Pension or Property

Wizimum

Good morning- looking for guidance and opinions.

We are 45 and lived in our property for nearly 20 years. Our endowment will mature in May 2019 and will provide a return to clear the out remaining mortgage of 30k, due to come to an end Jan 2020 and able to clear our credit card debt of 20k.

As we are young(ish) and have no savings and small pensions we are unsure how to provide for our future. After looking at options we think that a good option would be to remortgage and keep our existing debt in property 30k and borrow 140k (total 170k over 25 years, benefiting on paying residential rates rather than btl rates and conditions). With the 140k we have made an offer on a flat (accepted!!) we will own this outright and plan to let out. The endowment not used to pay off credit card debt will cover purchasing costs and home improvement on home we will live in And any on the btl property.

Initially factoring in mortgage payments, income tax and contingency for vacant periods, ongoing repairs etc it will cost us £300 a month, but as rents rise and the capital in the properties increase there should be a shift in our favor, fingers crossed with no crystal ball!! We will enter into a fixed rate for 5 years to help us budget for outgoings.

We have three teenage children and are young at heart. We think that this made provide options for us in the future. When kids leave we could live in the flat and rent out the family home for greater income. If we want to go off traveling or live abroad for a time rent out both properties to generate an income.

What do you think....are we mad?? Should we just plough any extra money into a pension pot?

eskbanker

Wizimum wrote: »

Initially factoring in mortgage payments, income tax and contingency for vacant periods, ongoing repairs etc it will cost us £300 a month, but as rents rise and the capital in the properties increase there should be a shift in our favor, fingers crossed with no crystal ball!!

:eek:

A business plan involving projected losses of £300 per month seems an odd proposition given the financial stability that your situation would otherwise offer - if you can't find a BTL property that makes you money from day one then that would suggest to me that alternative approaches would be worth pursuing....

System

Pay off mortgage and debts. Then use the money you would have paid into a mortgage and the debts you were servicing which you will now clear to pay into a pension. You'll find it builds up quickly.

Even though it may not be the most financially best way the one thing it provides is the mental boost of knowing that you own the roof over your head and unless you do something incredibly stupid nobody can ever take it away from you. You have the freedom from having to make monthly payments on debts and mortgages which will give you the freedom to maybe choose to do things you otherwise wouldn't have been able to such as change jobs for one you like with hours you want rather than one you endure because it meets the monthly mortgage and debt payments.

You can't beat how liberating being debt and mortgage free is. I became debt free a few years ago and it was an amazing feeling. I certainly wouldn't be signing myself up to another 25 years servitude.

IanManc

Yes you are mad.

You would be on an even keel with no mortgage and no credit card debt, and your brilliant plan is to go straight back into debt.

Banks love people like you. You're how they make their money.

BarleyGB

Sounds a risky proposition to me. There's also a real threat of more draconian BTL tax measures from a possible labour government.

In my view youd maybe better paying that £300 per month into a Stocks and Shares SIPP (with its tax advantages) or similar, vs all your eggs in one basket so to speak (I do have 2x BTL's but that's in addition to a fairly good Defined Benefits Pension and a healthy SIPP)

What research have you done that makes this property a particularly good investment? Whats the return on capital (or to break even having paid offset the 3% extra BTL stamp duty)

jimjames

Wizimum wrote: »

Good morning- looking for guidance and opinions.
As we are young(ish) and have no savings and small pensions we are unsure how to provide for our future.

Wizimum wrote: »

With the 140k we have made an offer on a flat (accepted!!) we will own this outright and plan to let out.

Wizimum wrote: »

Initially factoring in mortgage payments, income tax and
What do you think....are we mad?? Should we just plough any extra money into a pension pot?

I'd say you were definitely mad not least for deciding on a course of action and then asking later on if it's a wise idea. I suppose it's better that you ask before actually buying a property but it's messing about to make an accepted offer when you aren't sure if it's the right thing to do.

I'm with the previous replies. For some reason there seems to be an obsession with property when there are many downsides that appear to be ignored. Pension or ISAs get tax relief, property will cost you in tax. When you factor in your numbers if you're making a net loss already per month that will only get worse when the tax rules get stricter and 100% of interest is no longer eligible for relief.

enthusiasticsaver

I think you are mad too. BTL is no longer as popular and no longer tax advantageous. You now have to pay tax on rent received. You have maintenance to pay out, may have problems with tenants either trashing the place or not paying their rent on time and you will have a bigger mortgage with no means of repayment and at 45 you only have around 20ish years until retirement with no option to go early plus your credit card debt of £20k. Your teenage children may be expensive with university, driving lessons, cars etc and you will be saddled with almost £200k in debt including credit cards at a time when people in their early 50s are looking forward to retirement.

My advice would be clear your mortgage and credit cards and redirect the payments you were making to them to your pension.

KeepOnKnitting

I am sorry to pile on as well, but I can't help but worry that you will do this. You will be putting all your proverbial eggs in the UK property market basket. Please please reconsider and think about a little diversity in a pension/ISA. Do either of you get a good contribution match from your employer? This will be significantly more cost-effective than £300 towards property each month.

Alice_Holt

"we have made an offer on a flat (accepted!!) we will own this outright and plan to let out... it will [lose] us £300 a month, but as rents rise and the capital in the properties increase there should be a shift in our favour..."

A really, really, really, really bad plan.

Bereft of any financial intelligence, whatsoever.

An adverse change in family circumstances, job, health, etc ("We have no savings and small pensions"), and you will be completely exposed.

Foolish doesn't describe it. Especially when you could have been mortgage and debt free, with a good opportunity to build up savings, increase pensions (with the benefit of tax relief), and help your 3 children through uni.

Wildsound

Looks like you've already made up your mind. Unfortunately you're about 15 years too late to jump in on the BTL bandwagon which, in my opinion, isn't moving anywhere anytime soon, if anything, it'll start rolling back down the hill. You seem certain that you will get rising rents and capital appreciation, but you cannot be certain of this in the slightest. It is an investment, not a bank account...

Pensions are far superior if the end goal is retirement. The long term growth of a well diversified investment will match, if not exceed, any property investment over the long term with very little work, and that's before the free government handout which is tax relief on contributions! If either of you are higher rate tax payers, then even more so!

If you have more medium term goals to achieve, then stocks and shares ISAs with (again) a well diversified approach gives you more flexibility to access before retirement.

OldMusicGuy

Pretty consistent with the answers to the same question on the house buying section of the forum......

What do you plan to do?