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Life Insurance for Mortgages in 2020

Make home feel affordable.

Nowadays, the goal of homeownership is a changing priority for many living in the UK. It was once a shared ambition, a key life achievement, yet, writing today, the way we come to think of home has indeed changed.

Why is that? The average property costs in the UK have risen, gradually. Recent data reads clearly, where the Land Registry places the average cost of a UK property at £235,298. Certainly, that number is edited, with slight drops month-on-month. But as a routine press release confirms, via the UK House Price Index, there’s an annual bump in expenses, meaning that property seems to cost more yearly.

That reads like bad news, but there’s still a reason for optimism. With tighter, if more pressured, financial restrictions on owning a property, the market has evolved by becoming more open, in some senses, to new homes. This means that property isn’t accessed, as it once was, only by an imaginary ladder.

There’s so much more to owning a home nowadays. It’s both an emotional part of you and your family. It’s one of your bigger financial assets, too.

To start with, a home can wear many names: from mortgages, to renting, to property, to letting. Homeownership, as we see it, is a handle for everything and anything about your home. Yet, to talk about it meaningfully, we have to acknowledge it in all of its shapes and sizes.

This study guide, a sort of SparkNotes on the home, covers your every inquiry about home and how to find it.

  • Are you looking to learn about mortgages?
  • How about shared home-buying schemes?
  • How can I get creative with my financing?
  • And why should I get life insurance for my mortgage?

What percent of people in the UK own their own home?

In recent memory, homeownership in the UK has been the subject of many studies. One such example, via GOV.UK, discovered that in the last five years there was an estimated 63% homeownership rate. From a total of 23 million households, about 14.4 million were homes owned, whether through mortgages, or self-financed.

Renting is the new future

Future predictions hold a firm belief that soon the private rental sector (those in rent) will become the new model home. This would place one in every four households in private rent, according to The Guardian. There’s a large annual growth of people renting privately that answers to this.

What is the UK House Price Index?

Otherwise shortened to the UK HPI, the UK House Price Index is a measurement that studies any changes in residential properties and its current value. This means, in short, that it tells us a quick stat of housing costs in the UK. It was, only recently, formally recognised as a trustworthy metric – these are referred to as “National Statistics”.

It works by offering a wide coverage of sales, both mortgaged and cash-bought homes in the UK, since 1995. It’s a (relatively) young metric but can crunch a large data set – property sales in the UK – to offer up quickly digested figures and stats.

If you’re interested in keeping up-to-date on the UK HPI, it works around a slight delay, but the information can help, accurately, engage the averages of property values for a given year.

What is homeownership?

Homeownership, elsewhere home-occupancy, simply refers to anyone in possession of a home. That’s a traditional definition of how ownership fits into home-buying. Yet, backed by this new fury of energy and interest, homeownership is more casually, if informally, developing a reputation with renters. That means in the years to come renting will make up for a new kind of homeownership.

What are the advantages to owning a home?

For many, a home is an extension of their life assets, a kind of financially valuable investment, that adds up into our portfolio of wealth. Property can be used to mature your wealth, often as a patient exercise that involves time and resource.

Yet, for most, a home takes on an emotional meaning. It’s often summed up in a sweet image – of a nest, a memory, a family – because it essentially captures the desires, ambitions, aches and general character of our families.

How to buy a home in the UK?

It will depend on how you choose to “buy” a home.

Traditionally, people have opted to use a mortgage, or borrowed loan, to purchase a property, which gradually pays off the costs of the house over time. Yet, this has tighter restrictions today, so it’s not always the most favourable option for your budget and goals.

Nowadays “buying” is a multi-dimensional project, especially when talking about your home. You could use rent, privately or socially, to access your goal home, which could free you up financially without the lengthy commitments of a mortgage.

What are the types homeownership?

  • Mortgaging
    A means of raising enough funding to secure a property through a loan, often from a reputable lender.
  • Shared Ownership
    The newest way into property is to “share” the bill. This is achieved through a scheme (with certain edibility criteria) that helps manage the often-large loan required to get a hold of property.
  • Renting
    Though untraditional, renting can bring you closer to home. You may not “own” a property there and then, but you’ll occupy a residence in a way that works better for you budgetarily.

Mortgage Essentials, UK

A mortgage is, for most, the largest debt we’ll likely incur in a lifetime.

