31 and no pension

Rachel85

My partner is 31 and owns his own business which as been established for around 5 years. His current salary is around £38k. However, he has no pension fund at all.

I am 21 and don't work as I am a full time degree student, however I graduate this summer and then will be able to work. Whilst I don't want to speculate on how much I could earn, I think a realistic estimate of our joint income by the start of next year will be around £55k.

My partner owns his house, worth around £130k with a mortgage of £65k. He has a car loan paid for by a car allowance thus avoiding company car tax. I have a student loan of around £9k but no other student debts. Neither of us have credit card debts.

Now for the pension: Obviously, he needs a pension and fast as he is already 10 years behind. One option we have looked into is buying a property to rent out. We have identified an area where we could buy a property for around £140k, with the rental income covering the mortgage, possibly with a little left over to cover fees and expenses, but no real profit. However, obviously 25 years later the mortgage will be paid off and the house could either be sold and the money invested again, or kept and the money used to live off.

However, we would need a deposit of £35k for the buy to let house, which we don't have, so we'd need to take it out of our current property. This would mean that our own mortgage repayments would be higher, probably by around £200-250 per month. This is what my partner doesn't like. I think he wants to be making money now, not spending it, whereas I see it as an investment for the future. At the end of the day, he does need to spend money on a pension as soon as possible, and £250 per month doesn't actually seem like very much.

What I am basically wondering is.. firstly are there any tax incentives to investing in a property to act as a pension fund, or has that loophole now been closed? (The house would be in the UK)

Secondly - I am very keen to move house as soon as I start working. We are looking at places around £200k. We would only take £30k equity from the current house, plus £10k I have, plus hopefully by the time we move another £10k in savings, so £50k in total. Would any lender allow us to have a mortgage of £150k on a joint income of £55k(ish)? It seems like a lot of money to me. This would be in addition to the buy to let mortgage as well. If its going to jepordise our own move I'm not sure its such a good idea!

Any help anyone can give would be very much appreciated!

Thanks

EdInvestor

Speaking as a property investor, I would say that now is not the time to invest in a BTL, as yields ( ie rental income) are too low, and likely capital gains are quite uncertain in the medium term.

Nor would I suggest it is sensible to put all eggs in one residential property basket.

Equities ( shares) are a much better asset class to look at for the moment IMHO - no tax wrapper is necessary at the start, though it is good to use the 7k ISA allowance as it's very helpful when you're actually retired.

Paying off the mortgage on the home also gives a guaranteed return higher than cash savings and of course is tax free.

dunstonh

We have identified an area where we could buy a property for around £140k, with the rental income covering the mortgage, possibly with a little left over to cover fees and expenses, but no real profit

So, over 25 years, you will pay around £320,000 for a property worth 140k now that will probably be worth around £320,000 in 25 years time. Not really a good investment now.

Buy to lets now have missed the boat for the short term and probably carry more short term risk than medium/high risk stockmarket investments. 5-6 years ago was the time to do buy to let. Now its too late.

What I am basically wondering is.. firstly are there any tax incentives to investing in a property to act as a pension fund, or has that loophole now been closed? (The house would be in the UK)

There are no tax incentives with residential property although there are with commercial property. The "loophole" never existed and closed before it would have started.

Would any lender allow us to have a mortgage of £150k on a joint income of £55k(ish)?

4x joint income (minus existing lending commitments) is easily possible. With a buy to let mortgage, the lending criteria would be harder although still potentially possible. Especially if the two transactions are close to each other. i.e. you havent had long with the buy to let to prove you can afford it.

cheggers

I'd tell him to open a pension ASAP, even if he only puts £100 a month into at 1st. Then take him down the jewellers next for a engagement ring!

mindyourlanguage

I'm in a similar postion too. This is my case;

I'm 30 and have had a pension for 5 years with my previous employer.

I have just bought a business and borrowed £25k from my house, my new mortgage on the house is now £85k over 14 years with payment of £650.

I will be putting my home on rent which will bring me a income of £500, I am living at the business property as their is living accomadation too.

I will be paying of the extra loan first (£25K) then start to pay lump sums on the mortgage and plan on paying it off in 7 years from the business.

The business will generate around £30K after all expenses including tax are paid and my wife will be working else where she earns £15K after tax.

My wife has a good pension from the NHS so that leaves me, I was thinking of using the income from the rental as a pension and topping up a tessa every year.

Does this sound about right?

Thanks

EdInvestor

I was thinking of using the income from the rental as a pension[/quite]

You'll get a better return if you use it to reduce the mortgage, especially the new borrowing.

and topping up a tessa every year.

Unless you've already got a Tessa, an ISA is probably what you need

Rich_T_2

If he has his own business im guessing he will be self-employed. Therefore, he would of been paying his N.I contribtions allowing him a state pension.

Im only 19 and have recently set-up my own business therefore registering as self employed. The N.I contributions are minimal.

Are you talking about a 'second' pension?

Rich

dunstonh

Another point is to stop looking at it as needing a pension but more as planning for retirement. Pensions are not the only option. They are a key consideration but a combination of options can often be best to get what you need in retirement.

Chrismaths

Refreshing to see an IFA say this. Far too many have pushed pensions as the only way to save for retirement (esp Turner).

EdInvestor

Indeed so.

And this is also an excellent point:

Im only 19 and have recently set-up my own business therefore registering as self employed. The N.I contributions are minimal.

Are you talking about a 'second' pension?

Self employed NI conts for the basic state pension (which would cost a man aged 65 about 80-90k to buy on the market these days) are about 8 quid a month,which is one of the great bargains in the saving world, definitely not to be missed. You can catch up 6 back years, well worth doing.

Rachel85

Thanks for everyone's comments on this one - definately more detailed thought needed.

Normally, I wouldn't even consider a BTL investment now as the boat has been missed by around 5 years. However, we have identified an area that, I feel, could still present an opportunity, perhaps not in the short term but in the long term, quite possibly.

All that I know for certain is that he needs a pension as, I believe, all you can be certain of is that noone will look after you in old age except yourself! Okay, so I would look after him, but what if I get run over by a bus tomorrow?

Thanks again!