Yes there are loads of comparison websites that promise ridiculous savings or rates that never actually materialise, we all know that. However having recently used Usave, they are a little different.
I can’t comment on their broadband and utilities, but the loan comparison was very good. I’d considered HSBC and also looked at money.co.uk, but their rates varied too much.
The advertised rates started at 2.9% and went up to 15%, but once you got into the application stage it all started to sneak up.
I found Usave a bit harder work to get the rates, as in I had to fill in some details, but at least you’re getting the true rates and don’t feel mislead. Have a closer look here –
https://usave.co.uk/money/loans/personal-loans/
If anyone has a chance to look at the broadband rates I mentioned then try this link – https://usave.co.uk/utilities/broadband/

• The Basics
• Types of PPI
• Policy Details
  • Excess Periods
  • Payment Length
  • Employment
  • Sickness & Accidents
• Price & Protection
• Alternative Approaches
• Other Considerations

Mention PPI to a random person on the street and their mind will invariably turn to the scandal that was the mis-selling of policies to customers from the 1990s onwards and the claims for compensation that have exploded in recent years. Subsequently, the very idea of payment protection insurance has been tainted despite the fact that, in some circumstances, it can be a suitable form of cover to get. In this article, we’ll explore the ins and outs of PPI and explain why someone might buy it.

If you were looking for an article detailing ways to reclaim mis-sold PPI, here’s a link to our comprehensive guide.

The Basics Of PPI

The idea of buying this form of insurance is to cover any payments that you might have on outstanding credit. This could be your mortgage, a loan, a credit card, or something similar.

In other words, if you lose your source of income for any number of reasons, the insurance company will continue to pay off one or more of the credit arrangements you have in place, thus preventing you from falling behind and potentially getting into financial difficulty.

Just like any form of insurance, you pay a premium – in the case of PPI it is usually monthly – and you can make a claim if and when you need to (assuming the right conditions are met which we’ll go into shortly).

The Types Of Payment Protection Insurance

When you take out a PPI policy, you will have to choose between the three types available:

1. Unemployment cover will pay out should you lose your job through redundancy.
2. Accident and sickness cover will protect you when you are unable to work after an accident or because of a long term illness.
3. Accident, sickness and unemployment policies will provide cover under each of the above circumstances.

When you take on this form of insurance, you should think carefully about the type of protection you are most likely to require and what other cover you might have in place (see below for further details).

Looking At Policy Details

Just like any form of insurance, there is a significant amount of detail within a PPI policy that will directly impact how suitable it is for your circumstances. This section attempts to cover all of the most important points to look out for.

Excess/Deferred Periods

There will almost always be a period of time after you find yourself out of work before you are entitled to make a claim. The timeframe found most commonly on PPI documents is 30 days, although it is possible for this to be as much as 180 days.

Clearly you need to be comfortable with the excess period of any policy you buy, especially if it is longer than the standard 30 days. During this time, you will have to find a way to make the repayments on whatever credit you have covered.

Some policies do provide a process where your claim is backdated to the initial date of unemployment. So while you will not receive any money during the excess period, once you become eligible for payment, you will be paid for that entire time as part of your first instalment.

Generally speaking, a longer excess period will result in cheaper monthly premiums so think carefully about the length of time you might comfortably be able to continue making your credit repayments. If you have sufficient savings to cover 3 months worth of your mortgage, for example, then you can buy a policy that only starts paying out should unemployment continue past this point.

Length Of Payment

One thing to make absolutely clear is that PPI will only continue paying out for a fixed amount of time after a claim begins. This is usually around the 12 month period, but depending on your needs, you may be able to get a policy to cover you for anywhere between 6 and 24 months.

It goes without saying that if you find employment, you will stop receiving any further instalments. However, the exact timing of the last payout is something to look closely at – chances are that you will receive payments in 30 day blocks so if you enter work on day 25, for example, you may not be entitled to the money you would have otherwise received 5 days later.

This is worth thinking about if you can negotiate your new start date so that you don’t miss out on an instalment.

Type & Length Of Employment

Many PPI providers will have some stipulations about the type of employment that is required for their standard policies:

• you will typically have to hold a full time position with an average working week consisting of at least 16 hours
• these hours should ideally be for a single employer; if you work for multiple employers, you may not be able to get PPI
• if you work full time but on a contract basis then this may also make it harder to buy cover
• you should have been in employment consistently for at least 6 months, but more commonly 12 months is the minimum
• self employed people can get cover, but the instances where you are able to claim might be quite restricted
• it is highly unlikely that you’ll be eligible to make a claim if you were sacked from your job or if you leave without good reason
• taking voluntary redundancy is also unlikely to result in a successful claim
• if the redundancy is foreseeable (i.e. you know that your job is at risk before buying the policy), then you may not be eligible to make a claim

The Fine Print Regarding Sickness & Accidents

A PPI policy will not typically cover every type of illness or accident that may befall you. Here are some points to consider regarding this:

• pre-existing illnesses or conditions will almost certainly be excluded from any claims – these should be disclosed to the insurer before purchasing
• you may also be asked about yours and your family’s medical history which could impact the price you pay
• incidences involving alcohol, drugs or other substance abuse are not likely to be covered
• mental illness, including thing such as stress or anxiety, which prevent you from working are often excluded
• pregnancy related conditions may or may not be covered and you should check before buying
• some types of accident may not be covered by insurers – these may include those suffered during a high risk leisure activity such as skiing or mountain biking

Prices And Levels Of Protection

The amount you pay when buying payment protection insurance will vary depending on a number of factors, some of which have been mentioned above. Here are some of the other things that will impact the quotes you receive:

• the thing that will impact the price the most is the amount of cover you require – a £100/month loan repayment is going to be much cheaper than an £800/month mortgage for instance
• where you buy your policy matters a great deal – in general we recommend you avoid taking PPI out directly with the lender and, instead, look at buying a standalone policy from a separate company
• the length of time that payments continue for also plays a big role in the price you pay – cover for 12 months is going to cost you less than for 24 months even if you only claim for a shorter period than this
• how you pay also makes a difference – if you pay upfront in advance then it will work out cheaper than monthly instalments, but if you include the upfront cost in the loan itself then you’ll pay interest on it and it could end up costing more
• you should ensure you are fully aware of the rights of the insurer to increase your monthly premiums should they wish to – they can do this for a number of reasons that they see as adding risk to your circumstances

Consider The Alternatives

There are other ways that you might be able to get by in the case of you losing your job. In some instances, these may be more appropriate than PPI and should be considered carefully before any policy is taken out.

Income protection insurance – this also pays out when you lose your job, but it works in a number of different ways.

Firstly, it pays out a percentage of the salary you have lost rather than a specific amount to cover the repayments of a debt. Depending on this percentage, it may be more or less than what you’d receive from PPI, but typically it will be more.

Secondly, you can choose to spend the money you receive in any way you like whereas an instalment from a PPI claim must go on the repayments of the debt specified in the policy.

Thirdly, you continue to receive payment from income protection for as long as you are unable to work or as long as the term stated on the policy. Unlike PPI, which is normally restricted to 2 years at most, it is possible to buy income protection that pays out right up until retirement age.

Critical illness insurance – this form of cover pays out a lump sum at the point at which you are diagnosed with a long term condition or suffer something such as a heart attack that prevents you from working.

It is designed to help pay off mortgages, loans and any other debts you might have among other things.

It will not, however, cover unemployment caused by non-critical illnesses or accidents and it will not help if you are made redundant.

Savings – do you have sufficient savings (or other capital that could be easily turned into cash such as shares or bonds) to cover a period of unemployment? If so, ask yourself whether you really need to buy PPI to provide for this type of situation.

Employer benefits – does your employer offer out of work benefits for those staff members who suffer an illness or injury? Many companies, especially the larger ones, will continue to pay you some level of income even after your period of statutory sick pay ends.

Help from family members – while it’s not something many of us would enjoy asking for, it is worth finding out whether any of your family would agree to help out on the essential bills and credit repayments should you ever find yourself out of work.

Final Considerations When Buying PPI

This form of insurance doesn’t quite deserve the tarred reputation that it unfortunately holds thanks to the mis-selling scandal and, in the right circumstances, it can be a financial product worth considering.

When looking at quotes from different companies, always try to match the details as closely as possible to get a fair comparison. Don’t assume anything and ask questions at any stage where you feel unsure about something.

Always read the policy document thoroughly before committing and ensure that you are fully aware of the instances in which you won’t be covered; it is a legal obligation for insurers to make you fully aware of these when selling you a policy.

You have the right to cancel a new policy within the first 30 days and you should be refunded any premiums that you might have already paid (some costs may be deducted). You cannot be charged a specific fee for cancelling the policy. After this point, if you pay monthly premiums, you are usually able to cancel them at any time, although some insurers may specify a notice period in such a case.

This guide will aim to answer all of your burning questions regarding equity release starting from the basics and progressing to every little detail imaginable.

