Mortgage on a SIPP

BuzzLightyear

Im 53 now and semi retired. Looking to sell up and rent while i self build a new home and then mortgage it on completion...at which point my income will be my drawdown from my SIPP plus potentially any part time work i decide to take.

I cant find any information on how lenders value SIPP income, and in particular if its also possible to use a SIPP drawdown to obtain a RIO mortgage.
Do they for instance convert the net pension income to an equivalent salaried gross income?
Im looking to draw down around £30k a year from my SIPP.

I can afford to build a 'nice' house with a loan no bigger than my current mortgage.
But with a slightly larger mortgage (hence RIO to reduce cost short term) i can afford to build my 'dream home. Id never be looking to borrow more than 50% of the equity.
I have inheritance that will cover any mortgage in medium term so have no concerns over final repayment.

I have no interest in any Lifetime/equity release mortgages. Just either a repayment or Interest Only deal.
Currently i'm with Barclays on a 7 year fixed rate. They apparently have a 1.89% fixed rate Interest Only offer until 2027...something similar would be perfect.
But they do not do any form of Self Build mortgage so it looks like i will need to repay the current mortgage and take out a specialist self build mortgage until the property is built and then (in 2 years time) move to a repayment or interest only mortgage.

Im happy to go and have a chat with Barclays and other lenders about my options, but i like to be forewarned/armed with any impartial information and experiences i can get from the likes of the good people on here!

dimbo61

You need to speak to the Barclays mortgage adviser at your local branch about this.
If they say NO then find a mortgage broker

Thrugelmir

A lender can only base their decision on your circumstances now. Not not on hypothetical circumstances in the future. As criteria can literally change overnight.

BuzzLightyear

I dont need a yes or no now from any lender - i know i can get a mortgage, i really simply want to know what multiple of a SIPP income i can expect to be able to borrow.

For instance a £30k drawdown equates to £28k net.
Wheras the gross equivalent of £28k net for a salaried individual is £38k.
You would normally expect to borrow at least 4X gross salary.
I was hoping someone would know if lenders therefore treat the 2 as the same or if you are effectively penalised by the fact the income is coming from your savings rather than your salary.

Actually there was a second part to the question....anyone know if SIPP drawdown is an acceptable form of income for a RIO mortgage? All the blurb i can find online for RIO only seems to mention the likes of annuities ie guaranteed income. If thats the case its a rather laughable product given the collapse of the annuity market - I just took redundancy from the UKs biggest annuity provider to retire

SonOf

Actually there was a second part to the question....anyone know if SIPP drawdown is an acceptable form of income for a RIO mortgage?

Pension income is taken into account in a lending decision. Typically they will use the FCA regulated projection figures which are lower than reatlity but some may use a sensible drawdown figure of around 3.5% of the value.

All the blurb i can find online for RIO only seems to mention the likes of annuities ie guaranteed income. If thats the case its a rather laughable product given the collapse of the annuity market - I just took redundancy from the UKs biggest annuity provider to retire

Annuity rates are generally higher than sustainable drawdown rates for those over 60.

jamesd

SonOf wrote: »

Annuity rates are generally higher than sustainable drawdown rates for those over 60.

HL are currently quoting 2.2% for an RPI single life annuity at 60 based on £100k purchase with no enhancements.

Assuming total costs of 1.5% UK constant inflation-adjusted drawdown (4% rule) on historic basis is about 3.2% and Guyton-Klinger variable starts at 5%. And you appeared to think 3.5% with "a sensible drawdown figure of around 3.5% of the value".

So I'm puzzled. What's your basis for asserting that annuity rates are generally higher than SWRs at 60?

I'd typically compare buying the annuity at 60 to throwing away half of your money because that's the approximate income effect. At 75-85 or with enhancements the annuities can look quite interesting. As they can at younger ages depending on the risk tolerance and such of many buyers.

AnotherJoe

SonOf wrote: »

Annuity rates are generally higher than sustainable drawdown rates for those over 60.

SonOf, someone has hijacked your username and is posting rubbish,

Thrugelmir

BuzzLightyear wrote: »

For instance a £30k drawdown equates to £28k net.
Wheras the gross equivalent of £28k net for a salaried individual is £38k.

£30k gross drawdown equates to £26,502 net.

To achieve this in a salaried role is nearer £34k.

BuzzLightyear

Thrugelmir wrote: »

£30k gross drawdown equates to £26,502 net.

To achieve this in a salaried role is nearer £34k.

Oops my bad working from my (awful) memory. I had been working off about £32k drawdown not 30. Your figures are correct!

And yes, im ignoring entries related to annuities.....they do not compare well with drawdown even without ignoring the added benefits such as inheritance. I threw my very gold plated final salary scheme in the bin 2 years ago ....as has every other IT bod that took redundancy the same time as me (100s)

If banks are indeed working off a figure around 3.5% then i guess i will have to look to get a guarantor if i want to borrow 200k, in order to meet the 'affordability test'.

Thrugelmir

BuzzLightyear wrote: »

If banks are indeed working off a figure around 3.5% then i guess i will have to look to get a guarantor if i want to borrow 200k, in order to meet the 'affordability test'.

Guarantors aren't a method of circumnavigating affordability "tests". Lenders are governed by regulatory rules.

SonOf

HL are currently quoting 2.2% for an RPI single life annuity at 60 based on £100k purchase with no enhancements.

But not many buy those. And a drawdown case that wanted to leave room for RPI increases would have a lower drawdown rate.

Assuming total costs of 1.5% UK constant inflation-adjusted drawdown (4% rule) on historic basis is about 3.2% and Guyton-Klinger variable starts at 5%. And you appeared to think 3.5% with "a sensible drawdown figure of around 3.5% of the value".

Actuaries generally believe that 3% in your 50s and 3.5% in your 60s is a sustainable rate.

So I'm puzzled. What's your basis for asserting that annuity rates are generally higher than SWRs at 60?

I recently got over 5% on an annuity case for someone aged 63. A few ailments but nothing critical. (no GARs, level basis as other income that would increase annually).

I am certainly not suggesting an annuity is the right thing. Just pointing out that annuity rates can actually be in the ballpark or higher than a safe sustainable drawdown rate.