A mortgage is exclusive to home-buying and describes this sizeable loan, often unlocking new financial heights for your purchasing power on the property market. Though tightly regulated, a mortgage can be advantageous for with a good reputation with money and wealth resources.

How do mortgages work?

There are to types of mortgages, which both work to a common goal: to access a property on the market by lending more reach to your finances. These two types of mortgages, though sharing goals, differ on the way you pay off your loan over time.

  1. Repayment mortgage (or capital/ interest mortgages).
    The most common mortgage is a repayment one. This structures your loan into a monthly repayment, scheduled over a period of time of 25 or 30 years. Your costs will appear as monthly deductibles against the total value of the loan and that will calculate not only the cost of the property, or its capital, but also the interest accrued on your loan over time. At the end of your mortgage, or its maturity, you’ll have paid off the total loan (with any interest).
  2. Interest Only.
    Throughout its term, you’ll only pay the interest against your mortgage or loan. You don’t, however, pay anything against the mortgage itself. At the end of your mortgage, you’ll need to pay off the loan in full. This is commonly the route for people who invest their mortgage to raise the capital needed to pay for their property.

To be thorough, you’ll need to consider the rates against your mortgage at the time of gaining the loan. A “rate”, in short, refers to the interest on your loan. This will read differently between mortgage types.

  • Fixed rate
    Your interest, if locked, can be fixed anywhere between 2, 5 or 10 years. Your lender will guarantee to lock your rates for this period of time, meaning your interest won’t fluctuate or change.
  • Standard variable rate (SVR)
    Outside of a fixed term, you could be switched to the lender’s default rate. This means the rate against your loan falls outside of its deal period – or the initial term for your fixed rate. Every lender can adjust their SVR at their own desertion and your rates could change, unpredictably, within this term. If this doesn’t marry up with your budget, then consider searching for a new mortgage deal.

How much can I borrow?

One of the most commonly sought inquires asks how much is enough?

As every budget is a personal question of finance, it’s hard to judge. Yet, there are ways to grow the reach of your money. When it’s a matter of mortgages, knowing the amount you want to borrow is a goal post. Getting there, on the other hand, can feel like a journey.

There are online tools that predict, if inexactly, the total borrowable amount for a loan. Typically, for a loose judgement you’d follow this equation:

My income (+ any other income) x 3.5 = amount borrowable

Be wary that this is an inexact science. It’s better to know your budget and chat to a professional about the opportunities that lay (often hidden) in the market. That’s because every lender will react differently to your search for a mortgage – some may appear stricter, where others may be more relaxed, if generous with their loan offering.

This can be, however, approached more intimately. It helps to be researched on mortgage matters, getting the essential wit to strengthen your proposition in any prospective conversations you have with lenders. This means knowing your goal amount – or how much you’d like – and what your budget, realistically, looks like.

Having a gasp on your loan, both in the present moment and the future ahead, can help you decide later on with the means of keeping it safe and secure. When you’re handling money of this scale, it may bring peace of mind to opt into a lfie insurance policy to look after your debts – so they aren’t inherited as someone else’s worry.

Why get a mortgage? (advantages)

A mortgage is the common journey to getting into property.

But what makes it attractive?

Once your deposit is grown, you’ll need to think about the rest of it capital. Whether you’re new to the market, a first-time buyer, or considering re-mortgaging, there is a loan to help you unlock your next home.

A mortgage, the experts say, is a cost-effective, if opportunistic, means of borrowing. Because your rate can be locked-in, of fixed, you can keep costs mostly clipped, if predictable, and control how your monthly expenses look and feel. For those new to the market, a mortgage can be worked into your current budget to ensure your skip out any financial pinch or tightness from over-borrowing.

Where rates are fixed into a loan, you’re essential securing a mortgage on deal.

When is the best time to buy mortgage?

You’re unlikely an economist by trade, so reading the market may not be your strength. If so, what do you considering taking out a mortgage? The best answer is the simple one: you buy when you’re ready.

Your mortgage will need to answer, reasonably, to your budget. That means a question of affordability should be a top priority for most on the market.

There are also common triggers, mostly personal, that help people gauge with mortgages. The most common is when your family grows – and you start to itch for a more spacious home. Other times in life make the proposition more attractive, too. You might outgrow either you home, or its mortgage rate. The reasons, in short, reflect your personal triggers.

Is a mortgage right for me?

