MORTGAGES WITH NO MINIMUM INCOME

The Lifetime Mortgage provides a facility for borrowing based solely on your age and the value of the property. The older you are, the more you can borrow and you have the options of either paying just the interest for as long as you wish; making payments now and then; making regular payments so as to reduce the amount borrowed (as with a standard repayment mortgage); or letting the interest build up and be paid from the eventual sale of the property. Here is a sample of the maximum borrowing possible at various ages on a property with a value of £200,000:

Age 55       21% of value £42,000

Age 60       26% of value £52,000

Age 65       31% of value £62,000

Age 70       36% of value £72,000

Age 75       41% of value £82,000

Age 80       46% of value £92,000

Note: These are not guaranteed levels of borrowing. In some cases it may be possible to borrow

somewhat more than shown above, and in other cases, the borrowing may be less.

OVER 60? CHECK OUT LIFETIME MORTGAGES

Lifetime mortgage rates are normally fixed for the whole term of the mortgage which is usually until the property is sold on death or when moving into care.

So if you have one already, then there is probably nothing you need to do. However, if you have been considering taking one out, it would be wise to do so quickly. Over the last year the number of older

borrowers taking out a Lifetime Mortgage has increased by over 40%. This is a result of more older people approaching the end of an interest only mortgage arranged many years ago, and changes in Lifetime Mortgages which have made them more flexible.

A Lifetime Mortgage is effectively a self-certification mortgage as there are no affordability requirements as with a standard residential mortgage. The amount that can be borrowed depends only on age and the property value.

Even a poor credit record generally does not affect the ability to borrow. This can provide a powerful solution for older borrowers.

The borrowers have the choice of servicing the mortgage with regular or ad hoc payments or letting the interest simply roll-up. The bottom line is that there is no threat that missed payments would end up with one being kicked out of their property. Note: Lifetime Mortgages have a minimum age of 55; a husband and wife would require both to be aged 55 or older. Do give us a ring and we can quickly give you an idea of how much you would be able to borrow based on your age and property value.

Some More Details of the Lifetime Mortgage

Because of the potentially very long term of the mortgage, the maximum amounts that can be borrowed are generally less than you would be able to borrow with the usual residential mortgage. Here are examples of the maximum amount of borrowing possible based on age. (Note: in the case of a couple the age that the lender’s operate on is that of the younger of the two.)

Age      Loan To Value        Maximum borrowing on property worth £300,000

55          25.5%                           £76,500

60          31.0%                           £93,000

65          36.0%                           £108,000

70          41.1%                           £123,300

75          47.0%                           £141,000

80          51.5%                           £154,500

Note: These are examples only but do represent a reasonable estimate of the maximum borrowing possible at the ages shown. In the event that there are serious medical conditions a higher level of borrowing may be possible.

Looking Inside a Lifetime Mortgage

A Lifetime Mortgage is a mortgage like any other mortgage. You borrow money against the security of the property. You remain the owner of the property and benefit from any increases in the property value. You also remain responsible for keeping the property in a good condition. Usually the interest rate is fixed for the term of the mortgage which can be as long as you live or until you go into care.

You can pay off the mortgage at any time, although in the initial years there may well be early

repayment penalties – just as there are with most fixed rates with the usual residential mortgages. With a Lifetime Mortgage you can either choose to repay the interest being charged, or make no payments of interest – letting the interest build up and be repaid by the eventual sale of the property.

Other Solutions - The Lifetime Mortgage – A New Flexible Mortgage Tool for the Older Generation

In many ways the new Lifetime Mortgages provide the sort of flexibility that was a feature of mortgage borrowing many years ago.

The level of borrowing is determined in most cases not by affordability calculations, but by just the borrower’s age and value of the property. The older you are and the more the property is worth, the more you can borrow.

This can provide an escape from an older interest-only mortgage arrangement. It can also open the door for using the value in the property for any other reason – whether it is for one’s own projects or to help family with problems they may have. The Lifetime Mortgage interest rates have also been inching downwards in the last few years as competition has increased. Past credit problems also usually do not present a barrier.

An Important age – 55!

In today’s financial world reaching 55 carries with it certain opportunities. 55 is the minimum age at which one can take most pension benefits (with the key exception being the State Pension which is no longer age 65 for most people).

It is also the minimum age at which a person can take out a Lifetime Mortgage.

Lifetime Mortgage Options

Whether you have an interest-only mortgage coming to the end of its term, or simply want to raise funds for other reasons, a Lifetime Mortgage could be a good solution.



