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Interest-only trap could snare FTBs

I’m on holiday enjoying the remote beauty of the Exmoor National Park. One of the perks, but also the pains, of a holiday in the wilds is that it is difficult to get service on your mobile phone or internet connection. Which is why the initial impulse to move out of the urban sprawl and relocate to the peace and quiet of the countryside has quickly worn off.

But there are other reasons, not least of which is the cost. However, some lucky people can afford to run two homes and make a life – or perhaps a living – for themselves in town during the week. Their weekends and holidays are spent rushing down to their country pad and joining the locals at the summer fete.

A glance through those old copies of Country Life that are always lurking in the loos of country houses shows that investments in a rural idyll a couple of years ago have generally paid off. Property prices have been climbing steadily.

Meanwhile the locals moan that there are no homes at reasonable prices for their young folk. This leads to people moving away from their country background and into towns to look for well enough paid work to allow them to afford to buy their first homes. It’s a bit like a merry-go-round but not quite as thrilling.

But whatever their background, many young people are finding it hard to get on that elusive housing ladder. Perhaps that’s why so many are opting for interest-only loans to bring down their monthly mortgage payments.

According to the Council of Mortgage Lenders, the number of borrowers opting for interest-only loans without showing that they have a vehicle in place to repay the capital has jumped in recent times.

In January 2004 only 9% of borrowers took this route. Now it is around 16%. The only reason I can think why more people are taking out interest-only mortgages is to reduce the monthly payments on their loans.

Presumably borrowers are warned that they need to have a way of repaying the capital. Presumably they are shown how a repayment deal works by paying off the interest and the capital so that the debt is worn down over the years.

And they must be being told that an interest-only mortgage only repays the interest so that at the end of the term the full debt is still owed.

I have heard mortgage brokers suggesting to clients that it is ok to take an interest-only deal for the first couple of years to get them started and then they should convert to a repayment deal.

But what if their next adviser recommends the same option? Our young first-time buyers could end up in a worse mess than we did thanks to dodgy endowments.


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As we approach the two-year milestone of auto-enrolment, employers have had the opportunity to truly assess the capabilities of their chosen support. They are also now realising that getting to the staging date was the easy part, and that support is required for almost every aspect of the day to day running of their scheme. With the three-year re-enrolment window coinciding for many with the total removal of commission and Active Member Discounts from pension-related products and services, as well as the introduction of the pension charge cap in April 2015, many employers will have no choice but to review their support options. But, what is involved in transitioning your auto-enrolment scheme away from your current support options? This guide from Johnson Fleming aims to outline some of these key areas and provide information and discussion points on what you need to consider.


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