If, like above, your looking for a cost-effective way of borrowing money to get more mileage on the property market, then a mortgage could be right for you.

It will need to be considered against your personal goals (why do I want this money?) and your budget (can I actually afford this?).

Yet, it’s not right for everyone. The costs, which grow over time, means you’ll be paying back more than you originally borrowed. The biggest drawback is how you’ll hold debt, quite a sizeable one, over the course of a loan. If that doesn’t sound right for you, then you could try renting.

How much does it costs to buy a house?

A mortgage’s cost will depend mostly on the size of your loan, or mortgage product, and your personal finance.

There are a number of fees, including the routine costs that may appear “hidden”. This list gestures at the true cost of buying a house.

  • Booking fee
  • Valuation fee
  • Missed payments
  • Mortgage broker fee
  • Admin fees
  • Moving costs
  • Stamp Duty (above £125,000)
  • Insurance/s 

The other big factor, the interest, will charge against your loan throughout your tenure on a mortgage. This can add up, especially over length periods of time. Depending on your interest rate, this will influence the monthly figure you’ll need to budget for.

Another reason that mortgage pay-offs vary between people is because of re-mortgaging. This occurs when, at the end of your mortgage, you approach the lender to agree into new terms, usually reconsidering the (current) price of your property and your financial situation.

Remortgaging

When a term ends on a mortgage, you’ll have options about the next steps.

You could simply embrace the default interest rate against your loan, or look to secure a new deal: known, commonly, as remortgaging. When agreeing into a new mortgage, your property’s value will be revaluated and your personal finances, too. You could score a new deal altogether, whilst saving a few years from your loan.

Commonly, people look to remortgage for a better rate. When your introductory period ends on your current deal, then you can assess the market to judge, prudently, if you stand to score any financial wins by switching into a new deal.

Shared Homeownership

If you’re new to the market, chances are you’ve taken advantage of the new wave of schemes available to you. Backed by the government, these schemes can help balance the financial weight when purchasing into a home.

Our guide to first time property ownership is a useful navigational tool, essential to any new and prospective onlookers hoping to win something back from the property market.

On reflection, the majority of these schemes involve a deposit, which acts as a “share”. Essentially, you’ll own a piece of a property’s equity and the remaining capital, owned by privately, will be covered as rent. Your payment regime, still in easy monthly bites, will strike a harmony between a loan and rent.

This is designed, if you’re eligible, to help introduce new people to the market. So, with the right budget, this might be helpful in getting you a property.

Life insurance for a mortgage UK

When buying into a home, whether old or new, you’ll commonly be asked about life insurance. This is a means, should anything happen, to keep your home safe from any financial uncertainty in the future. It’s often openly embraced as a means of keeping the family look after, too.

Alife policy for your mortgage works favourably to ensure your debts are tied up: here’s a policy that pays off your mortgage if you were to pass away.

This is not the same as building and contents insurance.

Why do I need life insurance for my mortgage?

A mortgage can represent a large financial debt that, if ignored, could be inherited by your family as a major pain to their lifestyle. If you are no longer around to secure your mortgage, the debt passes on – and could evolve into an unwelcomed burden in a moment of emotional grief.

Whilst not obligatory, life insurance remains the safest, if most sensible, means of securing your debts against uncertainty. In some scenarios, your lender may insist you take out a life policy as an urgent contingency. Whilst not always the case, having some financial plans hatched to support your loan is always helpful, if essential.

How much life insurance should I get?

The amount you’ll need will depend on your personal budget.

How much can I reasonably afford? And what is the goal of my insurance?

Commonly, life insurance is calculated against the value of your loan. But the funds it secures can answer to more than just your home. You could, for example, think about how the financial reward of a life policy can help maintain family living costs, or may be better served as inheritance. Once you settle on a purpose, your life policy can be more accurately valued, usually sized up to match your goals.

Discover more about life insurance here.

What is the best life insurance for a mortgage?

Life insurance is the most popular method for managing your mortgage debts. There’s a lot of ways of approaching a life policy to match up with the size and shape of your mortgage loan.

  1. What’s popular with a Repayment Mortgage?
    If your fixing for the most likely option to be affordable, then a decreasing term life policy placed against repayment mortgage could do the trick. A decreasing term is dynamic: its value drops over time as your mortgage price also devalues against your regular repayments.

