Using pension lump sum to buy property - ooh, it hurts my head

GreenGreenGrass-of-home

Hello

We want to buy a property when we receive my husband's pension lump sum.

We will add a mortgage to it in order to buy the property.

We will have about £80k to invest.

We will want about an £80k mortgage.

So we will be looking to buy a property for about £160k. Our daughter will live in it and pay us rent (to cover the mortgage).

We may want to sell it in a few years. Or rent it to tenants (i.e. not my daughter).

Our house is worth about £450k. It is in both our names. We currently have a mortgage of approx £10k.

Should we take out a BTL mortgage?

Or perhaps just a second residential mortgage? In whose name? His or mine? Or joint?

Or perhaps just remortgage our own house? (We can either tell the truth or spin a yarn about what it's for).

Help!

G_M

If you get a BTL mortgage, the terms are likely to prohibit you letting to family.

Take out the extra money by increasing your existing mortgage (assuming your current lender agrees. The interest rate is likely to also be lower than a BTL would be.

Remember Capital Gains Tax if you sell it.

If the new property is registered in both your names you will benefit from splitting the rent between you and using your separate personal tax allowances.

Now read this post:

New Landlords (information for new or prospective landlords)

Letting Agents (Tips for selecting, and tips for sacking them)

GreenGreenGrass-of-home

I think we had already kind of decided to remortgage our own home. Thank you for confirming that.

With regard to personal tax allowances, we both work, so I'm not sure that will affect us. I pay standard tax and my husband is on the cusp of standard/higher rate.

I shall read those links, and thank you very much, G_M. :-) x

eddddy

GreenGreenGrass-of-home wrote: »

I think we had already kind of decided to remortgage our own home. Thank you for confirming that.

Hi GreenGreenGrass

You mention a pension lump sum - so will you both be retired, with a pension as income?

Many residential mortgage lenders don't lend to retired people. So you might have to look at equity release schemes.

Alternatively, if you do have sufficient income to get a 'conventional' mortgage, most lenders will expect the mortgage to be clear by the time you are 70 or 75, so monthly repayments might be quite steep.

The lenders are unlikely to consider future possible rental income from the second property, when looking at affordability.

But perhaps a mortgage advisor would know some more creative options.

ihatemyhouse

does your daughter work, as if she is on benefits, I don't think the council will pay for her to live in a house that a relative owns

GreenGreenGrass-of-home

Hi Edddy

No, we're not retired (or nearing retirement age). We both work, and will continue to. The pension lump sum is from my husband's previous employment.

We hope to take the mortgage over 10 years.

Not sure what to tell the building society what we want the money for. Even though we have plenty of equity to remortgage our house, will they be less likely to lend it to us if we tell the truth about what it'll be used for?

I think you're right about a financial adviser.

ihatemyhouse: no, my daughter's not on benefits! She works full time but doesn't earn very much. With interest rates so low, we need to do something with this money and buying a property that she can live in (with no dastardly landlord!) kills two birds with one stone.

martindow

GreenGreenGrass-of-home wrote: »

No, we're not retired (or nearing retirement age). We both work, and will continue to. The pension lump sum is from my husband's previous employment.

Are you sure that you can just take this lump sum to use as you wish? I thought that payments made into pension schemes had to be retained as part of a pension pot, either kept in the former employer's scheme or transferred to the new employer's.

GreenGreenGrass-of-home

martindow wrote: »

Are you sure that you can just take this lump sum to use as you wish?

Yes, I'm quite sure. It's all in hand. My husband has chosen to take the lump sum and pension income when he turns 50, which is next week.

G_M

My (residential) mortgage lender (admitadly a small, cuddly BS!) had no problem extending my mortgage so I could buy a 2nd property. In fact I had rung up to ask about a BTL mortgage and it was their idea. However this was long ago before the crash, so who knows now.

eddddy

GreenGreenGrass-of-home wrote: »

Not sure what to tell the building society what we want the money for. Even though we have plenty of equity to remortgage our house, will they be less likely to lend it to us if we tell the truth about what it'll be used for?

Just tell them that you plan to buy a house for your daughter to live in - or if you prefer, tell them you are buying yourselves a second home.

Both these options indicate that you will be acquiring an asset with the money - which could be sold if you ever get into financial difficulties.

The lender will be aware that people sometimes tell fibs about the reasons for a remortgage, but it's much better than saying you're going to use it for a world cruise, or to pay off gambling debts!!!