Following the Mortgage Market Review in 2014, banks and building societies were required to adopt stricter lending criteria and affordability checks, and as a result many lenders restricted both their maximum borrowing and repayment age.
FACTORS TO TAKE INTO CONSIDERATION
Whatever their age and circumstances, older borrowers will need to go through the usual checks to ensure they can afford to make their monthly mortgage repayments. They will need to show proof of income and declare all outgoings, including any debts.
Lenders will need to consider issues that could affect an older borrower’s income, such as their state of health, and in the case of joint borrowers, what would happen to their finances if one of them were to die.
On the other side of the coin, older borrowers can often be free of other commitments that can burden younger borrowers – they are further into their careers and probably earn more, their children may have left home, and many may have already come into money through a family inheritance. Plus, it can be easier for a lender to assess whether a loan is affordable in the case of a potential borrower who is in receipt of a pension, as opposed to one who is likely to retire half way through the mortgage term.
TAKING ADVICE IS KEY
Getting advice from a mortgage adviser can really help. We know the lenders in the marketplace and the criteria they operate under, and so are able to ensure that your application goes to one that caters for your specific mortgage needs.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.
People put off buying life insurance for a variety of reasons, and they shouldn’t. Not only does life insurance give valuable peace of mind to families up and down the country, each year insurers pay out millions of pounds to families to help ease the financial strain caused by life’s unexpected events. Here are a few reasons people often give for not taking this vital step.
IT’S TOO EXPENSIVE
Many people are surprised to learn that cover is far less expensive than they’d first thought. Plus, it’s a small price to pay when you consider that having no insurance would cost your family considerably more and could result in them struggling for money.
I’M FIT AND WELL
No one is immortal and buying protection policies when you’re in good health means you’ll find it easier to get a cost-efficient policy that meets your needs. If you leave it until you’re older and have health problems, your premiums will be higher.
I DON’T HAVE KIDS
If you don’t have kids but do have loved ones that depend on you financially – your spouse, partner, parent or sibling – then a payout from a policy would help to alleviate their financial burden at a difficult time.
I’M NOT WORKING, I DON’T NEED COVER
If you’re a stay-at-home parent, just think of all the tasks you do on behalf of your family. Everything from cleaning, cooking and childcare might have to be paid for if you weren’t there to provide it.
I GET COVER THROUGH MY JOB
While you may get insurance as part of your employment package, it may not be enough for your needs, and the policy won’t move with you if you change jobs.
I DON’T HAVE TIME TO FIND THE RIGHT PLAN
It can be hard to assess how much life insurance you need on your own, but that’s where we can help you. Don’t let procrastination hold you back, get in touch.
As the state pension age rises, life expectancy increases, and final salary pension schemes become a thing of the past, it looks likely that more workers will remain in employment for longer in order to be able to build up sufficient funds for their retirement years.
According to analysis by Aviva1, the number of people retiring before they reach age 65 is decreasing rapidly. The insurer calculates that if the present rate of change continues, by 2035 almost no one will be able to retire early. Figures from the Office for National Statistics show a record 10.1 million over-50s remain in work, with 1.2m of these workers aged over 65. Ten years ago, less than 700,000 over-65s were in work. In 1998 the figure was 434,000.
HOW TO PLAN FOR RETIREMENT
Increased life expectancy means that people retiring at 65 today can reasonably expect to live on into their 80s if not longer, and some can expect to live to 100. However, when it comes to planning for retirement, people can underestimate the odds of reaching a great age and may not be adequately prepared financially for the years ahead.
That’s why it makes good sense at all stages of your working life to keep an eye on your pension arrangements, especially if you intend to retire earlier rather than later.
You need to think about the following key questions:
- When do I want to retire?
- How much will I need in income and savings to fund my lifestyle in retirement?
- Are my plans on track? Am I currently saving enough?
Although it has recently been increased, the state pension is still only a basic safety net for most people, and not enough on its own to guarantee a comfortable retirement.
Personal pensions offer generous tax breaks to encourage us all to provide adequately for retirement. If you are a basic-rate taxpayer making a pension contribution, every £100 you pay in will in effect only cost you £80 once income tax relief has been applied. If you are a higher-rate taxpayer, every £100 contributed within the HMRC annual allowance would cost just £60.
As part of the government’s drive to ensure we all make adequate provision for retirement, employers are now legally obliged, subject to age and earnings thresholds, to automatically enrol their employees into a qualifying pension scheme, where employees and employers make monthly contributions.
TAKING ADVICE CAN HELP YOU MEET YOUR GOALS
The need for professional advice tailored to your individual circumstances has never been more important. If you’re concerned about your pension arrangements, we’re happy to review your plans and help you keep on track for a financially-comfortable retirement.
