Simply Home Finance Newsletter, Spring 2017
Is it time to remortgage whilst rates are still low?
With the monthly mortgage payment representing a major chunk of the average family budget, it can make sense to shop around from time to time to see if there’s a better, more cost-efficient mortgage deal available to you. According to the Council of Mortgage Lenders1, around 36,000 people remortgaged in November alone, up 13% on the year before.
In some cases, homeowners can save hundreds of pounds a year by moving to a more attractive rate with a different lender. Remortgaging can work if your property has increased in value and you want to free up some cash from the equity tied up in your home, or if you want to make higher repayments to shorten your mortgage term. Remortgaging can also be arranged to finance home improvements, to fund the purchase of an investment property or to buy out a joint owners’ share of a property.
If you’re currently nearing the end of your existing deal, then this could be a good time to remortgage. Interest rates are currently at an all-time low, and lenders are continuing to offer competitive deals.
Why remortgaging can make sense
When your fixed-rate deal ends, your lender will automatically move your mortgage on to their Standard Variable Rate (SVR), which as the name suggests can rise and fall. This SVR rate is likely to be less attractive than the rate you were previously on, and can be increased at any time, irrespective of what happens to the Bank of England’s base rate, which is currently 0.25%. So, shopping around before your deal ends could save you money.
Putting the cash to good use
Research from TSB2 shows that by remortgaging to a lower fixed rate, homeowners can free up cash for a variety of other uses. Over a third (37%) planned to use the extra money to overpay their mortgage, helping them to become mortgage-free faster, while 30% intended to use the cash to carry out major renovation projects like a loft conversion or an extension.
Whilst remortgaging might not be right for everyone, it’s well worth investigating what alternative deals might be available to you, especially if you made saving money one of your new year resolutions.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments
Key points from the spring budget 2017
- The Office for Budget Responsibility (OBR) forecasts the UK economy will grow by 2% in 2017
- UK’s national debt now stands at almost £1.7 trillion or a sobering £62,000 per household
- Tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018
- £425 million investment in the NHS in the next three years
- Investment in technical education for 16 to 19 year olds rising to over £500 million
- £536 million for new free schools and to maintain existing schools
- A three-year NS&I Investment Bond with a market-leading interest rate of 2.2% available for 12 months from April 2017
- The Lifetime ISA will be available from 6 April this year
Home insurance – why it’s important to get your sums right
How precise are you when it comes to numbers? Do you tend to ‘guestimate’? It’s an interesting fact of life that we find some figures easier to get to grips with than others. When it comes to home insurance, the more precise you can be when calculating the value of all the things you own, the more likely you are to get the right insurance cover for your needs at the right price.
When thinking about your home contents, it’s really important to pay particular attention to your sums when adding up the value of all your possessions. Ensuring you have enough insurance cover is almost as important as having insurance in the first place. Underinsurance can cause serious problems if you make a claim, as your insurance company may not pay out the full cost to replace lost, stolen or damaged items.
If, for example, you only paid for £25,000 of home contents cover, but the total value of your possessions is really £50,000, any claim you make, even for a single item included at the correct value, could be scaled-down pro rata.
Many more families now possess tablets, laptops, state-of-the art phones and electronic gadgets. Spending time going from room to room armed with a notebook and pen can help ensure you don’t forget to include all your valuable items.
When it comes to buildings cover, many people stick with the rebuilding cost they started with when they first moved into their property. However, if for instance you’ve had an extension built in the meantime, then you will need to add this to your policy cover. If you don’t, you could be underinsured in the event of a claim, and could have to make up the shortfall yourself.
Your adviser will be able to give you helpful tips on calculating the right figures for your home insurance needs.
Buy-to-let landlords turning to commercial property
Historically, those with buy-tolet mortgages can deduct all finance costs (such as mortgage interest, interest on loans taken out to furnish the property, and fees) in arriving at their taxable rental income.
From April 2017, this no longer applies. They will instead receive a basic rate reduction from their income tax liability for their finance costs,with the relief tapered down to the 20% tax band by 2020. So, this means that landlords who have been able to claim income tax relief worth 40% or 45% are set to find their relief restricted to 20% by 2020.
The Telegraph reports that more than 100,000 landlords bought properties within limited companies last year to avoid the new tax regime. However, many are now expressing concern that the government may seek to make this method of investing in property subject to harsher tax rules. It should be borne in mind that moving property into a limited company can create capital gains tax liabilities as well as stamp duty charges.
Many investors are looking at commercial properties as the yields are often higher, and leases tend to be longer. In addition, commercial tenancies often require the tenant to pay the cost of repairs and insurance rather than the landlord, as is the case with residential property lets.
However, would-be landlords need to be aware that commercial mortgages work in a different way; rates generally tend to be higher than for residential mortgages. Lenders can call in loans at any time, and rates can fluctuate in line with market forces.
It’s important to get good legal advice from a commercial property solicitor, as investors will need to ensure that they understand the terms of the lease and get good title to the property. Investors will find that they will need to learn how rent reviews, service charges, and tenant’s security of tenure work.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments
Interest-only mortgage maturities fuel equity release boom
The Financial Conduct Authority has flagged up 2017-2018 as a period in which a wave of interest-only mortgages sold in the 1990s and early 2000s will reach maturity.
It estimates that almost half of these homeowners will not have the funds available to pay off their loan, and that many will explore equity release as a way of finding the cash.
Whilst some may decide to downsize, others will be keen to remain living in familiar surroundings. For those aged over 55, equity release can be a good choice as it enables them to stay in their home for as long as they want to, with the outstanding mortgage loan being repaid from the cash unlocked from their property.
