janda

03 October 2022