Reply to: First Direct Mortgage Interviews

[TheCyclingProgrammer]

I'm not sure where you get the 15k figure from, essentially there is not limit.

The £15k limit is the point at which the "30 day rule" for bed and breakfasting is ignored and the "intentions and arrangements" rule kicks in.

Director's Loans and Bed and Breakfasting

Essentially, if your loan is more than £15k, you won't get away with repaying it before 9 months, waiting 30 days, then taking another loan. If challenged, it would very likely fall foul of the "intentions and arrangements" rule and you would face a CT charge.

If you keep the loan below £15k, then you can repay before 9 months, wait 31 days, then take the loan out again without any consequences.

essentially the Bed & Breakfast rules apply to share disposals, rather than director's loan accounts.

No, they definitely apply to director's loans, see above link.

[Freelancer Financials]

All the above is correct, but as AMH says, you can repay the loan before the s455 CT charge kicks in after the 21 months then take another loan.

The only catch is that to avoid being caught by bed and breakfasting rules, there needs to be at least 30 days between repaying the loan and taking another one.

You also need to make sure the loan doesn't exceed £15k otherwise the 30 day rule is effectively ignored and HMRC can challenge it if they feel it was a continuation of a previous loan regardless of the gap.

I'm not sure where you get the 15k figure from, essentially there is not limit.

I agree reprocessing another loan within a short period of time after the repayment of the original loan runs the risk of triggering the recently introduced HMRC anti-avoidance rules. essentially the Bed & Breakfast rules apply to share disposals, rather than director's loan accounts. But it forms a good guide. 31 days is the bare minimal.

Any new loans advanced ought to be seen as a genuine new loan and therefore it would be sensible for the amount to differ from the original.

[TheCyclingProgrammer]

All the above is correct, but as AMH says, you can repay the loan before the s455 CT charge kicks in after the 21 months then take another loan.

The only catch is that to avoid being caught by bed and breakfasting rules, there needs to be at least 30 days between repaying the loan and taking another one.

You also need to make sure the loan doesn't exceed £15k otherwise the 30 day rule is effectively ignored and HMRC can challenge it if they feel it was a continuation of a previous loan regardless of the gap.

[Freelancer Financials]

Directors Loans and Offset Mortgages

one thing I was tempted by the offset was the directors loan & emptying it into my offset for 9 months, before moving it back for 31 days & back in again.
Was even thinking of empytying my credit cards with the 0% 12 month on cash withdrawal.
Worked out I could have reduced my mortgage by 30-40% for at least 9 months every year.

Any director can take out an interest free loan up to £10k and this will not be caught by the benefit in kind rules. What this means is that you won’t have to pay any tax on the notional interest that would have been charged if it was a commercial loan. However, there is no limit to the loan a director can take providing that he pays his company interest on the loan at the official rate of interest as published by the HMRC. This interest rate is currently 3.5%. The company pays corporation tax at 20% of the interest rate (3.5%) which equates to a charge of 0.7% of the loan amount. This represents an obvious arbitrage opportunity because most people will be paying more than 0.7% interest on their offset mortgage.

However there is a snag! The director’s loan must be repaid within 9-months of the company’s accounting year end date otherwise the company will incur a corporation tax charge equal to 25% on the outstanding loan balance. This is the same amount of tax that would be payable if a higher rate tax payer declared a dividend equal to the directors loan balance. Somebody who takes out a director’s loan at the beginning of their company’s accounting period, for example, the 1st day of the accounting period, will have up to 21 months before that loan is paid back. In this period, they would make substantial savings on their mortgage payments.

[AMH]

I'm a great believer in Offset mortgage deals, but it also depends on the individuals requirements. for instance, if you don't have savings to offset your mortgage then NO. But if you do, then YES.

There are some very competitive offsets on the market at the moment. A number of lenders like Scottish Widows and Leeds offer the ability to offset with their standard products.

The best Offset mortgage rates at the moment are from Scottish Widows:

They are Fixed Rates with offsetting:

60% LTV - 1.79%
75% LTV - 2.29%
80% LTV - 2.49%
85% LTV - 2.89%

one thing I was tempted by the offset was the directors loan & emptying it into my offset for 9 months, before moving it back for 31 days & back in again.
Was even thinking of empytying my credit cards with the 0% 12 month on cash withdrawal.
Worked out I could have reduced my mortgage by 30-40% for at least 9 months every year.

[Freelancer Financials]

Quick question for the mortgage greats on this forum : Is it worth having an offset these days? or are the offset interest rates always much higher than standard repayment rates? Thanks

I'm a great believer in Offset mortgage deals, but it also depends on the individuals requirements. for instance, if you don't have savings to offset your mortgage then NO. But if you do, then YES.

