Aspiring homeowners who used the Help-to-Buy equity loan scheme to get on the property ladder could face an unexpected rise in their interest payments due to inflation.

According to the government, the Help-to-Buy scheme helped more than 375,000 aspiring homeowners turn their dreams into a reality between 2013 and 2022, the majority of which were first-time buyers. In total, £23.7 billion was lent through the scheme, which funded £105.4 billion of property purchases. 

Under the scheme, buyers could borrow up to 20% of the property’s purchase price (40% in London) through an equity loan. This meant they needed just a 5% deposit and could potentially take out a smaller mortgage or buy a more expensive home. 

The equity loan was interest-free for the first five years and fixed at 1.75% in the sixth year. However, after six years, the interest rate is linked to inflation. When homeowners initially took out the Help-to-Buy loan, inflation was lower, so interest payments could be much higher than previously calculated.  

Inflation has been significantly above the Bank of England target since 2022

The Bank of England (BoE) has an inflation target of 2% a year. However, the rising cost of living has pushed inflation significantly above this target since the end of 2022 thanks to the long-term effects of the Covid-19 pandemic and the war in Ukraine. 

In fact, inflation reached a 40-year high in October 2022 when it was above 11%. 

The rate of inflation has fallen from the peak but as of September 2023, it’s still above the target at 6.7%. The BoE doesn’t expect to reach its 2% target until the first half of 2025. 

So, as the interest you pay on your Help-to-Buy equity loan is connected to inflation, your interest payment might be higher than you anticipated. 

After the first six years have passed, the interest rate increases every year in April, either by adding the:

• Consumer Prices Index (CPI) plus 2% if you used the scheme between 2022 and 2023
• Retail Prices Index (RPI) plus 1% if you used the scheme between 2013 and 2021.

It’s worth noting that the amount you owe through an equity loan has likely increased too.

When you sell your home or the mortgage is paid off, you have to repay the same percentage as the initial equity loan. So, if the value of your home has increased, so will the amount you owe. 

Let’s say you used a 20% equity loan to purchase a £100,000 property. If the value of the property increased by £30,000, your loan would rise from £20,000 to £26,000. 

At a time when household budgets are already under pressure, an increase in Help-to-Buy interest payments could mean some families struggle to meet their outgoings. 

Help-to-Buy users could face a double whammy of rising costs

In addition to rising interest payments for Help-to-Buy loans, homeowners are also likely to face increased mortgage repayments.

Inflation is having a direct effect on the mortgage market. Homeowners with a variable-rate mortgage have likely faced repayments rising several times over the last 18 months, while fixed-rate mortgage holders may have seen a sharp rise in their repayments when their deal came to an end. 

At the start of the year, the Office for National Statistics estimated that more than 1.4 million UK households would see their fixed-rate mortgage deal end in 2023. More than half benefited from an interest rate below 2%.

With average interest rates closer to 6% as of October 2023, household expenses may be much higher than they were just a year ago. 

For families who use the Help-to-Buy scheme, it could mean two property-related expenses have increased thanks to high inflation. 

3 practical options that could help you cut household bills

If rising payments are affecting your budget, here are three options that could help you.

1. Repay some of your Help-to-Buy equity loan: If you have the money to pay off a lump sum of your Help-to-Buy equity loan you could reduce the amount of interest charged. However, you can only pay half or the full amount of the equity loan – you cannot make smaller repayments. You’d also need to pay for your property to be valued. 
2. Sell your property and move: If you’re thinking about moving home, you might benefit if your property’s value has increased. While some of the profits would be added to your loan, you can use the rest to place a larger deposit on a new property and cut out the need to make Help-to-Buy interest payments. 
3. Review your current mortgage deal: If your mortgage has increased, reviewing other options on the market could be useful. A mortgage broker could help you assess your needs and may be able to secure you a lower rate of interest than if you applied alone. 

We could help you search the mortgage market

If your current mortgage deal is coming to an end or you’d like to compare deals, please contact us. We could help you search the market for the right mortgage for you and may be able to help you secure a more competitive interest rate. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Planning for your death can be emotionally difficult, but it could be a huge help to your loved ones. 

Research suggests administering an estate after a loved one has passed away can affect mental health and finances. Read on to learn more about some of the steps you could take to help your family manage your affairs. 

According to the Exizent Bereavement Index 2023, more than half of people dealing with bereavement and administering an estate say it’s harmed their mental health.

Furthermore, 28% said they suffered financial difficulties. This was driven by unexpected costs, Inheritance Tax (IHT) obligations, or pressure to distribute assets.

In fact, just 1% of people said they found the probate process easier than expected.

6 practical steps you could take now to ease the burden on your loved ones

1. Create a document that contains the details of all your assets

The person administrating your estate will need to gather information on all your assets. That often means tracking down accounts, debts, and more.

