Summer 2015 Budget… A Summary

Budget red boxWell the first all conservative budget is over and lots of changes as expected.

Although there is a lot of information and figures, we have taken the key information for our mortgage and protection customers and highlighted the impact of these to you here.

PLEASE NOTE: This snapshot is not intended as an in-depth analysis of the Chancellor’s speech (we will leave that to the press and experts) but we hope this brief summary helps you gain a quick grasp on the key points delivered by the Chancellor yesterday.

For full details of the following headlines (and more) you may wish to visit the HM Treasury website

The key points affecting mortgages, insurance and housing are as follows:

Insurance Premium Tax

This will be raised from 6% to 9.5% from November this year.  Any policies affected by this rise will be contacted by the provider in due course to advise of the rise and to confirm the new payments.

This is not a rise in premiums, just a rise in taxation and should affect around one fifth of all insurance bought in the UK.

Home Ownership

The chancellor reaffirmed that the government was committed to:

New Help to Buy Isa this Autumn

Giving Housing Association Tenants access to Right to Buy

Further planning reforms to be announced Friday 10th July

Buy to Let Mortgage Interest Relief

This will be restricted to basic rate tax only, meaning that higher rate tax payers will no longer receive tax relief at the higher rate.

This will be implemented over a 4 year period and will start in April 2017

Rent a Room relief

This has been set at £4,250 for the last 18 years.  Next year it will be raised to £7,500, a much more realistic figure in today’s economy.

Inheritance Tax on family homes

From 2017, an additional £175,000 allowance will be granted on top of the standard £325,000 threshold when you leave your own home to either your children or grandchildren.  For couples this means that from 2017 you can effectively leave a property worth £1 million to your family free of charge.

This is particularly welcome to those families that have owned their own home for many years and have seen it grow rapidly in value, especially in the London and South East of England.

However, for estates worth more than £2 million this relief will be tapered away, so the intention is to return inheritance tax payments back to the wealthier estates in society.

Housing Benefits

Mortgage Interest Support, will change from a benefit to a loan.  The timescale to make a claim will also change from 13 weeks to 39 weeks.

This is a major change in benefits and potentially impacts anyone who has a mortgage and is out of work through long term illness or redundancy.

In addition, social housing tenants earning more than £40,000 in London and £30,000 elsewhere will see their rents rise to market rates, rather than being subsidised as they currently are.

Social housing rents will reduce by 1% a year for the next 4 years as well.

Highlights of other changes in brief

Forecasts

  • Chancellor announces that this budget, a one nation budget, puts security first and is a budget for working people looking ahead to the next five years.
  • The Chancellor announced adjustments to previous growth forecasts from those previously announced in the 2015 March Budget.
    • Growth last year at 3% – up from 2.6%
    • Growth forecast for 2015 – revised down to 2.4%
    • Growth forecast for 2016 – unchanged at 2.3%
    • Growth forecast for 2017 – revised upwards to 2.4%
    • 1 million more jobs to be created over the next five years
    • OBR borrowing forecast revised down to £69.5 billion for 2015/16
    • OBR states national debt now decreased to 80.1% of GDP

