We spoke to Gareth Glover of Blue and White Mortgages for an update eith the news that the Bank of England has reduced the Interest Rate to 0.1%. This is the lowest level in history, so now could be time to remortgage and take advantage.

Mortgage payment holiday

Mortgage lenders have agreed to support customers (including buy-to-let borrowers) who are impacted on their finances due to COVID-19, including payment holidays of up to 3 months.

Whilst this is short-term and potentially much-needed financial help, you should consider if this is the most suitable route forward for you. It is not waiving the money that’s owed, just simply adding to the overall outstanding amount. In the long run you may be paying more for your mortgage. Also this needs to be agreed with your mortgage lender before you stop making payments.

You can apply online directly with your lender, but there may be other options to consider, such as extending the length of the mortgage term which would reduce the monthly payments (which again increases the overall cost of the mortgage). Another option is to switch to an interest only mortgage (where the capital amount that’s outstanding would remain the same).

Mortgage Options

For those financial stable, you could be keen to take advantage of the excellent mortgage deals currently on offer.

With Purchase mortgages witheld, there is expect more interest in remortgaging your existing property (and product transfers), than funding new property moves.

Despite the current environment, there are excellent mortgage deals out there (further improved by the cut in the Base Rate). This may motivate you to assess, for example, your remortgaging (or product transfer) plans such as:
■ needing to raise funds to further improve your existing property.
■ looking for a new deal, as you’re coming to the end of your current one.
■ still sitting on your lender’s more expensive Standard Variable Rate.
■ simply wanting to identify a better mortgage deal than the one you have.

Whatever your plans, do be mindful, that partly due to the impact of coronavirus on the workload of lenders, a number of higher rate Loan-to-Value deals have been pulled.

Protection cover

In these challenging times – whether you’re still living at home, renting, or a homeowner – you’ll also recognise the importance of having insurance cover in place to protect your life and/or loss of an income stream.

With so many issues to consider, and ongoing developments, it makes sense to see how we can help.

You may have to pay an early repayment charge to your existing lender if you remortgage.

As with all insurance policies, terms, conditions and exclusions will apply.

Mortgages for the self-empolyed

The number of Self-Employed workers in the UK has almost hit 5m (representing 15% of the total workforce), yet this group still faces problems when it comes to securing a Mortgage and has eligibility concerns regarding Protection cover.

(Source: Office for National Statistics, Labour market overview, December 2019)

Securing a Mortgage

Whilst lenders may not necessarily view the self-employed as a greater risk to lend to, they do have issues about how to assess their ongoing income.

This is compounded by the way some self-employed organise their payments to ensure they’re tax-efficient, which may work against them when endeavouring to demonstrate to a lender they have the ability to fund the loan they wish to take out.

The term ‘self-employed’ can also present a problem for lenders, as it pulls together a whole host of different individuals, such as contractors, sole traders, gig economy workers, freelancers, and early-stage start-ups. This could mean that a myriad of workers with differing income streams and earning potential are lumped together, resulting in the computer possibly saying: ‘no’.

However, interestingly, those self-employed who have jumped through the hoops and secured a mortgage may be a safer bet than first-time buyers, for example, as analysis shows that they could have taken out a mortgage 29% larger than the original loan borrowed.

(Source: Kensington, Affordability Tracker, Q2 2019)

Along with possible conversations with your accountant to discuss how your payments are structured to make you more appealing to a lender, it’s vital that you also talk to us, to help identify the lenders that may be interested in doing business with you. And there are a number of them that are more amenable to this sector, and why wouldn’t they be when there’s a marketplace of 5m individuals to target!

Protection considerations

Nearly a third of self-employed and contract workers would run out of money within a month if an accident or illness stopped them working. (Source: LV, November 2019) 

Should they be off work for a lengthy period due to illness or injury – the majority of self-employed workers will not be entitled to Statutory Sick Pay and would, instead, have to pursue a lengthy claim for benefits such as Employment and Support Allowance, and any other benefits, dependent on the severity of the illness.Yet it’s unlikely that payouts would equate to the average UK household expenditure of almost £600 per week.

(Source: Office for National Statistics, Family spending in the UK, January 2019)

That’s why it’s possibly vital that the self-employed consider income  protection, as well as life and critical illness cover. Income Protection would deliver a regular income, for a short-term period, or even up until retirement. It could be highly relevant, yet many wrongly believe that they won’t be eligible for it. That’s why you should talk to us.

As with all insurance policies, terms, conditions and exclusions will apply.

