Using Pension Pot to secure a mortgage

rebs

My situation is that I am recently divorced and I need to purchase a house for myself to live in.

I am 60 years old with no earned income.

My day to day spending needs are taken care of by an income stream that includes spousal maintenance for a few years followed by a defined benefit pension which will then be augmented with a full state pension a couple of years later.

In addition to that income stream, I have a defined contribution pension pot of approx £570k.  I would like to use this pension pot to borrow £175k but I am not sure of the best way.

Ideally, I would use flexible drawdown to repay a mortgage. Or I could purchase an annuity - maybe for a fixed term to cover the mortgage term?

I have approached a couple of mortgage brokers but they have not been able to come up with any solutions (one broker is still looking for me) - some lenders won't accept annuity income for example.

I also have approx £325k for a deposit, so I would hope my LTV shouldn't be an issue.

My question is - should I be looking at more specialist brokers or lenders?  If so, how do I go about finding them?

Is it a hopeless case?  In the extreme, I could simply draw out the full amount I need from the pension pot, but that would cost me so much in tax (nearly 50% by my reckoning) that I am really loathe to do that unless I absolutely have to.

p00hsticks

What price properties are you looking at ?

rebs

p00hsticks said:

What price properties are you looking at ?

Perhaps I didn't make that clear - I have £325k deposit and am looking to borrow £175k so hoping to purchase at £500k.  

kingstreet

How long will the maintenance be paid? Is there any gap between the maintenance ending and the defined benefit pension starting? What term are you looking for? Interest only, or capital & interest repayment?

You should be able to get c4% of the SIPP pot allowable as income as you're over 55 even if you aren't currently drawing an income.

It feels like something should be possible, but the amount...?

rebs

kingstreet said:

How long will the maintenance be paid? Is there any gap between the maintenance ending and the defined benefit pension starting? What term are you looking for? Interest only, or capital & interest repayment?

You should be able to get c4% of the SIPP pot allowable as income as you're over 55 even if you aren't currently drawing an income.

It feels like something should be possible, but the amount...?

The maintenance runs for 5 years at which point my defined benefit pension kicks in followed 2 years later by my full state pension.  So that's my day to day income needs taken care of - I just need to work out how to access the pension money to purchase a property.

Repayment mortgage.

I don't really care about what the term is - whatever I can get I would work with, overpaying if needs be.

Is the amount I am seeking too much, do you think?  What would you consider a more reasonable amount to be seeking on those figures?

Hoenir

Withdrawing the tax free lump sum from the SIPP would provide you with £125k.  

silvercar

I'd be looking at interest only, with the pension pot as the "method" of repayment. As @Hoenir wrote, you could take 25% of the pension pot tax free. Not sure which lenders would be happy with this, but it should give you some options. 

Do you intend to work at all? If so, then that would give you an income stream, which could make lenders easier to find. Remember, once in your new home, if the employment didn't work out you could always resign. Or does the spousal maintenance rely on you not having paid work? 

kingstreet

rebs said:

kingstreet said:

How long will the maintenance be paid? Is there any gap between the maintenance ending and the defined benefit pension starting? What term are you looking for? Interest only, or capital & interest repayment?

You should be able to get c4% of the SIPP pot allowable as income as you're over 55 even if you aren't currently drawing an income.

It feels like something should be possible, but the amount...?

The maintenance runs for 5 years at which point my defined benefit pension kicks in followed 2 years later by my full state pension.  So that's my day to day income needs taken care of - I just need to work out how to access the pension money to purchase a property.

Repayment mortgage.

I don't really care about what the term is - whatever I can get I would work with, overpaying if needs be.

Is the amount I am seeking too much, do you think?  What would you consider a more reasonable amount to be seeking on those figures?

You need to meet affordability for the amount you want to borrow and only you know what the figures are so no-one can really tell you what might be possible. FWIW a £175k repayment mortgage over 10 years would cost £1,769 each month using a rate of 4%. Affordable now? Later?

4% of the SIPP pot is £22,800 so that would be virtually the same as the monthly cost if you can demonstrate sufficient income to justify the amount of loan required. Your broker is going to need patience to put this together and statements and forecasts of your pensions as many lenders will require these when lending into retirement.

rebs

Hoenir said:

Withdrawing the tax free lump sum from the SIPP would provide you with £125k.  

That's already accounted for in my £325K deposit.

rebs

silvercar said:

I'd be looking at interest only, with the pension pot as the "method" of repayment. As @Hoenir wrote, you could take 25% of the pension pot tax free. Not sure which lenders would be happy with this, but it should give you some options. 

Do you intend to work at all? If so, then that would give you an income stream, which could make lenders easier to find. Remember, once in your new home, if the employment didn't work out you could always resign. Or does the spousal maintenance rely on you not having paid work? 

Thanks for that - I have toyed with the idea of going interest only and, as you say, using the pension pot as the vehicle to pay off the capital.  Not averse to this option if it gets me what I need.

No, I don't intend to work.  It feels to me that I ought to be able to achieve this - my income needs are met, I just need to get the property costs out of the pension.

rebs

kingstreet said:

rebs said:

kingstreet said:

How long will the maintenance be paid? Is there any gap between the maintenance ending and the defined benefit pension starting? What term are you looking for? Interest only, or capital & interest repayment?

You should be able to get c4% of the SIPP pot allowable as income as you're over 55 even if you aren't currently drawing an income.

It feels like something should be possible, but the amount...?

The maintenance runs for 5 years at which point my defined benefit pension kicks in followed 2 years later by my full state pension.  So that's my day to day income needs taken care of - I just need to work out how to access the pension money to purchase a property.

Repayment mortgage.

I don't really care about what the term is - whatever I can get I would work with, overpaying if needs be.

Is the amount I am seeking too much, do you think?  What would you consider a more reasonable amount to be seeking on those figures?

You need to meet affordability for the amount you want to borrow and only you know what the figures are so no-one can really tell you what might be possible. FWIW a £175k repayment mortgage over 10 years would cost £1,769 each month using a rate of 4%. Affordable now? Later?

4% of the SIPP pot is £22,800 so that would be virtually the same as the monthly cost if you can demonstrate sufficient income to justify the amount of loan required. Your broker is going to need patience to put this together and statements and forecasts of your pensions as many lenders will require these when lending into retirement.

It's getting through the affordability that I think is going to be tricky for me, I think.

As you say, 4% of the SIPP is approx £22k but that ONLY needs to repay the mortgage as my day to day income is taken care of elsewhere.  

How can I find a broker that's going to have that patience and help me get this squared away?