Repayment Options
ISA mortgages
| Organising your ISA | Advantages
| Disadvantages
Organising Your ISA
An ISA is not an investment itself, but a wrapper in which
other investments can be held tax -free. The returns on
these investments are free of income tax and capital gains
tax but there are limits to how much money you can pay in
each tax year.
The maximum total investment each year in an ISA is £7000
per person, with no lifetime limit on the total amount that
can be invested. Each year, this money can be comprised
of different elements, stocks and shares, cash or life insurance
as set out below:
Maxi ISA - A Maxi ISA has an annual limit of £7000.
This can be all stocks and shares or it can be a combination
of the different elements, all held under one umbrella.
The maximum contribution of cash is £3000 and the maximum
contribution of life insurance is £1000
Mini ISA - Mini ISAs are essentially the component
parts of a Maxi ISA in isolation, with the main difference
being that the maximum value of a stocks and shares Mini
ISA is £3000. You can have up to one of each different type
of Mini ISA and the maximum you can invest in a Mini Cash
or Mini Life ISA is £3000 and £1000 respectively. The advantage
of a Mini ISA over a Maxi ISA is that you can have different
providers for each element, thereby allowing you to choose
providers that specialise in one particular element.
The different components are life insurance, cash, stocks
and shares:
Life insurance - The life insurance element is invested
in life insurance-linked investment products such as life-company
with-profit bonds. Plans must be single premium contracts
that can accept a single lump sum deposit.
Cash - Cash can be held on deposit, for instance
in a normal savings account or a money market unit trust
that pools investors' money and spreads it across a range
of deposits on the wholesale money markets. Cash ISAs are
available through banks, building societies and even the
post office.
Stocks and shares - This ISA element allows you
to invest in a wide range of holdings. They are most suitable
for medium to long term investors who are looking for capital
growth, higher tax free income or a combination of the two.
You can invest in ordinary shares, preference shares, convertible
shares, corporate bonds, UK governance gilts and managed
collective funds (such unit trusts, OEICS, investment trusts
and offshore funds) in any registered stock market in the
world. This is the most popular type of ISA investment.
With all this in mind, there are two ways in which you
can organise an ISA repayment vehicle - either create a
personal portfolio of ISA investments or choose an existing
ISA mortgage package, which comes with an in-built mechanism
to monitor performance.
The latter option used to be quite popular, but the volatility
of the stock markets has led to far fewer people taking
up interest only mortgages in general, with a knock-on effect
on the popularity of the ISA mortgages. So much so that
the volume of business that most lenders were completing
in the fairly niche market of ISA-linked mortgages has been
insufficient for most of them to maintain their ISA mortgage
products.
You will therefore have to choose your own ISA products
and either invest in funds or purchase investment products
to be held within the ISA wrapper. This is quite a difficult
task and is something that even highly paid professional
investors don't always get right. You are well advised to
think seriously about whether or not you want to take on
what is a substantial risk and should probably seek out
independent financial advice unless you are certain that
it is the route you would like to go down.
