Finance

Mythbusting Lifetime Mortgages

Equity release; it’s all over our TV screens and radio, but what do you actually know about it? Expert Chris Brooks separates the fact from the fiction and busts those myths you’ve heard about lifetime mortgages.

The most common form of equity release is a Lifetime Mortgage, put simply this is a long-term loan which allows you release the wealth tied up in your property.

Myth 1: Lifetime mortgages are unsafe and unregulated.

Fact: Lifetime mortgages are regulated by the FCA, also the Equity Release Council is set up to protect the interests of consumers so you should have peace of mind to consider equity release.

Myth 2: You’ll owe more than the value of your home.

Fact: Products which meet the Equity Release Council’s product standards are required to feature a no negative equity guarantee. Put simply, this guarantee means that you, or more specifically your estate will never owe more than the property is worth once it is sold.

Myth 3: You must stay in the same property for the rest of your life.

Fact: With most lifetime mortgages, you can move home and transfer the loan to the new property providing it meets the lenders terms and criteria.

Myth 4: You will leave a debt to your family and loved ones.

Fact: Providing the terms and conditions are met, no debt is left to your estate, and you or your family will never owe more than the value of your home once sold upon death or permanently moving into long-term care.

Myth 5: Equity can’t be released if there is an outstanding mortgage.

Fact: You can apply for a lifetime mortgage providing you pay off your existing mortgage balance. This can be done either through the equity released from your property or by another means.

Myth 7: You won’t be able to leave your property as an inheritance.

Fact: Once the loan has been repaid from the sale of your property, any money left over can go to your beneficiaries. Some plans let you ring fence a portion of your home’s equity to leave as an inheritance for your loved ones.

Myth 8: You’ll lose ownership and control of your property.

Fact: With a lifetime mortgage you continue to own 100% of your home. A lifetime mortgage is a loan secured against your property, so you will always retain ownership until you either die or move into permanent long-term care, after which time your property will be sold to repay the loan plus any accrued interest.

A better understanding.

Now we’ve dispelled the myths you have a better understanding of what choosing a lifetime mortgage actually means and its impact on you and your family. There’s a useful calculator tool HERE for you to find out how much money you could unlock from your home.

Chris Brooks Certs CII (MP & ER) Independent Equity Release Adviser

Equity release may involve a home reversion or a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. Harbour Equity Release is a trading name of Equity Release Associates Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 932793.

Myth 6: It’s not possible to reduce the outstanding debt.

Fact:Many lifetime mortgages allow for 10% voluntary repayments without you incurring any early repayment charges. With some plans you can also make monthly interest repayments; this way you can maintain the debt to the initial amount of the loan before interest. Lenders will need to check these payments are affordable to you. If you choose to make interest repayments, you still have the option to move to a roll up arrangement at a later date if you wish. There are even some lenders who can offer you the option to pay off some of the capital throughout the plan.

At Harbour Equity Release our objective is to find the right solution for you. There is no obligation to proceed, and if equity release isn’t your best option we will let you know. Please visit my website for frequently asked questions, a free-to-use calculator to see how much equity you could release and more. Please feel free to either give me a call on 01202 925 976 or email me at enquiries@harbourequityrelease.co.uk

Maximizing the value of your pension

Pension planning is a complex area - Sherborne’s AFWM Ltd’s independent financial adviser, Dan Driscoll highlights some key considerations.

Nearly seven years on from the introduction of pension freedoms, the demand for pensions advice continues to be strong. With the events of the pandemic still creating uncertainty, could you benefit from a review into your own pension planning approach?

What if I have unused pension allowances from previous years?

This can be particularly important if you’ve had a large redundancy payment, are a business owner/ Director or if you’re a high earner. The carry-forward rule lets you take advantage of any unused allowance from the previous three tax years. If you’ve used all this year’s allowance (£40k), but you hadn’t used any allowance from the previous three tax years, you could invest up to an extra £120,000 in your pension in the current tax year. Effectively, you’d pay in up to £96,000, with the government’s contribution adding up to £24,000 in basic-rate tax relief to the pension. If you were a UK additional-rate taxpayer, you’d also be able to claim up to a further £30,000 in tax relief via your tax return. There are two requirements to be able to carry forward pension allowances: • You’ve had a pension in each year you wish to carry forward from, whether you made a contribution or not. The State Pension doesn’t count. • You have earnings of at least the total amount you’re contributing this tax year. Or if not, your employer could contribute to your pension – this is likely to be most relevant for those with their own limited companies.

Effective use of your savings in retirement

Having the right investment strategy combined with ensuring that the level of withdrawals remain sustainable are critical elements of your retirement plans. But it is also vitally important that those withdrawals are as tax efficient as possible.

Retirement with pension savings only

If you are solely reliant on pension savings in retirement, using your personal allowance is key to ensuring funds last as long as possible. A personal pension becomes a ‘crystallised pension’ as soon as you cash it in and start taking your retirement benefits. You can currently crystallise your pension from the age of 55, and can access your crystallised pension via drawdown or an annuity. The personal allowance currently sits at £12,570 - this allows you to crystallise £16,760 each year without paying any tax. Alternatively, where a higher income is needed and to spread the tax free cash over more years, the full crystallised amount could be taken each year. Factor in the State Pension to your plans, as this may mean altering the amounts drawn from other pension savings.

Semi-Retirement

You may not want to fully retire, but instead reduce the hours you work, or take up something that has been a long-held ambition. This becomes more of a possibility from age 55 (57 from 2028) if you can support your part-time earnings by accessing your pension. The choice is then whether to take tax free cash only, or a mix of tax free cash and income. Taking tax free cash only could mean more tax on the income element in future years. However, there is an argument for taking tax free cash only: when you draw taxable income from your pension drawdown pot for the first time, the ‘money purchase annual allowance’ is imposed. This means that the total of future contributions to money purchase pension schemes is limited to £4,000 a year. Anything over this will be subject to the annual allowance tax charge. This could restrict future planning opportunities via pension savings. You could even lose out on employer contributions.

At AFWM we offer independent and impartial advice to help you plan around these key considerations. We offer a free, no obligation consultation meeting to any prospective clients and don’t have any minimum investment requirements. If you would like to book an appointment, please contact AFWM Ltd on 01935 317 707 or dan.driscoll@afwm.co.uk.