Dream Retirement Property - but can we afford it?

DairyQueen

I need a sense check from MSE wise heads please. Apologies for long post.

 

First world problem and, yes, we are lucky…

 

We have the opportunity to buy our dream (early years of) retirement home but the finances are complicated and a bit of a logistical nightmare. I am pretty confident we can afford the upfront cost but it will leave us below our planned cash position temporarily. It would also require me to take most of my TFC up-front and I was planning to UFPLS. 

 

I’m less confident about the ongoing affordability so your opinions are kindly sought.

 

Background

We are both early 60s. Mr DQ is self-employed (limited company – consultancy) and currently works 2-4 days per week. If the work doesn’t dry-up – always a risk - he would choose to reduce to max 2 days p.w. next April (then age 64) and continue until SP kicks-in. He is at risk of breaching the LTA and has crystallised all pensions (2016 protection at £1.25 million).

 

I work part-time and plan to stop when OH fully retires in 2023. I have reduced life expectancy and am unlikely to live much beyond 75 – if I’m lucky.

 

Neither income can be guaranteed in these uncertain times.

 

Current position - assets:

-      Property £500k,

Mortgage-free (2 x modest homes, one under offer at slightly north of £300k and we are currently living in the other, tiny one). Plan is to sell the tiny property after purchasing new home and this is why we have a cash-flow issue.

 

-      Cash. 

£300k unwrapped

 

-      SIPPs

Mr DQ - £340k - crystallised

Me - £260k - uncrystallised

 

-      Other investments

Me – S&S ISA - £10k

Mr DQ – retained dividends in limited company - £57k and increasing at approx. 2k - 4k per month at the moment. This will reduce to 0 from next April.

 

 

Income

-      SP 

2 x full SP (Mr DQ in 2023 and me in 2025).

 

-      DB Pensions. 

Mr DQ - £27k p.a. gross (2/3rds widows, index-linked) – in payment

Mr DQ - £2.7k rising to £3k at age 65. Section 32 with GMP protection. Paid early courtesy of NU screw-up years ago (50% widows, no index-linking) – in payment.

 

-      Earned Income 

Mr DQ – mix of salary & dividends from ltd company - £20k. LTA protection prevents further pension contributions.

Me – salary – 6.3k plus employer pension contributions at 10%. I contribute max salary to SIPP so my salary doesn’t form part of our current budget.

 

Prospective Property

-      Purchase Price - £650k

-      Costs of selling x 2 properties and buying one – approx. £22k with SDLT incentive

-      We have a cash shortfall without selling property 2 and we don’t wish our unwrapped cash to reduce below £50k-ish.

-      We won’t buy unless/until property 1 - under offer - is sold.

-      So, £316k (property no. 1 sale price) + £300k (unwrapped cash) less £22k costs of moving and less £50k retained cash buffer = £544k available.

-      The balance of £106k can be sourced via director loans from ltd company and via TFC from my SIPP. The intention would be to repay directors loan and replenish cash from sale of property 2 (worth approx. £185k). Or, possibly, an RIO mortgage to bridge, if available (query that).

 

Here’s the rub…

 

The property is listed (Grade II) and it’s large. Madness to buy as a retirement home but this is our dream home. The cost of maintenance and insurance is likely to add at least £10kp.a. to our non-discretionary expenses. Our planned starting ‘number’ was around £45kp.a. from 2021 to include a generous holiday allowance and a lot of fat. This property would eat all of the fat and (I suspect) the holiday allowance if I was widowed

 

Risks

-      Mr DQ loses all of his income from consultancy tomorrow

-      Tiny property languishes on the market

-      Market crashes by 50%. We are around 80% equities so that would reduce our SIPPs by around £240k and require a drawdown suspension.

-      Mr DQ dies tomorrow, or I do

-      Could I afford to maintain the property if widowed regardless of when that happened? I think that Mr DQ will be fine if (likely) I go first.

 

I have been playing with spreadsheets this p.m. I think it’s do-able but the worse-case scenario (lost earned income, tiny property doesn’t sell, major market crash, early widowhood) suggests a basin-full of worry.

