MORTGAGES AND THE PROPERTY MARKET

The property market is reported to be rising at a rate higher than for many years, although this does vary according to where you live. Contributing to this is likely to be the strong increase in the number of First Time Buyers, which is rising more quickly than for many years. There are several reasons for this. First, mortgage rates have fallen to their most competitive level for many years, if not ever. Another reason is the assistance that the Government has been providing through its “Help To Buy” schemes. The focus of the “Help To Buy” schemes most recently have been new properties. The Help To Buy equity loan scheme provides help in the way of any equity loan so buyers with only a 5% deposit can get help with a loan of a further 20% of the purchase price, so that buyers only have to get a mortgage for 75% of the purchase price. The equity loan carries no payments for the first 5 years. When the property comes to be sold, 20% of the sale price will need to be used to discharge the loan – regardless of whether the property value has gone up or gone down. Another option for new properties has been the NewBuy scheme. This is also intended to help those who can contribute only a 5% deposit. In this case the builder and the Government pay for an insurance policy which guarantees part of the mortgage, so if the property is sold at a loss, the insurance policy will cover the difference. With this scheme and the equity loan scheme, the buyers must be using the scheme to purchase the property for their own private residence. They do not have to be First Time Buyers but they cannot have any other properties. And most importantly, of course, with either scheme the purchasers need to be able to afford the mortgage and meet the lenders’ income and affordability requirements.

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.

Finding Lost Pensions

Commonly people have accumulated various pension entitlements over the years and it is important to track these all down. The Government provides a Pension Tracing Service which will help you locate any bits that might have gone missing. For details of how to use this Tracing Service (which is free), google Pension Tracing Service or ring them on 0800 1223104.

Getting the most out of your Pensions

From age 55 onwards you can take benefits from private pensions, although the State Pension will not start until you reach your 60s. Note: to get the date for when your State Pension will start, go on line and google “State Pension Age Calculator” and follow the simple steps. There are a number of ways you can take your private pension benefits and you should take advice to ensure you understand all your choices and to work out what would be best for you. Your financial circumstances, age, and state of health will all need to be taken into account to work out what Tax Free Cash you might want to take and how and when you may want to draw an income. Research has shown that unexpected changes can occur early in retirement with 31% of retirees within the first five years of retirement experiencing worsening health, 10% being diagnosed with a serious illness and 26% needing to help family members financially. These are all points that should be discussed in working out how to best use your pension assets. We would be pleased to use our experience and expertise to assist you.

COMPULSORY WORKPLACE PENSION

This problem of lack of saving towards retirement is not a new discovery and the Government has sought to help address this with a compulsory workplace pension for all who are employed. This was established as a legal requirement in October 2012 but will take about 5 years to roll out to reach all employers. They have started with the larger employees and between now and 2017 all employers will have to set up a company pension scheme and this will include mandatory contributions by both employers and employees to the employees’ pensions. In many cases employers already have a company pension which can be adapted to the requirements of the Compulsory Enrolment legislation. If a company does not have a pension scheme, it will need to make its own arrangements. The requirements are very precise and employers will need to allow adequate time and resources for putting them in place. It is recommended that an employer starts dealing with this 12 months before their “Staging Date” – the date at which they are required to have the Workplace Pension up and running. Note: an employer can find out when it’s Staging Date is by going on-line to: www.thepensionsregulator.gov.uk/employers