Table of Contents

• What Is Equity Release?
• What Types Are There?
  • Lifetime Mortgage
  • Home Reversion
• What Is The Process?
  • How Long Does It Take?
  • What Are The Costs?
• FAQs
  • What If I Have An Outstanding Mortgage?
  • Can I Buy Another Property With The Money?
  • Can I Release Equity From A buy-to-Let Property?
  • What About Income Tax Implications?
  • Can It Reduce Inheritance Tax?
  • Will It Impact My Benefits?
  • Can I Repay Early?
  • What About Property Abroad?
  • Does Bad Credit Matter?
  • How Does My Property Get Valued?
  • Can I Move House Afterwards?
  • What If The Property In In Joint Ownership?
  • How Does A Drawdown Mortgage Work?
  • Is Power Of Attorney Necessary?
  • Are Leashold Properties Eligible?
  • Is It Possible With Non Standard Construction?
  • Can I Use The Money To Fund Care?
• What Are The Alternatives?
  • Remortgaging
  • Downsizing
• How To Choose

What Is Equity Release?

Your home, or other property you might own, has an intrinsic monetary value attached to it and this product effectively allows you to liquidate some of that value and turn it into cash.

By signing up to an equity release scheme from one of the many different providers on the market, you will choose between a lifetime mortgage and a home reversion plan, both of which will be explained in more detail in the upcoming section.

Either way, you can unlock a percentage of the value that is tied up in your home and use the money for a purpose of your choosing.

The types of companies that offer plans of this nature are varied; they are regulated by the Financial Conduct Authority and must be registered in order to legally sell these services.

Reputable companies will also be signed up to the Equity Release Council (ECR) which is the industry body representing the whole sector.

What Types Of Equity Release Are There?

The schemes on offer come in two types as mentioned above. We recommend that you carefully read through the forthcoming details of each before deciding which best matches your preferences and requirements.

Lifetime Mortgage

Much life a traditional mortgage that you get when buying a property, a lifetime mortgage is a loan that borrows against the value of your home. Interest is charged much like any other loan, and this is typically added to the overall repayment amount (although you can opt to pay the interest in monthly instalments).

When the property comes to be sold, either upon your death or through choice, the mortgage and any accrued interest is paid off, with the remaining sum going to your beneficiaries.

You will need to be at least 55 years of age to get a lifetime mortgage; if there is more than one person involved, this applies to all parties.

The amount you can borrow will depend on factors such as the value of your property and how old you are when you apply. It is possible to borrow as much as 50% of the market value of your home, although typically it will be more like 20% to 25%.

There are three variations of a lifetime mortgage which are as follows:

1. A roll-up mortgage: the equity released is paid to you either in one go or in regular instalments and the interest is added to the overall loan amount. Both the original sum and the interest have to be repaid upon the sale of your home.
2. A fixed repayment lifetime mortgage: the equity is released and paid to you as above, only this time the amount to be repaid is agreed in advance by you and the lender. It will be higher than the sum raised through the initial release and is once again repaid when your home is sold.
3. An interest only mortgage: equity is released in the same way as in the other two instances, but this time you pay back the interest on a monthly basis rather than let it get added to the overall value of the loan.

You may be asking yourself what the advantages and disadvantages are of each type. Well, we’ve already thought of that and put together a little list for you:

• One of the major pitfalls of a roll-up mortgage is the effect of compound interest. When this comes into play, you might find that the total amount to be repaid is double or even triple that which you released in the first place.
• The fixed repayment option allows you to know exactly how much will be owed at the time the property is sold, meaning you do not have to pay any attention to the effect of compounding.
• A downside of the fixed repayment option is that you might pay a much higher effective rate of interest if you die earlier than expected because you have already agreed how much is due to be repaid. Conversely, you might benefit if you live longer than the lender expects.
• If you pay off the interest as you go, then upon selling the property, only the original amount of equity released will need to be repaid. This avoids the drawbacks associated with compounding.
• Paying the interest as you go will mean that you have to manage your money to ensure that you can afford these payments. A potential problem if you intend to use equity release as a means of income is that interest payments will only serve to reduce the amount you receive.

As with any type of credit, it is always wise to compare every viable option out there to ensure that you get the best deal. There are, however, some things that you should look out for:

1. A no negative equity guarantee: this is a vital component of any equity release product; it means that the amount required to be repaid will never be higher than the value of the property upon its sale. Every provider that is signed up to the Equity Release Council must provide one, but there are some less trustworthy companies out there so if this it not in the contract, walk away.
2. A portable deal: you might find that you live with a lifetime mortgage for quite a number of years and if you think that you might want to move house in this time, you should make sure that you sign up to a scheme that is portable. This means that the loan can be transferred to your new property instead of having to be paid off.
3. Type of interest: if you opt for an interest only mortgage, you will want to know whether the rates are fixed, capped or variable. If interest rates rise, your repayments might become unmanageable.
4. Converting between types: some companies will give you the option to convert one type of lifetime mortgage to another. This will almost certainly be to switch between interest only and one of the other two options. This gives you the option to pay off the interest while you are still working, for example, and then switch when you retire (helping you to avoid some of the effects of compounding).

Home Reversion

The second type of equity release comes in the form of a home reversion. What this means is that you sell a part, or all, of your home in return for a cash lump sum or a regular income. You are allowed to remain living in the property, either without paying any rent or paying a fairly tiny amount thanks to a legal document called a lifetime lease.

The major downside of home reversion is that you will not be paid the market rate for the part of your property that you sell. Instead, you will get a lower sum, often significantly so. How this works is that you might receive 25% of the market value of the property, but have to hand over 75% of the equity contained within it.

The percentage of the value of your home that you will have to surrender depends on how much money you wish to receive and how old you are. How much you get is related to how old you are and how long the purchasing company expects you to live. Typically, the younger you are, the more you’ll have to give away in percentage terms relative to what you receive.

Home reversion plans are generally worse value for money in the long term than lifetime mortgages. People who might want to consider this option include those who want the largest possible lump sum or those with little need or desire to leave the property to beneficiaries when they die.

The minimum age requirement for a home reversion plan is usually 65, but the older you are, the better deal you will be offered.

What Is The Process Of Equity Release?

When you first decide to investigate equity release, you will need to speak with an independent adviser who can guide you through the process.

They will look at your financial situation and work out whether or not equity release is a suitable product for you. If it is, they will compare the available deals and discuss the costs and implications of taking out such a product. They will also provide you with a Key Facts Illustration with all of the details.

Assuming you are happy with the recommendations being put forward, your adviser will help you to fill out an application form and send it to your chosen provider.

The provider will arrange for a surveyor to come and value the property and you will then receive an offer letter telling you how much you can release. Your adviser will walk you through everything in this letter to ensure that you are fully aware of all the features and risks.

If you are happy to proceed then you will have to sign to say that you accept the offer being made. After some checks to ensure your legal ownership of the property, the money will be released to you.

How Long Does It Take?

From the time that you first contact a financial adviser to get details of the schemes available, you can expect to wait between 8 and 12 weeks before you receive either your lump sum or your first regular income payment.

Of course, this reflects a deal that is free from any major complications and is based on the swift signing and sending of documents. If you choose to think for a while, any time spent doing so needs to be added to the above estimate.

What Are The Costs Involved?

The cost of an equity release plan is not fixed and will vary depending on a number of things. A rough guide for most circumstances is between £1,200 and £1,500 and this is made up of the arrangement fees paid to the provider, the legal fees paid to your adviser/solicitor, the cost of valuation, and the cost to you of ensuring the property is fully covered by building insurance (normally a condition of lending).

Equity Release FAQs

There is an almost endless list of potential questions that might be asked with regards to equity release schemes. While we will do our very best to cover as many as possible, we recommend that you speak to an independent financial adviser to ensure that you fully understand the implications before signing any contract.

Can I Release Equity If I Have An Outstanding Mortgage?

If you are at an age where you would like to release some of the equity in your home, but you are still in the process of paying it off with a conventional mortgage, you could still be able to.

Most providers will insist that you use any cash received to first pay off the outstanding balance on your mortgage, but you will be free to do whatever you like with the remaining amount.

Bear in mind that your mortgage company may add early repayment charges if you go down this route, so find out what these are likely to be prior to arranging anything.

Can I Release Equity To Buy Another Property?

By and large, you are free to do whatever you like with the equity that you release from your home. If this means buying another property, you should not find yourself restricted by the scheme itself.

Depending on exactly what you want to achieve, however, you may find that it is difficult or impossible to buy that second property.

First of all, the size of the lump sum you receive will make a difference. If you are able to pay for the second property outright, you can go ahead and make the purchase. If, however, you need to get a mortgage to help pay for it, your age might prevent you from doing so. Many mortgage companies will flat out refuse a mortgage for people over a certain age, although if it is only a small mortgage with a short repayment term, it still might be possible.

If, on the other hand, you are looking to help your children to purchase their own home, you can use the equity released as a deposit or as part of the new breed of family mortgages.

Can I Release Equity From A Buy-to-Let Property?

If you own a property that you currently let out to a tenant (and either own it outright or are prepared to pay off the mortgage as discussed above), things get a little complicated. It might be possible, but there are almost certainly better ways than through an equity release scheme.

You could just sell the property which would release 100% of the value at market rate. The downside is that you would lose out on any increase in the value of the property and, of course, the rental income being generated.

