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The FCA has raised concerns over lender engagement rates with interest-only mortgage borrowers, warning that "that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage".
is urging interest-only borrowers to contact their lender to discuss payment options, saying it is "concerned that shortfalls in repayment plans could lead to people losing their homes".
Although mortgage lenders are writing to customers prior to their mortgage maturing, the FCA says engagement rates with firms are low.
Its review found that although lenders were recommending repayment options that appeared appropriate for customers, the processes which customers had to follow "were, on many occasions, challenging". This included delays in getting to speak to advisers, making multiple phone calls and repeating information previously provided.
In 2013 the FCA identified three residential interest-only mortgage maturity peaks. It believes the first peak, happening now, is likely to have more modest shortfalls due to the profile of customers typically being those who are approaching retirement with higher incomes, assets and levels of forecast equity in their property at the end of term.
However the FCA is concerned that the next two peaks in 2027/2028 and 2032 include less affluent individuals who had higher income multiples at the point of application, greater rates of mortgages converted from repayment to interest-only and lower forecast equity levels, who are more at risk of shortfalls.
The Tayside property market has posted a strong performance for 2017, according to annual statistics compiled by the Dundee-based Tayside Solicitors Property Centre, which reveal local homes with a total value of nearly £440 million changed hands last year.
Lynne Hill, manager at TSPC’s Whitehall Crescent Centre, reported that the average house price had advanced 6.5 per cent year on year, now coming in around the £155,000 mark.
The TSPC and member law firms handled the sale of 2829 properties over the past 12 months, a rise of 3.6 per cent on 2016.
“The property market in Dundee, Angus and north Fife is in good health as we enter 2018,” said Ms Hill.
“Over the last quarter the TSPC noted sales up by 15 per cent and we are hopeful that the trend will continue in the months ahead.
“Certainly the early indications are promising. Across the region we are still seeing closing dates from our member firms and many properties are going under offer quickly.”
Reflecting on the last 12 months, she said: “We saw a very strong performance during 2017, with the average price of a property in the region moving upwards in each of the quarterly segments.
“Overall, the TSPC handled the sale of properties worth £438,478,577.
“The trend was also very positive in terms of numbers coming into the market and being sold. While there was a brief lull over the summer, the market finished the year on a high with 867 homes changing hands over the closing three month period.”
While the price of the average villa slipped by nearly 0.5 per cent year on year, strong demand in the sector saw sales rise 10 per cent. A total of 419 detached villas were sold, with the average price now £255,444.
With nearly 1000 sold, the price of the average flat came in at £103,533 – a rise of nearly 10 per cent.
Demand for detached bungalows pushed the average price in that sector up by 10 per cent to average £211,091.
“Sales of semi-detached properties were also robust over the course of the year,” said Lynne.
“The price paid for the average semi-detached villa was up 4.3 per cent at more than £148,000 while the average semi-detached bungalow moved ahead by 4.5 per cent at nearly £146,000.”
LIFETIME ISAs v PENSIONS
Since April 2017, you've been able to open a Lifetime ISA if you're aged between 18 and 40. For every £4 you pay in, the government will add £1. You can pay in a maximum of £4,000 a year to receive the £1,000 bonus from the government, which will be added at the end of the tax year. You can carry on earning bonuses until you are aged 50, and continue saving after that without bonuses.
Those with a Help to Buy ISA can transfer those savings into a Lifetime ISA or continue saving into both. However, you can only use the bonus from one to buy a house. The Help to Buy ISA, will be withdrawn in November 2019.
Savers can tap into their pots if they want to use some or all of the money to buy their first home, or wait until they are 60 to withdraw cash and their bonus tax-free. You can withdraw the money at any time, but if you do so before you turn 60 or if the money is not to help by your first home, you'll have to pay a 5% charge, and you'll lose the government bonus and any interest or growth on this. This is because the savings are designed to either purchase your first home or as retirement income after the age of 60.
The government has stressed that the Lifetime ISAs are not a replacement pension but rather an additional savings vehicle.
Advantages of the Lifetime ISA:
- If you are self-employed and don't receive employer contributions into your pension
- You've already made the maximum contribution via your workplace pension and you want to supplement retirement savings. This is especially useful for high earners making between £150,000 and £210,000 a year, as their annual allowance will gradually reduce from £40,000 to £10,000
- You want to retain access to your money in case you require it in an emergency before the age of 60 (but you'll lose the government bonus and growth on the bonus, and incur a 5% penalty)
- ISAs are simple, easy to understand and popular financial products
- Any withdrawals from an ISA a tax free, whereas a pension only 25% is tax free the residual amount will be taxed at your marginal rate of tax
Advantages of the Personal Pension:
- You are in a workplace pension to which your employer contributes - under auto-enrolment rules your employer will contribute at least 4% by 2019. An employer can't make a contribution into an ISA
- You want to access your money at age 55 rather than having to wait until you turn 60
- You are a higher-rate taxpayer (and therefore qualify for pension tax relief at 40%)
- You are likely to be paying a lower rate of tax in retirement (say 20%) than you did in work, perhaps as a higher-rate taxpayer getting upfront tax relief at 40%
- You will want to make significant pension contributions past the age of 50
- You intend to make substantial contributions - the lifetime limit for a pension is £1m from April 2016, while the most you can contribute to the lifetime Isa with the bonus is £128,000
The table opposite lays out the key differences between a Lifetime ISA and a Self-Invested Personal Pension:
In summary, an LISA is a welcome addition to the saving vehicles available to client's, but it still does not replace the benefits on a pension.
Two thirds (66%) of potential first-time buyers feel guilty about receiving help from family to complete their purchase.
The first-time buyers report by Yorkshire Building Society, which Accord Mortgages is a part of, shows 66% aged 18-40 would feel remorseful about leaning on financial support from the Bank of Mum and Dad.
Relying on family members is becoming the norm according to the report, with 59% of prospective homeowners expecting to receive financial support to buy a property, and a third (31%) expecting to receive financial help with their deposit.