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arrgee1991

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Posts posted by arrgee1991

  1. Using pension as the repayment vehicle for a mortgage would make a big change to affordability. Lenders would need to let you do interest only and allow pension lump sum and instant withdrawal to be used for final repayment.

    Lenders still do this. However they do have a tendency to add on 0.5% to the mortgage rate for interest only these days. The lack of availability of Interest only mortgages for older borrowers (50+) is a factor in the low number of property transactions.

    Very few people borrow on a repayment basis for much less than 25 years as this makes the monthly payments very high. Most end up staying put and just continuing with the mortgage they are already on. It's insane that people with large pension pots are forced into repayments.

  2. I think it's now more tax effective to buy your first house shortly after your death :)

    It is!

    The best thing to do is to die aged 74 and 364 days and then get the whole pension fund tax free and possibly life insurance as well. Just hope my kids don't work this out in about 20 years time.

    Still it worked for Mr and Mrs Darwin for a while...

    http://en.wikipedia.org/wiki/John_Darwin_disappearance_case

  3. Many people plan to live of the initial lump sum until the state pension kicks in. In my case, I would use it to pay off the mortgage early.

    The best thing most people can do is exhaust all other savings before going anywhere near the pension pot. Extend the mortgage term to your 75th birthday and then take the tax free lump sum and pay it off if need be. Should you die before you are 75, the whole pot is tax free and free from IHT. Better to use 100% of the fund to pay off the mortgage rather than 25%.

  4. Yeah, if people didn't save for a pension, they would spend the money right now. That's good for the economy and good for re-election!

    They wouldn't have much to spend. For a higher rate tax payer putting £10,000/ annum into their pensions at best they would only get less £6,000/annum net and in many cases far less than that. If taxes were reduced then people would put less into their pensions and spend more.

  5. Time to means test the state pension by the looks of it. I always knew those here bragging about paying 50%+ of their income into a pension scheme to save tax would get burnt by the government.

    I suspect saving 50-65% on their tax bill now will more than outweigh the loss of the state pension, which on average only pays out for about 15 years. It is inevitable that the state pension will be reduced or means testing introduced.

  6. So it's back to the old ways then. Stop spending, have lots of kids to support you in your old age, save as much as you can.

    >Millions of taxpayers under the age of 45 faced steep tax increases

    My effective marginal rate is already 65%, I wonder how much steeper he is thinking of.

    Corporate and Wealth taxes such as CGT, Mansion Tax etc. are more likely than income taxes. When you add in NI, the governments taxes everyone at least 40% on everything earned over the personal allowance, and at the cliff edges 65%. It would be difficult to get much more out of people.

  7. Do you really think future governments will resist the temptation to grab people's large private pension pots? I don't.

    No, However there probably won't be many large pots for those who have already retired who would mostly have annuities or those who plan to retire in the next few years who will pocket the 25% tax free lump sum and drawdown rapidly. I suspect that those whose retirement is ten or more years down the line will be at most risk from such a raid.

  8. By the time you have included all payroll taxes and child benefit withdrawal for two kids, you find that your effective marginal tax rate at £50,001 will be around 65%.

    I see £50K as a maximum income you are allowed to earn before it basically gets confiscated.

    Agree with all you write.

    If you have too many kids your marginal rate could be over 100%.

    £41,865 is my maximum taxable pay these days because with salary sacrifice I can put £2 into my pension rather than £1 in my pocket thanks to getting the employers NI. Sadly, I'm old enough to look at it as a short term savings plan paying close to 100% interest.

  9. What will happen with NI bands?

    Am I right in thinking NI is currently paid at 12% up until the top of the lower band - and then 2% thereafter?

    So total tax and NI is 32% up to the top of the lower rate band followed by 42%?

    Will NI at 12% be extended until £50,000? or will we have a dip in overall tax and NI for that area between roughly £40K and £50K?

    Total tax and NI is 40% up to the top of the lower rate band followed by 49% when the effect of the 13.8% Employers NI is considered.

    £1000 gross is really £1138 to be paid by the employer

    for basic rate £200 + £120 + £138 = £458 ~= 40%;

    higher rate £400 + £20 + £138 = £558 ~= 49%

    NI will doubtless be extended to the £50K threshold making the true saving about 9% on the £8000.

  10. It is all online for free anyway. Why would anyone pay?

    Mainly cos the free streams are poor quality and liable to be blocked with zero notice. Also I believe they are illegal.

    Surprising Virgin are doing this because they had a £150 Sports Season Ticket for the ten months of the football season, so their offering is significantly cheaper. I was going to just get the Now TV passes as and when required for £11/week, but I figured with all the Champions League games and most recently the GAA it would be worthwhile stumping up the £150 in advance. And because I have Tivo, I can always delay my viewing until the kids go to bed. So that's why I pay.

    The bigger rip off is BT Sport. £15/month on Virgin for one Premier League game a week at best; none between 8th and 29th November, whilst Sky have half a dozen plus European games and internationals .

  11. Problem is, someone who bought perhaps 8 years ago with IO would see a very different story. They might have stretched to afford the payments (else why use IO?) - but with flat wages and flat house prices, especially outside London, they are stuck. Little or no equity, no budget to switch to repayment..and if they have a family crisis, lose a job, or interest rates go up significantly.. the're out. More to the point, they may cost the bank money if the payments stop.