Based only on age and property value, they are not dependent on income or affordability or credit status. Money can be raised for virtually any reason. You can choose to make payments or let the interest roll up. The minimum age for a Lifetime Mortgage is 55. For a couple the youngest has to be at least 55 years old. Note: Any mortgage already on the property must be repaid; it is not possible to have a Lifetime Mortgage in addition to an existing one.



Contact us for quotes or with any questions you may have.

RETIREMENT MENU

Cash please

Those who are 55 and older can now draw out all (!) of their pension fund as cash. So you can ask to have it all as cash (!)   BUT…

Tax! The downside is that with each pension only 25% of the fund can be taken tax-free.

Any amount that you take over and above this tax-free 25% will be taxed as if you had earned it in the Tax Year in which you draw it out. That amount is added to your other income and is taxed accordingly.
Example:
A person aged 55 is earning £20,000 per annum and paying about £1,800 in tax on those earnings. He has a pension fund worth £40,000 and he wants to take it all out. He would get the first £10,000 tax free. The remaining £30,000 would be added to his £20,000 other earnings and he would be taxed

as if he had earned £50,000. This would result in him paying £9,200 in tax instead of £1,800. So he would lose £7,400 of his £30,000 pension to the taxman. A person already earning enough to put him in the higher rate tax bracket (40% tax where the total income exceeds £43,000) could lose 40% of the money he takes out over and above the tax-free amount. In our example of a £40,000 pension fund, he would still get the £10,000 tax-free but lose £12,000 of the remaining £30,000 in tax). Therefore it is important to take tax into account when working out when to take money out of the pension.

(Note: this article refers to personal pensions only; the rules are different for a Final Salary Scheme where the benefit is based on the salary and years of service and some other special types of  pensions.)

Income Options

(Note: all these options assume that you take out the tax-free cash.)

Option 1: Leave the balance invested with the option to take out further funds in the future – either when your need is greater or when your tax position is more advantageous. This is called a Flexi-

Drawdown arrangement as it provides the flexibility for you to draw out whatever sums you want at any time you want them. But remember that once you have drawn out the tax-free element, any other monies you take out will be taxed. Such an arrangement also involves investing your pension fund so you would need to consider both the risk that comes with such investments as well as the provider’s charges for running the pension.

Option 2: Use the balance left over to set up a guaranteed income for life (an “annuity”). The amount of income received would depend on your age – the older you are, the more you would get. The amount of income you would get also depends on your state of health – the worse off you are health-wise, the greater the income you are likely to receive. You can set it up on just your life or so that it covers both you and your spouse/partner. The idea of guaranteed income is attractive but the current annuity rates are quite low so the amount of money you can obtain may be a bit disappointing.

Option 3: Take a short-term guaranteed income (a “temporary annuity”). This pays out a guaranteed level of income for a fixed number of years and then pays out a guaranteed sum on maturity – which can then be used again in Option 1 and 2 above or to repeat this Option 3 for a further term of years.

UTILISING THE VALUE IN YOUR HOUSE – EQUITY RELEASE!

For those aged 55 and over it is possible to access some of the value in your property. There are no income requirements and the older you are, the more you can take out. The funds taken can be used for any purpose. There are three general approaches to Equity Release:

1) making interest-only payments indefinitely (Interest Only);

2) borrowing without having to make any repayments at all until the property is sold (Lifetime Mortgage);

3) trading ownership of the property for a lump sum and the right to life-long tenancy of the property (Home Reversion Plan).

A NEW RETIREMENT MENU FOR PERSONAL PENSIONS!

RETIREMENT MENU

Minimum age 55

(Note: different rules apply to Final Salary/Defined Benefit Pensions and some other schemes)

Cash please

You can have it all as cash but only 25% of it tax-free. You will be taxed on whatever else you take out in the same way as if you had earned it in that Tax Year.

Income please Option 1: You can still get an income guaranteed for life (Annuity -see further

notes below)

Option 2: If you have health issues you may be entitled to a higher guaranteed income for life (Enhanced Annuity)

Option 3: Draw an income from your pension fund itself (Drawdown)

Option 4: Use a guaranteed fund to protect your investment but still be able to take an income (Guarantees).

State Pension please  The State Pension is increasing but the State Pension age is also going please up. To find out when you will receive your State Pension go to www.gov.uk/calculate-state-pension.

“Side Dishes”

You may have other sources of income to help in retirement. This might be investment income, or rental income from an investment property or income from letting out one or more rooms in your home  (Rent-A-Room scheme allows you to earn up to £7500 tax-free).