Alternatively, thanks to this assumed income in the form of rent, you could be eligible for a buy-to-let mortgage although age restrictions might apply. You could take out a mortgage of £40,000 over 10 years, for example, and use the rental income to pay it back while spending the money on whatever you like.

What Are The Income Tax Implications?

The money that comes from releasing equity in your home is not subject to income tax regardless of whether you take it as a lump sum or in regular payments. What you do with the money afterwards – such as investing it, buying an annuity, or simply saving it (except in an ISA) – can lead to income tax being charged.

Can Equity Release Reduce Inheritance Tax?

Both types of equity release plan effectively reduce the size of your estate and thus can be used to mitigate inheritance tax that might be paid by your beneficiaries. At the time of writing, inheritance tax is 40% on the value of an estate over and above the £325,000 threshold.

So a property worth £325,001 or more will result in an inheritance tax bill needing to be paid.

If you release equity now, then upon your death, part or all of the proceeds of the sale of your home will go to the equity release company which leaves less of an estate to be inherited and will either reduce or avoid the tax burden.

What Effect Will Equity Release Have On My Benefits?

Depending on whether you are over or under the state pension age, you may be entitled to, and receiving, one or more types of government benefit. When you take equity from your property, either as a lump sum or regular income, you may find that your entitlement changes.

It is worth noting that this only applies to benefits that are means tested – it does not impact any benefit whose provision is not dependent on the claimant’s income or capital.

The question of how signing up for an equity release product will affect the types and amount of benefit you receive is not a straightforward one. There are multiple considerations to make and these should always be discussed by the person selling you the plan.

Here is a list of some of the main benefits that can be affected by your release of equity:

• Pension Credit – this comes in two distinct parts: Guarantee Credit and Savings Credit. They are designed to ensure that the income received by a household reaches a minimum set amount.

  Equity taken as a lump sum only gets accounted for if it pushes an individual’s total capital beyond the £10,000 threshold. Beyond this point the amount you receive will fall as an income of £1 per £500 (or part thereof) above the minimum is assumed. Eventually your entitlement would cease as the assumed income would meet the government set minimum amount.

  If you take an income, the amount of pension credit you receive will also fall to reflect this.

• Council Tax Benefit (CTB) – the amount you receive depends on either the amount of capital you have or the level of income you receive (or both).

  If you take your equity as a lump sum and it pushes the amount of capital you own to over £16,000 then your entitlement to CTB would stop (unless you receive Guaranteed Pension Credit in which case you still receive full entitlement).

  If, on the other hand, you draw the amount as a regular income, the amount of CTB you receive may be reduced (the level of which depends on the income received).

• Free healthcare benefits – if you are over the pension age and do not meet certain income or capital thresholds, you are probably entitled to help with costs such as dental treatment and visual aids; these may or may not be withdrawn.
• If you are below the state pension age and you release equity from your property, it may also impact your eligibility for things such as Council Tax Benefit and various healthcare benefits.

  In addition, should you be on Income-Based Jobseeker’s Allowance, Income Support, or Income-Based Employment and Support Allowance, releasing equity can impact how much you receive or if you do at all.

You should always ensure that you release equity in the way that leaves you best off overall. Take too much in a lump sum and your income may fall considerably due to the loss of key benefits. On the other hand, you may find that any equity released as an income is partly offset by the reduction of benefits.

Can I Repay The Loan Early?

You should think of equity release as a long term plan which is only completed upon your death. While it is possible to repay a lifetime mortgage early, you could find that the redemption charges are quite severe.

If you took out a home reversion plan, the only way to get out of it is to sell the property. Given the large steaks often taken by the company, you will probably find it difficult to buy another property with the slice you are left with.

Can I Release Equity In A Property Abroad?

While the vast majority of companies will only allow you to release the equity in a UK property, there are a small, but growing, number of companies that deal specifically with overseas properties.

We cannot recommend any specific companies and we strongly advise you to look in great detail at any that you might come across. Do your due diligence before entering into any agreement.

What If I Have Bad Credit?

Because you have an asset in the form of property, getting a lifetime mortgage should not be an issue even with a poor credit rating. Unlike unsecured loans and credit cards, the lender has the safety in knowing that whatever happens, there is equity built up in your home to repay the debt.

And if you opt for a home reversion plan, it is not a form of credit per se, so your personal financial circumstances will not come into play.

How Is My Property Valued?

To calculate the amount of money that can be released from your home, the company must get a valuation from a chartered surveyor. This valuation must be independent so as to be fair to both parties.

If you believe that the valuation being proposed is too low, you can try and get a second opinion from your own independent surveyor, or you can pull out of the deal altogether.

Can I Move House?

With a lifetime mortgage product, assuming you have ensured that the contract contains mention of portability, you should be able to move home and keep the same deal.

If you opt for a home reversion plan, you will only be able to move house if you still hold a sufficient share in the property to finance a purchase – this is unlikely to be a realistic choice for many.

What If The Property Is In Joint Ownership?

If you own your home with a partner, the rules are fairly straightforward. First of all, you both need to meet the age requirements set out above (55 or over for a lifetime mortgage and 65 or over for home reversion) in order to qualify.

Next, if both of your names are on the contract, then if one of you dies, the other can remain living in the property until they also die or go into care.

What Is A Lifetime Drawdown Mortgage?

A drawdown mortgage sits somewhere between taking a lump sum and arranging an ongoing monthly income. Essentially the lender provides a cash reserve facility which means that you can withdraw smaller cash sums as and when you need them.

The biggest benefit is that you only pay the interest on the money that has been withdrawn and not on the total amount available to you so you face less compounding over time. There are downsides in that this facility may only last a fixed number of years or it may be withdrawn if the lender chooses to do so.

Do I Need To Give Power Of Attorney To Someone?

While it is rarely a condition that the person releasing equity has power of attorney arranged, it can be a good idea to do so. If you have an accident or fall ill and are unable to handle your own affairs then having a child or friend to deal with the arrangements is a sensible precaution to take.

If you have a lifetime mortgage, but did not take the full amount that was possible at the time, this person could then decide to release further equity in order to help pay for your care or other needs you might have.

Can I Release Equity From A Leasehold Property?

Most providers will accept leasehold properties for equity release, although the length of the lease will play a role. Generally, you should have a minimum of 30 years left on the lease from the date at which the arrangement ends – i.e. when you die.

So if they expect you to live for another 25 years, the lease might have to be 55 years or more for you to be able to go ahead with the deal. Depending on the cost, you can always extend the lease to a sufficient length beforehand.

What About Properties Of Non Standard Construction?

If you own a home that is not a standard brick or stone frame, or is a timber one built before 1950, you will find it much more difficult to find a suitable scheme.

Similarly, mobile homes and park homes are unlikely to be eligible and nor are Grade 1 listed properties (lower grades might be ok).

If you are unsure what type of construction your property is, look at the deeds and solicitor files from when you purchased the property. If you bought the property using a mortgage, you should also be able to find details on your mortgage documents.

Can The Money Be Used To Fund Care?

If you are looking to pay for care within your own home, equity release is certainly an option.

If, on the other hand, you need to fund care in a residential home, it is not a possibility. Instead, you will simply have to sell the property to fund your care.

What Are The Alternatives To Equity Release?

If you don’t want to opt for an equity release product as outline above, there are some other options available to you. These can allow you to get just as much of a lump sum (or even more), but there are other implications and considerations to make.

Remortgaging

Whether or not you have already paid off one mortgage on your property, you may be able to remortgage to effectively take some money out of your home to use how you like. Essentially, you will once again have to make monthly repayments and pay interest just like any other mortgage holder.

The chances of you securing a remortgage lessen as you get older. If you are 55 then you could be permitted one of quite some length, particularly if you still work. Remortgaging becomes less of an option for those over the age of 65 unless you can prove a significant income from other sources – although in which case you might be better off liquidising them instead.

Downsizing

By moving from your current home into something less valuable, you can pocket the difference in sale and purchase prices. The amount you get is only dependent on the disparity in value between the two properties.

While you do not have to pay a provider any interest or sell a proportion of your home at below market rate, there are other costs involved including stamp duty, estate agent fees, solicitor’s fees and those involved with actually moving.

The main downside is obviously leaving a place that you may have called home for a considerable length of time.

A benefit is that you can move into a property that is more suitable for your needs; this may be something on a single story or somewhere with fewer rooms to heat, clean and maintain.

Downsizing is not always a quick way to release equity though. Depending on the state of the market and the demand for properties like yours, it could take months or even longer for any sale to go through and there can be lots of stress involved if you find yourself in a chain.

Choosing The Right Option

With the array of options available to you, we highly recommend that you take your time making the final decision. Always seek independent advice, even if a deal seems like a good one on first impressions, and don’t be afraid to ask any and all questions that you might have during the process.

As a young person, unless you have progressed to the higher pay echelons quickly, you will have a limited amount of money left over each month after paying the typical expenses such as rent, food, utilities and travel.

Despite this, you are being given messages about the importance of both getting on the property ladder, and of saving into a pension. So just what is the best choice for a young person?

