Borrowers with a decent amount of equity in their homes should be wary of jumping into headline-grabbing short-term fixes, says Anna Mikhailova in The Sunday Times. That’s because there may be a nasty arrangement fee plus other set-up costs lurking behind the eye-catching rate.
For example, Chelsea Building Society’s 1.74% two-year fix, available to those with at least 40% equity, comes with a £1,999 fee payable upfront. According to broker London & Country, someone borrowing £150,000 on the Chelsea deal and renewing at the same rate in two years’ time (assuming that’s even possible) will pay £600 more over five years than someone who takes the best five-year fix from Yorkshire Building Society (a 2.64% rate with a £1,625 fee).
A longer fix also reduces the chance of you ending up stuck on a lender’s standard variable rate (SVR) when the shorter deal ends – at Chelsea, for example, the SVR is currently 5.79%.
• Annuity providers are making huge profits at your expense, warns Richard Evans in The Sunday Telegraph. Standard Life, the only firm to disclose its profit margins on annuities, makes 18.6%. “There are good reasons to think that other insurers make more,” says Evans.
This means pension savers get clobbered for charges while they are building up a retirement pot, and hit again when they turn it into an income stream (an annuity) on retirement.
The key to not being ripped off is, as ever, to shop around. You don’t have to accept the annuity quote from your provider – you are entitled to get other quotes. The problem is that some providers still won’t provide one if you have not saved with them, an issue the regulator must address soon.
• Interest-only mortgages have been described as a “ticking timebomb”, notes Julian Knight in The Independent. In 2006, just before the financial crisis, one in three mortgages was set up this way – so the mortgagee only pays interest on the loan, and uses a separate repayment vehicle to cover the capital owed. “We are now seeing the fallout,” says Knight. “The expected capital growth has not materialised, so many are left with the full value of their loans to repay.”
Options include moving to a capital repayment mortgage, downsizing or even using a tax-free pension lump sum. The estimated 60,000 mortgage holders who currently have no plan at all risk losing their homes.
• Some older people and their families are paying for long-term care when they already have insurance to cover the costs, says Jeff Prestridge on Thisismoney.co.uk. The reason, says Symponia, a network for care fee advisers, is that many people forget about pre-funded policies that they may have bought decades ago. They could end up paying an average care bill of £700 a week when they should be paying far less.
It is estimated that around 44,000 such policies were bought in the 1980s and 1990s. An elderly person with dementia may not be aware of this type of plan. It’s yet another reason for children and those with power of attorney to get up to speed on what cover elderly relatives have in place as early as possible.