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Archive for June, 2010

Are Mortgages Available in Retirement & What Income Is Acceptable To Lenders?

Wednesday, June 30th, 2010

It is becoming more common for people reaching state retirement age to still have a mortgage running into retirement.

Even more so, there is a growing demand for extra mortgage lending once they are in retirement.

Here we discuss what retirement mortgage options are available, acceptable income sources & where to look for independent advice on these matters.

 

There can be many reasons for having a mortgage beyond state retirement age; namely poor performing low cost endowments, previous unemployment or even long term health issues.

A mortgage that runs into retirement can have major issues with both affordability & term to its repayment date. Most lenders will require repayment on a mortgage by age 75.

We will now look at ensuring all available income is being claimed. Once researched, we can then discuss which of these are eligible for inclusion in mortgage affordability calculations.

 

 

So what options are available on reaching retirement itself?

Well this will depend on affordability & how the financial management of the mortgage itself can continue. The main issue with regards to affordability of an interest only mortgage at retirement is how much retirement provision has been made & maximising any other available sources of income.

 

 

What Type of Retirement Incomes Should I be Receiving?

Having reached state retirement age the state pension will become available. However, the level of this is dependent upon national insurance contributions paid over one’s working life. The current basic state pension is £97.65pw & on its own would not be sufficient to support an interest only mortgage payment alone. State Earnings Related Pension Scheme (SERPS) & any entitlement to the graduated state pension can possibly boost the state pension somewhat, but not substantially.

State pensions are a source of income that can be utilised towards a mortgage in retirement.

Company pension scheme members can benefit greatly with additional pension income that could be index-linked yearly & be calculated dependent upon the number of year’s service.

There is also evidence that personal pension plans can also boosting retirement income. Increasing importance is being placed in this area on seeking independent financial advice. Due to falling annuity rates it is more important to shop around & optimise your pension fund. Annuity providers can now enhance your pension income if poor health issues exist.

Both company & personal pensions are a source of income that can be utilised towards a mortgage in retirement.

 

 

With the recent economic downturn we have unfortunately seen the reduction in bank & building society interest rates. This has affected investors, once reliant on good interest payments, which would supplement their lifestyle. Again ensure you shop around to obtain a higher interest with your savings is more important than ever. Tax payers should make use of their annual cash ISA allowance of £5100 & non-taxpayers should ensure that Inland Revenue form ‘R85′ is completed in order they can obtain their interest paid gross.

Savings interest can be a source of income that can be utilised towards a mortgage in retirement.

It is also important to check whether any means tested benefits are available from the Department of Work & Pensions.  Dependent upon age there may be eligibility for certain benefits such as pension credit & savings pension credit.

 

Income levels below £132.60pw for a single person & £202.40pw (2010-2011) jointly could allow a claim for pension credit to be made. Also, check any entitlement to council tax benefit availability, which even though it cannot help mortgage payments directly, it can lower the monthly outgoings.

If there are disability issues then depending on the condition, disability living allowance (DLA), attendance or even carers allowance may be available.

Lenders have different rules on means tested benefits – to see which qualify for a mortgage in retirement contact Equity Release Supermarket on 0800 678 5159

 

Maintaining employment through or into retirement does obviously alleviate some of the financial issues. However, experience has shown that there are difficulties in gaining employment.

Nevertheless, it is increasingly apparent that people are now looking to continue working into retirement & provide extra cash to support retirement lifestyle. If part time work can be found then it can not only assist the budget, but also the soul. People in retirement are feeling & looking younger & with more activity in retirement their average life expectancy is rising as social constraints are removed.

Employment income will only help people with existing mortgages going into retirement, but not anyone trying to obtain a mortgage in retirement. Lenders will only accept employment income if a new mortgage is to be repaid before state retirement age.

Secondary investment properties can provide a form of rental income which can be used towards paying a mortgage in retirement. However, if any existing buy to let mortgage is in operation this will need to be declared & considered as part of the application.

As long as a tenancy agreement is in existence then this will be considered by the lender.

 

Although not a specific means of retirement income, equity release schemes can also be considered a means of retirement support. The flexibility of drawdown equity release schemes now incorporates the use of drawdown facilities which are essential in supplementing a flexible lifestyle.

These drawdown equity release schemes provide an initial tax free capital lump sum, with an additional reserve facility that can be gradually withdrawn over future years.

Equity release lenders such as Just Retirement permit additional withdrawals in small amounts of £2,000 a time, which helps retirement planning & provides financial security for the future.

 

Another method of providing income from equity release is through a Home Income Plan. These equity release plans involve a combination of two products; a Home Reversion scheme & a lifetime annuity. The home reversion company purchases a percentage of the property in return for a tax free cash lump sum. The lump sum can then used to purchase the annuity which can then generate the lifetime pension income required.