More on Annuities 

There are a variety of annuities available. The general concept is that you use all or some of your pension fund to buy a guaranteed income for life or for a specified period. The older you are, the more income you will get for your money. The guaranteed income can be for the person with the pension and a spouse or partner – to go on for as long as the last survivor is alive. The annuity can provide a level income or an increasing income. There are also annuities which are linked to investments so they can go up or down.

More exotic dishes

The pension rules are different for other types of pensions. If yours is not a personal pension, do feel free to contact us for guidance.

MORTGAGE PRISONER?

There are a number of property owners who find themselves unable to obtain a new mortgage due to the new mortgage requirements for proving income and affordability.

In some cases that has left borrowers either unable to move, or stuck with their lender’s Standard Variable Rate when new fixed rates are 1% or 2% better. Just a 1% reduction on a £150,000 mortgage would save £1500 in interest each year (assuming a 20 year repayment mortgage). Here are a few examples of this “mortgage prisoner” problem along with possible solutions:

Problem: Some older people cannot get a new mortgage with a long term because of the new attitude of most lenders to maximum mortgage ages.

Solution: Try your present lender to see if they can provide some flexibility or contact us as there are a number of niche lenders who can take a more enlightened view about maximum mortgage ages — where the deal makes sense.

Problem: Some people were able to take a mortgage out in the past when it was possible to self-certify the level of their income. In virtually all cases now income must be proven and the self-employed will be assessed on their net income as shown by the Tax Office.

Solution: Some lenders are more generous in their income calculations than others and some lenders require only one year’s completed accounts. For those over 55, Equity Release solutions may be of help as these are based on age and property value only. We can make enquiries for you.

Problem: Some people took out interest-only mortgages with a plan of how to repay them, but that original plan is no longer possible.

Solution: For some simply downsizing will be a solution. For others who want to stay where they are, however, there are other options. There are still some interest-only mortgage options available if one is simply looking to extend the time he can continue to stay in the property. It is also possible for those aged 55 or older to use an Equity Release lifetime mortgage or similar solution. We can make enquiries for you.

Note: Lending restrictions are expected to tighten even further by the end of March 2016.

UTILISING THE VALUE IN YOUR HOUSE — EQUITY RELEASE!

The ability to release some of the equity in a residential property has been important in more and more situations currently, such as dealing with interest only mortgages that will not be cleared otherwise, or providing support for children or grandchildren for education or for purchasing a property.

The most popular of the equity release options has been the Lifetime Mortgage whereby money is borrowed as with a standard mortgage, but instead of payments being made monthly, the interest is added to the amount borrowed and is paid off on the sale of the property. For those who do not want to see interest continuing to accumulate there are now options which allow voluntary payments to be made without penalty – usually up to 10% of the amount borrowed each year.

There are also options to take out guarantees to cover a portion of the property so that you can be certain that part of the value of the property will be passed on regardless of what occurs with the rest of the value of the property. Do give us a ring and we can work out what might be available for you.

EQUITY RELEASE CHANGES

With the other changes occurring, there are also some new Equity Release options which permit the individuals taking them out to make payments back into them so as to limit or eliminate any increase in the amount owed.

Income Please

Income please


After you have taken your tax-free cash

Option 1 Take a guaranteed income for life (Annuity).

Option 2 Receive a higher guaranteed income for life due to an adverse medical condition or medical history or history of smoking (Enhanced Annuity).

Option 3 Take a fixed income for a period of time (usually 5 years) and have a guaranteed amount left at the end so you can then review your options (Temporary Annuity).

Option 4 Get an income which can possibly increase depending on the underlying investments (Investment Based Annuity).

Option 5 Leave your monies invested with the option to draw an income from the fund itself (Drawdown). There are two possibilities here.

The first is called Capped Drawdown. With this one the maximum you can take is based on your age and the value of the pension fund. The second is called Flexible Drawdown. This allows you to take out as much as you want from your pension fund – but only if you already have a guaranteed pension income of at least £20,000 per annum (this can be made up of the State Pension and Private Pension income but cannot be made up of other earned income or investment income).

TAKE ADVANTAGE OF THE VALUE IN YOUR PROPERTY

As more and more older people need to take advantage of the value in their residential properties to help supplement income or for home improvements, the Equity Release market is growing. With the increased competition there is more choice and better interest rates. If you are in a position where you may need to consider this, we will be pleased to assist in researching the options for you without cost or obligation. Just give us a ring on 01342 313302 or email us. Note: the minimum age for Equity Release is usually 55. In the case of a married couple, the younger of the two would have to be at least 55 years of age.

