Tell me if this idea is good or bad.

SneakySpectator

I cannot get a mortgage, filled out 3 decision in principle forms and got denied

I have an idea for the future when I retire but I'm not sure if it's a good idea / waste of money or not.

So when I retire (hopefully no later than 55) I can chose to stay in my housing association 1 bedroom flat and pay the rent. Currently it's £450 per month but obviously will go up quite a lot in 20 years time when I'm 55. But for easy maths let's just say it's £450 per month and I live here until I'm 80. 

So over the 25 years (55 - 80) I'd pay £450 * 12 * 25 = £135,000 in rent that I'll never get back. Not only that but the amount of money I'll need to withdraw from my retirement fund each month to survive will have to include that £450 rent.

Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month. 

Also if my health every fails me and I need to go into a care home at some point, I can sell the private flat and get my money back, or even make a profit. Which I could then use to pay for living in a care home if I ever need to. 

The thing is I don't have family or children to look after me in old age so it's just me by myself. 

I'm not sure if doing the right the buy scheme for this housing association flat is a good idea because I seriously doubt a private home buyer would ever want to live in a council block so reselling the flat on the open market in the future would be extremely difficult I think. Not to mention I don't really want to live here when I'm old because there's no lift for the stairs and the neighbours are mostly loud, anti social, unemployed etc.

The way I see it is buying a flat at 55 is a no brainer because when I'm old and might need to go into a care home, I can sell the flat to pay for it. Whereas continuously paying rent to the council that will never be returned to me is just wasted money?

FreeBear

SneakySpectator said: Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month.

With a leasehold flat, you would need to factor in service charges and any major maintenance works (windows, roof, cladding, etc). Currently, you are protected from most of those, although some tenants do have to stump up an annual service charge on top of the rent..

As for what a flat might cost you in 20-25 years time, I have a feeling that £200K wouldn't buy you much. Average property prices have nearly doubled in most parts of the country since ~2005, and there is no reason to expect a major crash in our lifetime (despite what one doom monger claims). Realistically, £500K might get something by the time you retire depending on where you are in the country.

SneakySpectator

FreeBear said:

SneakySpectator said: Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month.

As for what a flat might cost you in 20-25 years time, I have a feeling that £200K wouldn't buy you much. 

All prices are adjusted for inflation. If I don't adjust for inflation my retirement fund at 55 would be £700,000 and the value of a flat I'd likely buy would be about £350,000.

But to keep things simple, I adjusted everything to account for inflation otherwise you have to upscale the cost of food and bills and all that crap. Better to keep it simple.

poseidon1

SneakySpectator said:

I cannot get a mortgage, filled out 3 decision in principle forms and got denied

I have an idea for the future when I retire but I'm not sure if it's a good idea / waste of money or not.

So when I retire (hopefully no later than 55) I can chose to stay in my housing association 1 bedroom flat and pay the rent. Currently it's £450 per month but obviously will go up quite a lot in 20 years time when I'm 55. But for easy maths let's just say it's £450 per month and I live here until I'm 80. 

So over the 25 years (55 - 80) I'd pay £450 * 12 * 25 = £135,000 in rent that I'll never get back. Not only that but the amount of money I'll need to withdraw from my retirement fund each month to survive will have to include that £450 rent.

Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month. 

Also if my health every fails me and I need to go into a care home at some point, I can sell the private flat and get my money back, or even make a profit. Which I could then use to pay for living in a care home if I ever need to. 

The thing is I don't have family or children to look after me in old age so it's just me by myself. 

I'm not sure if doing the right the buy scheme for this housing association flat is a good idea because I seriously doubt a private home buyer would ever want to live in a council block so reselling the flat on the open market in the future would be extremely difficult I think. Not to mention I don't really want to live here when I'm old because there's no lift for the stairs and the neighbours are mostly loud, anti social, unemployed etc.

The way I see it is buying a flat at 55 is a no brainer because when I'm old and might need to go into a care home, I can sell the flat to pay for it. Whereas continuously paying rent to the council that will never be returned to me is just wasted money?

Immediate flaw in your idea (assuming you are talking SIPP,) is the suggestion you could access half of your retirement pot for a projected £350k purchase. You do know only 25% can be taken tax free and anything above that liable to income tax?

Therefore assuming your pension pot was indeed  £700k, £175k would be tax free but the additional £175k would minimally face 20% , 40% and 45%  income tax and perhaps higher depending  on if England's top tier tax rates have risen further by then.  So quite a significant shortfall in reaching your £350k purchase price.