If ever there is a UK tax that needed a major overhaul, then Inheritance Tax (IHT) must be a prime candidate. Many families will therefore be delighted to hear that the Chancellor, Philip Hammond, has written to the Office of Tax Simplification (OTS) asking them to put forward proposals for the reform of IHT “to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.”
His letter asked the OTS to look at the technical and administrative issues associated with IHT, the process of submitting returns and paying the tax. Mr Hammond also called for a review of the issues surrounding estate planning, and whether the current framework causes ‘distortions’ to taxpayers’ decisions regarding investments and transfers.
INCREASING PROPERTY PRICES GIVE RISE TO HIGHER IHT
In the 2016–17 tax year, HMRC raised a hefty £4.84bn in IHT, brought about largely by rising property prices that are seeing more and more families drawn inexorably into the tax net, despite doing nothing more than owning their own home.
IHT has certainly made several aspects of financial planning more complex. With the Bank of Mum and Dad currently a major source of funding for house purchases for first-time buyers, the operation of the seven-year rule is becoming a key issue that needs careful consideration in effective tax planning. The annual tax-exempt gift allowance of just £3,000 arguably needs a major overhaul, as does the out of date amount of £5,000 that can be given away to offspring on their marriage.
Since the advent of pension freedoms in 2015, it has become more tax-efficient to pass on a pension than an ISA, meaning that some people have found themselves viewing their retirement savings in a whole new light.
More controversial still was the recent introduction of the Residence Nil Rate Band (RNRB) which is both complex in its application and divisive in its outcomes. Former MP and now TV personality, Ann Widdecombe, was particularly incensed that under RNRB rules she wouldn’t be able to benefit by leaving her home to her niece, as the regulation only covered direct descendants, which she doesn’t have.
RAISING THE THRESHOLD ACROSS THE BOARD
Given the individual threshold for IHT has remained at £325,000 since 2009, many would argue that, rather than adding another layer of complication such as the RNRB, the simplest and fairest thing to have done would have been to increase the Nil Rate Band to a limit that bore some correlation with the rise in house prices. Hopefully, that’s one of many thoughts currently crossing the minds of the team at the OTS.
The Financial Conduct Authority does not regulate some forms of Taxation advice.
We all experience life-changing events such as moving to a new home and taking out a bigger mortgage, getting married, having children, retiring, but how many of us remember to update our protection policies to cover the financial commitments these all bring to our lives? It’s easy to overlook the need to review your cover when your life moves into a different gear.
Do you have the right type of cover for your needs?
However, forgetting to review your cover could mean that your family wouldn’t have sufficient money to repay the mortgage and meet the bills if something unexpected were to happen to you. It could also be the case that the type of policy you currently have has been superseded and there may now be more cost-effective options available to you.
Life insurance policies combined with other cover can protect your finances, your home, and your family in the event of incapacity, a serious illness, an accident or death, so it’s important to make sure that as your life changes, your cover changes to match your circumstances.
Once upon a time, homeowners moved four times after their first purchase; now it’s more like twice. New evidence suggests that in England and Wales, many more of us are putting down roots and choosing to stay in our current homes for longer.
Research1 carried out by Dr Ian Shuttleworth of Queen’s University Belfast points to a major cultural change, and highlights that at least a million fewer people moved between 2001 and 2011 compared with 1971 to 1981.
STAYING PUT AND RENOVATING
This trend is borne out by recent research from insurer Hiscox2. They have identified a five-fold increase in the number of homeowners who have chosen to renovate their existing home in the last five years. The choice to renovate rather than move is likely to be influenced by a range of factors such as the continued rise in house prices in some regions, predicted rises in interest rates, the additional costs such as stamp duty, the lack of suitable property on the market, tighter mortgage lending criteria and the economic uncertainty that arose after Brexit. In addition, in some parts of the country property prices have hardly moved, meaning that families can find themselves held back because they have made little or no profit on their existing home.
In 2013, the research2 showed that just 3% of homeowners chose to improve as an alternative to moving, but five years later, this figure has risen to 15%. Local council figures show that requests for planning permission have risen by 29% in the last ten years.
OUTWARDS AND DOWNWARDS
People are increasingly looking to adapt their property to meet their changing needs, with an extra bedroom high on the agenda of many families. Unsurprisingly, loft extensions head the list of alterations having increased the most, up by 114%. As reports in the media have highlighted, digging out basements to create extra accommodation is becoming increasingly popular, especially in fashionable parts of London.
1Queen’s University Belfast, Fewer people moved house in the ‘00s than the ‘70s, 2018
2Hiscox, Renovations and Extensions Report, 2018
Scammers are increasingly targeting older people, with many of the crimes they commit involving bank account fraud or the selling of bogus or unsuitable investments. Although cold calling is to be banned, the elderly can still be contacted in other ways, so it’s important that their interests are protected.