OTHER OPTIONS FOR INCOME IN RETIREMENT

While pensions are traditionally the way most people will provide for themselves in their later years, they are not the only option. Many people have greater faith in property and will build up a portfolio of residential investment properties producing a net rental income and the possibility of an increase in the property values. Mortgages for Buy-To-Lets have become very competitive and still can be done on an interest-only basis in order to maximise the income produced. Please contact us if you require any further information about Buy-To-Let mortgages. Other savings such as Individual Savings Accounts and stocks and shares generally can also provide an income in retirement. The return on cash investments is not very good currently but has been better in the past. The income from shares in the way of dividends can provide a very useful source of retirement income, for those who understand the risks and are willing to take them. Pretty much a last resort for income or a lump sum in retirement are Equity Release Plans. They are available from age 55 (note: for a couple the qualifying age is determined by the younger of the two). Interest rates and costs for these options have been going down, so they are worth reviewing if needed. We would be happy to provide quotes and clarify the options for you.

The Value of Experience and Expertise!

By survey what you want from us is our advice on financial matters, utilising our extensive knowledge and long experience going back over 30 years. We enjoy helping in this way and continuing to assist our clients and their friends and their children. Those that have used us do know they can rely on us again and again. In recent service questionnaires when asked why they chose to use Sovereign Finance we received answers such as the following: “We dealt with Sovereign Finance before and found them of good service, reliable and honest. Always.” Mr GS of Ashford “Thank you so much for making it all happen so fast. Brilliant!” Mrs SR of London “Mr Shuster is dedicated to getting the right result.” Mrs HT of West Sussex “We had previously used Sovereign and had confidence in the advice given. We expected a good service and that’s what we got.” Mr KH of Eastbourne “The service I received was excellent with regular correspondence and home visits. Good work. Keep it up”! Mr MB of Pembury

Unusual Mortgage Solutions

While rates are competitive, the majority of lenders have brought in new restrictions on age to meet the regulators requirements. Nevertheless, there are niche lenders who can help deal with such situations where borrowing needs to go past the usual retirement age of 65. We will be pleased to assist in finding a solution. There are also Equity Release options from age 55 onwards although these are usually “last resort” solutions.

Long Term Care Costs to be Capped

In the Queen’s Speech the Government announced their intention from 2016 to put a cap on the costs that people are expected to pay if they go into long-term care. This is expected to be £72,000. Anything over this is to be paid for by the state. Those people who have accumulated savings and bought their homes currently face the prospect of the whole value of the estate disappearing in care home fees. Under the new guidelines it looks we will have the opportunity to keep more of the value of our estates – for our own use or to pass down to our beneficiaries.

Equity release myths

For many retirees – as well as those considering their retirement plans – their home is likely to be their largest asset. In an environment of high inflation and low savings rates, money can be tight for pensioners, but misconceptions about equity release plans might prevent retirees from unlocking the value tied up in their home. Research by Safe Home Income Plans (SHIP), the trade body for equity release providers, has found a number of myths that persist about equity release plans.

1 – 69% of UK consumers believe you risk losing your home. However, you can remain in your property for life as long as it remains your main residence. In cases in which a couple is involved, this rule will apply to the last surviving member of the couple.

2 – 67% of UK consumers believe you will not be able to leave an inheritance. In fact, when you die, your home will be sold and the money used to pay off the loan. Although an equity release plan will reduce the value of your estate, any money left over will go to your beneficiaries. Taking out an equity release plan could also help by reducing inheritance tax liability.

3 – 52% of UK consumers believe you will not be able to move house. In practice, you have the right to move your equity release plan to another suitable property without suffering any financial penalty.

4 – 47% of UK consumers believe equity release plans are unsafe and unregulated. However, all members of SHIP have to abide by a rigorous complaints procedure to satisfy the Financial Services Authority.

5 – 43% of UK consumers believe your children will have to repay the loan themselves. In fact, you will never owe more than the value of your home and no debt is ever left to the estate. Importantly, SHIP providers also offer a no-negative-equity guarantee.

It is important not to confuse equity release plans with sale-and-rent-back arrangements, in which the house is sold – often at a discount – to a third party and then rented back to the vendor for a specified period. These arrangements tend to be an action of last resort, involving those in serious financial difficulties. In contrast, an equity release plan does not involve the sale of the house and the individual has the right to remain in their home until they die or go into care.