The return of Interest Only Mortgages?

MFW_ASAP

With the changes to pensions now allowing all of the contributions to be withdrawn with 25% tax free and the remainder taxed at your personal rate, do people think that this could signal a return to investment backed IO mortgages?

Instead of having a repayment mortgage, we could go interest only and invest the repayment portion into a pension. This is then uplifted by 20% via the tax rebate (plus a further 20% tax rebate for higher rate taxpayers) giving a much better return than a repayment mortgage would.

As a higher rate taxpayer, it's something I'm seriously considering, as every £100 I put away to pay my mortgage off, would actually just be a £60 contribution with the taxman contributing the remainder. Essentially the taxman is helping to pay off my mortgage.

Flaws?

Conrad

I doubt it because the FCA want institutions to feature falling mortgage balances and increasing capital adequacy.


Furthermore the FCA considers a pension ought to be solely to provide retirement income.


I've met these FCA busy bodies, they operate on an other worldly plain. I once had an assessment where I was asked to provide a copy of my bird flu action plan.


Nanny knows best.

michaels

I got an IO mortgage in October. Pension, ISA and BTL were not suitable repayment vehicles but instead I just had to nominate a postcode and type of property such that the property could be purchased using the current equity in my home and state 'downsizing' was my repayment vehicle....

Thrugelmir

The tax implications should not be underestimated nor the fact that the age at which a pension can be drawn is going to bwe increased. Firstly to 57 then in line with increase in the state pension age.

A 40% tax payer will only net £70k from a £100k pension pot.

grizzly1911

End all regulation and state underwriting of said institutions.

Leave the children in charge.

Watch the road crash.

"We have probably 15 to 20 Fed regulators in our building 24 hours a day … They test our models. They question everything we do. I've never been regulated like that before. It's a different environment. Someone said to me, 'What do you think of it?' I love it."
- Mack (Morgan Stanley) explaining his feelings about increased federal oversight at a Nov. 19, 2009, panel

CLAPTON

Thrugelmir wrote: »

A 40% tax payer will only net £70k from a £100k pension pot.

only if they choose to cash it all in the the first year and of course they have no tax allowance left

Conrad

michaels wrote: »

I got an IO mortgage in October. .

Was that with Virgin because as far as I know they were the only mainstream lender offering it, but since then have made the rules a lot tougher such that hardly anyone would qualify?

wotsthat

Thrugelmir wrote: »

A 40% tax payer will only net £70k from a £100k pension pot.

Only a fool would liquidate a £100k pension pot to pay off a £70k mortgage. Anyone planning to be paying 40% tax in retirement is either very wealthy or hasn't planned at all.

However, even with this worst case that's somewhat more efficient than paying £70k off the mortgage from earned income for a 40% taxpayer.

The pension changes do encourage people to seek IO mortgages especially those paying 40% tax. Getting 40% tax relief on contributions and paying off mortgages on income taxed at 20% makes absolute sense.

Thrugelmir

wotsthat wrote: »

Only a fool would liquidate a £100k pension pot to pay off a £70k mortgage.

I was answering the question in the context of using a pension to pay off a mortgage. Given the size of mortgages these days and the limit of 3 withdrawls the tax liability will be significant. As I took no account of other sources of income, these I assumed would utilise the tax free personal allowance.

CLAPTON

Thrugelmir wrote: »

I was answering the question in the context of using a pension to pay off a mortgage. Given the size of mortgages these days and the limit of 3 withdrawls the tax liability will be significant. As I took no account of other sources of income, these I assumed would utilise the tax free personal allowance.

what limit of three withdrawals?

MrRee_2

First Direct are still doing IO Mortgages .... I'm considering one at the moment.

And, you must factor in management charges on the Pension.