    People have, or had because banks don't like to give them out, interest only mortgages for a variety of reasons. I made the decision that I'd be happier just paying the interest on a monthly basis and use any windfalls like bonuses to pay off the capital.

    If I had a repayment mortgage at the moment, then due to the remaining term being just over ten years, any payment I make would be 20% interest with 80% going towards the capital repayment. I could pay off the whole thing with savings, but as my savings are earning more than 2.5%, I'm profiting and have no desire to make any repayments.

    In the future I suspect no one will ever pay off the mortgage. For expensive properties, it would make more sense to use equity release and keep the value of the estate below the IHT threshold.

    The banks normally win in the end as they will get the money one way or another short of another sub prime crisis.

    Interest Only -> Equity Release -> Grave seems like the option for many.

  12. I do think that an awful lot of people were sold these products when they shouldn't have been, without really understanding them. But I would also bet that there will be checkboxes on the forms saying that the borrowers are fully aware of the need for a repayment plan, and the forms will be signed.

    I think people were fully aware that when they took out the interest rate only mortgage that in 25 years (or however long the term was) that the capital would be so small compared to their income that they could pay it off with no real hardship when they redeemed the mortgage.

    I bought my first house over 20 years ago and had I never made an over payment, the redemption would be less than the deposit needed to buy the same property these days.

    And with interest rates so low, why even bother to redeem it? I suspect those with Interest rate only mortgages will just extend the term. That's what I plan to do rather than paying what's left off with my savings.

    I don't see any problem in never paying off the mortgage. When you die, it will probably help to reduce the estate down to less than the IHT thresholds. I don't think the banks have any real issue either if the repayments can be maintained until death.

  13. Now everyone has bought into property for investment it looks like it is ripe for a collapse. It is mad that for small yields and the possibility of a crash, this much money is in one asset class. For some it may be their only pension. The article also mentions most BTL is interest only. And no plans to pay CGT. Plus few know what their yield is. Mugs.

    http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10864340/1250bn-and-rising-how-buy-to-let-isovertaking-pensions.html

    Andrew Merricks of Skerritts Chartered Financial Planners said: In 2006 and 2007 everyone was buying property and talking about it and then it went completely silent after the credit crunch. Now it is back on the agenda. But I believe this housing recovery is a false dawn.

    If there is an asset class that is sensitive to an increase in interest rates, along with bonds, it is property, he said. Residential property is a very expensive way to get not a lot of yield. It costs a great deal to own and the risks are hugely underestimated.

    Paul Taylor of chartered planners McCarthy Taylor said: The view we give clients has remained consistent. Property is a useful part of a portfolio but it is illiquid and expensive to maintain, buy and sell. It shouldnt be a major part of a portfolio and over time we expect shares to do better.

  14. Taxes create unintended consequences in markets. Moving Stamp Duty to the seller would simply increase the value of houses to enable the seller to cover the cost. This would then mean that Stamp Duty would become part of a buyer's mortgage, and once you are able to borrow for Stamp Duty payments there will be a race to lend and prices will go up. At least in the present system, house buyers need to have saved the stamp duty in cash to stop another credit binge.

    It effectively gets added to the mortgage anyway. 100% plus loans are effectively the property price plus the duty. With LTV of less than 100% it just means a smaller deposit.

  15. The simplest change would be to scrap stamp duty and put CGT on all houses sold not just investment properties.

    That would pretty much get rid of all supply and stop downsizing. If I had to pay 40% of the profit on the house since 2001, I would never sell. For those who had lived somewhere for forty or fifty years it would near enough be the whole value of the house. If anything it would encourage flipping. I would sell to my neighbour and vice versa every year.

  16. Anyone who can stump up £530k+ for the "average" London house deserves to be bled dry. Stamp duty should be trebled.

    It's less than the price of a 3 bed terrace in my cheaper part of London. I think young families pay enough without been bled dry. The stamp duty due on my place has gone up tenfold since 2001.

  17. Replace ALL taxes (including BBC licence fee) by Land Value Tax.

    Mostly agree. Should definitely replace stamp duty and council tax. However if it were the only tax, would mean only land owners pay. Everyone should have something at stake if only to give them a reason to vote.

    Don't think making sellers pay stamp duty helps anything. For older people wanting to downsize it is disincentive enough to pay all the costs without adding to them. A land value tax that is paid year after year is more likely to create supply.

  18. The banks have recapitalised and they're not making as much money lending relatively small numbers of large mortgages as they could be making lending large numbers of small ones, so they will actually want a house price crash at some point.

    Major was sensible enough to let the market crash in the 90s, after all the props we've seen to keep the bubble inflating this time around I expect the bang when it finally comes to be bigger, deeper and longer.

    i) Mortgage lending is at a high http://www.expressandstar.com/business/uk-money/2014/05/21/mortgage-lending-at-six-year-high-2/ But I'm sure banks would be happier with higher rates on smaller sum as it would be more profitable

    ii) By the time Major took charge, housing had already crashed. And he wasn't so keen on getting out of the ERM.

    I don't know if and when a crash will occur. It seems like a decade that people have been talking about a crash and I think the lack of supply and increased population is more likely to lead to a flat market than a outright crash.

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