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.
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.
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.
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:
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:
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:
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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:
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
]]>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.
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.
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.
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…
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.
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.
]]>It’s no coincidence that, according to recent surveys, just under half of people who’ve suffered from mental health problems also had serious levels of debt.
If you or someone you know is facing either problem or an interlinked combination, it is massively helpful to try and tackle the problem as soon as possible. Of course, to do this it is necessary to stop and take stock of the situation.
In monetary terms, this comes down to assessing whether you are at the ‘crisis’ level of debt that is likely to cause you serious problems and what your options are likely to be with regards dealing with it. In some cases it will be an situation that you can handle yourself and we have plenty of articles here on ways of reducing your outgoings and organising your finances to make things manageable, from saving on energy, to savvy shopping techniques to reduce the cost of your visits to the supermarket and reclaiming unfair bank charges.
Though you will find more specific advice in these pieces, there are general principles you should remember when dealing with debt.
Don’t Add to It: Many people compound there debt problems by getting into a chain of borrowing, using loans to pay of cards etc. Though it might feel logical to consolidate by use of credit, it will cost you more. Wherever possible cut back to avoid the need for more credit.
Reduce the Interest: One of the easiest ways to make debt more affordable is to lower the interest rate. This will leave you with more in your pocket and will help you make a bigger dent in what you owe. The simplest way to do this is by a balance transfer to a 0% card. Click the link for more.
Prioritise the Most Expensive Debts: If you have money available to spend on repayments it makes sense to focus on those with the highest interest. The quicker you pay that off, the more you will save. As such, it is logical to stick to minimum payments on the rest of your debts and put as much as you can afford to clearing that which has the highest rate.
If you’re at a level of debt where you cannot afford to make the minimum payments required and still provide yourself with the essentials you need to get by then this is sometimes referred to as a ‘crisis’ level of debt and it may require a different approach. If this applies to you it is important not to panic, as though it may seem though, there is always a way to improve the situation. A great first step is to start making use of the free help that is out there.
It can be difficult to admit debt problems to ourselves, let alone or friends and family. We may feel ashamed or fear being stigmatised. However it is important to remember that there are people around who will want to help you. If you don’t feel like you can handle talking to someone you know, then be sure to look to organisations that will help you (which you should do regardless).
Unfortunately, there are many companies that seek to make money from those struggling with debts and this can be confusing for those looking for free help who cannot afford to be paying for a service (many debt management companies, for example, will take a slice of the repayments that they arrange for you.) The key is looking to groups, such as the following, who exist purely to help people. Try talking to:
All of the places offer debt counselling and all of their expertise is offered up in a non-judgemental, completely welcoming manner. They are, to put it simply, on your side. They can help you get your affairs in order and offer invaluable advice on how to prioritise your debts so as to lessen their potential impact on your life. Though they do not have special legally enshrined powers that allow them to hold creditors at arm’s length on your behalf (as, say, an insolvency practitioner can) they do have clout and a lot of know how in dealing with these situations. This itself can help you negotiate better terms and come to an arrangement that might prove workable.
Having a debt counsellor on board can certainly give you some more breathing space. If you’ve sought help then, according to the Credit Services Association’s agreement with the government, you should not be contacted by collectors again for at least 30 days. Furthermore, if you are suffering mental health problems then, in accordance with the Lending Code, your creditors are obliged to consider keeping the issue in house rather than selling it on to debt collection specialists who, typically, take a more aggressive approach to recovering monies owed.
They can also take your side in a number of emergency situations and help you reach a better outcome. For example, if you are facing disconnection at the hands of a utility company (bear in mind that this is very rare) they can help arrange a long term payment plan to keep you on the grid. Likewise, they can help get a plan in place if you are in danger of having your house being repossessed, even if proceedings have already begun.
If you are being threatened by bailiffs they can help keep them from your door by applying to court to halt the creditor’s actions. Again, they can also help you arrange a plan for repayment that doesn’t involve the added expense of paying someone other party for arranging things for you.
