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Category : Mortgages
Thousands of people with interest-only mortgages expiring this year do not have a repayment plan, putting their homes at serious risk of repossession.
40,000 interest-only mortgages are set to mature in 2016, but experts suggest that only half of these homeowners have the capital in place to repay the loan. And according to the charity Citizen’s Advice Bureau, this is just the tip of the iceberg, with 934,000 interest-only borrowers without a plan to pay off their mortgage.
The ins and outs of interest-only
Unlike a repayment mortgage, where the borrower pays off the capital and interest on their loan each month until the debt is cleared, an interest-only loan offers a cheaper monthly premium but requires a single repayment of the capital at the end of the term. Normally this is cleared using the proceeds from a separate investment vehicle.
For example, a £150,000 mortgage at 5% over 25 years would cost £877 per month on a repayment basis, but only £625 per month interest-only. However, the latter leaves the original £150,000 capital debt to be repaid.
Since 2012, anyone taking out an interest-only loan must have a repayment plan in place which has led to a drop in the number being sold.
Don’t get trapped
If you have an interest-only mortgage but no repayment vehicle in place, it is critical you review your finances as a matter of urgency. Depending on the term left on the mortgage you could set up a repayment plan now, or look at switching to a repayment mortgage. This may mean higher monthly repayments, but there are a lot of competitive deals in this current low-interest rate environment. Another option could be to sell your home and downsize – something that may be possible if older children have flown the nest but nevertheless a difficult decision if you don’t want to lose a cherished family home.
Your home/property may be repossessed if you do not keep up repayments on your mortgage
When you think about your dream home – the one you can see yourself growing old in – what do you imagine it looks like? A modern architectural masterpiece built of glass and metal, or something more old-fashioned and cosy? If you asked your friends and family what their ideal ‘forever’ home looks like they will probably all have very different ideas.
What does your forever home look like?
Whether you’re fortunate enough to be on the lookout to buy your forever home, or you’re thinking of doing up your current home to make it one you won’t ever want to move from a recent survey has revealed some interesting statistics:
Top of the must-have list for UK home buyers is off-street parking, whereas one of the ‘dream’ features is a garage – despite reports suggesting we rarely use our garages to park our cars.
Marketing your forever home
If you’re selling your home, you can make it more marketable by appealing to someone’s idea of a forever home. Converting an office or junk room into an extra bedroom can make it more attractive to families. You could also convert your downstairs cloakroom or the cupboard under the stairs into a toilet or wet room and use potted plants on patios or driveways if you haven’t got a big garden.
What do you think a forever home is?
- 61% of the people surveyed think their forever home is the one they’ll grow old in
- Only 10% think it’s something they can currently afford
Where should it be?
- 26% want their forever home to be in a village
- Only 8% think their forever home will be in a big city
Do you live in yours?
33% of 18-24 year olds think they’re currently living in their forever home compared to 43% of 35-44 year olds believe the same
With rising house prices outpacing income an increasing number of young people will borrow from parents and family in order to get onto the property ladder.
The 10th largest mortgage lender
The combined amount which parents and grandparents will be prepared to gift or loan their children to help them buy their first home is estimated to be £5bn. This puts them alongside the 10th largest mortgage lender in the country, Clydesdale Bank, which lent the same amount in 2014.
Research from Legal and General estimates the “Bank of Mum and Dad” will be involved in approximately one in four UK mortgage transactions this year, showing the extent of how borrowing from family members is supporting the housing market. The risks of borrowing from Mum and Dad However, as well as the obvious benefits, Legal and General suggests people from less advantageous backgrounds will be increasingly squeezed out, effectively widening inequality in the housing market.
They also caution that the “Bank of Mum and Dad”will, at some stage in the future (they estimate 2035), come into a funding crisis, caused by unexpected care costs for parents and grandparents living longer. The problem is exacerbated for families in London who have been known to contribute more than half their net worth on their children’s house purchase.
Other investment options for your children
There are more ways to help your children financially than contributing to their first home, but whatever approach you take it’s important to start early. By saving for your children from an early age (even perhaps before they are born) you can help put them in a better financial situation for their adulthood.
If you would like advice on choosing the right savings and investment options for you and your children, please get in touch today
Everyone is unique. We all think – and work – differently. Some people are good with words, and others, numbers. The same might be true when it comes to planning and managing our finances. But however different our approaches might be, we probably all have similar goals for our money.
Whichever way you come at it, it’s important to think about your financial goals and what you would like to achieve with your money. This is especially true if you have other people who rely on your income. This is where we come in. As professional financial advisers, we can make this job easier and add real value when it comes to protecting your family, investing wisely, moving home or planning for a comfortable retirement.
Getting to know you
When advising you about your finances we want to understand you – not your money. We’ll take the time to find out where you’ve come from, where you are now and where you would like to be in the future. Together, we can design a plan to help you better manage your financial affairs, save tax efficiently for retirement, and ultimately achieve your financial goals – whether short, or longer-term.
Ensuring contingency along the way
Throughout your life, you’ll need to find answers to many different financial questions:
- how much should we offer on a new house?
- when can we buy a new car?
- what’s our holiday budget?
- shall we start our own business?
- can we help fund our children’s education?
- can we support our children with their wedding costs and house deposits?
- can we make our money work harder and smarter?
- when can we retire and how much will we need to support our lifestyle?
- when we’re no longer here, who would we want to benefit from the wealth we’ve created?
- We can help you answer these questions and make the right decisions to benefit you and your loved ones now and in the long run.
Planning for the unexpected
Not everything in life is straightforward and things don’t always go to plan. We can help you prepare for the unexpected and put in place some financial safety nets in case anything happens to impact your family or disrupt your plans. Think about:
- whether your family could cope financially if either you or your spouse/partner died?
- how much income you would have if you were taken seriously ill and couldn’t work?
- whether your business would survive without you or your key people?
how your lifestyle may change if you had an accident and couldn’t do the things you do today?
- By getting to know your priorities and goals and understanding the bigger picture, we can piece together a plan to ensure the things that matter to you most – your family, income, business, or maybe all three – are protected leaving you on track to achieve your financial goals.
For more information on how we can help you create and achieve your financial plan, please get in touch.