As for retirement at 55, unless you will attain that age before 6 April 2028, the minimum age for access to your pot jumps to 57 on or after 6 April 2028.   I strongly suspect that particular goalpost will move upward again in the years to come. You do need to have a better grasp of pension access rules.

Of course if your 'retirement' pot is not going to be SIPP based ( eg ISA, GIA, Cash on deposit etc), then of course no constraints on what you can expend on property purchase, it will just be harder building a big retirement pot this route from after taxed income and without employer's contributions. 

I think back to the drawing board on this 'idea'.

SneakySpectator

poseidon1 said:

SneakySpectator said:

I cannot get a mortgage, filled out 3 decision in principle forms and got denied

I have an idea for the future when I retire but I'm not sure if it's a good idea / waste of money or not.

So when I retire (hopefully no later than 55) I can chose to stay in my housing association 1 bedroom flat and pay the rent. Currently it's £450 per month but obviously will go up quite a lot in 20 years time when I'm 55. But for easy maths let's just say it's £450 per month and I live here until I'm 80. 

So over the 25 years (55 - 80) I'd pay £450 * 12 * 25 = £135,000 in rent that I'll never get back. Not only that but the amount of money I'll need to withdraw from my retirement fund each month to survive will have to include that £450 rent.

Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month. 

Also if my health every fails me and I need to go into a care home at some point, I can sell the private flat and get my money back, or even make a profit. Which I could then use to pay for living in a care home if I ever need to. 

The thing is I don't have family or children to look after me in old age so it's just me by myself. 

I'm not sure if doing the right the buy scheme for this housing association flat is a good idea because I seriously doubt a private home buyer would ever want to live in a council block so reselling the flat on the open market in the future would be extremely difficult I think. Not to mention I don't really want to live here when I'm old because there's no lift for the stairs and the neighbours are mostly loud, anti social, unemployed etc.

The way I see it is buying a flat at 55 is a no brainer because when I'm old and might need to go into a care home, I can sell the flat to pay for it. Whereas continuously paying rent to the council that will never be returned to me is just wasted money?

Immediate flaw in your idea (assuming you are talking SIPP,) is the suggestion you could access half of your retirement pot for a projected £350k purchase. You do know only 25% can be taken tax free and anything above that liable to income tax?

Therefore assuming your pension pot was indeed  £700k, £175k would be tax free but the additional £175k would minimally face 20% , 40% and 45%  income tax and perhaps higher depending  on if England's top tier tax rates have risen further by then.  So quite a significant shortfall in reaching your £350k purchase price.

As for retirement at 55, unless you will attain that age before 6 April 2028, the minimum age for access to your pot jumps to 57 on or after 6 April 2028.   I strongly suspect that particular goalpost will move upward again in the years to come. You do need to have a better grasp of pension access rules.

Of course if your 'retirement' pot is not going to be SIPP based ( eg ISA, GIA, Cash on deposit etc), then of course no constraints on what you can expend on property purchase, it will just be harder building a big retirement pot this route from after taxed income and without employer's contributions. 

I think back to the drawing board on this 'idea'.

I should have clarified. Approximately £430,000 of this retirement fund will be in my S&S ISA which has no tax implications for withdrawal. 

The remaining £250,000 or so would be in my private pension, of which I can withdraw 25% tax free as you rightly mentioned. 

Thanks. 

twopenny

There are benefits to Housing Association.

Things will be reparied with no franticly looking round for trades who don't want small jobs or will sometimes take advantage.

You have someone to call on if there's trouble.

A place of your own is lovely but it does come with it's own problems that you are responsible for.

As FreeBear says, there's the extra payment on flats for upkeep of buildings and grounds the cost of which you have no control over.

I don't know where you live and what the area is like for house prices.

Would you consider moving to somewhere they are cheaper? There are bungalows around here for around that price and you wouldn't have to worry about upkeep prices but do as you can.

I know they are cheaper up north and in parts of Wales.

Do you know why your applications were turned down?

I've been turned down for credit cards because I was signing on yet my annual income was going to be thousands in a lump sum as I retired that year but there was no flexing of the rules to allow for income. Just that I was signing on.

Ditto interest free credit cards, only income was taken into account. Not capital or assets.

poseidon1

SneakySpectator said:

poseidon1 said:

SneakySpectator said:

I cannot get a mortgage, filled out 3 decision in principle forms and got denied

I have an idea for the future when I retire but I'm not sure if it's a good idea / waste of money or not.