If this were a straightforward question to answer then this article would end right about now with a nice succinct statement, but there are a number of factors to consider before you decide the balance between saving for a deposit and saving for your retirement.

• Getting A Mortgage Early
  • Lower Desposits
  • Lower Total Mortgage
  • Rental Prices Vs Repayments
  • Owning Your Home At Retirement
• Saving Into A Pension
  • Compound Growth
  • Employer Contributions
  • Tax Relief
• In Summary

The Arguments For Getting A Mortgage Early

Buying a house is likely to be the single biggest purchase that you ever make and for many it is one of their main goals in life. Home ownership is seen as something that will typically pay off in the long term and that by taking this step, you are setting yourself up for a more comfortable retirement. But is this true? Let’s have a look at some of the main benefits of getting on the ladder sooner rather than later.

Lower Deposits Required

You may be thinking that an increase in house prices is great because it makes you richer on paper, but this is only true if you were to sell the property and downsize to release some of the equity that has built up.

Instead, one reason that changes in house prices are important is because in the medium term, they will almost certainly rise (see the graph of average UK house prices above) which means that the longer it takes you to save for a deposit, the larger it is going to have to be. In other words, putting all of your spare cash aside for a deposit will allow you to buy a home sooner (sounds obvious doesn’t it?) Or alternatively, if you take longer to save up a deposit, you may have to settle for something a bit smaller, or a property that is not in your ideal location.

Lower Total Mortgage Amount

Another reason why getting a mortgage as soon as you can is good for your long term finances is that the total size of the mortgage you have to get is likely to be smaller. If you wait 5 years before buying a home, the average price of a property might have risen by 20% – 40% or more (they can also go down of course).

Therefore, if you manage to buy sooner rather than later, a smaller overall mortgage will mean that your monthly repayments will be lower. With this being the case, you will have a larger amount of disposable income and so you can then put more money into a pension at this point.

For example, a £200,000 mortgage over 25 years with an interest rate of 4% would result in monthly repayments of £1,056 and a total repayment of £316,702.

Wait a year and the same property might require a mortgage of £210,000 and with the same term and interest, it gives monthly repayments of £1,108 and a total of £332,537.

That’s £52 a month difference which could go into a pension. It totals £15,835 over the term of the mortgage (£10,000 of that is the rise in the price of the property; the remaining £5,835 is the extra interest you end up paying).

Alternatively, a smaller total mortgage will allow you to choose a shorter repayment period which will result in lower overall repayments over the full term. The less you pay in total for your mortgage, the more you will have to put into a pension.

Let’s say that you can afford monthly repayments of £800. If you require a mortgage of £150,000 at 4% then you can have a repayment period of 25 years and the total bill comes to £237,527.

If you have to wait a couple of years because you are saving into a pension too, then the size of your mortgage could be £165,000 and at the same interest rate, this requires a 29 year term and results in a total repayment of £279,046.

So the delay in making the purchase not only led to a house price rise, but the resulting impact on the length of mortgage means that your total interest repayment is £26,519 higher too.

And finally, having a smaller mortgage with the same size deposit will mean that your loan-to-value (LTV) will be lower too. In other words, the percentage of the value of the property that is paid for by the mortgage is lower. The LTV plays a role in the interest rates that you will get offered by lenders, and so saving all of your money into a deposit will mean that your LTV is better and you will get better interests rates.

To illustrate the impact that interest rates can have on overall repayments, let’s take a mortgage of £200,000 over a period of 30 years and assume that the two different rates on offer are 3.5% and 4%. At the lower rate, you will repay £300,374 but, at just 0.5% more, this becomes £316,702 – an increase of £16,328.

So as you can see, by saving hard and getting on the property ladder sooner, you can enjoy a smaller total mortgage (assuming house prices rise), a shorter mortgage term and a lower rate of interest. Put all of these things together and the savings you make are considerable.

Rental Prices Tend To Be Higher Than Mortgage Repayments

For a large number of people, the amount of money that they would have to pay in rent surpasses the likely mortgage repayments they would face for a similar property. So by managing to buy a home, you can take the money that you save on rent and put it into a pension at this later date.

Another consideration is that, assuming a constant interest rate, your mortgage repayments will not increase. This is in stark contrast to rents which are likely to rise – you are, in effect, at the mercy of the rental market and the whim of your landlord.

Home Ownership Upon Retirement

Let’s take the extreme example where you never put any money away for a deposit, but instead take it all and invest it in a pension. You may end up with a larger pension pot come your retirement (although this is not guaranteed), but you will not own a home.

This will leave you having to pay rent which will eat away at everything that you’ve managed to squirrel away over time. Or, you may find that the level of income from your pension is not enough to fund a property of a size to which you are accustomed.

Conversely, owning your home outright at the point of retirement will mean that all income received from your pension and any other savings you have can be spent on other things or kept aside for a rainy day.

The Arguments For Saving Into A Pension

Once all is said and done, the fact of the matter is that come your retirement, you will have to live off the amount of money that you have accrued in your pension (plus the state pension if you qualify for it) and any other savings you have at this point.

Therefore, it is very important that you put money into a pension at some point during your life so that when you come to cash it out, it is enough for you to live off. But this article aims to answer the question of whether it is better to save early or to try and buy property as soon as possible.

So let’s have a look at some of the reasons why saving some money into a pension early might be a good idea.

The Effects Of Compound Growth

When you put money into a pension, it doesn’t just sit there waiting for you to use it when you retire. Instead, in a good pension fund, it will grow year on year for a period of 40 years or more (depending on when you start saving and at what age you intend to retire).

A relatively modest rate of growth can take the money that you are saving and turn it into something much much larger.

Let’s assume that you were to put a lump sum of £3,000 into a pension and that the annual rate of growth was, on average, 3%. After 40 years, your initial savings would be worth £9,786.11 which is more than 200% extra for you to utilise in your retirement. Here’s a graph of the total pension pot over this period:

Similarly, if you were to save £200 a month into a pension over 40 years, then you might expect to have built up a £144,000 pot, but if you were to compound the interest monthly then you’ll actually find yourself with £278,512.39 – almost double what you put in.

So by getting some money into a pension early, you are able to benefit most from the effects of compound interest. This becomes even more evident when you consider the amount you’d get back from that same £3,000 initial investment if you delayed it by 5 or 10 years. If the money is invested for 35 years instead of 40, you will get £1344.52 less in interest and if you only have the money in a pension for 30 years then you will receive £2504.32 less.

You see, the biggest absolute increases in the total pot occur in the latter years; that’s just how compound interest works. So the first year’s interest, based again on our £3,000 lump sum and 3% growth, is £90 while the 40th year’s interest is £285.03.

Employer Contributions

Many people in work will now find that they are enrolled in a pension scheme automatically by their employer and this has some real benefits.

By law, your employer will have to contribute to your pension pot although many companies have been offering such deals for a long time. It is not uncommon for an employer to match any amount that the employee pays into a pension. This is, essentially, free money as it neither affects your salary or the rate of tax you pay.

If you pay £150,000 into a workplace pension over the course of your career and your employer matches this, then you will end up with £300,000 in total. Sounds good doesn’t it?

Government Tax Relief

The government wants people to save into a pension and they incentivise this by offering tax relief on the money that you put in.

You can claim tax relief that is worth up to 100% of your annual earnings with the maximum being £40,000. Thus, if you have additional savings or receive some other lump sum that you want to invest, don’t put it all straight into your pension; stagger your payments across multiple tax years so that you do not cross this threshold, or you will lose the tax relief on any amount over the limit.

Your pension provider will automatically claim the basic rate of 20% tax relief for you when you save – this is known as “relief at source” – but if you are a higher rate taxpayer, then you can reclaim the additional 20% (or more if you are in the highest band) through your self assessment.

Tax relief is not an additional amount that is added to your own contributions, but rather an amount that you get back from them. In other words, a 20% tax relief on a saving of £10,000 means that you effectively get £2,000 back because the government pays it instead and you only pay £8,000. This is in contrast to the government adding 20% extra, which on £8,000 would only amount to £9,600 (i.e. you actually get 25% extra on top of what you put into the pot).

A 40% taxpayer would only have to contribute £6,000 to get £10,000 in total, while any higher rates of tax than this will mean even higher tax relief (within the above limits).

Put It All Together

If you combine the effects of employer contributions and tax relief and apply compound interest to it, then you’ll soon see how a relatively modest personal contribution can quickly add up to a significant pension pot over time.

This, then, is why putting some money away into a pension as soon as you can is a sensible approach to take to funding your retirement.

So What Should I Do? Save To Purchase Property Or Save Into A Pension

As stated earlier, this question is not one to which there is a straightforward answer. You have to weigh up a lot of factors before you can come to any solid conclusions; these include:

• The amount of rent you currently pay versus the likely amount you’d pay in mortgage repayments – any difference can be put into a pension after all.
• The expected rate of house price inflation over the coming 5 to 10 years – if this is relatively low (or even negative) then the argument for saving for a deposit becomes weaker, but if it is high then you should probably do all you can to save for a deposit at the expense of saving into a pension.
• The expected increase in rental prices – if this is significant then you will probably be better off getting a mortgage sooner rather than later.
• The expected growth rate of your pension – a government report in 2012 suggested that medium term rates of return will be lower than they were previously.
• The difference in mortgage interest rates for varying loan-to-value percentages – if there are particularly attractive (low) interest rates for those with a bigger deposit relative to their mortgage, then saving for this bigger deposit is a generally smart move. If there is little difference then you can probably aim for a smaller deposit.

