Mortgages in Retirement

DE_612183

Looking for some advice, I'm looking to retire this year ( aged 62 ), I'll have a couple of DB pensions, but am looking to utilise a SIPP on draw down for 5 years till my SP kicks in.

My wife will do the same until hers kicks in.

We should have a net income of £36k, however for mortgage AIP calculator it only comes out at £13k.

Are there any providers that look at draw down specifically in their calculations in some way?

kingstreet

Yes. Typically, 4% - 5% of the fund's value might be allowable.

A decent broker will match you with the best lender.

MWT

DE_612183 said:

We should have a net income of £36k, however for mortgage AIP calculator it only comes out at £13k.

Are there any providers that look at draw down specifically in their calculations in some way?

What sort of rate are you going to need to drawdown to get to the £36k before the state pension kicks in?

If it is more than the 4-5% typically considered then that is at least part of the problem as it makes the SIPP a short term expendable resource rather than long term support for a mortgage.

How much are you trying to raise and are you looking at RIO options?

Another possibility is a Lifetime/Equity Release mortgage but a lot depends on the property value and how much equity you already have to put into the property...

poseidon1

DE_612183 said:

Looking for some advice, I'm looking to retire this year ( aged 62 ), I'll have a couple of DB pensions, but am looking to utilise a SIPP on draw down for 5 years till my SP kicks in.

My wife will do the same until hers kicks in.

We should have a net income of £36k, however for mortgage AIP calculator it only comes out at £13k.

Are there any providers that look at draw down specifically in their calculations in some way?

Responders to your post would have appreciated knowing exactly how much was in the Sipps for you and your spouse.

Your thread below suggests your DC pot could support withdrawing UFPLS  of £25k annually but you do not indicate for how long?

https://forums.moneysavingexpert.com/discussion/6633882/looking-to-retire-next-year-62#latest

Worth mentioning that when I was remortgaging with Barclays ( at age 66), they completely excluded my £400k Sipp on grounds it was not a 'guranteed' income source. All my remaining income sources ( GIA portfolio, ISA income, bank interest, commercial property rent) similarly excluded. In the end got a modest £55k advance based solely on the guaranteed state pension.

Will be looking for a more substantial equity release mortgage on next house move.

DE_612183

@poseidon1 - yes appreciate the figures were not included but I was looking at the principal of the thing.

I have worked out for the rest of our lives we have circa £3,000 take home per month from two different SIPPs, the the DBs and the SP.

All I need is a mortgage company to look at that and the risk associated with a LTV of about 25% and say - yeah that looks good.

But a lot of the high street lenders see no further than the guaranteed income.

As an aside is there a fixed term annuity product available anywhere and if so would that be accepted as income?

poseidon1

Standalone fixed term capital annuities still exsist from the likes of Canada Life, but usually on an advised basis. They can be purchased from  unencumbered Sipp tax free cash, but not from the remnants of the drawdown fund where you are  usually only  offered lifetime annuities.

LV insurance purports to offer a fixed term maturity fund that theoretically can be incorporated into a Sipp, but as you will see from the article below it is the maturity sum rather than the income itself which is guranteed, although they do state 'fixed income' over varying periods can be derived therefrom. However, quite how that works in practice I have no clue. I suspect that product may prove too esoteric for most mortgage lenders to comprehend.

https://www.lvadviser.com/fixed-term-investment

silvercar

Do you have anyone that could go on the mortgage, but not the deeds, with sufficient income to get you the mortgage? If you have offspring that could help, it may make it easier. The risk to them is low in the long term as presumably they would inherit it eventually.

MWT

What are you trying to do with the mortgage?

Are you trying to move house, remortgage from a current mortgage, release capital... ?

There are other options that might work better for you depending on the purpose.

Similarly, if you are planning on a joint net income of £36,000 that suggests the initial 5 years of drawing down from your SIPP is going to almost wipe it out, and that the Civil Service pension that you are waiting to draw in 5 years time is also quite small.

One of the issues you will have with retirement mortgages is that products like a RIO will assess affordability for you both individually, not as a combined total, so elements that die with either of you like the state pension, will not be counted in each other's affordability calculation. 

