The Truth about ISA Mortgages

PFSHB

If a person using an ISA to repay their Mortgage was to become Unemployed or off work due to Sickness or Accident they would NOT be entitled to Means Tested State Benefits if the value of the ISA was over £16,000. The reason for this is the DWP treat the ISA as Accessible Savings.

The FSA being the Governments financial watchdog listed Endowments, ISAs and Pensions as suitable methods of repaying an interest only mortgage but made no mention of the DWP rules regarding ISAs. Most Endowments and Pensions used for Mortgage repayment are unaffected as they are not deemed to be accessible Savings.

There could be in excess of 500.000 ISA Mortgages in existence.

Do you think the people using ISAs to repay their mortgage should be made aware of the facts ?

ie: they may have to use the funds they have accumulated to repay the Mortgage to support themselves.

The ideal solution would be to treat ISAs used for Mortgage repayment the same as Endowments and Pensions.

If you agree, then please go to the Prime Ministers Website :-

http://petitions.pm.gov.uk/ISA-Mortgage

and endorse this petition.

Thank you.

Paul_Herring

So you've joined up just to spam this petition?

homer_j_3

Unbelievable isn't it.

You have over 16k sat in the bank and you still want the tax payer to foot the bills for you. You must be having a laugh.

The risks of taking a mortgage on interest only is that you may not have the money at the end of the term - never assume its down to just poor investment returns.

There is protection out there to cover against people being off work and I am guessing you thought - no need for it, never happen to me and either my savings will help or the government will.

Big underestimation in what you think benefits are for me thinks and you should get your hand in your ISA and not attempt to freeload on the government.

silvercar

At least with an ISA mortgage you have some savings, many people on interest only mortgages have no savings and no means of clearing the overdraft at term.

ISa mortgages are no different from someone saving up to repay their mortgage in any other way. Those with offset savings accounts would be expected to use this money to live off.

Means tested benefits are designed as a safety net to prevent poverty, not to allow people to buy their own homes out of taxpayer's money.

PFSHB

It looks like the point I have raised is being missed.

I am not suggesting that people with Savings should be supported by Taxpayers.

What I am trying to convey is that people are NOT MADE AWARE of the all the facts when deciding on either a Repayment, or an Endowment, ISA or Pension Mortgage.

The Financial Industry together with the FSA has promoted the use of ISAs together with Endowments and Pensions for the repayment of Interest Only Mortgages. A “Google” search for ISA Mortgages proves that.

It is not the fault of the Mortgage Broker for not telling you about it because most of them are unaware of the DWP Rules.

This does not normally affect the person who is off work for a couple of months due to Illness or Accident as they would probably have a Mortgage Protection Policy, but the long term disabled due to a serious Accident or Illness lasting years not months.

I think, that to be able to make an informed decision you should know ALL the facts, not just some of them. After all, that’s what the FSA was supposed to do.

dunstonh

The Financial Industry together with the FSA has promoted the use of ISAs together with Endowments and Pensions for the repayment of Interest Only Mortgages. A “Google” search for ISA Mortgages proves that.

The FSA doenst promote anything. If the industry itself had moved to PEPs and ISAs earlier than maybe investment linked mortgages would still be a popular option and not the minority option it is today.

It is not the fault of the Mortgage Broker for not telling you about it because most of them are unaware of the DWP Rules.

Its not the fault of the mortgage broker because ISAs fall under investment classification and not mortgage classification. You need to hold an investment licence to recommend a stocks and shares ISA.

This does not normally affect the person who is off work for a couple of months due to Illness or Accident as they would probably have a Mortgage Protection Policy, but the long term disabled due to a serious Accident or Illness lasting years not months.

These would be the ones that didnt take out permanent health insurance then. ISAs are cheaper than endowments. So, maybe some of that money saved could have been used to protect their income correctly?

I think, that to be able to make an informed decision you should know ALL the facts, not just some of them.

Endowments are not left off the means test because they are linked to mortgages. They are left off because they contain life assurance. Even single premium investment bonds are left off the means test.

It should be noted as well that investment advisers are not allowed to recommend investments on the basis of being able to obtain benefits or not (some exceptions to that do exist. The Govt has a few double standards there which are still under review). Given the choice of endowment or ISA and all other things being equal, a sale of an endowment before the ISA would be a mis-sale.

toonfish

dunstonh wrote: »

Endowments are not left off the means test because they are linked to mortgages. They are left off because they contain life assurance. Even single premium investment bonds are left off the means test.

This would appear to be at the discretion of whoever assesses the application, according to my recent experience

Dan_Collins_2

If the isa is for you mortgage or to save for a new boat, if its over 16k then yeah, but thats life, so tough!

WHy would you use an ISA for that anyway, as soon as the govenment changes you will have an old product that no longer exists!

dunstonh

This would appear to be at the discretion of whoever assesses the application, according to my recent experience

There is published information of when to and when not to include it. However, the problem there seems to be a lack of knowledge from the one doing the means test as to whether they should include it or not. It has to be segmented have a certain amount of life assurance and not be seen to be have been done to obtain benefits.

PFSHB

A hypothetical question for consideration :-

In 1985, 3 Men Peter, Gordon & William all aged 38 formed a small Computer Data Company, it did well and in 1986 they all decided to buy a House each with a £100,000 Interest Only Mortgage.

Peter chose a “Pension Mortgage” to age 70 together with Pension Term Insurance to repay his Mortgage.

Gordon went for a 25 year Low Cost Endowment Mortgage. However, due to a potential “shortfall” on the maturity value of his Endowment Policy, Gordon, looked at “Money made Clear” on the FSA Website and took the advice given on “Ways to make up a Shortfall” and put money into a Stocks and Shares ISA so that together with the maturity value of his Endowment Policy, he should have sufficient funds to pay off his mortgage.

Due to a previous Heart Attack, William could not get an Endowment policy so he went for a 25 year PEP/ISA Mortgage. He already had a 30 year Level Term Insurance policy for £150,000 which he had taken prior to having his Heart Attack.

In April 2007 their largest Account went into liquidation owing them in excess of £50,000 which in turn brought their Company down and they too went into Liquidation.

All 3 now aged 61 plus found themselves unemployed, they had taken the precaution of a Sickness Accident and Unemployment Insurance policy which had paid their Mortgage and other bills for 12 months but it was now coming to an end.

As their were no job offers for any of them they asked for some assistance in the form of State Benefits, were any of them entitled to any help ?

Dan_Collins_2

You are very brave if you are using an ISA as a mortgage repayment vehicle, more so if you have a large mortgage and its a cash ISA.

If this Government gets voted out a new toy will be put in place just as ISA's replaced TESSA's!