Make it easy for them by creating a document that contains the details of all your assets, from savings accounts and Premium Bonds to insurance. 

Once you’ve completed the document, keep it in a safe place and regularly review it to ensure it remains useful.

2. Write your will

Writing a will is the only way to ensure your assets are passed on according to your wishes. Yet, around 20% of people pass away without one in place.

A will may also make distributing your assets to loved ones much easier for the executor of your estate.

However, many estates that have a will can still present challenges. It’s estimated that, on average, more than a fifth of assets are unknown at the start of the probate process. 

Make sure the instructions in your will are clear and thorough. Overlooked assets could make handling your estate much more stressful. 

A financial review could help you understand your assets and how you’d like them to be distributed so you can reflect this in your will. While you don’t need to seek legal advice to write a will, it’s often advisable if you want to minimise mistakes. 

3. Consider how to pass on assets efficiently

The probate process can be lengthy. Your family could be waiting months to receive the legal documents they need to handle your estate and receive their inheritances, which could leave them facing financial difficulties. 

Your executor may need to apply for a probate grant. This is often needed to access your bank accounts, sell assets, and settle debts. According to data from the government, applications for probate grants between April and June 2023 took around 14 weeks to be issued. 

In addition, letters of administration are likely to be needed to allow someone to administer your estate. Obtaining these took, on average, between 18 and 23 weeks.

So, if your family rely on your income or assets to cover short-term costs, a plan to pass on assets more efficiently, such as using a trust, might be useful. We can help you understand what’s right for you and your family as part of your estate plan. 

4. Set out your funeral wishes 

Thinking about your funeral might be painful, but it can be useful for two key reasons. 

First, your family may be unsure about your preferences – would you prefer a burial or cremation? Are there particular songs you’d like played during the service?

Setting out your wishes can make organising the funeral much less stressful for your loved ones. 

Second, it allows you to set money aside to pay for the costs. With more than a quarter of families administrating estates facing financial difficulties, it could relieve a large burden.  

The costs associated with a funeral can often be released from your estate before the probate process is concluded. 

5. Understand if your estate could be liable for Inheritance Tax

The administrator of your estate will be responsible for settling an IHT bill if your estate is liable.

While IHT is paid after you pass away, it’s something you can consider during your lifetime. If the total value of your estate exceeds the nil-rate band threshold, which is £325,000 in 2023/24, your estate could be liable for IHT.

There are often steps you can take to reduce a potential IHT bill if you’re proactive. It may mean you pass on more of your wealth to loved ones and make your estate easier to manage.

If you think IHT could affect your estate, please contact us. We can help you understand what steps you may take to mitigate a potential tax bill. 

6. Involve loved ones in your financial plan

You don’t need to share the details of all your assets, but involving your family in your financial plan could mean they have a better understanding of your wealth and wishes. 

As financial planners, we can work with you and your loved ones to create an estate plan that suits you and eases the burden on those who will administer your estate. 

In addition, introducing your family to us may help them manage their own assets and inheritances better.

If you’d like to talk to us about your estate plan and the steps you can take to make your estate easier to manage, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, trusts, will writing, or legal services.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Life insurance could ensure your family’s security if you pass away. It may be an important part of your financial plan and could provide peace of mind. Understanding the potential payout your family would need could help you choose an appropriate level of cover. 

If you take out a life insurance policy and pass away during the term, it would pay out a lump sum to your beneficiary.

The beneficiary may use the money how they wish. They might use it to cover day-to-day expenses or improve their long-term finances, such as paying off a mortgage. It could provide your loved ones with more security when they’re grieving. 

Life insurance can cover a defined period or the whole of your life. You’ll need to pay premiums to maintain the cover. 

According to Forbes, 37% of people in the UK currently have some form of life insurance. The findings indicate that a significant proportion of families could face financial challenges if someone passed away.

It’s not just the main income earner of your family that could benefit from taking out life insurance either. 

For example, if a parent who stayed at home to care for children passed away, it could mean the surviving parent would need to reduce their hours or pay a much higher fee for childcare. So, life insurance could provide valuable financial security in this circumstance. 

Just as important as assessing if life insurance could make sense as part of your financial plan is calculating what level of cover would be suitable.  

If you’re not sure what level of life insurance your family would need, these three methods to calculate cover could be a useful starting point. 

1. Link it to your large financial commitments 

Families often think about financial protection, including life insurance, when they take on a large financial commitment, such as a mortgage. 

As a result, you may choose to take out life insurance that would allow your family to pay off debt. It could take a weight off their mind and mean their regular income goes much further.

If paying off existing debt is a key reason for taking out life insurance, you may choose for the level of cover to decrease over time. For instance, the potential payout would fall as you make mortgage repayments. 