Both these equity release schemes will not assist in obtaining a mortgage in retirement. However, in their own right they can provide alternative capital or income in retirement with no monthly payments.

As you can see there are various income sources which mortgage lenders can consider.

 

With recent restriction on lending criteria, it is more important than ever to obtain independent financial advice on this specialist area of retirement mortgage finance.

For further information & advice on mortgages in retirement, please click here for details of interest only mortgages currently available.

Alternatively please contact Mark Gregory on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

AVIVA Equity Release – Latest Changes To Interest Rates & Lending Limits

Sunday, June 6th, 2010

This article provides information on the latest interest rates & changes that Aviva are making to their product range.

 

With the current shortage of equity release lenders, additional pressures are mounting on the remaining companies providing equity release schemes.

These lenders are now experiencing larger than normal business volumes as the number of providers has dwindled over the past 12 months. As a consequence some servicing issues are of concern, of which the biggest provider is now addressing.

 

Of these equity release companies; Aviva  are the first to change their lending criteria & this post provides details of this in advance.

 

Come the 14th June, Aviva will be increasing their interest rates & lowering their loan-to-values (LTV) & details of these changes are detailed later in this article.

This is a negative step for the market given that Aviva’s Maximum Cash Release plan offers the highest cash release in the lifetime mortgage market at present.

Therefore, clients looking for financial relief by releasing the maximum possible after this date now have a reduced cash sum available. Couple this with Aviva’s recent reduction in loan-to-values on flats & maisonette’s & there is a definite swing away from higher loan values.

 

Aviva will now only lend on 75% of property values on flats & maisonette’s, which is a dramatic move away from lending on these abodes. Couple this with the reductions in loan-to-values which are being announced on the 14th June, means a significant shift in their lending criteria.

This will affect in particular clients looking at debt consolidation or potential other requirements that demand the maximum possible.

 

Equity Release Supermarket  as independent financial advisers have witnessed firsthand the demand for larger advances this year alone. Predominantly, this has been for debt consolidation purposes whereby clients in retirement are now experiencing income shortfall issues as their investment returns have fallen significantly.

This has resulted in financial pressures meeting these monthly liabilities including mortgage payments, personal loans or more commonly, credit card debts.

 

Nevertheless, there are fresh signs within the market indicating that external forces are construing to develop new plans & ideas to drive this stagnant market forward.

We heard last week that More2 Life is introducing an impaired life roll-up equity release scheme. This is welcoming news for the market & hopefully the sign of things to come.

In the meantime the current crop of lenders can dictate in a market having little competition from other providers.

 

Part of the result of this is Aviva’s impending equity release scheme changes.

 

Aviva have announced an increase of 0.1% to the interest rates for new business on the Lifestyle Flexible Option, Lifestyle Lump Sum and Lifestyle Lump Sum Max.

Equity Release Supermarket receive an exclusive interest rate lower than that offered directly by Aviva themselves.

 

The new Aviva interest rates wef 14th June are therefore 6.70%, 6.55% & 7.40% respectively. On paper this doesn’t represent a large percentage increase; however given the roll-up nature of these products, this will result in £1000’s difference in the future balance.

 

Additionally, Aviva equity release are reducing the loan-to-values on the Lifestyle Lump Sum Max by 2% for customers aged 60 or below, and by 1% for those over 60.

Even with this decrease, they currently still offer the best LTV scale in the market on all properties (apart from flats & maisonettes).

 

The LTV rates for the Lifestyle Flexible Option and Lifestyle Lump Sum will stay the same.

 

Example LTV’s on the Lifestyle Lump Sum Max (single borrower) are now: –

Age 55        –           20.5%

Age 60        –           25.5%

Age 6          –           30%

Age 70        –           36%

Age 75        –           41%

Finally, there are transitional arrangements in place which anyone considering the Aviva equity release schemes should be aware of;

 

Applications on the Lifestyle Flexible Option, Lifestyle Lump Sum and Lifestyle Lump Sum Max dated prior to 14th June and received by the 18th June will receive the old interest rates. Also, any Lifestyle Lump Sum Max applications will be on the old LTV scale.

 

Applications on the Lifestyle Flexible Option, Lifestyle Lump Sum and Lifestyle Lump Sum Max dated before 14th June and received after 18th June will receive the new interest rate. Lifestyle Lump Sum Max applications will be on the new LTV scale.

 

Applications dated after 14th June will receive the new interest rates. Lifestyle Lump Sum Max applications will be based on the new LTV scale.

 

To request an Aviva illustration or further advice on any of the issues discussed above, please contact Mark Gregory on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
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