They can also give you advice on your insolvency options. These include bankruptcy and IVAs, both topics we’ve covered extensively (click the links for more).
As well as assessing where you stand with regards to your financial situation, if your mental health is a worry it’s best to look for warning signs and take action when they appear. Depression usually takes time to set in. If you are aware of what you are likely to go through you can look for indicators that you need support and then seek it. Early warning signs often take a physical form. You might notice aches and pains back, neck and head and your skin may become blemished. You could also find you have a shorter fuse, and are more prone to argumentative outbursts. At this point you reach out to your friends and your GP. They will be able to recommend a course of action if you find things are worsening in your private and professional lives (if work is proving too much, inform your boss and ask to put on a reduced work load for the time being).
If you find that you are losing weight, find it difficult to concentrate and think clearly, have a diminished libido, and that you experience lows that last for weeks or more then you will need to the help of treatments such as cognitive behavioural therapy, which can help you find more positive ways of thinking and approaching the things occupying your mind, and possibly medication as well.
If you are suffering with a mental health problem then acknowledging it early will massively aid your recovery, and will also help you find the right method of dealing with your debts. One of the cruel ironies of dealing with debts and mental health issues is that you have to face intimidating challenges at the precise time you feel least able to take them on. For instance, many people find that they are less able to work during low periods, which can lead to a reduced income. This can compound problems.
However, if you have a diagnosed condition, you could find that you are entitled to various benefits. It’s imperative that you get the money that you are entitled to. You could be entitled to Personal Independence Payment (PIP) or Employment Support Allowance (ESA).
In the eyes of the government a mental health condition such as depression or bi-polar disorder can be defined as a disability if it stops you doing day to day things such as “working set hours”. When claiming for ESA the Department for Work and Pensions will need to be able to verify that you have a limited ability to work (with the exception of hospital inpatients). This means you will need to fill in forms detailing your condition and the difficulties it causes you and it may mean you need to attend an assessment.
Many people believe that the Work Capability Assessment (WCA), which is used art part of the decision as to whether award the benefit or not, is flawed. There are people who can help advise you on approaching it to make sure you are treated fairly. There is a wealth of information on the assessment provided by the mental health charity Mind.
PIP is also subject to ongoing assessments, with the amount you’ll get varying according to how you condition affects you (there is a component for day to day living and one for mobility). Payments can be between £20 and £135 a week, paid every four weeks. There’s more on how to claim here.
As well as making sure you get the money due to you, you should also be aware of how your condition may affect your spending. If you are depressed, obsessive compulsive or bipolar you may spend money erratically. It can be a good idea to try and limit your ability to make sudden expensive decisions as a safeguard against choices you might regret. You might ask to have your card limits lowered or give them over to someone you trust. Shopping online can also help as you will have seven days to make a return if need be.
If you tell your bank about your condition they can help you stay on top of things by looking out for erratic spending and contacting you if things seem unusual. They can even put limits on your spending to help you stay within your means. You don’t need to worry about telling your bank about your condition as they cannot use the information to discriminate against you. Indeed, they cannot even record it without your express consent.
Whether you tell creditors about your condition can be a difficult decision. It can have benefits but it can sometimes difficult to know if they will act on the news in the appropriate manner or even take note of it. One good sign to look out for is a company that has a policy on mental health problems or a particular member of staff dedicated to dealing with more vulnerable customers. If you do disclose information, lay down how you expect the information to be used, and how it should not be used. It’s worth reminding them that under the Data Protection Act information regarding mental health is deemed sensitive.
The Financial Ombudsman can help uphold your rights if creditors are not treating you fairly or sympathetically as lenders are supposed to under the Lending Code. Banks in particular should take steps to be considerate. This includes keeping debts in house and using specialist teams you are experienced at dealing with those facing mental health difficulties to handle your case.
In conclusion the most important thing is to seek help from the sources available to you, both in relation your money and your health. Friends, family, carers, case workers, counsellors and GPs can all play a part in helping you to set a clear course out of the woods and feel more robust.