 

Should we go for it or I am off with the fairies as the figures don’t stack-up? 

shinytop

Not gone into the detail too much but...
Is this a cash flow problem or an affordability one? That is, if you had the £500k for both properties now would the problem go away? If so the obvious answer is an interest only mortgage for a couple of years. If not then it's a different, longer term question.  Do your drawdown calculations support spending an extra £150k up front and another £10k/year?  Sorry if that's stating the obvious!

We just moved into our dream home and it cost slightly less than the one we sold.  When we were looking, we constantly had to remind ourselves not to buy the sort of large, listed property requiring lots of work that we both love!  Instead we bought a smaller, non-listed house requiring lots of work but that's another story.    

minty777

How did you NU to pay a section 32 early?

DairyQueen

shinytop said:

Not gone into the detail too much but...
Is this a cash flow problem or an affordability one? That is, if you had the £500k for both properties now would the problem go away? If so the obvious answer is an interest only mortgage for a couple of years. If not then it's a different, longer term question.  Do your drawdown calculations support spending an extra £150k up front and another £10k/year?  Sorry if that's stating the obvious!

We just moved into our dream home and it cost slightly less than the one we sold.  When we were looking, we constantly had to remind ourselves not to buy the sort of large, listed property requiring lots of work that we both love!  Instead we bought a smaller, non-listed house requiring lots of work but that's another story.    

If both properties were sold then the immediate cash liquidity issue would go away.  As you say, a short-term mortgage would also solve that issue.

It's the ongoing affordability that concerns me most. No idea how much the insurance and annual maintenance would be but suspect around an extra £10kp.a. Will ask the vendors later this week.

I don't think it will take much to talk me out of buying this house but I want to be sure the I'm not being overly negative about the running costs. It is a truly lovely house but very different stretching financially at this age than if you are in your 40s and, right now, I'm not sure how much of a stretch it would be.

barnstar2077

Ignoring the financial side of things for a moment.  Would it be a bit of a worry?  Without meaning to pry, is it possible that the added stress of buying and maintaining a larger property could aggravate your condition?  How would each of you feel if they were left alone in a large property without the support of the other?

On the other hand, if you think of it as just temporary, a place for both of you to spend the years left that you have together, with the plan for the survivor to sell and downsize as soon as they feel able to do so, then the numbers don't have to add up indefinitely.  Really you would just be "renting" your dream life for a while, which sounds pretty good to me!  You can't take it with you after all.

Brynsam

DairyQueen said:

shinytop said:

Not gone into the detail too much but...
Is this a cash flow problem or an affordability one? That is, if you had the £500k for both properties now would the problem go away? If so the obvious answer is an interest only mortgage for a couple of years. If not then it's a different, longer term question.  Do your drawdown calculations support spending an extra £150k up front and another £10k/year?  Sorry if that's stating the obvious!

We just moved into our dream home and it cost slightly less than the one we sold.  When we were looking, we constantly had to remind ourselves not to buy the sort of large, listed property requiring lots of work that we both love!  Instead we bought a smaller, non-listed house requiring lots of work but that's another story.    

If both properties were sold then the immediate cash liquidity issue would go away.  As you say, a short-term mortgage would also solve that issue.

It's the ongoing affordability that concerns me most. No idea how much the insurance and annual maintenance would be but suspect around an extra £10kp.a. Will ask the vendors later this week.

I don't think it will take much to talk me out of buying this house but I want to be sure the I'm not being overly negative about the running costs. It is a truly lovely house but very different stretching financially at this age than if you are in your 40s and, right now, I'm not sure how much of a stretch it would be.

A massively long post, but you've not established the basic facts. Surely that's your starting point? Then do the sums and work out whether it's a pipe dream or one which could be a reality.

Spreadsheetman

"The property is listed (Grade II) and it’s large."

That would rule it out for me (had a grade 2 listed cottage - never again). If it's listed and someone else hasn't taken the pain already then you will have a hard job getting it energy efficient. All the usual things like double glazing are likely to be either out of the picture or massively expensive on a listed property. How much is it going to cost to run and heat? Will it require frequent painting of exterior woodwork?