 

  1. What’s popular with an Interest Only Mortgage?
    With this mortgage type, where your value retains over the course of your payments, an ideal policy would be suited to a level term to size up to your debt’s unending amount. This is because a level term holds it value throughout the tenure of the insurance, meaning that it won’t lose value in time.

What life insurance should I get for my mortgage?

Traditionally, you’ll have two cover types of to choose between – both serve the same purpose, but will protect your mortgage to diffreent outcomes.

MPPI, otherwise know as mortgage payment protection insurance, is a quick fix to naggles within your immediate income. It’s often thought of as an affordable alternative to big-sum policies that might not work to all budgets. It will offer you shorter term relief to help ensure your mortgage payments are completed.

For those looking to cover larger lump sums, mortgage life insurance can help manage sizable debts by ensuring a death benefit tackles the full size of the loan on the policholder’s death.

What are the different types of cover?

Make your purchase feel meaningful by choosing from a range of polices to size up to your goals and budget.

Level Term
Nominate a value to hold in your policy and its length of activity. These details will correspond with your mortgage’s value and length, so that your insurance sizes up the task of managing your debts over time. It won’t drop or lose value either.

It’s ideal for those looking to leave behind inheritance, clear away outstanding debts (your mortgage) or to support your family’s way of life and income.

Whole of Life
Insurance that stays with you forever. Commonly, a whole of life policy is most attractive to those in their later life stages. This is because your sum assured, or the value of your policy, is guaranteed to pay out. This will, typically, pay out to a lower tune than other policy types, precisely because a final benefit is guaranteed.

This is advantageous when either stacked up with another life policy or used to gain funds for inheritance.

Decreasing Term
This is a life policy that tackles particular debts that lose value over time. It’s an ideal solution for those seeking an affordable insurance type to match up against their repayment mortgage. Because it’s value is designed to decrease, the policy should size up to a similar loan that itself loses value (through routine repayments).

Where can I buy life insurance?

Not every insurer will react to your serach the same way. Deals, qoutes, prices – these things will vary between insurers. To make your search more direct, try using a comparison site the likes of ThinkLife.

Get top rates in a flash

Comparing life insurance rates is a great way to connect with a deal that can feel really satisfying. That’s because comaprison engines, like ThinkLife, quickly see the market at a flash to offer up the most affordable, budget-friendly rates.

For a convenient, smart way of managing your mortgage search for a life policy with a tool that comapres the wider market.

 

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Inheritance Tax, the full guide

A heavy, sinking sigh often introduces the issue of taxation. Civilian commentators, and their press counterparts alike, seem to unify in their frustrations about, in particular, the sensitive matter of inheritance tax. We all want to leave behind a legacy. It’s a bit of a slippery term – its definition almost fluid to the whims of modern politics. What can we learn about inheritance gifts? And how can we actually leave behind something valuable without losing out?

What is Inheritance Tax?

The current measures on inheritance can be crushing to loved ones receiving a gift. Whether the gift is moneyed in value, a property, or possessions, your family could pay 40% tax against their inheritance within 7 years from a loved one passing.

Meanwhile the Office of Tax Simplification (OTS), after challenging the complexities of tax talk, are eager to create change. In their consultation with the UK government, the OTS aspire to drive coherency in the design of tax. A cleaner, softer language in our tax structures would mean that those, in their older age, who wish to leave behind gifts can more easily understand the benefits of inheritance. It’s important that financial planning be an accurate exercise.

Despite the immediate reality of those who will have to pay Inheritance Tax each year, which is only small in number, the worry about it is far greater in the public imagination. This is confirmed by a spokesperson for the OTS and represents a growing stress for taxpayers who struggle with mismanaged expectations that can frustrate their financial plans.

There is a human story here. The common motif, caught in a sort of repeat, is a feeling of frustration, if not something worse. The drive to protect yourself financially, in the sense of inheritance, has become something of an incurable itch.

How does Inheritance Tax work now?

Inheritance Tax will only affect your gift (property, money and possessions ) if the estate meets the value threshold of above £325,000. And the circumstance of the beneficiary, the recipient of the gift, can change the outcome of their inheritance, especially if they meet the criteria for tax relief.

According to a BBC report, the estimated estates to become liable for this tax each year is fewer than 25,000, otherwise about 5% of the population. There is an obvious communication error between the immediate, and actual, expectations for a taxpayer and what the perceptions of their annual taxes might be.

