Money: ISA mortgage fears
Sunday 07 December 1997
The pounds 50,000 limit caused consternation at the Paymaster-General's press conference, especially among financial journalists who have PEP mortgages. The Inland Revenue's assurance that existing PEP mortgages are far too new for the accumulated funds in the backing PEPs to have reached the threshold was not wholly reassuring.
Thanks to the surge in share prices over the last two years, some PEP plans taken out to repay mortgages may well be worth in excess of pounds 10,000 and could be significantly more by April 1999, given a continued rise in the stock market. They will have to be rolled into an ISA at their value at that time rather than the amount actually invested. Some PEP mortgage holders could find around a third or more of their lifetime ISA limit has been used up.
However Jim Willens, managing director of Nationwide Life, believes new mortgages under pounds 150,000 should not be affected by the Government's plan to replace PEPs and Tessas with ISAs.
The pounds 150,000 threshold is based on a rule of thumb that individuals can pay pounds 166.66 a month, or pounds 2,000 a year, into an ISA for 25 years before they reach the lifetime limit of pounds 50,000. Meanwhile, the investments should grow to around pounds 150,000 over the 25 years, using the financial services industry's current rules for projecting possible maturity values, which assume investments can grow by 9 per cent a year compound.
Keith Abercromby, head of products at Halifax Financial Services, reaches a rather more conservative figure of pounds 125,000 by reducing the assumed growth to 8.25 per cent to allow for the loss of corporation tax privileges in the last Budget, and to 7 per cent to allow for initial and management charges on the PEP.
Actual growth will depend on the skill of individual investment managers and the success of their selections, and also on the charges they levy over the life of the investment, which will reduce projected growth rates by 1 to 1.5 percentage points a year.
Only 3 per cent of existing PEP mortgages exceed pounds 150,000. Mortgage lenders will continue to offer PEP mortgages until April 1999 and will switch to ISA mortgages from then on.
But Robert Guy, technical director at independent financial advisers John Charcol, thinks ISA mortgages will be inadequate to fund the purchase of many family homes in London and the South-east.
If property prices continue to rise and successive Chancellors refuse to raise the pounds 50,000 threshold in line with house prices, more people will find ISA mortgages alone will not be enough to pay their mortgages in full. They may have to take out additional endowment policies or start paying off some capital as well as interest to be sure of clearing their mortgage when it falls due.
Pressure groups will argue strongly during the consultation period between now and the end of January that the lifetime limit of pounds 50,000 will be unfair on single home owners - especially single parents bringing up children - who will be limited to a single ISA. Married couples and others with joint mortgages will have more than one tax-free ISA limit to service a mortgage.
The ISA examined, back page
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...