Standard Variable Rate

There are at least 1.4m mortgage borrowers on their lender’s Standard Variable Rate (SVR).*

This is a sizeable chunk of all mortgage borrowers and with the average SVR sitting at 4.90%, this group would be on an interest rate that’s around twice the average 2-year fixed deal cost.**

For example, those on an SVR (if it’s a £100,000 mortgage, for instance) might be able to remortgage and pay around £1,700 a year less (circa 5% rate vs. circa 2.5%).

(Sources: *UK Finance, June 2019 data; **Moneyfacts, December 2019)

Circumstances have changed

Some may feel they can’t remortgage because they won’t meet the stricter affordability and evidencing of income criteria. This might be true, but why not have a chat, as there may be a solution.

Mortgage Prisoners

This broadly amounts to 150,000 borrowers, most of whom are stuck with a lender that no longer lends. However, the Financial Conduct Authority (FCA) has introduced new guidelines, which may overcome this problem, so do talk to us to hear more.

(Source: FCA, Nov. 2019)

You may have to pay an early repayment charge to your existing lender if you remortgage.

Protection Myths

We largely view ‘death’ as the most likely ‘bad’ health event that could affect us across our working lives. Yet, from the right hand chart above, you’ll see that, in reality, you’re far more likely to survive, and face a serious illness, or be off work for a lengthy period.

That said, this doesn’t mean that you should disregard taking out life cover. as research shows that, on average in 2018, around 272 UK adults, aged 18-65 died each day.
(Source: Office for National Statistics, 2018 data, Jan. 2020)

But possibly of greater importance is to consider further protection that’s designed to lessen any loss of income should you face a serious illness, or be off work for a lengthy period.

There are two product offerings that can help protect you in these circumstances:
■ Critical Illness Cover – pays out a lump sum when you have a specified critical illness.
■ Income Protection – pays you a percentage of your monthly income when you can’t work due to illness or injury.

Do they pay out?

Many assume that the plans don’t pay up, yet a massive 97.6% of all claims were paid out in 2018, equating to £14.5m a day!

(Source: Association of British Insurers, 2018 data, May 2019 release)

Do I even need it?

This is a possible further misconception, particularly as you may feel that it’s difficult to contemplate needing a protection policy,until you really need it!

Additionally, some will think that their employer will provide all of the support needed. This may be true, but do check your contract to establish the level of financial help you’d get, and (if it’s not for death in service) for how long. Balance this with the care you receive from the NHS, and the limited financial support from benefits such as Statutory Sick Pay and Universal Credit.

Mental Health issues

In recent years there has been a far greater understanding of the need to deliver real and financial support to those insured who may suffer a mental health issue. Also, those that have previously faced this might feel
that they would then be excluded from taking out future cover, such as Income Protection. However, some insurers may now take a more considered approach, rather than the standard ‘accept’ or ‘decline’ decision-making.

Added-value benefits

The insurance industry recognises that a payout upon claiming may be the initial driver in setting up a policy. But it’s also aware that there is a real benefit – for both. parties – if a relationship is maintained throughout the policy term, as reflected by the following examples:
■ Incentives to keep healthy.
■ Specialist support – such as GP/nurse helplines, telephone counselling, carer support services, consumer rights, early intervention and rehabilitation services. With such a wide range of options on offer, do talk to us, and you may also be pleasantly surprised at how little a plan might cost.

As with all insurance policies, terms, conditions and exclusions will apply.

Income Protection

Here’s a fictional example of how an Income Protection plan could play out…

Adam runs an IT consultancy. In the last tax year he earned a gross salary of £90,000. After reviewing his monthly expenditure he took out a Self-Employed Income Protection policy covering 50% of his annual earnings, totalling £45,000 or £3,750 per month.

He opted for long-term cover that would pay out the taxfree monthly  benefit for as long as he may need it, if he was unable to work and earn an income. He also opted to defer any payouts for six months, as he had sufficient savings to see him through this initial period, resulting in cheaper premiums.

Two years after taking out the policy, he developed cancer, and his claim was approved. In total, Adam was off work for three years. Over this period, he received 30 monthly payments of £3,750, totalling £112,500, enabling him to meet his financial obligations whilst off work, and to focus his energies on recovery.

There are a multitude of providers and product choices to consider, so it makes sense to take advice

Blue and White Mortgage & Insurance Services is an Appointed Representative of Mortgage Saving Experts Ltd which is authorised and regulated by the Financial Conduct Authority under number 779662 in respect of mortgage, insurance and consumer credit mediation activities only.

Gareth Glover
Mortgage & Insurance Consultant
Blue and White Mortgage & Insurance Services
Tel: 07527 138547
Email: glovergareth6@gmail.com
Website: www.blueandwhitemortgages.co.uk