Building Societies or Banks

Required Reading


  


Building Societies or Banks


Now the major building societies who were prepared to lend on this basis included the Halifax, Bristol & West, National & Provincial, Woolwich, Alliance, Anglia, Britannia, Gateway and Cheltenham & Gloucester.

The rate of interest charged on these sorts of loan is generally higher than on a straightforward repayment mortgage. Most of the societies charge their endowment rate -that is, .25% to 0.5% above their 'base' rate. A few charge an extra 0.5% above that.

If you compare an endowment to a pension mortgage, two main factors stand out. The pension route is far more tax-efficient and offers better value because of this, but the figures involved are that much higher. Because of the rules on the amount that you can take as cash, compared to the amount you must take as pension, you must build up a total fund through the pension plan that is three to four times as high as the endowment result you're aiming for.

Table 18 shows an example of how this works. In the table it has been assumed that the borrower is aged 40 next birthday, a basic-rate taxpayer and taking out a mortgage of £125,000 over 25 years.

As you can see from the table, the monthly premium on the pension plan starts off at nearly one and three-quarter times the endowment premium (£172.99 gross compared to £143.25 gross). Because of the extra tax relief on the pension premium, however, the difference is whittled down so that the net figures are £151.10 compared to £136.76.


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More on UK Pension mortgages


Secondly, once your savings are inside the pension plan, they suffer neither income nor capital gains tax -again, a big advantage over ordinary endowment policies where the life company pays tax at up to 0.375 on the income from its investments.

Money.co.uk lists all of the best Pension Mortgages. See: http://www.money.co.uk/mortgages/pension-mortgages.htm

Pensions can therefore be seen as supremely tax-efficient savings plans which can provide you with a large cash sum at retirement. Building societies have now come to realise that they can therefore provide an excellent way of paying off a mortgage.

Before the societies accepted this, however, they had to come to terms with one less fortunate aspect of pension plans: they are not assignable. In other words, you can't give away, or sell, your . . .... see: More on UK Pension mortgages


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