]]>You can find your credit rating here to get more of an insight into your finances and where they can be improved. The question you may be asking is: why should I check my credit rating at all? Well, while many people neglect to do this as part of analysing their finances, checking your credit score can be incredibly beneficial and can give you a more rounded look at every aspect of your personal monetary situation.
When checking your credit report, you need to remember that you are seeing exactly what potential lenders see when you apply for finance of any description. Whether you’re hoping to be granted a credit card, store card, personal loan or a mortgage – whatever the type of finance you’re after – a lender will want to take a look at the state of your credit history.
With this in mind, here are some top reasons why you should examine your credit report on a regular basis:
Whatever outstanding credit you have – whether it’s your mobile phone, store cards, utilities or your mortgage – you will be able to see exactly what you owe and to whom you owe it. A credit check provides the convenience of seeing a clear picture of your finances without having to check every bill individually.
What this can sometimes highlight is outstanding credit (note: this does not mean outstanding debt) that you have but either don’t use or have forgotten about completely – this might include old credit cards that you have switched away from but not formally cancelled. With this credit still technically available to you, lenders may be wary of offering you more on top.
Every time you apply for credit, whether accepted or declined, it leaves a mark on your credit report – and being declined can be seen as a black mark. Don’t apply for finance without checking your credit history and seeing whether you meet the lender’s criteria first.
Applying for, and being declined, credit on several occasions within a short time frame can give the appearance of desperation so try to spread your applications out wherever possible so that these negative marks do not become a major factor on your credit file.
By checking your credit report, you will be able to see what the lender sees when they are deciding whether or not to lend to you. If you’ve been declined credit, you will be able to see why and, in future, you can try to improve your financial history to better your chances of approval.
Knowing why you were declined also puts you in a better position to apply only for those products that are suited to your circumstances whether that be a credit building credit card or a guarantor loan.
If you’re moving home or your circumstances have changed, the sure-fire way of finding the contact details for all of your lenders will be to check your credit report.
It’s handy because you can access your previous addresses too – any address you’ve lived at over the last 6 years will be on the file; ideal if you need to fill in forms and you can’t remember your previous postcodes!
No matter how careful you are with your personal data, there are criminals out there who would like nothing better than to assume your identity so that they can apply for credit in your name.
One of the most useful things about having immediate access to your credit file is that you can keep a vigilant eye out for such identity theft and fraud. Often you will spot things on your credit file before more direct evidence comes to light.
Unlike finance applications, checking your credit report won’t damage your record. Lenders can’t see how many times you’ve checked your report, either.
It’s a huge advantage to be able to see what the lenders see. With the help of a credit check, you’ll be able to see where improvements can be made that deliver more stable personal finances. Not only can checking your credit report help to improve your chances of being accepted for finance, but it will also help you to manage your finances more effectively.
]]>Offering such securities as collateral can make it easier to raise finance, whether you do this by taking out a loan secured against your car or by obtaining a further advance to your mortgage. However, whilst, this approach can help you access larger sums of money than might otherwise be possible, it is a risk. If for any reason you are no longer able to make repayments, you could be left without key possessions. You could even lose your family home (or, in the case of a defaulted bridging loan, you might actually lose two houses.)
So, what can you do to mitigate this risk? Here we look at the couple of options open to you:
This form of insurance is designed to cover you if your earning power is compromised and, as a result, your debts become problematic. Policies can be obtained from lenders and insurers and will usually include certain caveats that need to be born in mind. For example, the self employed are normally excluded and there are limits on the circumstances that will be covered if you need to stop working and neither back pain or stress fall within the scope of your standard PPI plan.
You will need to be in full-time permanent employment on taking out your insurance and you will not be eligible to claim for any conditions that pre-date your cover.
