A guarantor might be considered when the borrower’s financial position does not fully satisfy a mortgage provider’s lending criteria.  Where this is the case, the lender may consider taking a personal guarantee to support the mortgage.

The guarantor is not a party to the mortgage but some lenders may ask the guarantor to sign the mortgage deed.

A guarantor enters into a separate contract to undertake to repay the mortgage if the borrower fails to do so.  Because the guarantor is entering into a collateral contract and is not a party to the mortgage transaction itself, there are no provisions in the Mortgage Conduct of Business rules relating to personal guarantees.

Types of Guarantee

There are two types of mortgage guarantee:

Supported Mortgage Guarantee

A supported mortgage guarantee requires an individual to offer security to the lender.  This type of guarantee is known as a surety.

Unsupported Mortgage Guarantee

An unsupported mortgage guarantee merely requires an individual to provide a promise to the lender to pay; no security is needed.

Directors’ Guarantees

Lenders may often require guarantees from directors when loans are made to limited companies.  The reason for this is that limited companies are considered to be a separate legal entity to the directors and, if the company is unable to meet its obligations, the lender can therefore rely on the personal guarantee of the director/s.

Legal Advice

It is prudent for prospective guarantors to seek independent legal advice before committing themselves to a personal guarantee because they have undertaken to commit collateral into a contract – but they are not a party to the mortgage transaction itself.

Equity Of Redemption

Equity Of Redemption

The term ‘equity of redemption’ is an important right for anyone who takes out a loan.

What does Equity Of Redemption mean?

Equity Of Redemption confers the legal to redeem mortgage loan at any time, irrespective of any clauses contained in the contract that might say otherwise. This right applies to anyone with a mortgage or any other type of loan, and has been confirmed by common law.

Why is this right important?

Equity Of Redemption is important to anyone with a mortgage because the majority of mortgages are paid off before the end of the term; homeowners often move home to a larger house and need another mortgage, or downsize to a smaller house whereby they can pay off their mortgage.  These activities may take place several times in a person’s life.

Mortgage Redemption Conditions

Mortgage products have become increasingly sophisticated and complex in order to satisfy the ever-changing requirements of the mortgage marketplace and, just as the borrower has a right to repay at any time, the lender also has a right to impose reasonable fees and charges. It is therefore common for lenders to include conditions of redemption in their mortgage deeds such as early repayment charges (which are a feature of in fixed interest rate products)

The Mortgages and Home Finance: Conduct of Business sourcebook rules require lenders to be clear about any fees and charges that may be imposed by including them in the key features illustration for all types of regulated mortgage contract.  It is incumbent on lenders to ensure that prospective customers are clearly alerted to any potential charges.

Were a lender to include a condition in the mortgage that would make early repayment difficult, this condition would be disregarded in a court of law as it would be construed as an act to prevent equity of redemption.

How You Can Enhance Your Pension Income

Enhance Your Pension Income

If you are soon to retire, you will probably have been giving quite a lot of thought to your finances, and how you will be able to fund your retirement.

Most people tend to rely on a combination of the state pension and a company or private pension to provide for their needs.  Since the Government changed legislation in 2015, you can choose to use your pension in whatever way you like, and you do not need to purchase an annuity.

Research has shown that the average pension pot is around £50,000.  This might sound like a lot of money but life expectancy is increasing and you might find that you are in retirement for more than twenty years – in which case, £50,000 amounts to around £2,000 a year!  With the state pension of £154 per week (as of April 2016), you are unlikely to be having a luxurious retirement.

Enhance Your Pension Income

There are some options available to you to your enhance pension income.  The obvious step is to work in a job with a good pension and, with the introduction of auto-enrolment for all eligible employees in the UK, this might something that many people have in the future.  But, if you do not have a good pensions, here are some other possible options available to you:

Rental Income From A House

The booming property market has led to many people being interested in buying a house to let out with the prospect of enjoying income from the rent together with capital growth on the property. This can be a profitable exercise if you have enough money to be able to invest into a residential property.  However, there are some drawbacks:

  • Your house needs to be occupied by a tenant in order to generate income: if there are periods when you don’t have a tenant, you will have no income.
  • You need to consider the effect of professional charges against from letting agents, solicitors, estate agents, etc.
  • You will be responsible for maintaining the property to a good standard.
  • When you sell your home, you will be liable for capital gains tax on the profits, over and above your annual CGT allowance.
  • The Government has reduced tax benefits on buy-to-let homes and there may be more changes in the future.

Rental Income From Your Own House

If you have a house with a spare room, you could rent it out under the ‘Rent-A-Room’ scheme which allows you up to £7,500 of untaxed income each year for letting out your home in this way.

Dividend Income

You could use your money to buy stocks that provide a good dividend payment each year.   You will be able to use the dividends as a form of income and you might be able to benefit from the rise in share prices when you sell at a later date.  You will need to undertake a lot of research, or employ the services of a stockbroker.

Part Time Job

Many retired people choose to continue working in their current role, or something entirely different, in order to keep some income coming in.  Not only are there financial benefits to working part time but research has shown that being active in retirement leads to better mental and physical health.

Downsize Your Home

You could consider moving from your home to a smaller one, or to another location where house prices are cheaper.  You will need to take into account the price of selling your home, and the associated fees from estate agents and solicitors, in order to make sure the exercise is worthwhile.  There are also costs involved with purchasing another home such as stamp duty.

Equity Release

Another option is to consider taking out an equity release plan to enhance your pension income.   This enables you to stay living in your current house and whilst making use of some of the money that is tied up in it.   You should consult with the beneficiaries of your estate before you commit to any equity release scheme because using the capital in your house might mean that there will be nothing to pass on when you die.

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