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Certainty in uncertain times - Using mortgage facilities as an element of financial planning

After major central banks tightened their monetary policy last week in response to the global economic condition and soaring inflation, the UK raising the base rate by 0.25% to 1.25%, fears of a global downturn have intensified.  UK GDP is expected to fall by 0.3% in the second quarter of this year, inflation reached 9.1% in May, global financial markets have become more volatile, and UK annual house prices were up 10.5% (Halifax). Given this economic backdrop it’s no surprise that households across the UK may be looking for more certainty in an uncertain future.

In these volatile and uncertain times, good debt advice is essential for financial planning in a holistic view. Seeking the right advice from mortgage advisers and wealth managers could save borrowers thousands in interest and tax payments in the long run, and provide more clarity and added flexibility with financial outgoings.

Using interest-only mortgages for flexibility in monthly cash flow

While many borrowers are attracted to interest-only mortgages as a way to minimise monthly mortgage payments, they are also a great tool to add flexibility in monthly outgoings, in particular for those with varying incomes such as business owners or bonus earners. This extra flexibility is even more important nowadays in the current economic climate where cash flows are more likely to fluctuate.

A recent enquiry of ours was a controlling director of a business and had experienced significant turbulence in recent years over their business profits, with the latest year showing a significant increase in profits. They were looking to borrow £1.5m against a property value of £1.8m however, they were concerned about the current uncertain times and varying interest rates.

A full repayment mortgage on £1.5m would cost over £7,500 a month, whereas an interest-only and repayment mortgage would cost £5,200 each month in mortgage payments. The client then has the option to make overpayments of a further £2,300 per month approximately, meaning the debt would come down to the same basis as the full repayment mortgage. Adding the interest-only element to the mortgage meant the client had the additional benefit of flexibility in their cash flow and could choose to pay off parts of the loan principal as and when they desired.

The benefits of offset mortgages

Offset mortgages can be a great option in volatile times, for example for business owners who need quick access to cash in times of need. Borrowers can make their savings work harder by offsetting them against their mortgage, thus reducing the interest paid. The mortgage can be cleared more quickly and pay less interest in the long run, while retaining access to their savings in case of emergency.

Additionally, for those going through retirement planning, offset mortgages can remove any cash flows issues and allow there to be more control as to when assets are liquidised. The timings at which you liquidise your assets is very important and offset mortgages can reduce the risk of crystallising your cash at a point in time when stock markets and investments are down.

Certainty in uncertain times - Using mortgage facilities as an element of financial planning

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