(You should be aware that PPI is always optional. In the past these products have been mis-sold, with consumers being left under the impression that they had no choice but to take out PPI alongside their line of credit, even if it was of no use to them. If this has happened to you, you can reclaim the cost of from the PPI provider).
Not to be confused with PPI, income protection insurance has some important differences. Much like PPI it will payout if you are unable to work due to illness, disability or as the result of an accident (redundancy cover can also be added as an additional extra). However, unlike PPI, you’re able to set exactly when your policy would kick in after you’ve stopped working. The longer the span of time you set, the lower the premium you’ll get.
So, if for instance your employer will pay for 6 months worth of sick leave as part of your terms of employment, you can tailor your cover to reflect this and save money in the process.
Policies remain in place until the end of the term, which you might typically set as your retirement age. If you claim and then go back to work you still have your cover in place.
As you’d expect premiums are normally related to how much of a risk you present to the underwriter in terms of your health, lifestyle, gender and age. If these factors make a policy unaffordable there are budget options with capped payouts, as well as ‘age related’ policies where your occupation and other risk factors are not considered.
As the name suggests, this form of insurance is intended solely for the purpose of covering your mortgage repayments should you be unable to work. As with the above products, payments only start after a set period of you leaving employment (usually between 30-60 days) however, many providers will back date payments to the start of this period once it has elapsed.
Unlike the options listed above, MPPI will cover unemployment as standard, but you will not be able to claim on it for as much as the first six months of the plan, meaning you will need an alternate provision (such as savings or a redundancy package) during this time.
There will be a cap on how much you can receive monthly, so this may not be appropriate if your mortgage is especially large.
]]>Alternatively, it may be used by somebody who needs to raise finance quickly and doesn’t have time for a mortgage to be arranged, for example, someone whose bought a property at auction and needs to pay before the agreed settlement date. Likewise, a developer might use a bridging loan if the property they’re buying is uninhabitable and cannot be mortgaged.
Normally, you’ll be able to borrow up to 80% of the equity of your property and the loan will last for a term spanning from a few months to a year or more. There is usually a minimum amount you can borrow between £10,000 and £30,000.
There are two types of bridging loan:
Closed: This is where you have a clearly defined arrangement in place for obtaining the capital to clear the loan. For example, you may have already exchanged on the sale of your property and, therefore, are able to demonstrate to a lender that your sale is unlikely to fall through.
Open: This is where the sale of the property you are moving out of is not yet assured. Obtaining finance in this scenario is much more difficult and lenders will need to find ways of assuring themselves that you’ll be able to repay them.
Bridging rates are not cheap. In general you’ll be charged interest monthly at between 2% to 3% above the base rate set by the Bank of England, on top of which you’ll need to pay an arrangement fee which could cost you as much as 1.5% of the loan value. Even ignoring the fee, if you work out the rate in terms of APR, it will be in the region of 20% or so, more than double what you’d expect to pay on a mortgage.
In general, the lower the interest rate on offer, the higher the arrangement fee you’ll be charged and vice versa. Getting the best deal for you depends on the amount you are borrowing and how quickly you expect to repay the money. If you have a set date by which you are confident you’ll be able to clear off the loan, calculating whether a higher fee or a higher interest rate will favour you is a simple business.
Defaulting: These loans are only cost effective in situations where they prevent the chain of your move falling apart and thus ensure that the money you’ve spent on all the previous arrangements won’t be wasted.
It’s imperative that you have an exit strategy in place otherwise you could end up lumbered with a mortgage-sized loan with a very high rate, which on top of your actual mortgage, you’ll likely find impossible to pay. As a result you’ll have no choice to default and may even have to consider becoming insolvent. As you’ll see below, given the securities your lending against you’ll have a lot to lose.
Double Security: Some lenders will demand not only your current home, but also your new property as security. This means both could be at risk if you are left unable to get rid of the first. Again it needs to be stressed, you should be highly confident of selling the first property if you’re taking a bridging loan to facilitate a move. (On a more positive note, offering both properties as security will make the loan cheaper.)