Right now, it is the opinion of this website, that for a young person who eventually wants to buy a home of their own, any money that they can put aside should go towards a deposit rather than into a pension. We say this primarily because of current and expected house price inflation and the historically low interest rates that are leading to some very attractive fixed rate mortgage deals.

This recommendation may change in the future based on how these and other things change.

Related Articles

• Can I Cash In My Pension?
• How Will Pension Auto-Enrolment Work?
• What Is A pension?
• First Time Buyer Schemes – What Is Available?
• How To Save For A Deposit

Table of Contents

• What Is PPI?
• Who Can Make A Claim?
• How Long Does A PPI Claim Take?
• Should I Go It Alone?

As the total compensation figure for mis-sold PPI cover tops £13 billion; millions of UK households are reaping the benefits of digging out their paperwork and making a claim.

What is PPI?

PPI is Payment Protection Insurance that was often sold alongside loans, credit cards, store cards, mortgages, and other credit agreements. PPI can also come under alternative names such as credit insurance, credit protection insurance, or loan repayment insurance. The purpose of this form of insurance was to cover you in the event of illness, disability, loss of employment, death, and other circumstances that would prevent you from being able to make your repayments.

How do I know if my PPI was mis-sold?

In broad terms, PPI was mis-sold to you if any of the following applies:

• If you felt ‘pressured’ into agreeing to PPI
• If it was not made clear that PPI was optional
• If you were advised to take out PPI even though it wasn’t suitable for your personal circumstances
• If you thought that agreeing to PPI was mandatory in order to secure credit, or that it would increase the chances of your application being approved
• If key exclusions were not explained to you at the time, such as being self-employed or having a pre-existing medical condition
• If your personal circumstances would have prevented you from being able to successfully make a claim on your PPI
• If you were unaware that your agreement had PPI, or it was added without your knowledge
• If it was not made clear that you would be liable for paying additional interest on any PPI premium applied to your credit amount
• If it was not made clear that your PPI protection would end before you had paid off the credit agreement in full

There may be other scenarios where PPI was mis-sold. If you are in doubt, you can contact the Financial Ombudsman for a decision.

Who can make a claim?

If you entered into any credit agreement before April 2012 where PPI was included, the chances are that you are eligible to make a claim. Here are some of the common FAQs that might be applicable to you.

Can I claim PPI if I don’t have any paperwork? Or I can’t remember the name of the company?

Yes. It doesn’t matter if you can’t find any documentation or can’t remember the name of all your previous creditors. You can check your credit record through a credit referencing agency as this will give you a list of names. Each company should have a record of whether or not you took out PPI with them, so whilst any documentation you do have will make the process easier; it is not essential for making a successful claim.

Can I still make a claim if I’m not sure what I was told at the time?

Yes. If you can’t remember what was said to you when you were sold PPI, it is still possible to make a claim. In these cases, if the PPI you bought wasn’t relevant to your personal circumstances i.e. you were retired but the insurance covers unemployment, your occupation fell under an exclusion, or you had a pre-existing medical condition which made you ineligible then you should be able to claim back PPI.

Can I claim against current credit agreements?

Yes. Provided that you entered this agreement before April 2012 and PPI was mis-sold, you can make a claim for any ongoing, existing credit.

Can I claim PPI if I live abroad?

Yes. You can make a claim regardless of where you currently live, provided your PPI was bought through a UK company.

Can I make a claim even if the company no longer exists or has been taken over?

Yes. You can still make a claim even if the company you originally bought your PPI from has since gone into administration, been dissolved or gone bust. The FSCS (Financial Services Compensation Scheme) is in place to protect consumers in exactly this situation, and you should still be able to get the full refund due to you.

You can make a claim even if the original finance provider has since been taken over by another company. In this situation, your claim would go to the new company.

Can I make a claim if I’ve been declared bankrupt or had an IVA?

Yes. You can make a PPI claim after your bankruptcy or IVA agreement has ended. However, you need to be aware that any refund could potentially be clawed back under the clause ‘unrealised asset’. The financial provider, particularly if it was a bank, may try to argue that they want to offset any amount against the sum you originally owed them. If you have a certificate of completion for your IVA, then this argument may be null and void but it’s very much a grey area of law at the present time.

There is no rule against making a PPI claim whilst you are bankrupt or within an IVA agreement, however, it is worth bearing in mind that any ‘windfall’ will be immediately seized to help pay off your existing creditors.

Can I claim PPI on behalf of a deceased relative?

Yes. You can claim back PPI on a policy taken out by a now deceased relative. However, each individual’s circumstances are different, and not all claims will be successful or directly benefit you. You will need proof of your relationship to the deceased as well as evidence of their passing, such as a death certificate in order to make a claim.

Is there a time limit?

No. There is no time limit on how far back you can make a claim. It is worth noting that banks and other finance companies are not required by law to keep records over 6 years old, so if your PPI was sold prior to that, then it may be more difficult and take longer to make a claim unless you have all the relevant paperwork.

Types of credit that you claim back PPI:

• Secured loans
• Personal (unsecured) loans
• Mortgages
• Credit cards
• Store cards
• Car finance
• any other credit facility

Who cannot make a claim?

You won’t be able to make a claim if you have ever benefited from the PPI you bought, i.e. you were out of work for 3 months and your PPI covered your repayments for those 3 months.

If your PPI cover would have covered you and you could have successfully made a claim in the event of accident, illness or death; then you are less likely to obtain a refund unless you can prove it was mis-sold in a different way.

How Long Does A PPI Claim Take?

If you think that you are owed PPI and wish to make a claim then you’ll probably want to know how long it might take before your case is settled and you receive any money due.

One thing you should be aware of is that while private claims companies often say they can get your money back quicker than doing it yourself, there is no basis for this if you are organised and willing to do what is necessary for a quick resolution.

The only thing you have to ask yourself is whether or not you have the time to go chasing your lender and/or the ombudsman should you need to – a claims specialist can take care of this for you.

Stage 1 – Filing Your Claim With Your Lender

Time scale – up to 8 weeks

When you first contact your lender to file a formal claim for compensation, the amount of time taken for them to respond to your case does vary and while some companies move swiftly, others are known to prolong the process as much as they can.

Banks and other lenders are liable for the whole amount plus interest but some may try to avoid a portion of this by offering you a lower deal for a quick resolution. While you obviously want to proceed with your claim and any subsequent payment in a timely manner, don’t be lured into the trap of accepting a smaller offer of compensation than you are entitled to.

If, after 8 weeks, you still haven’t had a response from your lender (or your lender has refused your case) then you will have to contact the Financial Ombudsman Service (FOS).

Stage 2 – Going to the Ombudsman

Time scale – up to a year

If, for any reason, your lender is not willing to settle your case directly then you will have to approach the Ombudsman and have them resolve it based on the evidence provided by both parties (you and the lender).

Because of the sheer volume of new claims coming in from PPI and other financial products, the FOS has added a further 1000 staff but even so it can take a long time for them to reach their decision.

The length of time required to process your case depends on how complex it is and whether or not any further information is required and how long it takes to obtain it. In rare circumstances it can take as much as a year to reach a climax while other cases might be settled in just a few months.

While the FOS typically reviews case in the order they receive them, there are some special circumstances where a case may be prioritised. These include situations where:

• the claimant would face significant financial hardship if any delay were to occur (e.g. the threat of repossession of the claimant’s property).
• a delay might impact the claimant’s health or wellbeing or cause undue distress and inconvenience.
• the claimant might experience a significant worsening of their financial position should the case not be resolved (e.g. a debt not being repaid until compensation is received).

One thing any claimant can do to ensure the fastest possible resolution to their case is to provide requested information as fast as possible – next day recorded delivery is recommended.

Stage 3 – Receiving The Compensation

Time scale – up to 8 weeks

Once your PPI compensation claim has been resolved and you are satisfied with the amount to be paid, you will usually receive either a cheque or direct BACS payment.

Some lenders may require you to confirm you are happy with the amount (assuming it didn’t go to the Ombudsman) but others will arrange for payment automatically unless you tell them otherwise.

While most lenders state that they will aim to pay the agreed amount with 28 days, there are many reports from members of the public stating delays of up to 8 weeks. These claimants were told that this is due to the number of claims being processed.

What This Means For You

If you haven’t yet made a claim for any PPI you believe was mis-sold, what you should take from this article is that the sooner you start the process the better. Because of the long time frames that can be involved, there is no reason to delay – get all of the relevant information together now and either speak to a PPI claims company or write to your lender and include copies of all the evidence you have gathered.

Should I Go It Alone When Reclaiming PPI?

One question many individuals will naturally have is whether they should attempt to claim a policy with or without the help of a third-party accredited claims institution.

In such a situation, there are both pros and cons of attempting to file a claim individually and you must consider various options before undertaking what can prove to be a monumental task.