There are some very competitive offsets on the market at the moment. A number of lenders like Scottish Widows and Leeds offer the ability to offset with their standard products.

The best Offset mortgage rates at the moment are from Scottish Widows:

They are Fixed Rates with offsetting:

60% LTV - 1.79%
75% LTV - 2.29%
80% LTV - 2.49%
85% LTV - 2.89%

[saptastic]

Hi Ben,

They're a lot rarer than the 'defined period' deals, which was my point, which you've sort of shown by the fact that very few lenders offer lifetime products any more.

Hope you're well?

Regards

Mark

I like the way you tried to rescue yourself Mark
And then diverted to Ben's well being. Smooth.

[Mark McBurney@CMME]

Not strictly true there Mark...

For starters the post by AMH was referring to either First Direct or HSBC both of which I am pretty sure do (and have for a long time) offer lifetime tracker rates.

Woolwich, Abbey and Hinkley & Rugby are also lenders who do currently (and have done for a long time) offer lifetime tracker mortgages.

Granted there are more 2 - 5 year tracker rates out there than lifetime tracker rates but they are not as rare as you are making them out to be.

Hi Ben,

They're a lot rarer than the 'defined period' deals, which was my point, which you've sort of shown by the fact that very few lenders offer lifetime products any more.

Hope you're well?

Regards

Mark

[alphadog]

Yup, lifetime tracker to BoE base rate.
Mortgage Rates | Compare Mortgages | first direct

there is also one with a slightly higher interest rate, but no fee's.

Coventry building society as well, although their lifetime rate is a rate of their own choosing and not linked to the BoE's base rate.

I went through a broker for our mortgage. No broker fee (same total cost to us as if we went direct), so it was well worth it as he knew all the ins and outs.

A few months back I applied for an hsbc premier account, having had a regular current account with them for more than 10 years. They gave me the 3rd degree in an extraordinarily detailed phone call, over 45 mins long. At the end of it I was exhausted and the experience certainly put me off ever applying directly with them for a mortgage, particularly as a freelancer.

[eek]

Used a broker, I think I spent a grand total of 1 hour to complete the forms and send all the requested documents. No interview. With all the new directives there's no way I would NOT use a broker in future, it costs a bit but is well worth it.

ftfy to make sense....

[sirja]

Used a broker, I think I spent a grand total of 1 hour to complete the forms and send all the requested documents. No interview. With all the new directives there's no way I would use a broker in future, it costs a bit but is well worth it.

[AMH]

Not strictly true there Mark...

For starters the post by AMH was referring to either First Direct or HSBC both of which I am pretty sure do (and have for a long time) offer lifetime tracker rates.

Woolwich, Abbey and Hinkley & Rugby are also lenders who do currently (and have done for a long time) offer lifetime tracker mortgages.

Granted there are more 2 - 5 year tracker rates out there than lifetime tracker rates but they are not as rare as you are making them out to be.

Yup, lifetime tracker to BoE base rate.
http://mortgages.firstdirect.com/mor...t--standard~81

there is also one with a slightly higher interest rate, but no fee's.

[Power Mortgages Ltd]

Worth pointing out that a tracker rate will be for an initial period of 2-5 years also, with the rate reverting to the same standard variable rate at the end.

Lifetime trackers are not presently available (you might find the odd one, if you're incredibly lucky, for a very short period of time) from anyone.

Not strictly true there Mark...

For starters the post by AMH was referring to either First Direct or HSBC both of which I am pretty sure do (and have for a long time) offer lifetime tracker rates.

Woolwich, Abbey and Hinkley & Rugby are also lenders who do currently (and have done for a long time) offer lifetime tracker mortgages.

Granted there are more 2 - 5 year tracker rates out there than lifetime tracker rates but they are not as rare as you are making them out to be.

[saptastic]

Last time I spoke with FD about a rate change they offered the opportunity for optional financial review which also provides some financial protection - I said no and the telephone call was all done in 20 mins.

Quick question for the mortgage greats on this forum : Is it worth having an offset these days? or are the offset interets rates always much higher than standard repayment rates? Thanks

[Mark McBurney@CMME]

this was for a tracker.

I looked at an offset, but I prefered yorkshire BS one + they seemed less stringent as well as allowing multiple saving pots. However, lasting only 2 years on the deal kinda put me off as it reverts back to a rate I am paying now.

At least with a tracker (1.49% above BoE BR) the rates could rise from .5% to 2% & I will still be paying less than I am now... Im licking my finger & sticking in the air to predict we won't see 2% for at least 3 years.

Worth pointing out that a tracker rate will be for an initial period of 2-5 years also, with the rate reverting to the same standard variable rate at the end.

Lifetime trackers are not presently available (you might find the odd one, if you're incredibly lucky, for a very short period of time) from anyone.