Are we worrying unnecessarily?

Cottage_Economy

How much attention do mortgage lenders pay to savings/investments when considering a deal application? DH and I started a retirement plan a few years ago, of which a five-year mortgage deal was part of the plan, but DH is looking so tired and pale of late I think we need to stop and have him retire two years earlier than planned.

I'm 48, DH is 60. We have a mortgage on a five year deal due to finish May 2023. The plan was for DH to work until he is 62 (May 2023), we take out another mortgage deal for five years and then he retires straight after. We wanted five years when we didn't have to prove his income to a lender because without his income we thought we would not be able to meet a lender's income criteria (‘computer says no’) and will be at the mercy of a lender's variable rate, which could bump our monthly payment up. We’re both frugal people and have been adding money to savings, a SIPP and two ISAs so we could pay the bills over this five year period with a combination of my salary plus a set amount drawn from our various money pots each month but I'm not sure this will cut any ice with a mortgage lender. When DH is 67 his occupational and state pension both kick in and although that will be less income than he is currently earning, the outstanding mortgage amount plus existing equity would be high enough for us to restructure and continue paying the mortgage with my income alone.

In addition, another part of our plan is to restore our ‘fleet’ of classic cars one by one, have some fun with each and then sell them off so by the time he is 70 he has just two of his favourites left. These little lump sums will go into my pension. The various wrecks and relics are worth about £75k unrestored and we have the money for the restoration of the first one lined up. We have about 60-65% equity currently in the house. Finally we have life insurance policies and occupational death benefits so if the worst was to happen so the surviving partner would be just about ok.

 

So, that was the plan. Events have occurred that could change that.

 

1. The Pension scheme seems to suggest that the benefits of DH's Normal Retirement Age (NRA) 60 pension will not increase in value that much between this year (when he turns 60) and age 65 so I think there is no point hanging on until then for DH to take it. He could take it from May this year and carry on working (just in case you're not aware Royal Mail has structured its pension schemes over the years so staff can take their final salary benefits (accumulated pre-April 2010) as their NRA60 package and their Defined Benefit benefits (accumulated May 2010 onwards)  as their NRA65 pension). The paperwork has now turned up from the Pension scheme and the NRA60 benefits have the possibility of taking a £25k tax-free lump sum plus smaller monthly pension as oppose to just monthly pension.
2. DH is unexpectedly been named as a beneficiary in a distant relative's will, and the solicitor estimates this would give him ~£50k inheritance by the end of this year.
3. I moved across into another job within my company last September and secured a £10K pay rise. This will increase by another £5k once I have completed my (on-the-job) training this year. Plus there are bonuses.
4. There is the possibility DH will be offered Early Voluntary Retirement - his office is looking to offer EVR to a certain number of posties approaching/turning 60 and he could be one. 

 

I want DH to take the tax-free lump sum + monthly pension, wait to find out the outcome of the EVR in case there is a package for him, and if not retire. Some posties that are just a few months older than him look dreadful; some are crippled with bad knees and backs and I don’t want DH to end up like that. Some days he has a touch of the 'thousand yard stare'. With my increase in income plus the inheritance plus the tax-free lump sum I believe I can make the numbers work over the five years and I'll sort out the mortgage deal business closer the time. He's done around 27 years with Royal Mail as a postie and enough is enough.  He wants to carry on and stick to the plan as he’s concerned we won’t be able to get a new deal. This is literally the sticking point for him. 

Does anyone have any thoughts on this? 

As for me retiring (in case you're wondering) I didn’t start paying into pensions until 2010 so I have a way to go but I don’t want my retirement plans to depend on my exhausted husband working for longer than is healthy. I’ve worked from home for years and will continue to do so so it’s not as if we won’t see each other during the day if he retired now.

 

Marcon

At present all you're doing is worrying in limbo, both about your mortgage and, far more importantly, your husband's health. My thought is that surely the best bet is to talk to someone who knows - a decent broker, for example - with all the relevant facts and figures to hand. A lender's overriding interest is to ensure they'll get their money back. At the same time, there are now much more stringent rules in place to stop people borrowing more than they can afford to repay. 

Thrugelmir

Cottage_Economy said:

How much attention do mortgage lenders pay to savings/investments when considering a deal application? 