Claiming By Yourself

First, let us examine the potential benefits of filing a claim individually. The most obvious benefit is that there will be no added expense in regards to paying a claims company for providing their services. The fees incurred can often be quite substantial and, depending on the size of the claim, may very well leave the claimant little financial remuneration at the end of the process.

Should you choose to “go it alone”, you must ascertain the specifics of any dispute you may have. This may be quite clear should there be sufficient evidence that misselling has occurred. Such instances may include, but are not limited to, overpriced policies, an insufficient explanation upon purchase, the so-called “mandatory PPI” required for a specific loan or possessing a policy whose clauses prohibit the policyholder from using it.

Should these factors be obvious and should you have direct evidence, personally filing a claim is recommended because the processes involved are relatively straightforward. Simply stated, if an individual case is clear-cut and enough evidence already exists, then a third party’s involvement may be redundant and costly.

Employing The Services Of A PPI Claims Company

One of the main pitfalls with filing a PPI dispute is that such evidence may not be altogether apparent. An advantage of partnering with a claims specialist is that they are familiar with all the laws and associated nuances. Any necessary information regarding either the policy or the issuer can be found expeditiously and other important variables such as if the FSA has already taken appropriate action can make the claims process much easier. They can also reduce how long it takes for a PPI claim to reach a conclusion – in other words, you may get your money sooner.

There are many instances where people have held a PPI policy for a number of years. In fact, some have continued to pay into a policy for a decade or more. In these instances the potential financial return can be large enough to warrant employing a claims professional; not only can they make certain the paperwork and eventual result is in order but whatever fees may be accrued will be relatively minor in comparison to the overall refund.

Also, it is important to note than most PPI claims specialists operate on a system where if they pursue a claim unsuccessfully they will not charge a fee. It is therefore in their best interest to ensure their clients are rewarded.

A Fork In The Road

The path you choose to pursue ultimately depends on your individual circumstances and how your policy was initially presented upon purchase. Should you choose to pursue a claim on your own, you must first understand the time and effort which may be involved. Regardless, there is no harm in scheduling a no-obligation appointment with a PPI claims specialist who can determine the merit of a claim on a case by case basis.

What should I do now?

If you think that you were mis-sold PPI, then it is in your best financial interests to consider making a claim. Whilst the BBA (British Banking Association) was recently denied the opportunity to cap refunds for PPI by applying a cut-off date; there are no assurances that this won’t eventually happen.

From 1st July 2014, ISAs are changing; cash ISAs and stocks & shares ISAs will remain as separate accounts, but they will fall under an over-arcing single named account called “NISA” or New ISA.

If you have already subscribed to a cash ISA or stocks & shares ISA since 6 April 2014, you need to check with your provider to see if you can top-up. Some providers may not allow you to do so, in which case it can be worth considering changing providers to one that will allow you to take advantage of the additional allowance of a NISA.

Benefits Of The NISA

• A NISA blurs the lines between the two separate accounts, enabling you to have greater choice and freedom to control your money between the two.
• The current allowance for tax-free savings within your NISA is £15,000 per annum; an increase of £3,120 from the previous cap for 2014/2015 of £5,940 for cash ISAs and £5,940 for stocks & shares ISAs.
• You can either make regular payments up to your total £15,000 allowance throughout the tax year, or make a one-off lump sum payment.
• You can now choose how to split your total NISA allowance. The rule of only being able to save a maximum of half your ISA limit in a cash ISA has been lifted.
• Under the new regulations, you will be able to transfer your stocks & shares ISAs to a cash ISA – even from previous years. So, if you decide that you don’t like how the stock market is performing for you, but your money has previously been tied up in stocks & shares, you will now be able to transform some or all of your existing stocks & shares ISAs into a cash ISA.
• You will be able to transfer your money between your cash ISA and stocks & shares ISA are many times as you like (although it may be worth checking with your provider if there is a financial penalty for doing so).
• Any interest on cash held in a stocks & shares ISA is now tax-free.

What Isn’t Changing?

• You will still only be allowed to subscribe to one cash ISA and one stocks & shares ISA in a tax year.
• You can still transfer your cash ISA to a stocks & shares ISA.
• You can still open ISAs with different providers.
• You are still allowed to hold additional, historical ISAs that you are no longer paying into.

What About Junior ISAs?

The overall structure and subscription process for a junior ISA will remain the same, but the amount you can save will increase to £4,000 in 2014/2015.

What About Withdrawals?

Of course, you can withdraw from your cash or stocks & shares ISAs as before. However, if you then decide to replace any withdrawn funds, this will count as a new payment towards your total NISA allowance so it is important to think carefully before making any withdrawals.

For example: you put £15,000 into an ISA during a tax year, but later in that same tax year you decide that you need to withdraw £4,000 to perform emergency home improvements. You cannot then put another £4,000 into your ISA until the tax year is over and a new one begins. Similarly, if you deposit £8,000 into an ISA but then decide to withdraw £2,000, you can only put another £7,000 into the ISA throughout the rest of the tax year. In other words, the £15,000 limit is based on total deposits and not the amount you have in an ISA at the end of a tax year.

Important note: HMRC have advised that you do NOT withdraw funds from your existing stocks & shares ISA in order to top up your cash ISA as these funds will be treated as a ‘fresh payment’ and may take you over your total NISA allowance. You should arrange a transfer through your stocks & shares ISA provider.

When Is A Cash ISA Best For Me?

It goes without saying that a cash ISA provides you with tax-free interest earned on your savings, whereas a normal savings account opens you up to taxable interest. However, it can be extremely useful to compare the exact rates of interest involved in order to determine whether or not you’re getting the best deal.

For example: if a non-NISA savings account is offering you an interest rate of say 3.0%, but a cash ISA offers 2.0%, you may think that the standard saving account offers the better rate. However, you have to factor in tax deductions for non-NISA accounts.

This means that at the basic tax rate, your interest attracts 20% tax, or 3.0% – 20% = 2.4%. In this instance, the savings account proves to be the better product.

At the higher tax rate, your interest attracts 40% tax, or 3.0% – 40% = 1.8%. In this instance, the cash ISA account works out best.

It can be worth shopping around to find the best interest rates and you may find that current accounts with linked savings accounts offer some of the most competitive incentive rates to sign up. You shouldn’t become complacent though, as most of these rates are variable or only introductory so you should be prepared to move your money if the interest rate stops being such a good deal.

With the government making greater inroads into helping savers make the most of their money, as well as providing more freedom to decide how to save, there has never been a better time to look at NISAs.

Use Your New ISA Allowance Regardless Of Low Rates

The sad state of affairs that our economy has been in over the last few years means that the Bank of England is having to keep the base rate of interest at a record low and despite recent signs of growth, this is unlikely to change a great deal over the next few years (a gradual increase in rates has been suggested as the most likely scenario by governor Mark Carney).

While low interest rates may be good for homeowners and businesses, for those of us who rely on our savings to provide an income, it is a disaster which has forced many to tighten their belts. It’s not good news for those who want to build up a nest egg either as interest on accounts accrues far slower than it used to.

While this may be the case, there is still a very good argument for taking full advantage of your yearly NISA allowance.

Save Now, Transfer Later

While cash ISA rates may not be very high now, the beauty of the system means that you can build up savings year by year and transfer them around to get the highest interest rate.

Therefore it makes sense for you to save as much as you can in your NISA each and every year. Because the interest on cash ISAs is free of tax, if you manage to save a significant amount now, then when rates improve in the future (which they almost certainly will in the long term) you will be in the best position possible to benefit from these higher rates.

But I Can Get Better Rates Now!

While it is true that some traditional savings accounts currently offer higher rates of interest than cash ISAs, if you choose to put your money into a regular account instead of an NISA and the financial tax year ends, you cannot then utilise your NISA allowance for that tax year – it is gone forever.

One thing that you can do in this circumstance is to leave your money in the savings account until the very last moment and then withdraw it and fill up your ISA as much as possible in the few days before the tax year ends on April 5th. This way you get the benefit of the higher interest rates for the majority of the year AND the ongoing tax free income that an ISA can provide.

So you don’t have to lose out in the short term to get the best in the long term.

Clearing Up The Jargon

You’ll see that this article sometimes uses NISA while talking about ISAs at other times. Here is an explanation as to why:

NISA is the term we use here to describe the umbrella name under which cash and stocks & shares ISAs sit. It is a term that has been made up by the government but since it is an abbreviation of “new individual savings account”, we don’t think it makes sense to talk about a ‘cash NISA’.

The consumer is used to, and comfortable using, the term ISA and we write for the consumer so while this continues to be the case, we will continue to use ISA to talk about actual accounts while using NISA when talking about total limits.

Related Articles

• The ISA Jargon Buster
• Junior ISAs Explained
• Junior ISA – The Tax Efficient Savings Vehicle For Children

The world of stocks and shares is no exception to this trend and, no matter the size of the investment you’re looking to make trading online can seriously reduce the costs you would have, until recently, been unable to avoid.