Lack of Regulation: Bridging loans only have to be regulated if they are ‘first charge’. (This means they are the primary source of finance being used to buy the property. This would apply if there’s no mortgage in place, or if you aren’t going to be using a mortgage.) If they are second charge, they won’t necessarily be subject to regulation. Given the consequences you could face if the loan becomes unmanageable, you may prefer to have the option of complaining to the financial ombudsman.
Become a Cash Buyer: If you’re not going to be using a mortgage to purchase your new property you are essentially a cash buyer. This can help you wrangle a discount as this is generally how people prefer to be paid. It can also help you save costs such as arrangement fees or commission to mortgage brokers.
Only Pay For The Credit You Use: In most cases there are no fees for early repayment so you only pay for the credit for the period in which the gap between purchase and sale actually needs to be ‘bridged’.
Save A Chain Collapse: Whilst bridging loans are expensive, so is the process of arranging a move. If things fall apart the money you’ve spent on valuations, surveys and other such costs of moving house will have been for nothing.
Speed: These loans can be arranged very quickly. Indeed, with some lenders you may even be dealing in hours rather than days, let alone weeks or months. This is vital if you are looking to save a chain.
Retained Interest: You will normally have the option to avoid paying interest on a monthly basis. Instead you can defer and pay it all at once when your lump sum comes in.
Using a Broker: Bridging finance brokers
As well as a good credit history, you will have to pass affordability tests to show that you can handle the finance in your hands going forward. This will include giving details of your exit strategy. This might be a loan offer, an exchanged contract, a missive to sell on or a decision in principle from a bank.
Depending on the lender in question the type of property you want will also factor into whether or not you can fund a purchase in this manner. As bridging loans are a specialist product, it can be worthwhile investigating lenders that deal exclusively in such loans, however, they are now widespread enough that highstreet banks also offer them.
Letting: By remortgaging your current home you can release the equity you need to put down a deposit on the house you’re looking to buy. You’ll pay the new mortgage out of your income whilst converting the mortgage on your old property to a buy-to-let product. The rent paid to you by your tenants will cover your repayments on the first loan.
Obviously, this will only work if you are confident of finding tenants willing to pay high enough rent, which will depend on the area of the country you’re based in. You can, of course, always sell the property later.
A No Fee Mortgage: If you obtain a No Fee Mortgage (a mortgage where appraisal and arrangement fees are waived in return for a higher rate) on your new property then you maybe able to finance the purchase of a new property even before releasing the equity from your existing assets. This could end up being far more affordable in the long run provided you can cover both loans during the period between purchase and sale.
Wait: The simplest solution shouldn’t be overlooked. If you are struggling to sell your home as it is, taking out what essentially amounts to a second mortgage isn’t going to anything to make it easier to get your sale through, but it will up the stakes massively. By putting yourself under such pressure you’re going to weaken your position as a seller.
]]>Though it’s far from impossible to bag a great mortgage deal on your own steam, there are a number of advantages that come with engaging the services of a broker.
It should go without saying that your broker will be an expert on mortgage products and the market in general. But then that will also apply to any lender from whom you might buy directly. So why is their expertise worth any more?
For one thing, it’s important to remember that the broker isn’t selling you the mortgage so much as selling you their help in ensuring you end up with a product that’s both suitable and great value. Therefore they no interest in leading you one way or another.
Of course, not all brokers work by charging a fee. Some earn their living from commission paid by the lenders themselves. However, if you’re worried your broker will do little else but point you in the direction of their highest paying provider and pocket a referral fee, you should now that the facts of how they stand to be paid in any given situation will be made available to you.
All mortgage brokers have to supply a Key Facts Document, containing within it all the ins and outs of their commission and fees, ensuring transparency in their actions.
You may think that, so long as you talk to enough lenders, whether by visiting the branches of banks or talking to call centre staff, you’ll eventually have enough information to make the right choice.