Normally very little. As the lender has no control over the money and what it is utilised for. What matters more is your sources of income, from employment, business , pension etc. 

Retireinten

Draw up a monthly budget with each of the two pension income options you mention (pension only/smaller pension + lumpsum - using confirmed pension values at say a set date this year), add in your income, knock off your household running costs (the debt free wannabe board calls this a Statement of Affairs) and work out your shortfall each month...  If you can service that shortfall by cutting your spending or funding it from savings until say your husbands state pension kicks in then I would say its safe to consider retirement now. 

I think you need to prove you can do this though (probably for your husband more than anything) and without reliance on the inheritance or an EVR to pay for anything (treat these as a bonus if they do happen!) 

Absolutely wait to see if there is an opportunity for EVR but if you can prove retirement is financially feasible without that, then just the knowledge your husband can stop now will probably be a massive boost for him. 

Not an expert on remortgages at all! You could definitely stay on the SVR after the term ends, we did this towards the end of our mortgage because the value and term meant we couldn't remortgage.  You can do some research now to see if you would qualify for a mortgage on your income alone. Someone on here will hopefully confirm if pension income is considered on an application also! 

AnotherJoe

As said, find a IFA to advise but without even knowing any of the numbers, my first Q is can you not look at paying off the mortgage from a combination of inheritance, many of the cars (how many can he drive/work on at once?) and pension lump sum ? Thats then a major expense out of the way and makes budgeting much easier.

Regards remortgaging, if you stay with your current lender, in nearly all cases you can get to another fixed term on a retention deal without them needing to dig into finances at all. One of my daughters has done this for several renewals now. WIth husbands variable income this has worked very well.

And I suggest you do not book such long fixed deals this time, you'll get better rates on shorter ones (2-3 years) and more flexibility which it seems you need if your plans change around .

cloud_dog

I can only comment on our situation but we recently switched from one fixed rate deal to another and there were no affordability checks involved.  We switched with the same lender so, I don't know if that is your intent or if you would actually remortgage with a different, lower provider.

Interestingly with Nationwide, as an existing holder, you can register the switch 5 months in advance of the end of your current deal and they will actually switch you 3 months before the end of the current deal (obviously if the new rate is higher then leave the switch as long as you can).

LHW99

Also check what you would pay as a redemption penalty if you paid of a large chunk of the mortgage before the end of the fix - depending on the rate, and how many years it has already run, the penalty added may not be as bad as it looks, as some seem to be calculated just to recoup the missing interest over the years missed. But if that makes ongoing repayments easier after its switched, it can be worth considering.

Cottage_Economy

Thanks to you all for your feedback. 
@Macron You're right, I am in limbo. COVID has introduced a lot of uncertainty in various areas but now also opportunities and starting to feel a bit of analysis paralysis.  We will probably talk to a broker, as our original mortgage and recent fixed deal were both arranged by a broker, but we didn't want to pay for his time to talk about it so far in advance because it could (and probably will) all change by the time we get there. 
@Thruglemir I thought that would be the case and I understand why. I did wonder whether an offset mortgage would help with that but it would mean moving our money so it was in one or more of their products, which may not be the best on the market. I'm just shooting the breeze here by the way, I've not seriously considered it or researched it as an option yet.
@Restireinten I keep track of our outgoings each month, and the last year has obviously been pretty good due to the lockdown, which isn't typical and I need to go back and look at this again. Previously we spent a lot on petrol outside lockdown, mostly due to DH going to events and visiting friends. I'm not sure what post-lockdown variable expenses will look like so it might be best just to assume we will go back to pre-lockdown levels.
Regarding the inheritance, he's definitely inheriting an eighth of the estate, but the value is an estimate at the moment as the bungalow has to be sold and we don't know exactly when it will sell. The deceased aunt had no spouse or children and no debts of any kind, but did have various savings and investments plus the bungalow. DH and his siblings were her POA so we have a good grasp of the sums involved.
@AnotherJoe @cloud_dog Looking at paying off the mortgage, it won't be possible as it is quite large but if we put all of our savings and investments towards paying off as much as possible, we could be left with approximately £70-80k. I did think about refinancing so the mortgage was in my name but I was told by our mortgage broker a few years ago that few lenders will give me a deal alone, they want both people on the deeds to be on the mortgage. Not sure how true that is. It would leave us with no safety net though, which makes me nervous. 
Your daughter is very lucky - we resorted to a broker in the past because Nationwide has been such a pain over digging through costs. After one bizarre conversation about getting rid of our three chickens because a £10 sack of chicken feed every two months could be unaffordable (that's despite us clearly moving large sums of money every month into our savings), I shut the conversation down and got a broker involved!
We won't sell the classic cars. DH has been collecting and restoring this type of car since he was 14. They're a passion and thankfully they are worth a decent amount both restored and unrestored. As they form part of the plan to pump up my retirement income, I'm not too enamoured at them being sold just yet. 
@LHW99 The redemption penalty would be 3% of the remaining mortgage, which would be about £6k-ish.  

