Crunch time, do we complete on house in Spain?

uk1

Bossy_bird said:

uk1 said:

Bossy_bird said:

Afternoon everyone, Newby post but at a real decision crunch point and could do with your advice….
Me and hubby both 43 and trying to avoid slipping into our respective mid life crises by actively engaging in pension planning. Ideally we would like to be flexible with employment choices at 55 and retired at 60. We have been lucky in our careers and could absolutely do more over the next few years to secure our future. We have been frivolous previously but both now love a  spreadsheet!!
A little bit about us…
Combined DC pots are currently at £476k and I have a mini DB pension giving £4400 pa at 63. £75k in ISAs. Both have 3 yrs working left to full SP allowance. We have a mahoosive mortgage of £560k but with c. 50% equity. 19 yrs left. We also have a small place in Spain with no mortgage. 

We have found a bigger place in Spain that would be perfect for us to retire to or at least spend the 180 days permitted! However it would involve equity release  from current home increasing LTV to 70% at a time when the world seems to be going slightly mental. Our target would be to pay off additional borrowing in 5yrs and then know that our retirement home is ours and then it’s just all about ‘the number’. However I’ve started to become anxious about job security and the pressure to maintain our current high salaries. We probably earn enough to retire early (50 ish) if we were sensible….but we are not 😬. The completion date is in 3 weeks and mortgage offer is currently on our kitchen table…extra borrowing at just over 1% fixed for 5 yrs feels like a great deal. I’m rambling, I guess I have two questions; Do we buy in Spain or is it too risky? and are we doing ok from a pensions perspective? I think we could do more….your advice is needed!!

Congratulations on finding yourself in such a great financial situation that allows you to consider these options.  Othes have provided you with excellent financial considerations so for what it's worth I'll suggest a consideration or two intended to help you test the more wider lifestyle considerations.

This seems to me to be in your minds a quite finely balanced decision but one which will undoubtedly tend to project you into a direction that may or may not be one that you will either be happy you made or not at some point in the future.  You seem currently to think the positive aspects are on balance heavier.  Here are a few I've had when thinking and sometimes regretting the acquisition of expensive overseas property.

Firstly, it is extremely difficult now to predict how you will feel about decamping to Spain in a decade or two in the future.  I won't dwell on all the many many things that might change. You can think of them yourselves.  Overseas property can an amazing opportunity or become an irritating burden that you feel obligated to use as well rather than enjoy the other options you might feel in the future.  For example extended travel staying in luxury hotels or cruises. Or renting different properties in different places or even an extended over-winter stay in Spain those years you feel like it.  To hedge this uncertain set of bets might it bemore prudent to play a safer route and retain your current property to enjoy for vacations, invest the cash you might have spent on the upgrade and make the life-changing decisions later?

As a general weakness of my own, I'd say that once I have a "brilliant idea" or "an extermely cunning plan"  I am often far too anxious to get started and plough on and as I get older I sometimes wonder whether I would have made the identical decision today or could it have been left a while longer.  Sometimes even an astute and “profitable” financial decision has an unforeseen set of non-financial negative unplanned and later regrettable consequences. 

Good luck with your difficult decision.

It’s almost like you can read my mind.

Thanks for the kind words.

Sometimes motivation is visceral and unconscious and it does seem to me that from a shared common human frailty weakness and vulnerability viewpoint that sometimes we are motivated by the draw of the immediate enjoyment of projecting ourselves forward into our dream and seeing the anticipated journey  as progress towards it ("something for us to look forward to from today onwards") and therefore we condition ourselves to avoid confronting the harsher caution because we get that immediate buzz and payback from today onwards whereas delay and caution means decision making time spent in denial and angst.  There is I believe an internal voice we all have of seemingly negative self-preservation that we should condition ourselves to interrogate and listen to.

