Mortgage based on annual pension draw downs?

Coffee_Bloke

Hi all,

Have had a browse but can't find any similar threads - apologies if I've missed something or this belongs somewhere else etc.

I'm trying to seek some opinions on the options available to my mum for getting a mortgage given her circumstances which are explained below. Thanks in advance to anybody who is able to offer any assistance, opinions, or point me in the direction of which companies we should be speaking to. So here's her circumstances...

- She separated with my dad 5 years ago, and the house was repossesed as part of this as he moved abroad leaving her with no ability to pay the mortgage. She settled her half of the balance with the Halifax and apparently her credit rating is now quite healthy. She has been renting a flat since then.

- She is in her early 50s, not retired, earning only around £14k per year. Probably going to be working for the next 12 or so years.

- As part of the divorce settlement, she has a pension fund of around £600,000. The initial draw down has been taken and isn't available to her, but she is able to draw down roughly a further £27k (taxable) each year. Apparently there is no other way to access any more than this amount to add to any other funds she has (as per below) to buy a house outright.

- My dad unfortunately passed away recently, and she was entitled to a percentage of his 'death in service' benefit, meaning she has £90k due to be released to her shortly.

- To buy the sort of house that she would like to, around here, will cost around £240k or so I guess. Yes I'm aware she could just buy a small 1 bedroom flat almost outright and she would definitely do just that if there's no other options, but if she could somehow actually get a nice decent sized house, that would be preferable.

So anyway, as I'm sure you can tell, I'm trying to work out just how she can go about securing funds to be able to get a house for around that value.

Is it just unrealistic to think there's any way she can get a house around £240k under the circumstances?

Is there any way anyone would lend her £150k? Obviously they're not going to based on her salary, especially given her age, but would the significantly high draw downs she can make each year be factored in?

Her salary can keep her going going on bills/food/expenses etc. so the whole £27k (minus tax - so.. 18kish?) can go towards repayments up until her retirement date. Meaning she could potentially make payments totalling £200k over that period, which by my reckoning should cover £150k taken over 12/13 years... ?

I'm aware that drawing down such a high amount for over a decade would have implications on her pension pot but if she had £300k+ left in it when she retires, and a house which is entirely paid off, I would imagine she won't exactly be living on the poverty line for her remaining years?

Well anyway, sorry for the long post and again thanks to anybody who could advise on what they think the available options are given all of the details above.

Cheers,
Coffee Bloke

saverjustice

Is this a pension drawdown? Why has she got one of those?

Coffee_Bloke

I'm not sure what you mean?
The draw down I am referring to is that she has a fund (as stated - totalling £600,000+) from which she is allowed to take up to £27k each year before she retires.

As for why she's got that - well, I don't know the rules, but as her salary is £14k, she essentially needs to be able to draw down at least a few thousand each year in order to survive.

saverjustice

It sounds like pension drawdown, who advised her on this strategy?

Coffee_Bloke

Barnett Waddingham.
You say it like it was not the correct strategy?

I'm far from an expert but if you are, what would you suggest the correct strategy would be for an individual with hardly any income from her employment, unable to afford her rent+bills, but with a pretty significant pension from which she could draw down in order to survive?

Either way that's why she has drawn down previously and it's done now. It meant she could afford to live so not really an issue for me.

The point is that now she needs to be able to secure some kind of mortgage and given that she is able to draw down, that would seem one possible way. If that's a bad idea, please feel free to let me know and explain why. I'm just after some opinions on the best course of action

saverjustice

I think she needs a second opinion from a decent adviser, the firm that arranged the pension plan are actuaries so not IMHO best placed when it comes to making sure someone has the right strategy in place to buy a home of their own in your mum's circumstances.

Without looking at which funds she is invested in I cannot comment on the efficacy of her pension plan. Depending upon where you are in the UK I could find someone I trust implicitly, I do know quite a few advisers but not many fall in that category!

I'm sure there are lenders who would offer a mortgage but currently they would baulk over a long term which means a high monthly repayment. If she bought a house and let a room to a lodger she would get a nice tax free income out of it which is preferable to a depressing little flat, not that flats are depressing!

Has she thought about finding an attractive and wealthy new partner?

Coffee_Bloke

saverjustice wrote: »

I think she needs a second opinion from a decent adviser, the firm that arranged the pension plan are actuaries so not IMHO best placed when it comes to making sure someone has the right strategy in place to buy a home of their own in your mum's circumstances.

Without looking at which funds she is invested in I cannot comment on the efficacy of her pension plan. Depending upon where you are in the UK I could find someone I trust implicitly, I do know quite a few advisers but not many fall in that category!

Well I don't know how good this is but all I know is that since this was invested 4 years ago, she has drawn down the best part of £80k (would have been much less but wanted to settle her debt on the repossessed house, which accounts for half of that amount going), and yet her investment has grown by a few thousand (we're talking less than £10k if I remember rightly) in that time, so not exactly a total disaster.

As I said, I just feel even if it didn't grow at all, and she paid out £350k over 12 years and that left her with only £250k left in the fund at 65, she'd have a house paid off and I believe enough of a pension fund to ensure she isn't living on beans and toast for the rest of her life. Or am I missing something obvious?

However, you're right, we will seek further advice. Just wanted to check in her first in case we had any other options that I was totally missing.

saverjustice wrote: »

I'm sure there are lenders who would offer a mortgage but currently they would baulk over a long term which means a high monthly repayment. If she bought a house and let a room to a lodger she would get a nice tax free income out of it which is preferable to a depressing little flat, not that flats are depressing!

That's something she's considering, but would need to get a mortgage in the first place for that to be viable!

Thanks for your time.