Pay off mortgage, or bank the money?

jgh

I've been unemployed for two years, have applied for more than 1000 jobs in that time, but that's another issue.

With another person I own a property (two flats) that we let out, bought 20 years ago with a mortgage on the property that we occupy (also two flats, we occupy one each), so as far as the DWP is concerned that's "an asset", so after six months my JSA terminated. The DWP don't care that the property is our pension, and as with all pensions you spend decades putting money in, and that it's still at the putting-money-in stage. After 18 months of running backwards at the rate of £50 a week, I've no money left, so I'm forced to consider selling off my pension so that I can afford to eat.

I've been discussing this with the co-owner, and she's open to examining options. One option she's proposed is to sell up, but not pay off our mortgage (on the property we live in), but put the money in the offset account to reduce the interest rate on the mortgage.

Mortgage about £80,000, selling investment property will provide about £160,000, paying off mortgage will give about £80,000, so about £40,000 each.

So, the options are:
a) Sell up and pay off the mortgage, stick the 40k in a pension plan which the DWP can't steal from me. Monthly outgoings go down by about £250, and I actually have an income, JSA, and I still have made provision for when I'm old and wrinkly.

b) Sell up, don't pay off the mortgage, keep the money in the offset-linked account with a standing order to make the monthly mortgage payments. Monthly outgoings effectively go down by £250, but I don't have an income as the savings is still assessed as capital, and in order to eat I have to spend it. In about five or six years it will all be gone and I'll still have a mortgage, no income to pay it with, and I'll have no provision for when I'm old and decrepid.

Recommendations?

Voyager2002

Your option (a) is unlikely to work, since the rules on "deprivation of capital" are likely to mean that the DWP would treat you as still having the money placed in a pension fund.

jgh

Voyager2002 wrote: »

Your option (a) is unlikely to work, since the rules on "deprivation of capital" are likely to mean that the DWP would treat you as still having the money placed in a pension fund.

So two years of unemployment means I'm forced to put future self into penury? It's been thrashed into me by society for 35 years MAKE PROVISION FOR YOUR FUTURE!!!!!!!!!! As soon as I do I'm punished?

Thrugelmir

Suggest you look into Capital gains tax on disposal of property and annual limit on pension contributions .

Little point in complaining . The rules regarding assets have been in place for years. So rather to late to realise that your plan hasn't worked.

opinions4u

So two years of unemployment means I'm forced to put future self into penury? It's been thrashed into me by society for 35 years MAKE PROVISION FOR YOUR FUTURE!!!!!!!!!! As soon as I do I'm punished?

But you did so with an asset that sits outside a pension fund.

So the rules say you have options to self finance yourself now. Make sure you declare your CGT liability when you do sell.

Don't worry. I'm sure any top ups that hard up pensioners currently receive will have been abolished by the time you get there.

bigadaj

I don't understand how you can have forty grand equity in the property and be losing two hundred quid a month.

You've started a business, this isn't trading successfully but you can make a capital gain, with no employment on the outlook the logical thing is to sell, live off the proceeds until you either get a job or the money starts to Run out at which point apply for means tested benefits.

Voyager2002

Some thoughts:

Firstly, while the second property is on the market you might be able to receive means-tested benefits. See if you can speak with an adjudication officer for income-based JSA to ask whether a property that you are actively marketing can be "disregarded";

Secondly, investigate whether your investment property could be placed within a pension scheme.

Do you have compelling reasons for staying in England? In your situation, I think I would let the property you live in as well, and use thee rental income to live in a low-cost country. I understand that the cost of living in Macedonia is very low, and since it is part of the EU you have an absolute right to live there (and work, if you can find anything). Come to that, teaching English somewhere like Ukraine or Thailand, with your income bumped up by the rent from England, would seem to offer a better life than what you have at present.