So when I retire (hopefully no later than 55) I can chose to stay in my housing association 1 bedroom flat and pay the rent. Currently it's £450 per month but obviously will go up quite a lot in 20 years time when I'm 55. But for easy maths let's just say it's £450 per month and I live here until I'm 80. 

So over the 25 years (55 - 80) I'd pay £450 * 12 * 25 = £135,000 in rent that I'll never get back. Not only that but the amount of money I'll need to withdraw from my retirement fund each month to survive will have to include that £450 rent.

Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month. 

Also if my health every fails me and I need to go into a care home at some point, I can sell the private flat and get my money back, or even make a profit. Which I could then use to pay for living in a care home if I ever need to. 

The thing is I don't have family or children to look after me in old age so it's just me by myself. 

I'm not sure if doing the right the buy scheme for this housing association flat is a good idea because I seriously doubt a private home buyer would ever want to live in a council block so reselling the flat on the open market in the future would be extremely difficult I think. Not to mention I don't really want to live here when I'm old because there's no lift for the stairs and the neighbours are mostly loud, anti social, unemployed etc.

The way I see it is buying a flat at 55 is a no brainer because when I'm old and might need to go into a care home, I can sell the flat to pay for it. Whereas continuously paying rent to the council that will never be returned to me is just wasted money?

Immediate flaw in your idea (assuming you are talking SIPP,) is the suggestion you could access half of your retirement pot for a projected £350k purchase. You do know only 25% can be taken tax free and anything above that liable to income tax?

Therefore assuming your pension pot was indeed  £700k, £175k would be tax free but the additional £175k would minimally face 20% , 40% and 45%  income tax and perhaps higher depending  on if England's top tier tax rates have risen further by then.  So quite a significant shortfall in reaching your £350k purchase price.

As for retirement at 55, unless you will attain that age before 6 April 2028, the minimum age for access to your pot jumps to 57 on or after 6 April 2028.   I strongly suspect that particular goalpost will move upward again in the years to come. You do need to have a better grasp of pension access rules.

Of course if your 'retirement' pot is not going to be SIPP based ( eg ISA, GIA, Cash on deposit etc), then of course no constraints on what you can expend on property purchase, it will just be harder building a big retirement pot this route from after taxed income and without employer's contributions. 

I think back to the drawing board on this 'idea'.

I should have clarified. Approximately £430,000 of this retirement fund will be in my S&S ISA which has no tax implications for withdrawal. 

The remaining £250,000 or so would be in my private pension, of which I can withdraw 25% tax free as you rightly mentioned. 

Thanks. 

That certainly works, but you still have the age 55 hurdle for SIPP access depending on your current age. You may have to expend far more of your ISA ( and leave the SIPP) if age 55 is your fixed objective.

I would not like to do that, the ISA ( and its tax free income functionality) is far too valuable. In my case I would happily run down my SIPP to favor the ISA pot. Already retired by the way.

SneakySpectator

twopenny said:

There are benefits to Housing Association.

Things will be reparied with no franticly looking round for trades who don't want small jobs or will sometimes take advantage.

You have someone to call on if there's trouble.

A place of your own is lovely but it does come with it's own problems that you are responsible for.

As FreeBear says, there's the extra payment on flats for upkeep of buildings and grounds the cost of which you have no control over.

I don't know where you live and what the area is like for house prices.

Would you consider moving to somewhere they are cheaper? There are bungalows around here for around that price and you wouldn't have to worry about upkeep prices but do as you can.

I know they are cheaper up north and in parts of Wales.

Do you know why your applications were turned down?

I've been turned down for credit cards because I was signing on yet my annual income was going to be thousands in a lump sum as I retired that year but there was no flexing of the rules to allow for income. Just that I was signing on.

Ditto interest free credit cards, only income was taken into account. Not capital or assets.

Actually moving into a bungalow would be my preferred option but I thought they were more expensive than houses per square foot because they're single story? Without giving your exact location, which area are you referring to that has low prices? 

I've looked at places like Sheffield and county Durham as options.

poseidon1

Incidentally the particulars of your social housing locale sounds particularly obnoxious ( hopefully not as bad as Michael Caine's Harry Brown movie), so sound idea to consider  jumping ship to more pleasant pastures in your later years.

 However currently your  £450 pm rent sounds very cheap ( from a London/ SE perspective) , so hopefully this is freeing up sufficient surplus cash for you to stockpile/invest over the years to come. The financial security of your own home is worth striving for, especially here in England.

