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Can I buy a home with a pension?

rachelleigh73
Posts: 38 Forumite


Hi
I'm a first time buyer with a small inheritance that I would like to use to buy a cheap home (under 50k, maybe abroad).
I have no pension provision - I'm 40.
Is there any advantage in setting up a pension fund to purchase the property. It would be great to be able to explore the pro's and con's here before approaching a financial advisor.
Many thanks!
Rachel
I'm a first time buyer with a small inheritance that I would like to use to buy a cheap home (under 50k, maybe abroad).
I have no pension provision - I'm 40.
Is there any advantage in setting up a pension fund to purchase the property. It would be great to be able to explore the pro's and con's here before approaching a financial advisor.
Many thanks!
Rachel
0
Comments
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pensions can't invest in residential property. (though they can invest in commercial property.)
is this home for you to live in?0 -
Don't want to be a damp squib but I'd say think carefully about buying abroad when you are older and have limited money. So much can go wrong and if you have no contingency fund it can be devastating.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
"Any more posts you want to make on something you obviously know very little about?"
Is an actual reaction to my posts, so please don't rely on anything I say.0 -
A private pension fund (eg: a SIPP) cannot invest in residential property except when certain conditions. IIRC: it must be worth £1m and part of genuinely diverse property portfolio.
It's against HMRC rules and would probably land the pension scheme a 55% tax charge. Ouch.
An example of one provider's interpretation of the restrictions is here: http://www.mwpensions.co.uk/handouts/residential%20property.pdfWe need the earth for food, water, and shelter.
The earth needs us for nothing.
The earth does not belong to us.
We belong to the Earth0 -
Buying any property you don't live in when you don't have a pension is not necessarily wise. Esp one abroad somewhere.
If this is your only capital, do you have any debt? Any other savings and investments? Do you own your home? Do you have a mtg? What rate is it?
At 40, you should already hav e some savings and pension behind you. And if you ever have any intention of buying a home, that should be underway as well.
So your first port of call is paying off debt, opening a pension if you dont' have one (does your employer offer one? If you haven't joined it, do. If they don't have one yet, ask when they will (as they will have to in the coming years). Then look at savings and investments. Initially in cash, until you have enough for an emergency or period out of work- 3-6 months spending at least. In ISas or elsewhere as rates depend. Then look at S&S isa allowance for the balance.
If you want to buy residential property and dont' own your own, this is the time to look into it.0 -
Or were you thinking of a pension mortgage
http://www.ukpensioncalculator.co.uk/guide/147/pension-mortgages.html
I remember hearing about those back in the 80s when I took out an endowment mortgage (!) I'm not sure that anyone would suggest them nowadays though.0 -
With thanks for all the replies! I was enquiring about buying my own home using a pension fund - which doesn't appear possible looking at a couple of the replies.
Cheers!
Rachel0 -
if you now have enough in cash to buy a home, then you could do that. and then, since you'd no longer be paying rent, you could make pensions contributions with the money you'd no longer be paying in rent.
this is just an idea. it might not make work at all in your circumstances. give more details if you want more relevant comments0 -
rachelleigh73 wrote: »I'm a first time buyer with a small inheritance that I would like to use to buy a cheap home (under 50k, maybe abroad).
I have no pension provision - I'm 40. Is there any advantage in setting up a pension fund to purchase the property.
First, what you can't do: you can't just buy a normal residential property within a pension.
But you can use a pension to buy a residential property. What you can do is take out an interest only mortgage and then plan to have the pension lump sum at age 55 or later used to clear the mortgage, completing the final part of the purchase.
There are a range of advantages to this approach, including the pension tax relief on your equity payment and the investment growth that has historically been significantly greater than the interest cost of keeping the borrowing until it is cleared.
A disadvantage is that only 25% of the pension pot value is available. This means that you will usually have to pay more net into the pension than you would if you were paying directly off the mortgage capital. The remainder stays in the pension to provide ongoing income, so it's still useful and a desirable part of planning, just not solely for the equity pay off portion of the planning. It works well as an efficient combination of mortgage and pension planning.
How much of your net payment ends up being usable depends on the tax relief you get. While that's normally 20% or 40%, with salary sacrifice the 40% case can rise as high as 40% + 12% + 13.8% = 65.8% if you have higher rate income outside one job, use basic rate salary sacrifice in the job and get full employer NI saving. Possibly also some gain from employer contributions and potentially more gains from retaining child benefit payments. It's possible for pension gains to exceed 100% in such cases.0
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