Taxation/Welfare

  • New National Living Wage of £7.20 to be introduced in April 2016 (to reach £9.00 per hour by 2020 – compulsory for working people aged 25 and over)
  • £12billion in savings required through welfare changes
  • £5billion in savings through crackdown on tax evasion and avoidance
  • Corporation tax to be reduced to 19% in 2017 / 18% in 2020
  • Non-domiciled taxation status to be abolished from April 2017
  • Dividend tax credit to be replaced by £5,000 tax free allowance
  • Inheritance Tax  – up to £1million can be passed onto children without inheritance tax
    • This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant. This will be £100,000 in 2017 to 2018, £125,000 in 2018 to 2019, £150,000 in 2019 to 2020, and £175,000 in 2020 to 2021.
    • It will then increase in line with Consumer Price Index from 2021 to 2022 onwards. Any unused nil-rate band will be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.
  • NHS to receive a further £8billion over the next five years
  • Public Sector pay rises of 1% for the next four years
  • New youth obligation for 18-21 year olds to ‘earn or learn’
  • Automatic housing benefit abolished for 18-21 year olds
  • Rents in social housing sector reduced by 1% a year for next four years
  • All working parents with children age 3 & 4 to receive 30 hours of childcare per week
  • Working age benefits to be frozen for four years
  • Benefits cap to be reduced to £23,000 in London and £20,000 elsewhere
  • Threshold in tax credit to be reduced from £6,420 to £3,850
  • Tax credit and universal credit limited to two children after April 2017
  • Annual investment allowance set at £200,000
  • Personal tax allowance – increased to £11,000 from April 2016 (further rises in line with minimum wage)
  • Higher rate tax threshold – increased to £43,000 from April 2016
  • Disability benefits will not be taxed or means tested
  • Bank Levy to be reduced over the next 6 years / 8% surcharge on bank profits to be applied from January 2016
  • Insurance premium tax to be raised from November 2015 to 9.5%

Pensions / Savings

  • Green paper to be issued on reform of pensions

National Security

  • Real increase in defence budget guaranteed every year
  • Joint security fund of £1.5billion to be created by the end of Parliament
  • Commitment to meet NATO pledge of 2% of national income on defence

Housing

  • Mortgage interest relief restricted to basic rate of income tax
  • Reduced tax relief for buy-to-let landlords
  • Rent a room relief to be raised to £7,500 from 2016

Education

  • New apprenticeship levy on all large firms
  • To support Universities – From 2016/17 (academic year) maintenance grants to be replaced by loans for students. Loans only need to be repaid once the individual is earning over £21,000 per year.

Transport/Fuel/Energy

  • New car tax bands introduced for new cars from 2017
  • Vehicle Excise Duty: £140 per year for 95% of new cars from 2017
  • New roads fund will benefit from car tax payments
  • First MOT to be extended to 4 years from 3
  • Fuel duty to remain frozen this year
  • Climate change levy to be removed

Northern Powerhouse

  • Further powers to be devolved to Greater Manchester (option available to other cities)
  • £30million funding for Transport in the North
  • Various commitments to growing transport, industry and skills to create growth of Northern cities

Plus – Various other commitments and initiatives to be applied to Southern England, Scotland & Wales, more details to be released in the future.

I hope that this has provided a brief summary to you and covers the key points that affect our customers.

If there are points you want to discuss please feel free to contact me direct on 01278 453926 and I would be happy to discuss further.

Regards

Mark Davis

XL Financial Services Limited

How To Get The Best Remortgage Deals

fb - How To Get The Best Remortgage DealsIn the next twelve months an increase in the base rate of interest is highly likely. Rising house prices caused by the government’s Help To Buy scheme have reached levels that are causing alarm at the Bank of England and a rate rise is the only measure that can slow them down.

Home owners may be considering remortgaging in the coming year before rates rise, and this article is a quick guide to help borrowers think about how to get the best deals they can.

One motivation for getting a new mortgage is for locking in a low fixed rate for the next five years. The best deals twelve months ago were at an astonishing low of 2.5 percent.

Deals like that are unlikely to come round again soon as interest rates eventually start to rise, but offers of around 3 percent are currently available.

Loan to Value

The rate you are offered will be based on the degree of risk your home loan presents to the lender, amongst other criteria.

Lenders calculate the degree of risk based on the size of the loan compared to the size of the mortgage.

If you are buying a £100,000 property and you can cover the first £50,000 yourself or with help from family members, you will need to borrow £50,000.

This means your Loan To Value (LTV) ratio is 0.5, and the closer the LTV is to one, the higher the risk and the rate of interest will rise accordingly.

Everything you can possibly do to bring the LTV down will help as it will make you more attractive to lenders, save you money in the long run, and put you on a much more stable financial footing in your new home.

The New Lending World

If you haven’t been to see a mortgage advisor in a few years, you’ll notice a big difference as the rules surrounding borrowing have become far stricter since April this year.