AnotherJoe

Cottage_Economy said:

 
Your daughter is very lucky - we resorted to a broker in the past because Nationwide has been such a pain over digging through costs.

On a retention deal? Are you sure?

My daughter, as it happens, is with Nationwide and they didnt ask anything at all, just gave a choice of new 2,3&5 year deals as her current deal was ending, and tick a few boxes and was it was done. I was there when she did this as she was asking me what deal to go for so i know there were no q's about affordability etc.

Thrugelmir

Online product switches impose no requirement on lenders to perform mortgage affordability checks. Where advice is required lenders protect themselves and impose checks.

Cottage_Economy

AnotherJoe said:

Cottage_Economy said:

 
Your daughter is very lucky - we resorted to a broker in the past because Nationwide has been such a pain over digging through costs.

On a retention deal? Are you sure?

My daughter, as it happens, is with Nationwide and they didnt ask anything at all, just gave a choice of new 2,3&5 year deals as her current deal was ending, and tick a few boxes and was it was done. I was there when she did this as she was asking me what deal to go for so i know there were no q's about affordability etc.

Yes, I'm sure. It was only two years ago and we've been here nearly five. 
Also, the broker came back to us and said Nationwide had requested three month's of payslips from both of us, which I provided (hence why this thread exists - they wanted income proof for the retention deal). I started the process about three months before the end of the last deal and the new deal began as soon as the old one ended. 

So, bit of an update.

We've decided to forget about the whole 'income for a retention deal business' and cross that bridge when we come near to it. There's too much variability and unknowns. 

We've decided to take the lump sum of his NRA60 benefits. The difference in income is less than £100 a month, but we can do more for my retirement plans by having it. Also the pension benefits estimate shows the same widow's pension for me whether or not we take the lump sum so we might as well have it.

I've finally been through and redone a forecast for our spending based on knowns. Without the inheritance or possible EVR costs (but including his NRA60 benefits that will be payable from May), he can retire. Our shortfall when he stops working will be about £350 a month, which will rise to £575 when MIL passes away (she lives with us and currently contributes to bills). The total of our S&S ISAs and his SIPP is about £60k + the NRA60 lump sum coming in May is £26k. Then there's about £7k in a cash fund (which I add something to every month), about £6k in RM shares and we have two classic cars to sell this year which will bring us back £8-10k. The money has to last us until his NRA65 benefits kick in May 2026. At that point there will be another lump sum we will take. 

I've not taken into account my payrise when I finish training this year, any of the other cars, inheritances or bonuses (I usually get a month's salary every year but the performance and bonus scheme is changing this year). 

Still to think about is mitigating inflation by our savings/bonds interest and investment returns (or not), and how to manage the money so I can make some additional deposits into my pensions. Suspect the SIPP access age may rise to 57 from 55 sooner rather than later so that will have to be taken into account. Also no idea what Mr Sunak has in mind for us in the impending budget.

Finally, we have no children and our plans have always involved one day either downsizing/selling to release cash and/or doing an equity release to take care of our care needs. That's not a quick thing obviously, but the equity is there as a buffer. We've scrimped and saved for decades individually and jointly and the money is there for us to use to ensure a comfortable standard of living, especially if we have care needs. I've no intention of us being in a low quality care/nursing home just so our siblings can inherit our house (and we have found out recently that appears to be part of their retirement plans!).