“Reform”, the modern cry for change, is close by when we talk about death tax in the UK. It’s outgrown its whisperings, with more experts wanting to see meaningful, if thoughtful, change.

Tax exemptions

It’s not that easy navigating the exemptions of inheritance tax.

If an inherited gift is “written in trust”, such as the funds held in a life policy, then the value is removed from the estate of the deceased. In short, it frees up your policy’s benefit to be pay-out as a tax-free lump sum. You won’t pay anything below this value of £325,000.

Yet, anything above this sum, the minimum threshold, and you add a 40% tax after the value (so your first £325,000 isn’t taxable). Let’s write that into an equation (assuming your property is over the threshold).

                (Property value £ – £325,000) x 40%

If your home is valued at £450,000, where the tax threshold is £325,000, then you would pay tax on the value carried over the limit. In this case, you’d pay a 40% tax on £125,000 (worked out as £425,000 – £325,000). Your tax bill will equal £50,000 (figured out as 40% against £125,00).

In other scenarios, you can extend your threshold and change the allowance. This is normally the case if you nominate your spouse (or civil partner) as the party to access your benefit. If you choose another exempt beneficiary, such as a charity, you could also clip the tax outright.

Putting life insurance in trust can also skip probate, which would equal to a faster release of your policy’s funds to your loved ones. It can also help to ensure that your funds go more directly to your beneficiaries, as per your instructions, to limit funds lost to tax.

There is, generally, a 7-year rule on qualifying tax-free gifts. Parts of an estate can be gifted within this time and will be viewed as a “gift”, meaning that it avoids inheritance tax. Yet, this is subject to evidence, which is tricky to surface for 7-year intervals of time (where, for example, the likes of bank statements will only travel back 6 years.)

How could things improve?

Though rumours initially, now the forums are charged with hard protest-like arguments to shake things up.

The OTS have suggested a reform against the current design that tapers relief over time and, instead, suggests we move toward a higher annual gift allowance. This comes as a timely response to the rising apprehension amongst the British public over inheritance gifts.

To further intrigue, YouGov polled a sampling of the British public on what they call ‘tax fairness’ – an otherwise clever metric to gauge national opinion on the matter of tax. The tax type that, according to this poll, is least fair is inheritance tax. Interestingly, this is a uniform opinion that travels across political boundaries amongst civilian voters, from labour to conservative advocates. There is little dispute, where public opinions matter, that inheritance tax attracts negative perception.

Reactions

There’s always a face behind the story.

When we trade stories about inheritance tax, either in scenarios that cause financial upset, or moments of relief, it would appear to be an anecdote, or someone’s real experience. These connect well with us; emotions become excited with the good and disenchanted, or boiled, with the bad. The Telegraph, for example, published a four-part series on “loop-holes” that all vie into the personal life of Britons tackling inheritance tax.

These human stories always find a way in – to our feeds, our opinions, our emotions. Central to them is a message for practical change, whether offering up alternatives, design fixes, or by asking for the simplification of inheritance tax.

Tax by numbers

Indeed, these human stories speak, voluminously, to the shared upset and grief of tax. But what are the numbers saying?

In the FT Advisor, there’s a nod to the total inheritance tax bill bringing home £5bn in the UK. The 2018/19 financial year hauled in record highs, too (with receipts tallying at $5.4bn). Yet, its’ worth contextualising that against a relatively low number of people who actually pay inheritance tax.

Top Takeaways

  1. Estates valued at less than £325,000 are exempt from inheritance tax.
  2. Alternatively, tax relief applies to a gift left behind to a husband or wife, partner, charity or community club.
  3. As a general rule, a gift is exempt from tax if it is primarily funded from income rather than savings.
  4. You can figure out the value of your estate by adding up the financial assets (insurance pay-outs, cash in the bank, property/ land and other valuables the likes of cars) and deduct any debts or loans at the time of death.

Glossary

  • IHT is shorthand for inheritance tax (you won’t read it here, because we’ve kept the language clean, but elsewhere you may come across this abbreviated form).
  • Nil rate band (NRB) is a handle for a gift on inheritance tax that falls below the minimum threshold for taxing. This has been frozen for over a decade (or since 2009).
  • The Residence Nil Rate Band (RNRB), or home allowance, is where you pass your home, or share of it, to your children.
  • Tax exemptions (or avoidance) is where your assets do not qualify for tax, meaning you won’t pay inheritance tax against your wealth.