Although he may not have realised it at the time, the Chancellor potentially gave interest-only mortgage borrowers a huge boost in the Budget. By enabling savers to access their entire pension at any time after the age of 55, subject to income tax at marginal rates, interest-only borrowers heading for retirement may decide to use their pension to pay off the capital on their mortgage, particularly if they have an underperforming annuity.
It is also possible that lenders look more favourably on a pension pot as a viable repayment strategy for an interest-only mortgage. We have had clients with large pension pots who have struggled to get the funding they need on an interest-only basis because lenders have not been prepared to accept the pension as a means of paying off the capital. But with more flexibility on the use of pension funds, banks may be prepared to revisit their criteria.
Many of our clients have mixed investment portfolios and strategies, with the pension pot just one aspect of these. They may have other investments that can be used to fund retirement, such as investment properties, or may consider investing in buy-to-let for the first time, using their pension funds, to provide a regular and steady income. The generous tax breaks that buy-to-let attracts, such as the ability to offset the mortgage interest, maintenance and management costs against rental income, would further boost the appeal of investment property. However, before any decisions are made it is essential to seek independent advice. Contact us for more information.