Execution Only

The majority of internet share dealing operates on an ‘execution only’ basis. This means that the stock broker, who handles transactions on your behalf, will only act under your instructions and will not advise you in any way. This makes the whole process cheaper, as it means that even the best firms, will only be giving you a stripped down version of their full services. However, it means that you are on your own when it comes to making decisions, something you should bear in mind when picking an online trading account.

Nominee Accounts

Another thing to be aware off is that, when trading online as opposed to using paper stocks, the shares you buy will normally be held in what is known as a ‘nominee account’. This means that they are held on your behalf in an account registered to the stock broker.

Dividends that your shares earn will be paid into your account, however, as your name will not appear on the company in question’s register, you may not receive their annual reports. You may also miss out on any other perks that the shares attract.

Of course, you will still benefit if the value of the stocks that you buy goes up, but, as the shares are not in your name, there’s no way that you can sell them on your own behalf. Instead, you’ll need to sell them using the same broker you first bought them through. Further more, you will be obliged to pay a fee if you decide to move your stocks and shares to an account with another firm.

Costs

The costs associated with these forms of account are, on the whole lower than usual. The charges for selling and buying are very low in most instances. For example one firm charges just one percent for buying shares (with a minimum charge of £2.50). These charges are usually higher when it comes to selling. Be cautious of accounts which offer very low charges. They will inevitably make the money back further down the line, normally via a quarterly subscription charge.

If you think you’ll trade large amounts, you can save money by picking an account that charges a flat rate of commission rather than a % rate. As with any other method of buying shares you’ll have to pay a stamp duty of 0.5% of the transaction.

You should also make sure you match the type of account you get to frequency with which you think you’ll be likely to trade. This is because certain accounts will charge you for falling to make a certain number of trades per a month (as it lowers the firm’s commission.) It’s a false economy to save on charges by getting a regular trader account if you don’t intend to use it often.

Frequency of Trading

If you are only going to trade every now and again it might be wise to use an infrequent trader account, where you buy shares in batches from your broker. The online broker will collect these orders from all of their clients and buy them in bulk at a set time of the month. With these accounts there are no ‘inactivity charges’ to worry about, so if you don’t feel like trading you won’t be penalised.

The main drawback here is that the price of shares can change in the time between your order and their purchase. Find out the dates in the month purchases occur and make decisions as close to that day as possible to minimise of the chance of the price fluctuating before your order is carried out. Charges for these accounts are very low.

Regular trader accounts have a minimum requirement on the number of transactions you must make, the advantage being that they are done in real time, so you know for the certain the price you are paying.

Many come with features to help you do this if you are time poor, for example you may be able to set the account to buy and sell into different companies at set prices determined by you in advance.

Other Things to Consider

When picking a broker, make sure they have access to the markets and products you are interested in. Inquire as to whether you can trade stocks kept in an ISA. Make sure the broker supplies good information and see if they provide decent software to help you trade. Many brokers will let you try an account before you buy, which can be a good idea.

Spread Risk

Never invest more than you can afford to lose. Buy into different companies to ensure not all of your eggs are in one basket and use stop loss orders to make sure that, if a share starts to plummet in value you can sell it automatically and limit your losses.

Tax

Regardless of whether you buy your shares online or through other means, remember that any gains you make from increases in share prices will be taxed by the government unless you invest via a self-select ISA.

It only applies to purchases that cost between £100 and £30,000, but it ensures that if you are left in the lurch having paid for something, then you will not have to incur any debts because of it. It also dramatically increases your chances of getting a refund, as the credit card company has just as much onus on them to get you your money back as the supplier does. This means that, even if the company you’d bought from no longer exists (say you ordered some bespoke piece of furniture and the company went bust before producing it) you can still recover the funds.

Thus, when you are making a purchase that falls into the applicable price bracket, as well as helping you budget for it, using a credit card also can offer you an extra bit of peace of mind.

It doesn’t just apply to credit cards either. Credit agreements taken out to pay specifically for goods and services are also covered and arrange credit for a particularly large item such as a vehicle and the upper limit is increased up to £62,260. It needs to be remembered that a personal loan is not covered because, even though it may have been applied for and approved with a specific purpose in mind, you could still technically spend the money on anything.

For the sake of clarity, please bear in mind that the primary function of this law is to prevent people falling into debt and getting black marks on their credit file for the sake of a product that they never even received or that was faulty. If you are just handing over cash, a cheque or using a debit card to pay money straight out of your account then there is no question of interest piling up. It’s just a one off payment at a set price. This has the benefit of being cheaper and quicker in that, you only pay for the product not the credit. However, it does mean that you are excluded from section 75 protection. You need to think about this when deciding how to pay for products and services.

Of course, the protection that comes with using a credit card isn’t really going to offer you all that much piece of mind if it leaves you with a mountain of interest to surmount. Therefore, you need to make sure you are getting the best of both by buying using a credit card but ensuring you have a direct debit from your current account set up to pay the card off in full each month.

If you don’t have one, it might be worth looking for a card with a period of 0% interest that you can use to make the purchase you are planning.

In some cases section 75 might not be of help to you. Purchases of land, for instance, are not covered. If you have a card with additional holders, you can only claim under section 75 if the product in question doesn’t provide a benefit for the primary holder. If it’s solely for the additional holder and they are the one who made the purchase you might be out of luck.

Buying through a third party also makes things tricky. Online payments that go through processors such as PayPal may not be eligible. The same is true of things like flights bought through a travel agent but not actually supplied by them. Group buying offers through voucher sites are another example of an area where you might run into trouble. Independent sellers using Amazon can also pose a risk.

If you don’t use the card directly, you’ll also be turned down. For instance, you shouldn’t withdraw cash using the card and then try and pay that way. It won’t count as a transaction using credit, even though you will need to pay interest on the cash you took out. (You should really just avoiding using your credit card at cash machines altogether.)

It can also be tricky if you perceive the purchase to have been one purchase worth more than £100, but it wasn’t sold that way. For example, you could buy a tool and a power adaptor for £90 and £20 respectively and not be covered. At the same time if they are sold together in a single bundle for £110 you are covered.

If you need to make a claim using section 75, you need to contact your credit card company and make it clear to them that your using section 75, and that, even if they want to try and claim back money from the supplier/provider of the product or service in question, they are equally liable to pay you and that you expect them to do so.

If they are still in business, it can be easier to approach the supplier themselves. However, if you cannot do this, simply insist that your credit card company give you a claims form. You need to bear in mind the possibility that when you get through to the call centre the person you are talking to may not be au fait with the law. If this is the case you will have to polite but firm in insisting on your rights. If for any reason they try and mess you about, simply tell them you will take the issue to the ombudsman. They will be able look into the case and enforce the law for you.

To be granted a DRO you must fulfil certain criteria. So, before going any further, let’s take a look at those requirements.

Eligibility

DROs are really intended for those who only have small debts, but simply can’t pay them. As such, you will not be eligible for a DRO if the monies you owe amount to more than £15,000. Secondly, if you have capital available that you could be using to pay off your creditors then you won’t be able to obtain a debt relief order. This includes any vehicle worth a £1,000 or more or any other possessions worth more than £300 as well as savings and assets. One possible exception is a pension fund in the case of people who haven’t yet retired.

Furthermore, you must have a very low level of disposable income. If you are left with more than £50 a month in spare cash after paying for essentials then, again, the DRO route is not open to you. This includes all your sources of income.

Finally you need to have lived in, had a property, or run a business in England or Wales in the last three years.

As well as your own financial situation, the kinds of debt in question need to be considered. Some sorts of debt are excluded from DROs. This means that, if you do obtain a DRO and you have the following sorts of debt, they will not be covered in it.

• Court fines and confiscation orders
• Child support and maintenance payments
• Student loans
• Social fund loans

It needs to be pointed out that, if, in an attempt to make yourself eligible you take measures such as hiding assets or deliberately selling possessions for less than they are worth within a year of applying for a DRO you can be refused, and also potentially prosecuted for the fraudulent offense.

As you can see, for many people a DRO is simply not an option. However, if you have no property and very few assets it can see you clearing off a sizeable amount of debt that you would simply not be able to tackle any other way. As such, though it is a drastic measure that you shouldn’t take lightly, for those eligible, a DRO does have a number of benefits for those with modest debts and little prospect of financial improvement.

What Are the Benefits of a DRO?

As with other forms of insolvency, a DRO will grant you protection from all the creditors whose debts are included within it. For a year, which is the term of a DRO, the creditors can’t make any claims against you or demands on you. In addition, you don’t need to make any payments towards your debts during this time. Once the year is up the debts are written off entirely.

This means that, as long as all your debts are included within the DRO, you can be left completely debt free in the same timeframe that you would if you became bankrupt, without having to sacrifice your earnings, your belongings and having your spending regulated in quite the same way. You could also see a much higher proportion of your debts written off than you would if becoming insolvent through an IVA and it will also allow you to clear your debts much quicker than would be possible under a debt management program.

Given how substantial these benefits are it could be tempting to see a DRO as an easy way of debt. However, it has its consequences…

Consequences of a DRO

A DRO will remain on your credit file for a further six years once it has come to an end, which could make it difficult for you to obtain credit. During the time of the DRO you may also be unable to open new bank accounts.

