Q. My mother took out a Lifetime Mortgage around 8 years ago. Now she wants to move home, and repay the loan, but the amount built up in interest and penalties is almost double the amount she borrowed. Surely this cannot be right?
A. A Lifetime Mortgage is a type of loan aimed at elderly people with equity in their property but who wish to raise funds without selling their home. There is no need to make a monthly payment, instead the interest rolls up and is eventually paid when the house is sold, often when the person dies or goes into a residential care home. It is possible to repay the loan before this, but subject to early repayment penalties. Unfortunately, some of these early repayment penalties are structured more for the benefit of the lender than the mortgage holder. Whilst some providers have a simple sliding scale over the first five or ten years, others have a penalty linked to changes in interest rates, or gilt yields. If rates have fallen, which they have over the past eight years, then the loan your mother has will be more valuable to the lender, and in this case the penalty is likely to be at its maximum of 20% or even 25% of the original loan, as well as the interest generated over the life of the loan. If, however, interest rates had increased since the start of the loan, the lender is more interested in getting their money back, so that they can lend it to someone else at a higher rate, and in this case the penalty is lower. This can lead to a situation where a customer can leave after 6 months without penalty, but someone who has had a mortgage for 8 years pays a 25% penalty, having built up a significant interest bill in addition. I have never been a fan of these clauses, which should have been explained by the adviser at outset. One solution may be to transfer the loan to the new property, as the loan should be portable, subject to meeting certain criteria.
Q. I have two children and claim child benefit. I have just noticed that I went over the £50,000 income limit last year. What do you suggest I do?
A. If you are referring to the tax year ending 5 April 2015, all you will need to do is complete a self assessment return by 31 January 2016 and pay the tax due. If however, you mean the tax year ended 5 April 2014 and you didn’t complete a self assessment tax return as at 31 January 2015, then I recommend you contact HMRC without delay, as you may be fined for the oversight. Interestingly, two and a half years after the child benefit rules changed, thousands of families with high earners face fines and tax clawbacks. Contrary to HMRC’s expectations, less than half of those affected by the change chose to opt out of receiving the benefit, but many have not completed self-assessment returns and paid the extra tax due for earning over £50,000. By making the first approach and offering to pay the outstanding tax and interest, you may catch someone at HMRC on a good day and avoid the due fine.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
