September 2019 - Oakhill Independent Financial Services Limited

Home Finance, Housing Market, News, Pensions, Retirement

Stamp duty penalises older people for moving

Think tank, the Adam Smith Institute, believes that Stamp Duty Land Tax, to give stamp duty its full name, should be scrapped. Amongst many reasons why they think it should be abolished is the belief that its existence prevents older people from downsizing.

The prospect of paying stamp duty on a smaller home acts as a disincentive. For example, when buying a retirement property priced at £250,000, stamp duty adds another £2,500 to the cost of moving home, along with solicitor’s fees, surveys, valuations and removal costs. (Figures differ under Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.)

Those looking to raise cash to bolster retirement income are increasingly turning to equity release. It represents a way of accessing some of the value tied up in a property that avoids all the costs and upheaval of downsizing to a smaller property. With equity release, although there are set-up fees, most of the costs are delayed until you die or go into permanent residential care.

It’s important to remember that equity release means in most cases that the loan you take out against the equity tied up in your property will increase over time as interest is rolled up. When you die, the property will be sold, and the loan repaid. Although interest rates on equity release plans are higher than on a conventional mortgage, with average interest rates having fallen over the last few years, equity release has become more attractive to many.

It is however important to discuss equity release with your family as it will have an impact on the amount that they are likely to inherit.

Interest-only Mortgages

Equity release is increasingly coming to the aid of those approaching retirement with an interest-only mortgage where they do not have the funds to pay back the capital on maturity and their retirement income may not cover ongoing interest costs. Whilst they may not have paid off any capital, they have probably built up equity, offering them a lifeline that allows them to stay on in their home.

Think carefully before securing other debts against your home. Equity released from your home will be secured against it. Your home may be repossessed if you do not keep up repayments.

24 September 2019/by motive

Home Finance, News

Leasehold homes – what you need to know

In the UK, flats are commonly owned on a leasehold basis, while houses are normally sold as freehold properties. Many leases are granted on a 99-year basis, while some can run for as long as 999 years.

If you buy a leasehold property, you’ll own the property but not the land it stands on. By contrast, buying a freehold property means that you own both the building and the land it occupies.

The outstanding term of the lease

Once a lease has less than 80 years left, it becomes harder to get a mortgage and it can be expensive to renew the lease for a further term.

The advice is that to avoid potentially having to pay tens of thousands of pounds to renew it, buyers should look for a property with a lease that’s unlikely to drop below the 80-year mark during their ownership.

Purchasing freeholds

Following media coverage of the plight of thousands of people who bought new-build leasehold houses, only to find that their freehold had been sold to investment companies and that they would have to pay tens of thousands of pounds to buy it, or face exorbitant ground rent rises, the government had promised to introduce legislation; however, this has yet to appear. So, if you’re buying a leasehold house, taking legal advice makes sense.

Once a lease has less than 80 years left, it becomes harder to get a mortgage and it can be expensive to renew the lease for a further term.

Ground rents

It’s important to get confirmation of the amount payable each year in ground rent, both now and in the future, as there have been cases where ground rents double every ten years or increase in line with the Retail Prices Index.

Responsibilities under a lease

Leases often contain obligations; leaseholders must get permission before making certain alterations to the property.

With a leasehold flat, you aren’t responsible for maintaining and running the building and communal areas. The freeholder will do this, or alternatively appoint a managing agent to act on their behalf. However, the leaseholders share the cost of this between them by paying a service charge.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

23 September 2019/by motive

Home Finance, News

Long-term mortgages – a boon or a burden?

Traditionally mortgages were for 25 years, but nowadays many loans on offer have a standard maximum term of 40 years.

Longer-term mortgages have the advantage of lower monthly repayments, making them more affordable, especially if you are struggling to get onto the housing ladder. However, the downside is that by the end of the term, the amount of interest that you will have paid will be far greater because the loan is repaid over a longer period. You will also find that you build up equity, the amount of the property that you own, at a much slower rate if you have a 40-year loan.

Check the small print

If you take a longer loan, it makes sense to check that you can make overpayments. Being able to do this without penalties will enable you to pay more of the loan off if you receive a windfall or a pay rise. If your circumstances change over the years, it makes sense to speak to us. It might be worthwhile considering reducing your mortgage term so that you’ll pay less interest and become mortgage-free sooner.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

16 September 2019/by motive

Home Finance, News

In the news…

SELF-STORAGE INSURANCE CONCERNS

Some home insurance policies provide cover for ‘items temporarily removed’ from your home, although there may be a time limit, typically 30 to 90 days, and you need to inform your insurer when you deposit items in a storage facility. MPs have raised concerns about the insurance policies that storage companies insist users buy, as they may not be value for money or provide sufficient cover or be needed at all if the user has cover under their home insurance policy.

MORTGAGE AFFORDABILITY GRADUALLY IMPROVING

With annual wage growth at 3.4%, and house price growth subdued, buyer affordability has been rising in some parts of the country at its fastest rate since 2011. With mortgage rates remaining competitive, this is good news, particularly for first-time buyers.

HOLIDAY LETS – AN ALTERNATIVE TO BUY-TO-LET?

The recent regulatory and tax changes are encouraging landlords to look instead at furnished holiday lets. HMRC views holiday homes as businesses and they are exempt from the mortgage tax-relief changes faced by buy-to-let landlords. According to Second Estates, an alternative investment fund manager not regulated by the Financial Conduct Authority or covered by the Financial Services Compensation Scheme, the average weekly income from a holiday let is £563, nearly three times the typical buy-to-let rent of £191.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

10 September 2019/by motive

The outstanding term of the lease

Purchasing freeholds

Ground rents

Responsibilities under a lease

Check the small print

SELF-STORAGE INSURANCE CONCERNS

MORTGAGE AFFORDABILITY GRADUALLY IMPROVING

HOLIDAY LETS – AN ALTERNATIVE TO BUY-TO-LET?

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