2. Multiply your annual salary 

If your family depend on your income, life insurance could provide a replacement source of money if you pass away.

Simply multiplying your salary by the number of years your family may need support could be useful. You may tie this to milestones, such as the age your children will reach adulthood. 

One thing to keep in mind is that life insurance will often pay out a lump sum. For some families, this can be difficult to manage, and it may also mean they need to make large financial decisions. Ongoing support from a financial planner could help your family use the payout in a way that suits them.

3. Work out your family’s essential outgoings 

Taking some time to better understand your family’s outgoings, and which ones they’ll need to maintain following a financial shock, could help understand the minimum payout they would need to avoid financial challenges. 

Depending on your circumstances, you might also want to include non-essential costs that would help maintain your family’s lifestyle. Perhaps your children attend private school or sports clubs, and having to cut back on these expenses could disrupt their lives during an already difficult time. 

A tailored financial plan could help you understand your life insurance needs

While the above three methods can provide a useful guideline for calculating how much cover you’d like your life insurance to provide, making it part of your wider financial plan can help ensure it would cover your family’s needs.

We can help you pull together areas like your family’s:

• Day-to-day expenses
• Large financial commitments
• Long-term goals
• Other assets. 

In addition, we can factor in other steps you may have taken to improve financial security, such as an emergency fund, or protection that’s provided by your employer. 

By incorporating life insurance into your financial plan, you can choose cover that’s not only appropriate for you but complements other financial decisions. 

Contact us to discuss how you could improve your family’s financial security 

Life insurance isn’t the only step you may take to improve your family's financial security. Making it part of your tailored financial plan could mean you and your loved ones are in a better position to overcome financial shocks and reach your goals.

Please contact us to arrange a meeting to discuss your aspirations and concerns. We could work with you to create a financial plan that offers you peace of mind. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

More people in England and Wales are celebrating their 100th birthday. It could have implications for your financial plan and creating an income in retirement. 

According to a release from the Office for National Statistics (ONS), on Census Day in 2021, there were 13,924 centenarians living in England and Wales. The oldest person to complete the census was 112. 

While centenarians represent just 0.02% of the total population, the number of people celebrating the milestone is growing rapidly. In fact, when compared to 100 years ago, the number of centenarians has increased 127-fold. Between 2011 and 2021, the number of people over 100 increased by 24.5%. 

Once population is taken into account, the UK ranks as the ninth country for the highest number of centenarians. 

Centenarians will have lived through the second world war and decimalisation 

The almost 14,000 centenarians who completed the 2021 census have lived through many defining moments. 

Babies born in 1921 would have been just 18 years old when Britain entered the second world war. They would also have lived through:

• The establishment of the NHS in 1948
• Commercial television starting in 1955
• The introduction of the decimalisation system affecting currency in 1971. 

As people live longer lives, it raises some challenges about how to create long-term financial security.  

Workers may need to save far more for their retirement or adjust their plans

Rising longevity could mean people spend far longer in retirement.

With people often thinking about stepping away from work in their 60s, some could find their pension needing to provide an income for four decades. As a result, workers may need to start considering how they’ll save enough to meet their lifestyle goals, or whether to adjust their plans, such as phasing into retirement gradually. 

Baby girls born in 2021 have an almost 1 in 5 chance of reaching their 100th birthday, while baby boys have a 1 in 7 chance. As celebrating the milestone becomes more commonplace, the target amount to save for retirement could rise sharply. 

Engaging with your pension during your working life may help your retirement savings and plans stay on track. 

Retirees could benefit from considering life expectancy when they withdraw an income 

It’s not just those saving for retirement that may want to consider the effect life expectancy has.

If you’re already withdrawing an income from your pension or other assets, is it sustainable – if you lived to 100, could your assets run out during your lifetime? 

Some retirees might find they’re withdrawing too much now, which could leave them facing financial challenges in the future. 

A retirement plan can help you assess how the financial decisions you make today could affect your long-term financial security, including if you live to 100. It may help you balance your goals with stability. 

Longer lives may mean more people need support later in life

Living longer may come with more health complications too. It could mean you need to pay for support or care costs in your later years.

A longer life doesn’t mean care costs are inevitable. Indeed, a quarter of centenarians reported having good or very good health, and a third weren’t affected by disability at all. What’s more, 2 in 5 have maintained their independence and live alone, and a fifth live in a private house with other people. 

However, making potential care costs part of your long-term financial plan may mean you have more options if you do need help in the future. 

Contact us to create a financial plan that suits your goals 

A financial plan that’s tailored to you could provide greater confidence in your future. We can help you understand what steps you may take to improve your financial security considering a range of factors, including longevity. 

Please contact us to arrange a meeting to talk about your retirement goals and any concerns you may have.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.