DairyQueen

minty777 said:

How did you NU to pay a section 32 early?

https://www.pensions-ombudsman.org.uk/decision/2014/po-2269/aviva-plc-po-2269
Check-out 'Harris v Aviva'. The original Harris NU policy (transferred to Aviva) contracted a retirement age of 60 despite (male) GMP then payable from 65. It was anticipated 30+ years ago that investment growth would more than support the GMP underpin but, of course, it hasn't. Mr DQ has the same scheme as Harris but with a retirement age of 63. Mr DQ therefore receives the equivalent of his GMP (as an annuity) from age 63 and increasing until age 65. Then no further indexation. This is pre-88 GMP so won't increase after 65.

He was offered 30k to transfer. The GMP will be £3kp.a. by age 65 plus, of course, the extra couple of years payments. No brainer.

DairyQueen

barnstar2077 said:

Ignoring the financial side of things for a moment.  Would it be a bit of a worry?  Without meaning to pry, is it possible that the added stress of buying and maintaining a larger property could aggravate your condition?  How would each of you feel if they were left alone in a large property without the support of the other?

On the other hand, if you think of it as just temporary, a place for both of you to spend the years left that you have together, with the plan for the survivor to sell and downsize as soon as they feel able to do so, then the numbers don't have to add up indefinitely.  Really you would just be "renting" your dream life for a while, which sounds pretty good to me!  You can't take it with you after all.

Pretty much sums it up. OH (the likely survivor) would downsize on my demise. The risk is that I defy the odds and, as you say, in the interim, the cost (of maintaining it) may outweigh the benefit (of complete financial freedom).

DairyQueen

Spreadsheetman said:

"The property is listed (Grade II) and it’s large."

That would rule it out for me (had a grade 2 listed cottage - never again). If it's listed and someone else hasn't taken the pain already then you will have a hard job getting it energy efficient. All the usual things like double glazing are likely to be either out of the picture or massively expensive on a listed property. How much is it going to cost to run and heat? Will it require frequent painting of exterior woodwork?

Yes, energy inefficiency is impossible. Heating cost would be high and exterior (rendered) would require painting every 10 years-ish.

I have also owned a listed property but nothing of this size.

No question that it will be a pain-in-the-butt to maintain.... but this is the last chance to own the dream.

DairyQueen

Brynsam said:

DairyQueen said:

shinytop said:

Not gone into the detail too much but...
Is this a cash flow problem or an affordability one? That is, if you had the £500k for both properties now would the problem go away? If so the obvious answer is an interest only mortgage for a couple of years. If not then it's a different, longer term question.  Do your drawdown calculations support spending an extra £150k up front and another £10k/year?  Sorry if that's stating the obvious!

We just moved into our dream home and it cost slightly less than the one we sold.  When we were looking, we constantly had to remind ourselves not to buy the sort of large, listed property requiring lots of work that we both love!  Instead we bought a smaller, non-listed house requiring lots of work but that's another story.    

If both properties were sold then the immediate cash liquidity issue would go away.  As you say, a short-term mortgage would also solve that issue.

It's the ongoing affordability that concerns me most. No idea how much the insurance and annual maintenance would be but suspect around an extra £10kp.a. Will ask the vendors later this week.

I don't think it will take much to talk me out of buying this house but I want to be sure the I'm not being overly negative about the running costs. It is a truly lovely house but very different stretching financially at this age than if you are in your 40s and, right now, I'm not sure how much of a stretch it would be.

A massively long post, but you've not established the basic facts. Surely that's your starting point? Then do the sums and work out whether it's a pipe dream or one which could be a reality.

Spreadsheet suggests it's affordable whilst we are both alive, but not sensible. I have crunched a few figures and think it likely I will leave my long-suffering spouse with a housing issue when I drop off the perch. Between now and then we would enjoy a wonderful home but the legacy for him could be problematic.

A lifetime of making sensible decisions is a difficult habit to break.