It's almost impossible to predict what may trigger regret. What I now love about blighty I use to hate.  Four seasons in a single day.  Rain when you really don't want it.  Stuff I use to love about places I have lived in and had properties also had suprises.  For example we had several properties one after the other around Nice.  It was Nice to St-Jean and then to Beaulieu-Sur-Mer and then back to Villefranche and then there was the atrocities in Nice.  There were images that so upset us we couldn't return.  We sold up. It wasn't our  safety that was our concern, it was upset and empathy for others.  You can't rationalise irrational feelings and you cannot today predict the unpredictable. So caution isn't always so bad.

Anyway, thanks again for the words  but all I'd say is if there is a very quiet nagging voice suggesting caution then listen to it.  The loss of not acting now may prove to be  not there at all or perhaps absolutely miniscule compared to taking happy decisions now that lock you in to a much bigger reversing set of activities later. Wealth and cash should be seen as a means to a clear end rather the end in itself. 

Best wishes for your process.

jamesd

squirrelpie said:

jamesd said:

I suggest that you greatly increase your mortgage term with the goal of doing most repaying with the tax free lump sum from your pensions. This is because it gets you tax relief in effect on your capital repayments and because investment growth rates are currently expected to be well above mortgage interest rates, so you're expected to make more money than the extra interest cost.

Just to say that the possible value of 'current expectations' is well illustrated by the current crisis in the energy market. Unless the mortgage is a long-term fixed rate, you can be exposed to unexpected large interest rates at some inconvenient time. I speak as one who experienced 17% inflation decades ago.

Yes, there's a good deal of unpredictability. It's why I have an interest only offset mortgage, so I can shift money into offset if rates make it desirable, as they do now for a portion of my cash.

17% inflation is unlikely, but not impossible. the UK recent CPI peak was:

1973 9.2%
1974 16.04%
1975 24.21%
1976 16.56%
1977 15.84%
1978 8.26%
1979 13.42%
1980 17.97%
1981 11.88%
1982 8.60%

then below 5% from 1992 onwards,

There are a lot of people around now who didn't live through that as adults or know about the high interest rate blip that accompanied it. Some will even have forgotten that around 5-% was entirely routine for mortgage interest rates before 2008.

I've done vey well from my Bank Rate tracker started around 2010 but times will be different, just no knowing how different.

justme111

From your description is not clear why you want to buy your retirement house now , like 10 years or more before retirement. 
How did you determine existing property is small from holidaying there now with children ? Do you want property to holiday with children now and want to pay for it the amount it costs or are you buying retirement property ? 
What would happen if one of your jobs ended for some reason ? 
Tou sure that the decision to maintain 2 houses that you have now will not change in 10 years?

nigelbb

SomeMadeUpName said:

nigelbb said:

SomeMadeUpName said:

PS France has already released details of it's extended holiday visa, I imagine if Spain hasn't already it will soon, so I wouldn't worry about 90days in 180.  You will just need to stay under 183 in a year to not need to come under the Spanish tax system.  My long term plan is just under 4 months in France, just under 4 months in Spain, just over 4 months in UK (giving the UK the strongest claim on my taxes) we'll see if that proves viable.

You may well find that being tax resident in France is more beneficial to a pensioner particularly if you are a couple. Income tax is lower & if the UK pays for your healthcare with an S1 your pensions won't be subject to social charges.

Yep, I'm across that, and will consider it when the time comes (eg get 25% out whilst in UK, move to France, cash in balance at 7%**).  My point really though is that I may not want to, and if I don't there are still options.

**not sure if that's actually accurate, but quote it to illustrate there are tunes to be played when the I do 'retire'.

This isn't possible. To be eligible for the 7.5% rate you must liquidate the entirety of your pension post in one go. You cannot take 25% tax free in the UK & the balance at 7.5% in France.

atush

if you want to retire early, now is the time to reduce your mtg, not make it bigger.

Save hard, and pay more off your current mtg to bring down the term closer to your projected retirement date.

Bossy_bird

Thank you everyone for all of your advice and challenge. We went ahead with the purchase and managed to sell our apartment in Spain a few weeks ago so that should help us paying off our new mahoosive mortgage 😳. We want to balance pension contributions, savings and mortgage overpayments #theholytrinity but for now you’ll find me on the MFW thread trying to undo the mortgage increase as quickly as possible. Thanks again