The most common equity release schemes are mortgage-based schemes secured against your home and repaid from the sale of your property, when you die or move into long-term care. These are known as ‘lifetime mortgages’ and allow you to take out a loan on your property in return for a lump sum. Last year, the average equity release customer accessed nearly £78,0001 from their property, with more than one in five using the funds to clear an outstanding mortgage.
Choosing the right plan
Equity release plans were in the past considered a controversial choice. However, new products that are underpinned by stricter industry standards and provide protection against negative equity now offer a better deal to many homeowners. Many people choosing equity release are opting for the drawdown type of lifetime mortgage which gives them the freedom to dip in and out of their housing wealth, and means that they can leave more of their equity intact to pass on as an inheritance to their families.
Independent professional advice is essential; equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should consider involving your children and dependants from the outset.
Think carefully before securing other debts against your home. Equity released from your home will be secured against it.
60% of UK adults don’t have any form of life insurance
A recent survey has revealed that up to 60% of adults don’t have any form of life insurance. When asked why this is the case, the answers vary.
Some people simply don’t want to think about life’s unexpected events and don’t believe it could ever happen to them. Here are a few stark statistics. It is estimated that every day in the UK, around 500 women become widows2, more than 100 children lose a parent3, and The Telegraph reports that approximately 75 men aged under 50 become widowers.
Insurers pay out
When asked why they don’t have life insurance, people often say that policies don’t pay out in the event of a claim, but in fact 97.2%4 of protection claims are paid. According to figures from the Association of British Insurers4, UK insurance companies pay out more than £10m every day on protection policies including income protection, critical illness and life insurance.
Costs have come down
Another common misconception is that cover is expensive; many are surprised to learn that life insurance premiums are in fact easily affordable. It’s a small price to pay when you consider that having no insurance could mean real financial hardship, especially for less welloff families.
Cash when it’s needed most
If you were to die, how much money would your family have to live on? Many families would find themselves running short of money very quickly. Your salary would stop, but the household bills would keep coming in.
Even if you are not the main breadwinner, you may still be the primary care giver, providing housekeeping and other homebased services that are vital to your family’s well-being and would cost a lot to replace.
A pay-out from a policy could make the difference between your loved ones facing
a financial struggle at a challenging emotional time, and being able to maintain the sort of lifestyle they enjoyed when you were still around.
House prices in 2017, what are the predictions
In the year that sees the UK begin its path to leaving the EU, there are many uncertainties around what the future holds, what Brexit will mean for the UK economy, and how in turn the housing market might react.
Taxation starts to bite
Last year saw major changes in stamp duty, with those purchasing buy-to-let or second homes facing a 3% stamp duty surcharge. In Scotland, the equivalent tax, the Land and Buildings Transaction Tax, was also up-rated. This change has had a profound effect, particularly on the London property market, as the rate of stamp duty has reached 15% for the top slice of a purchase price exceeding £1.5m.
The impending hike in tax rates created a rush to buy before last April, which in turn has led to a slowdown in activity in the ensuing months. From this April, buy-to-let landlords will face a new tax regime born of the government’s desire to level the playing field for first-time buyers, many of whom have found themselves in competition with landlords for properties on the first rung of the housing ladder. Whilst some buy-to-let landlords are contemplating placing their portfolios in limited companies to improve their tax position, some will doubtless decide to leave the market altogether. It may be some time before the new dynamics in this market sector become clear.
Lack of housing stock
Although economic uncertainty often has a dampening effect on housing markets around the UK, there are other problems that play a part in keeping prices relatively high. Agents countrywide are reporting a shortage of properties coming onto the market. The government is keen to increase the housing stock, but is showing signs of altering its focus, developing plans in major cities to encourage the building of blocks of flats solely intended for the rental market. However, as it will take considerable time to wean the UK away from home ownership as a financial goal, this move is unlikely in the short term to result in a reduction in demand for homes to buy. Demand is likely to keep prices high, but there will doubtless continue to be regional variations, driven by what is happening in the local economy.
How will buyers respond?
Given that purchasing a property is such a major financial outlay, some buyers are likely to adopt a ‘wait and see’ outlook, preferring to be sure about their continuing employment prospects before committing themselves to a mortgage. By the same token, lenders will want to be sure that borrowers can continue to service their debt should the economy lose ground.
The Halifax House Price Index1 shows that prices fell by almost £2,000 on average in January, as property values dipped for the first time since last summer. This followed a £3,405 rise recorded in December. The average property price as calculated by Halifax now stands at £220,260
representing an increase of £7,783 over the year. Any slight cooling in the market can only be viewed as good news for hard-pressed first-time buyers.
What’s in your wardrobe?
Have you ever stopped to think how much your wardrobe might be worth? It can come as quite a surprise when you start to add up the cost of all your clothes, shoes and handbags. If you had to replace all these items, it could prove very expensive.
Research shows that women turning 30 are likely to own around 212 pieces of clothing, shoes, handbags and accessories, worth on average an eye watering £7,658.
And it’s not just women, the study found that men own on average £8,868 worth of stylish belongings, including 182 items of clothing, designer shoes and watches.
Don’t be underinsured
If you don’t include your clothes when applying for insurance cover, you could risk being underinsured. Being underinsured would mean that your insurer might restrict the amount they would pay out if you needed to make a claim.
When choosing a policy, if you want to make sure your clothes are adequately insured then you should consider taking out new for old cover. We can offer advice and help you find the most suitable and cost-effective policy for your needs.