The horror stories of irresponsible lending before the 2008 crash, combined with the government’s massive help to home owners with Help To Buy have led regulators to impose stringent new borrowing rules.

Expect your mortgage advisor to want to see your entire financial history, bank records, confirmation of employment, savings, credit reports and more.

Pay off any outstanding debt, even if it’s just £50 on a store card, any black marks on your credit score could be potentially fatal when it comes to securing a lending decision.

Rates

In Britain there are, in general, three types of mortgage deal commonly available, and these are fixed rate, variable rate and tracker mortgages.

A fixed rate mortgage offers borrowers a degree of security, it means that if the base rate of interest rises in the future, the lender will continue to offer the rate that was set and that offer will typically run for five years. It is a way of future-proofing your mortgage against sudden and unexpected mortgage rises and typically most people choose them.

Variable rates have been popular in the last five years. Whereas fixed rates are ‘fixed’ at higher levels to enable the lender to get as much out of the deal as the borrower (arguably more), a variable rate simply responds to the Bank of England’s base rate of interest.

When the base rate is low your mortgage is cheap, and when the rate is high, it’s more expensive. Rates have been half of one percent for six years but this is likely to end soon, leaving many variable rate borrowers seeking fixed rates.

A tracker mortgage is similar to a variable rate mortgage, as it follows the base rate set by the Bank of England but at agreed set margin (perhaps one percent), meaning that a one percent rise in the base rate will not result in a three or four percent rise from your high street lender.

Financial Planning

If you’ve already got a mortgage and you are thinking about protecting your wealth against future changes in the economy it is important to see this as part of your long term financial strategy.

If you are unsure about what next steps to take with your remortgage then contact us.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

Could You Afford Your Mortgage If Interest Rates Doubled?

Stress testing isn’t just for banks Mortgage rates can go up as well as down, and home owners need to be prepared for this. High interest rates are good news for those looking at savings. They are bad news for borrowers. The skill of money management is creating a financial plan which ensures that your personal money will realise its’ best potential in either case.

Mortgage Rates Can And Do Rise

Over recent years interest rates have been held at low levels, but this has not always been the case. Interest rates started rising around the mid-1950s. They rose dramatically around the early-1970s. In the mid-1980s they dipped noticeably but then climbed again to the early-1990s.

Since the mid-1990s, overall, interest rates have been on a downward trend to today’s record lows – please see the attached chart. Nobody knows for sure how long they can stay that way. Therefore it makes sense to think now about how to cope with a future rise in interest rates.

Make Sure You Can Cope With Rate Rises Before You Commit

Mortgages may come in varying lengths, but they are all long-term commitments.

New rules are intended to make sure that prospective buyers only take out mortgages they can afford over an extended period. These rules came into force on 26th April 2014. In short, the goal of these rules is to oblige lenders to move away from formulas and to look at buyers as individuals.

Traditionally loan amounts have been decided primarily on multiples of income. According to the new rules, lenders will have to analyse an individual borrower’s overall situation. This will include any other borrowing. It will also include day-to-day expenses. Lenders are now expected to be very thorough in checking the accuracy of applications.

Previously mortgage applicants could self-certify in certain cases. Unfortunately, this lead to self-certification mortgages being known as “liars’ loans. With this in mind, lenders now look for supporting paperwork, such as bank statements. Failing to provide these and having them checked can increase the length of time required to be accepted.

In terms of the actual application, buyers should ensure that they are on the electoral role and that their credit record is accurate. Both of these are sure to be checked by lenders. Buyers should also do everything possible to show a stable history of financial responsibility.

This means ideally maintaining a solid track record of employment and also of paying debts appropriately.

Be Prepared To Be A Good Borrower

It’s often a good idea to get advice before taking any major financial decision. In terms of taking out a mortgage, prospective borrowers will need to look at the overall cost. They will need to be fully confident that they can meet repayments even if interest rates rise. It’s also wise to look at how individual circumstances may change. For example life’s challenges such as redundancy, unemployment, accident, illness and death should be planned for. It’s best not to trust to luck with regard to the family home.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.