I suppose the real question to consider is can you really afford to retire at 62 if you still need a mortgage?

DE_612183

MWT said:

What are you trying to do with the mortgage?

Are you trying to move house, remortgage from a current mortgage, release capital... ?

There are other options that might work better for you depending on the purpose.

Similarly, if you are planning on a joint net income of £36,000 that suggests the initial 5 years of drawing down from your SIPP is going to almost wipe it out, and that the Civil Service pension that you are waiting to draw in 5 years time is also quite small.

One of the issues you will have with retirement mortgages is that products like a RIO will assess affordability for you both individually, not as a combined total, so elements that die with either of you like the state pension, will not be counted in each other's affordability calculation. 

I suppose the real question to consider is can you really afford to retire at 62 if you still need a mortgage?

So the purpose of the mortgage is to downsize - but not fully, there will be a subsequent downsize within the 10 years that will then make us mortgage free.

You are correct the SIPP gets wiped within 5 years, then my SP kicks in.
Same with my wife.

We are happy that we can maintain take home income of £3,000 per month ( plus additional paid in by kids while they still live with us ) from the point of Retirement to kicking the bucket!

The actual income when we retire does not differ much from the income whilst working - the only difference is that the mortgage company will take account of my salary income, but not when the income comes from a draw down pot.

Emmia

DE_612183 said:

MWT said:

What are you trying to do with the mortgage?

Are you trying to move house, remortgage from a current mortgage, release capital... ?

There are other options that might work better for you depending on the purpose.

Similarly, if you are planning on a joint net income of £36,000 that suggests the initial 5 years of drawing down from your SIPP is going to almost wipe it out, and that the Civil Service pension that you are waiting to draw in 5 years time is also quite small.

One of the issues you will have with retirement mortgages is that products like a RIO will assess affordability for you both individually, not as a combined total, so elements that die with either of you like the state pension, will not be counted in each other's affordability calculation. 

I suppose the real question to consider is can you really afford to retire at 62 if you still need a mortgage?

So the purpose of the mortgage is to downsize - but not fully, there will be a subsequent downsize within the 10 years that will then make us mortgage free.

You are correct the SIPP gets wiped within 5 years, then my SP kicks in.
Same with my wife.

We are happy that we can maintain take home income of £3,000 per month ( plus additional paid in by kids while they still live with us ) from the point of Retirement to kicking the bucket!

The actual income when we retire does not differ much from the income whilst working - the only difference is that the mortgage company will take account of my salary income, but not when the income comes from a draw down pot.

But in moving twice, you're incurring two lots of these costs, is it possible to only move once?

MWT

DE_612183 said:

So the purpose of the mortgage is to downsize - but not fully, there will be a subsequent downsize within the 10 years that will then make us mortgage free.

Sounds like the plan is to make the final move once the kids have moved out?  ... is that most likely to be closer to the 10 year point than say 5 years?

DE_612183 said:
You are correct the SIPP gets wiped within 5 years, then my SP kicks in.
Same with my wife.

Are you both 62 at the moment? ... reason for asking is related to the possibility of suing a Lifetime Mortgage product to get you where you want to be, and that is dependent on the age of the youngest life.

DE_612183 said:

We are happy that we can maintain take home income of £3,000 per month ( plus additional paid in by kids while they still live with us ) from the point of Retirement to kicking the bucket!

Difficult to contemplate I know, but what would be the impact on that £3,000 take home if either of you were to die in 5 years time?

DE_612183 said:

The actual income when we retire does not differ much from the income whilst working - the only difference is that the mortgage company will take account of my salary income, but not when the income comes from a draw down pot.

You may want to consider using a Lifetime Mortgage product for this as they can typically be obtained based on the property value, not your income, and can be found with terms that have a reducing early repayment penalty over say a 10 year period.

The age of the youngest life determines the LTV percentage that can be obtained, hence the question above.

You can also opt to pay the interest each month so it does not roll-up, but keep that optional rather than contractual to give you flexibility to deal with circumstances that may arise.

You certainly need advice to go down this path but shop around the fees for equity release products can vary considerably...