You will have restrictions placed on your financial freedom whilst you are under the terms of the DRO. For example, you can’t take out any new credit worth more than £500 without explaining to the lender that you have an order in place. On top of this, during the year you are under the order you need to tell the receiver of any changes to your financial circumstances. If you came into money suddenly, you couldn’t just keep quiet about it.

Once you have a DRO to your name you can’t direct or be involved in the managing of a limited company without permission from the court. If you were already running a business you cannot attempt to change its name without making partners and those that you do business with aware that it is the same venture you were heading when the DRO was obtained.

If you attempt to circumvent these restrictions or deceive the receiver whilst under the term of the DRO then a debt relief restriction order can be applied to you. If this happens the restrictions can last up to 12 years after the original order.

Finally, once you’ve had a DRO you cannot obtain another for six years, so if you quickly find yourself in trouble again, a debt relief order will not be available to you. In short, having had a DRO could be something of a roadblock to your future plans. Think carefully about what they may mean to you and whether you could find another way of tackling your debts before you apply.

Applying for a DRO

To apply for a DRO you will need the help of an intermediary who can take you through the process. This could be an insolvency practitioner (you can find one near you using The Insolvency Service website, or by going to the CAB). This intermediary will work with you to make sure you can give all the information needed to demonstrate that you truly are eligible for a DRO.

As with going bankrupt, you do actually need to pay in order to apply for a DRO. However, it is much cheaper. The fee is for £90 and can be paid in instalments over a period of up to six months, which would work put to a minimum payment of £15 a month. This fee needs to be paid before the order can be made and is non-refundable, even if your application is unsuccessful.

Unfortunately, if you’ve simply suffered a lapse of judgement and broken the rules then there’s not much you can do other than suck it up, pay the fine and try to be more careful in future. However, not all parking fines are legitimate. Whether it’s a simple case of human error, something gone wrong somewhere in the administrative chain, or a matter of the relevant signage being in some way obscured from view, if you have a good excuse, you could be let off. Here we look at what to do if you weren’t at fault.

Establish Who You Are Dealing With

There are two types of tickets – private and public. Telling the difference can be tricky, which is largely down to the fact that private companies will try to make their tickets look as similar to those issued by public bodies such as the police and local councils. However hard they try to confuse things, the one thing these private tickets can’t do is categorically mislead you. If it doesn’t name the local council in question and doesn’t name the police force in question, then it’s private. This changes the way you go about fighting it.

Private Tickets

If it’s private you can take a much more aggressive stance in refusing to pay. This is because, unlike a ticket from a public body, the private companies can’t really enforce their tickets without taking the fairly drastic step of court action. They can’t, for instance, threaten your credit score or send the bailiffs round to your house.

With this in mind, if you get a ticket on private land that’s been unfairly given or is clearly exorbitant then you can simply write to them explaining why you won’t pay, or why you will only pay part of the total asked for (a reasonable measure might be to offer to pay only what you would have been charged had the incident occurred on a public road.)

If things can’t be resolved this way it will be helpful to you to be backed up by any available evidence, so you need to photograph anything that might be useful to you whilst at the scene, for example, the signs and their wording, the meter or anything else that led you to dispute the ticket.

(Though we are using the word ‘ticket’ to talk about both private and public tickets, only public ones should be thought of as fines. Private tickets are simply an invoice. These companies don’t have the right to issue fines.)

If this doesn’t work, you can appeal. You don’t need to pay before you appeal, and it’s always hard to reclaim money back once it’s gone, so don’t pay until you have to. If the ticket comes from a company that is approved by the BPA you can appeal through the independent body, POPLA. This process is free, but can only be resorted to once you’ve already gone through the appeals process of the individual operator. You will find details of how to do this on the back of your ticket.

Hopefully, you will be successful first time around. If they accept your argument, fail to reply or respond saying that they won’t pursue things further then you don’t need to take any further action. If they do continue to demand you pay them, then it’s time to turn to POPLA.

As far as they are concerned you only have a case if you weren’t responsible for the vehicle at the time (i.e. it had been sold on or stolen), you are being asked for an amount that exceeds that relevant to your offence, or if you simply did not commit the offence in question. Bear that in mind if you are hoping extenuating circumstances will get you off the hook.

If you are successful the operator has to stop chasing you. However, if you are unsuccessful, that doesn’t mean it’s all over. You’re basically just back where you started. Given that POPLA aren’t enforcers, you aren’t actually beholden to pay just because they didn’t find in your favour. Therefore, you can just hold out and wait to see if the operator will actually bother to take you to the small claims court. Even if they do and you lose, it’s not a criminal matter and the worse that can happen is that you will be forced to pay up.

If you want to be more extreme, you can head straight for this impasse stage by simply saying you won’t pay, and will not get involved in any further correspondence from the get go. Don’t even use the word ‘appeal’ (this implies there’s some sort of legitimacy to their ticket). Either they’ll attempt to go through court or, as you’d hope (and as is quite likely), they won’t bother to follow up on it.

If the company is not BPA approved then you can write to them and explain why the ticket is unfair and why you won’t be paying it, or you can just ignore them and wait as described above. As these companies aren’t bound by POPLA , don’t mention the word ‘appeal’ when writing to them. That will make it sound like you want to be dealt with through their in-house appeals process, which you don’t.

Finally, bear in mind that in many cases the operator will be independent of the property owner, who will have hired them in to run their car park. Whilst the operator won’t, the landowner will most likely have a brand they’d like to protect and public relations they’d like to maintain. If you write to them and complain of scandalous treatment, they may intervene on your behalf.

Public Tickets

Things are different when you’re dealing with a ticket from a public body. The first thing to remember is that, if you think the ticket is unfair, you shouldn’t pay it. This will amount to an admission of liability and take away your right to appeal. Unless the car has been clamped or towed, you should wait until you’ve appealed before you even consider paying. You’ll want to move quickly as, even if your appeal is unsuccessful, the fine is usually half price if paid within two weeks.

You should begin building your case at the scene of the incident, where you’ll need to gather any evidence you can to support your case. Again, photos should be taken if they’ll prove your case (for example, incorrect unclear markings, signs, the position of your car, or the metre).

Keep all correspondence regarding the incident, as it could be important. Other mitigating factors can also come into play, so if there are other issues that you believe should be taken into account put together some evidence relating to them.

Once you have the evidence of the mitigating circumstances or the error that was made, you can make an appeal. The first stage is usually informal and you have nothing to lose no matter what the outcome. The fine is put on hold during this time too, so once things are under way, you don’t need to worry about the price doubling after 14 days.

How exactly this appeal will work depends on who issued the ticket. If it was a council the ticket will be a PCN (Penalty Charge Notice) which uses a ‘civil’ appeal system (more on which later). The exception to this is an Excess Charge Notice. These tickets are ‘criminal’ (don’t worry, that doesn’t reflect on you, and it won’t lead to you getting a record. It simply means the appeals process is different).

An FPN (Fixed Penalty Notice) issued by the police is also criminal. If you live in London you could also get a ticket from TFL. These are PCNs and are civil.

If you’re looking at a civil case then there are eight grounds that you can win on;

• There wasn’t a contravention. This covers cases where the ticket was given incorrectly, or where the relevant signage and markings were not visible.
• You were overcharged.
• There was an admin error. For example, if they didn’t include all necessary information on the ticket or took too long to reply to correspondence.
• You were no longer the owner of the car at the time.
• You’re a hire firm (which we can ignore, seeing as you aren’t).
• The car was stolen.
• You already paid.

As you can see the first point is really the one that applies in most cases. Mitigating circumstances that might apply aren’t really covered in these points, but discretion has to be shown when you appeal, so you can include them as part of your case. These might typically include;

• You’d broken down.
• You were involved in an emergency.
• You’d fallen ill after parking.
• The parking became suspended whilst you were away.
• You were at a funeral.
• You bought a ticket, or permit, but for some reason it was not visible to the warden.

In some cases councils will let you off if you were within 3 minutes of your valid stay time, so this can also be used as grounds to ask for the fine to be waived.

The first stage is to make an informal appeal by writing to the relevant body including all your evidence. If this doesn’t work (and it has been suggested that initial appeals are rejected out of hand) then the second stage is to make a formal appeal.

When you get your Notice to Owner (the response if your first appeal fails) this also serves as the form to make a formal appeal. (If your ticket is posted to you, the form will come in the post with it). You then simply recycle the information from your first appeal into the form. You can also include a letter detailing your exact grounds for appeal, and any mitigating circumstances that need to be included.

If this doesn’t work you will receive a Notice of Appeal along with your rejection. With this you can appeal to the independent Traffic Penalty Tribunal. They will make a final decision. You can either have the case assessed by writing to them, with all the information from your first two appeals, or it can take place as a hearing over the phone or in person.

If a council ticket is ‘criminal’ then the process is largely the same, expect that if the informal and formal appeals don’t work then all you can do is appeal to the local government ombudsman.

In the case of notices from the police you will have to check with the prosecuting force how you can appeal. You may be able to write to the central ticket office or the force itself. If this doesn’t work your last recourse would be to take things to a hearing, but this could see you become liable for legal costs, will be hard to win and, as such, is probably a disproportionate risk.