According to the Alzheimer’s Society1, 850,000 people in the UK are living with dementia, with numbers expected to rise to over one million by 2025. The advice from charities caring for the elderly is that everyone should plan for a time when they might not be able to make important decisions about their finances or welfare.
HOW LASTING POWERS OF ATTORNEY (LPAs) CAN HELP
LPAs have become much more common in the last decade, not least because TV finance guru Martin Lewis has said that although he’s only in his 40s, he has taken this step, and believes everyone should think about using LPAs to safeguard themselves and their families.
LPAs are designed to protect you if you lose the ability to make financial or care decisions on your own behalf. Making an LPA allows you to choose someone you know and trust, called your ‘attorney’, to make important decisions should you be unable to do so.
A SIMPLE PROCESS THAT PROTECTS YOUR INTERESTS
With a Property and Financial Affairs LPA, your attorney has the power to make decisions about money matters on your behalf if you are unable to do so. This includes financial transactions like running bank accounts, accessing and managing pensions and funds in drawdown, paying bills and selling property.
Your attorney(s) can be relatives or friends, your husband or partner, or a professional adviser. Without an LPA in place, if you were to lose mental capacity, your friends and family wouldn’t have the automatic legal right to step in and take decisions on your behalf. Instead, they would need to apply for Deputyship to the Court of Protection, an expensive and time-consuming process. A little forethought could prove hugely beneficial.
If you’re looking to set up an LPA for someone living in Scotland, aspects of the agreement and document differ to the one for England and Wales.
1Alzheimer’s Society, Facts for the media, 2018
No one should be deterred from planning for their retirement by the jargon used in the pension industry.
Happily, we are well versed in turning complex financial terms into plain English. Here we unravel a couple of terms that you may have come across and be unclear about.
When you retire, you can choose to take some or all of your pension pot as an annuity, an insurance product that provides a guaranteed income for life. One of the benefits that annuities provide is security. Unlike other retirement income products, and with the exception of investment-linked annuities, you aren’t exposed to stock market risk which could erode your income. On the downside, should you die early, the residual value of the annuity dies with you; there is usually no return of capital to your estate.
With income drawdown, you take a retirement income direct from your pension pot while leaving the rest of the cash invested, providing an opportunity for future growth. There is no minimum amount for drawdown, so you could, for instance, take your 25% tax-free lump sum and choose to leave the remaining funds invested. You can also move funds into drawdown in stages, known as partial or phased drawdown. The 25% tax-free amount doesn’t have to be taken at once on retirement – smaller amounts can be taken over time, each with 25% tax-free.
Once in drawdown you can access funds as you need them. You could, for example, vary the amount you take each year, taking less if you wish to remain in a lower tax band, or more if you have plans to spend. After taking your 25% tax-free cash, your withdrawals will be subject to income tax and your drawdown income is added to any other income you receive in that tax year. It’s important to remember that taking large withdrawals may result in you paying tax at a higher rate.
A recent survey1 has shown that for many, building up their savings is not top of their agenda.
Everyone should think about putting some money aside for emergencies, and for the bigger things in life like the deposit on a home, a child’s education or a wedding. So, for most of us having some cash that we can access quickly to pay for unexpected things like an unforeseen bill, and some that steadily builds up over the years, makes good financial sense.
An ISA is a simple, tax-free way to save or invest for the future. The advantage of these types of account is that you don’t pay tax on the interest or dividends you earn, or the increase in the value of your investments. There are now several different types of ISA available, designed by the government to encourage everyone to save or invest for their future. The basic types are:
- Cash ISAs and stocks and shares ISAs for savers and investors
- Junior ISAs for children
- Help to Buy ISAs for those saving for their first home
- Lifetime ISAs for those saving to buy their first home or who wish to save until age 60.
TAKE YOUR FIRST STEPS IN INVESTMENT
Investment means introducing your money to risk, but also offers the prospect of getting better returns than are available on savings accounts.
Fledgling investors often begin by drip-feeding smaller amounts of money into ISAs, collective investments such as unit trusts, managed funds or bonds, rather than risking a lump sum at what could turn out to be a bad time.
If you put your money into stock market investments you should be prepared to do so for at least five years and preferably longer. You’ll also need to think about your attitude to risk, as this will have a bearing on the type of investments that will be right for you. If you invest in the stock market, your capital will rise and fall according to how the economy and markets here and globally are performing, meaning that you need to be able to cope with peaks and troughs.
Whether you’re saving or investing to help your children, want to retire early, or simply build your lifetime wealth, good advice can ensure that you make the most of your money and avoid the pitfalls.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.