Tricky one. I need to raise £60K for a deposit on a buy-to-let maybe using pension?

dangermousette

Hello, I am 51. I recently discovered I have a pension pot from an old job that is worth £62K. I want to use this as a deposit for a buy-to-let house that I have found. The house value is £167k and it already has tenants in place (with a minimum years contract), paying £1100 per month. I thought I would be able to liquidise my pension as a deposit, but I've been told there is no chance because I'm not 55. Obviously, the house would be a way better investment than the money sitting in the pension. The upshot is that I now have no deposit, but the rest of the mortgage has been approved. Can anyone think of any way that I can raise the shortfall? Is there a way to get the money from my pension that I don't know about? Can I get a loan using the pension as security? Do you think I could qualify for 100% mortgage on the premise that I would pay £60K lump sum in four years time (when I turn 55)? Is there any other way of raising this amount of money? All help would very much be appreciated because at the moment I can't see wood for the trees, and I really don't want to miss out on the house (I'd like to eventually move into it). Thank you!

DrEskimo

dangermousette said:

Hello, I am 51. I recently discovered I have a pension pot from an old job that is worth £62K. I want to use this as a deposit for a buy-to-let house that I have found. The house value is £167k and it already has tenants in place (with a minimum years contract), paying £1100 per month. I thought I would be able to liquidise my pension as a deposit, but I've been told there is no chance because I'm not 55. Obviously, the house would be a way better investment than the money sitting in the pension. The upshot is that I now have no deposit, but the rest of the mortgage has been approved. Can anyone think of any way that I can raise the shortfall? Is there a way to get the money from my pension that I don't know about? Can I get a loan using the pension as security? Do you think I could qualify for 100% mortgage on the premise that I would pay £60K lump sum in four years time (when I turn 55)? Is there any other way of raising this amount of money? All help would very much be appreciated because at the moment I can't see wood for the trees, and I really don't want to miss out on the house (I'd like to eventually move into it). Thank you!

How have you reached that conclusion?

Have you factored in the cost of the interest on the mortgage, the upkeep of the house, the tax you pay on any rental income, the possibility the house could be empty for a period of time, the risk of tennants not paying and the legal costs associated, or the fact that house prices may fall? 

Not to mention moving your entire investments from a highly liquid, well diversified fund to a high risk, single illiquid asset?

You are also not factoring in that mortgage companies do not typically accept deposits that are from loaned money, or that even at 55, you will have to pay considerable amount of tax if you want to withdraw the entire value as a lump sum. You get 25% tax free, but the rest is taxable.

dangermousette

I have reached that conclusion through working through the numbers in great detail. The house is in a very bouyant rental market in Boston, Lincolnshire. The house prices are increasing by between 7-10% per annum. The yield (worst case without a deposit) is 8% per annum, best case is over 16%. The house is a five bedroomed, three storey house which could be turned into an HMO to double the monthly rental income if necessary. It has been fitted with a state of the art sprinkler system, and also has all the necessary safety features in place. The location is fantastic, with the town centre and all shops within two minutes walking distance. 

I have done my homework, and would like my money to be invested in this property. So, as per my original question, I would really like ideas on how this could be done from the financial whizzes on here!

dangermousette

PS. I forgot to mention that I have other pensions in place for when I retire, it's just that I'd like to use this one for a property to secure a place for myself and my daughter, so it doesn't need to be a liquid asset. 

[Deleted User]

You can't use your pension in any way for the deposit.  You'll need to find the cash elsewhere, from savings or other assets.

molerat

You cannot access the pension until you are 55.  No-one will loan against the pension, anyone who says they will is a crook whose first step will be to transfer the pension to where you will never see it again. https://www.ftadviser.com/pensions/2020/06/09/how-to-borrow-from-one-s-pension/

Grumpy_chap

dangermousette said:

Hello, I am 51. I recently discovered I have a pension pot from an old job that is worth £62K. I want to use this as a deposit for a buy-to-let house that I have found. The house value is £167k and it already has tenants in place (with a minimum years contract), paying £1100 per month. I thought I would be able to liquidise my pension as a deposit, but I've been told there is no chance because I'm not 55. Obviously, the house would be a way better investment than the money sitting in the pension. The upshot is that I now have no deposit, but the rest of the mortgage has been approved. Can anyone think of any way that I can raise the shortfall? Is there a way to get the money from my pension that I don't know about? Can I get a loan using the pension as security? Do you think I could qualify for 100% mortgage on the premise that I would pay £60K lump sum in four years time (when I turn 55)? Is there any other way of raising this amount of money? All help would very much be appreciated because at the moment I can't see wood for the trees, and I really don't want to miss out on the house (I'd like to eventually move into it). Thank you!

dangermousette said:

I have reached that conclusion through working through the numbers in great detail. The house is in a very bouyant rental market in Boston, Lincolnshire. The house prices are increasing by between 7-10% per annum. The yield (worst case without a deposit) is 8% per annum, best case is over 16%. The house is a five bedroomed, three storey house which could be turned into an HMO to double the monthly rental income if necessary. It has been fitted with a state of the art sprinkler system, and also has all the necessary safety features in place. The location is fantastic, with the town centre and all shops within two minutes walking distance. 

I have done my homework, and would like my money to be invested in this property. So, as per my original question, I would really like ideas on how this could be done from the financial whizzes on here!

It is exceedingly unlikely that the BTL mortgage can be obtained for more than 75% LTV at sensible rates, especially for a first-time novice LL.

As others said, you cannot access pension funds for this purpose at your young age.

Your comments on yield do not reflect how this is usually calculated for BTL.  Rent income is £1.1k / month = £13.2k / year.  Capital value £167k.  Gross yield = 8%.

House price growth is not normally assessed in the calculation of rental yield.

Nett yield after costs will be much lower.

Given this property presents with a good gross yield, why is the current LL selling?  Are you certain the sitting tenants are as desirable as you would wish?

In the OP you mention a desire to one day move into the house. Then you mention turning it into a HMO.  I assume you know all the work and regulations for conversion to an HMO.  Would you really want to make all that investment and then convert it all back into single family dwelling?

What is so good about this house rather than simply buying a different house to move into?  What are your current living arrangements?

Assuming you still plan to go ahead, then you will need to look at alternative means to secure the £60k deposit rather than the bank wholly financing your new business venture. 
Do you have other savings that can be used?  
Do you have other assets against which you can borrow?
Do you have other property that can be sold?  Not necessary property as in "land" but could be shares, car, artwork...

Once you get this going, what residual emergency funds do you have available to meet emergency costs that may arise?  New boiler in the depths of winter?  New roof following that once-in-a-lifetime storm?

superbigal

I would be suprised if you can get any more than 25% from your pension when you reach 55/

sammyjammy

superbigal said:

I would be suprised if you can get any more than 25% from your pension when you reach 55/

OP can cash in the whole lot, the 25% is the tax free element

MallyGirl

and once they take a penny more than the 25% tax free then they are restricted from paying more than £4k a year into their pension for the rest of their life (by the MPAA).
The idea is a non-starter.

macman

Even when you reach 55 in 4 years time, withdrawing all £62k as a lump sum will only yield you £15.5k tax free. On the remaining £46.5k, you will pay income tax at your marginal rate. So at least 20%, or £9.3K, and probably mostly at 40%, depending on your other taxable income, so maybe £18.6k. So your gross £62k is reduced to £43.4k net. Really not sensible economics.
You say you've 'done your homework', but I'm marking it as 0 out of 10.