Mortgage or Pension?

wolfers

I'm 46. I have no debts, but I also have no mortgage and no pension provision.

My current plan is this: use the Help to Buy ISA to save for a 5% deposit on a house. Use the Help to Buy Equity Loan to buy a house in late 2018, assuming that scheme is still available. Get a 19 year mortgage that will take me to my state pension retirement age of 68. The repayments will be around £750 a month, which is what I'm currently paying in rent.

The idea is that by the time I reach state pension retirement age I'll own my house outright and won't ever need to pay rent or mortgage payments again. This will save about £750 a month in current terms. In other words it's the equivalent of a pension of £750 a month.

There's no way I could save into a pension that would be worth so much, so it seems to me my priority should be owning a house outright, rather than saving for a pension.

I also like the idea that I could -- if I had to -- sell the house at any point. I can't cash in my pension until I'm 55, so the money is locked away.

I'm figuring that the mortgage payments will stay at £750 a month, but my income will rise year on year so that eventually I'll have some spare to start a pension later in life.

Once I retire I could maybe downsize or do some form of equity release. I have no children and no-one I want to leave money to, so ideally I'd like to die penniless, having taken out of the house what I put into it.

Does this make any sense? Is it a reasonable plan?

dunstonh

here's no way I could save into a pension that would be worth so much, so it seems to me my priority should be owning a house outright, rather than saving for a pension.

I can see your reason for a property to live in. However, cant see your reason for not having a pension. Its like getting the gas and electric bill. You pay both. Not one or the other.

I also like the idea that I could -- if I had to -- sell the house at any point. I can't cash in my pension until I'm 55, so the money is locked away

Which is the point of a pension. The clue is in the name.

eventually I'll have some spare to start a pension later in life.

You are already at "later life" in terms of working life.

If you have no debts and no children then what you are doing with your surplus income that is preventing you from building up a retirement fund?

p00hsticks

wolfers wrote: »

The idea is that by the time I reach state pension retirement age I'll own my house outright and won't ever need to pay rent or mortgage payments again. This will save about £750 a month in current terms. In other words it's the equivalent of a pension of £750 a month.

Houses cost money to maintain and you need to factor this into your calculations.

Snakey

To my mind, money you've put into your house is very much locked away. The costs of buying and selling mean that you can't just free up five or ten grand here and there on a whim.

You're correct that in a disaster scenario such as losing your job in circumstances where you'll never work again you can avoid bankruptcy by selling the house and living off the equity for a while, but you need to ask yourself how likely that is to really happen (outside of a global depression which will probably see you in negative equity anyway) and perhaps not give it so much importance.

atush

I'm figuring that the mortgage payments will stay at £750 a month, but my income will rise year on year so that eventually I'll have some spare to start a pension later in life.

Not going to happen. they will go up at some point in the future. the current rates arent 'normal'.

And as said, you are already in later life.

What sort of pension does your employer have? Why haven't you joined it?

What sort of savings do you have? at 49, you should have something?

Playing_with_Fire_2

If you are paying 40% tax I would consider prioritising pension contributions this tax year as the tax benefit is expected to be less in future years.

If not then the benefit of pensions over other saving is less clear cut, but you definitely need savings of some sort.

Brightspark87

Hi why can't you do both? Even if its £50 a month into a pension. Yes great to have a house with no mortgage but you will still need to pay bills and state pension (full) is only c£8,000 a year, can you live on that?

atush

They can do both, but should put more than 50 into the pension. Given their age.

Triumph13

It's hard to offer any suggestions without knowing more about what the OP earns and in particular where he lives as that makes such a huge difference on property prices.
What we can say is that the plan to buy a house for £200 to £250k (guesstimate from the mortgage figure) and then maintain it and live any kind of lifestyle on just a state pension does NOT look practical and there is not a lot of time left to build extra pension income.
If the OP has a high enough salary that there is fat to trim elsewhere in the budget to allow for reasonable pension contributions as well as the house purchase then all well and good. If not, then it may be time to face some hard truths and realise that your future makes more sense in a modest flat than in a whole house - if such things exist in your area - both to free up more cash for the pension and to lower your outgoings in retirement.