However, you need to remember that whilst information is one thing, advice is quite another. Most of the people acting as a point of contact for mortgage providers aren’t legally qualified to offer advice. All they can do is tell you about their products. They can’t say whether they are a good fit for your situation. A broker can.
There aren’t many instances in life where the average consumer gets to throw their buying power around, much less when it comes to obtaining a mortgage. If anything, you’ll find yourself bending over backwards to demonstrate that you match the lender’s criteria.
If you’re with a broker then you’ll have a little more weight behind you. As they may be responsible for bringing any one lender a good deal of business they could be able to push the process along in a way you’d struggle to.
Given how long you’ll have to go on paying for it, picking the wrong mortgage can be a costly mistake to make. If the decision was your own, then naturally enough, you have no one else to blame. You simply have to live with your error.
If, on the other hand, you were advised to take a mortgage that turned out to be ill-matched to your circumstances and consequentially unaffordable, you can complain and get compensation.
Of course, using a broker will cost you money, but it will save you a great deal of time and energy. Realistically, it would take a great effort for you to compare every mortgage available to you, double check that you meet their criteria and make a decision.
This could be even harder if you’re a non-standard case. For a broker this won’t pose a problem. They’ll know where to look whether you need a lender offering help for first time buyers with only a small deposit or are looking to buy-to-let.
]]>However, you don’t have to be a big corporation to make the disparity between different rates of interest work in your favour. With a little bit of cunning you can take advantage of a ploy known as ‘stoozing’ to line your pockets through your everyday spending habits. Though it may sound too good to be true, it’s endorsed by well respected money-smart people such as Martin Lewis and is a tried and tested way to get the best out of your cash. Here we guide you through how to make use of this ingenious ploy.
The first step is to obtain a credit card offering 0% interest on all spending. Of course, this isn’t always as easy as it sounds. The best cards will require you to have a good credit score. Likewise, if you have debts on existing cards, you should focus on looking for a card offering 0% balance transfers rather than one where spending is interest free (although some do provide both.)
If you are in a position to acquire such a card, the question of which to go for will be determined by a combination of two factors: the length of introductory 0% offer (it only ever applies for a limited time) and any extra rewards you stand to gain through using the card. Some of the best credit cards available in the UK today offer almost a year and a half of 0% spending to those with decent credit history, whilst others give bonuses such as clubcard points or vouchers.
When you have the card, switch all your spending over to it, setting up a direct debit to cover the minimum monthly repayment. As all your spending goes through the card, save for the aforementioned direct debit, your current account is left unscathed. You should then take this money and set it to work earning you interest, be it in an ISA or a high-interest savings account. It’s best to go for an option that won’t penalise you for withdrawals or limit your access to your money, as you may have to move quickly to pay off your balance at some point.
If you have a flexible or offset mortgage, your biggest financial gains are to be made by using the extra cash you have available to pay in and reduce the interest on your loan.
When the offer is coming to an end, pay off the balance using your savings and, as there’s no interest to be paid on the debt, you’ll be able to cover it with a nice margin left over. Alternatively, you can switch to another 0% offer and continue as before, though the fee for transferring the balance may eat up a lot of your profits.
Another ploy would be to simply take out another card with 0% on spending and run through the whole cycle again, keeping your savings piling up all the while.
If you do this wisely it’s basically a risk free way to make money. However, mistakes could hurt you. The most obvious error to avoid is failing to remember when the 0% offer expires. If you’re still piling all your spending on your credit card when the new rate kicks in, you could end up wiping out all your efforts in a single month.
Secondly, this tactic will mean you have a high level of unsecured debt whilst you’re playing the stoozing game. Of course, the whole point of the system is that you are using what you’re saving in interest to make money rather than spend it, but nevertheless it can impact on your ability to borrow until the balance is cleared. Of course, once it is cleared, it will constitute a positive contribution to your credit history.
Your credit history also needs to be considered if you want to use the scheme multiple times or on a few different cards at once, as a high number of applications across a short space of time can raise a red flag for anyone inspecting your file.
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