SneakySpectator

poseidon1 said:

SneakySpectator said:

poseidon1 said:

SneakySpectator said:

I cannot get a mortgage, filled out 3 decision in principle forms and got denied

I have an idea for the future when I retire but I'm not sure if it's a good idea / waste of money or not.

So when I retire (hopefully no later than 55) I can chose to stay in my housing association 1 bedroom flat and pay the rent. Currently it's £450 per month but obviously will go up quite a lot in 20 years time when I'm 55. But for easy maths let's just say it's £450 per month and I live here until I'm 80. 

So over the 25 years (55 - 80) I'd pay £450 * 12 * 25 = £135,000 in rent that I'll never get back. Not only that but the amount of money I'll need to withdraw from my retirement fund each month to survive will have to include that £450 rent.

Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month. 

Also if my health every fails me and I need to go into a care home at some point, I can sell the private flat and get my money back, or even make a profit. Which I could then use to pay for living in a care home if I ever need to. 

The thing is I don't have family or children to look after me in old age so it's just me by myself. 

I'm not sure if doing the right the buy scheme for this housing association flat is a good idea because I seriously doubt a private home buyer would ever want to live in a council block so reselling the flat on the open market in the future would be extremely difficult I think. Not to mention I don't really want to live here when I'm old because there's no lift for the stairs and the neighbours are mostly loud, anti social, unemployed etc.

The way I see it is buying a flat at 55 is a no brainer because when I'm old and might need to go into a care home, I can sell the flat to pay for it. Whereas continuously paying rent to the council that will never be returned to me is just wasted money?

Immediate flaw in your idea (assuming you are talking SIPP,) is the suggestion you could access half of your retirement pot for a projected £350k purchase. You do know only 25% can be taken tax free and anything above that liable to income tax?

Therefore assuming your pension pot was indeed  £700k, £175k would be tax free but the additional £175k would minimally face 20% , 40% and 45%  income tax and perhaps higher depending  on if England's top tier tax rates have risen further by then.  So quite a significant shortfall in reaching your £350k purchase price.

As for retirement at 55, unless you will attain that age before 6 April 2028, the minimum age for access to your pot jumps to 57 on or after 6 April 2028.   I strongly suspect that particular goalpost will move upward again in the years to come. You do need to have a better grasp of pension access rules.

Of course if your 'retirement' pot is not going to be SIPP based ( eg ISA, GIA, Cash on deposit etc), then of course no constraints on what you can expend on property purchase, it will just be harder building a big retirement pot this route from after taxed income and without employer's contributions. 

I think back to the drawing board on this 'idea'.

I should have clarified. Approximately £430,000 of this retirement fund will be in my S&S ISA which has no tax implications for withdrawal. 

The remaining £250,000 or so would be in my private pension, of which I can withdraw 25% tax free as you rightly mentioned. 

Thanks. 

That certainly works, but you still have the age 55 hurdle for SIPP access depending on your current age. You may have to expend far more of your ISA ( and leave the SIPP) if age 55 is your fixed objective.

I would not like to do that, the ISA ( and its tax free income functionality) is far too valuable. In my case I would happily run down my SIPP to favor the ISA pot. Already retired by the way.

I know the private pension age is going to 57 and probably in 20 years will be 60, by my target is to still retire at 55 and live off my ISA until my private pension kicks in but it's very hard to predict 20 years in the future regarding this stuff so I will have to see when the time comes closer. 

I don't have a SIPP, just a general pension with legal and general. It lets me select from a range of about 15 funds and I picked the passively managed global index fund, low fees, index tracker, seems like the best option.

FreeBear

twopenny said: A place of your own is lovely but it does come with it's own problems that you are responsible for.

As FreeBear says, there's the extra payment on flats for upkeep of buildings and grounds the cost of which you have no control over.

Seeing as my name got mentioned....

I'm fortunate that I own my own place, lock, stock, and barrel (freehold). However, I'm having to spend just about all my spare cash on maintenance and have already had to pay out for new windows/doors, heating system, roof repairs, and boosting insulation. Redecorating internally is currently limited to painting and using discounted wallpaper when available. Looks like my cash lump sum when I retire is going to have to be spent on a couple more big ticket items in a few years time.

On the plus side, good public transport in to town and out to the coast. A quiet area, with virtually no crime, and a decent crop of neighbours on the whole.