Loan vs. "line of credit" vs. motgage reserve account?

dunroving

I have a situation where I need what is described in the US as a "line of credit". Essentially, I need to "borrow" a gradually increasing amount which will reach £25,000 maximum over a period of about 12 months, and then will be paid off over the following 12 months, partly by regular payments and partly with lump sums.


This will allow me to maximise my pension contributions in the 2015-2016 tax year to 100% of earnings (I have sufficient carry-over allowance from 2011-2012 tax year). Following the 2015-2016 tax year I have no carry-over (will all be used up).


I could fund this via cash capital currently held in an ISA, but would rather not lose £25k in past ISA allowance/protection.


I could also fund this by drawing on some US pension investments, but this comes with a 10% penalty for early withdrawal (not yet 59.5 years of age).


The situation does not really suit a standard loan as far as I can see and based on quotes I've been given, because (a) the lowest interest rate I could get was 6.4%, and (b) I would immediately be paying interest and have to immediately start making payments, which doesn't make sense given the situation. I'd initially be paying interest on a loan amount that I don't need, if that makes sense.


I have an offset mortgage with Woolwich, that came with a mortgage reserve account. This would suit my needs exactly, but currently the "people on the phone" say that this is no longer available - but their Web site isn't exactly clear on this. I am due to go into Barclays to discuss my options, but so far the people who I spoke with on the phone just don't seem capable of digesting the nature of my needs (i.e., I don't "need a lump sum now", that I will pay off via income).


I currently owe £105k on the mortgage and the property is worth £160k.


Can anyone suggest some creative way of getting around this? Or anyone have recent experience with the Woolwich mortgage reserve facility?

CLAPTON

why not use the ISA money as it can be rebuilt so easily now the there is 15k per annum allowance

dunroving

CLAPTON wrote: »

why not use the ISA money as it can be rebuilt so easily now the there is 15k per annum allowance

I've learned not to assume governments can resist the urge to keep tinkering.


Who knows what will happen with ISA and pension rules ...?


Also, I am hoping before I retire to actually add to my current ISA holdings. During the 2 years or so I will be needing the "loan" to pay into SIPPS, I obviously won't be paying into ISAs so it won't be until about 2018 I'll be ready to do so again, at which point I am hoping to have more than the annual allowance to pay in. So rather than using two years' ISA allowance to catch up what I gave up, I want to be adding to my ISA holdings.


If you can't tell, I'm a late bloomer - trying to put everything into tax-efficient investments over about a 10-year period before I retire, so giving up currently existing tax protection isn't an option at the moment (may become the last option, though).

CLAPTON

dunroving wrote: »

I've learned not to assume governments can resist the urge to keep tinkering.


Who knows what will happen with ISA and pension rules ...?


Also, I am hoping before I retire to actually add to my current ISA holdings. During the 2 years or so I will be needing the "loan" to pay into SIPPS, I obviously won't be paying into ISAs so it won't be until about 2018 I'll be ready to do so again, at which point I am hoping to have more than the annual allowance to pay in. So rather than using two years' ISA allowance to catch up what I gave up, I want to be adding to my ISA holdings.


If you can't tell, I'm a late bloomer - trying to put everything into tax-efficient investments over about a 10-year period before I retire, so giving up currently existing tax protection isn't an option at the moment (may become the last option, though).

what interest rate are you getting on your current ISA?

dunroving

CLAPTON wrote: »

what interest rate are you getting on your current ISA?

I *think* it is something over 2%, Yorkshire Building Society 12-month fix. It ends in September at which point I was planning to either find a similar deal or put into my S&S ISA. Because my retirement timeframe is short (3.5 years), I need to be careful of putting too much in equities rather than cash. I'd rather leave the ISA in cash, and use the line of credit to fund conservative SIPP holdings that have 3 years to smooth losses/gains.


Are you thinking in terms of the bigger gain from a SIPP offsetting what I'd be giving up with the ISA? I had thought about this and it is probably worth the trade-off, especially as this allows me to maximise to 100% earnings, which gives the unbelievable "freeby" on the final £10k.


If it comes to it (if lending options are just too clunky - or expensive) - I will likely use the ISA. The Woolwich mortgage reserve would have given me a line of credit at just 1.09%, which is worth it for a short-term credit line. As it would only be maxed for the middle portion of the 2-year period, I guesstimated this would only cost abut £250-£300 in interest ... I am getting different answers from Woolwich and Barclays as to whether my existing mortgage reserve account is still viable (new Woolwich mortgages don't come with a reserve account).