The big decision, to carry on renting or to buy?

Balgroggy

Hi all,

I am in a dilemma at the moment and I need some good advice. I am a 58 year old, I did own a home but had to sell and go back to renting 18 years ago during the 2008 crash. I had money troubles after that, but cleared all that up more than 8 years ago and have an excellent credit score now.

My wife is a US citizen and has lived in this country since 2011. She has indefinite leave to remain and is older than I am.

Now you know about us, here is the situation.

We have been renting that same place for nearly 7 years to a wonderful landlord. He is now 78 and looking to avoid a double whammy of inheritance tax and capital gains at the same time. So he decided to tell us that he is thinking of selling. Our tenancy doesn't end until the end of January and he has said he is willing to extend it until March, just so we can get the right place to move into.

The options we have at present are:

1. Find a rental place to live.
2. Raise a mortgage and try to buy the house from him.
3. Raise a mortgage and try to buy another house somewhere.

If we go the mortgage route, it looks like we will have around 50,000 to use as a deposit if I use my tax free pension drawdown amount and she adds about 20,000 from US savings account.

This will allow with my salary of 47,000 a mortgage of around 261500 with deposit.

The questions are, if I extend my retirement to say 70 and if I can get an interest only mortgage on the expected future amount of my pension pot, would it be worth doing? Or should I continue to rent?

Also looking at if I go and interest only mortgage, overpaying to make it almost paid off by the time I retire.

Is this a viable route and what pitfalls are we likely to encounter?

Any advice or other options would be welcome.

Tabieth

It is really hard to advise without knowing your incomes, your savings and where in the U.K. you are thinking of buying. Renting after retirement scares me, can you afford to pay rent on a reduced income? Or would paying the mortgage off before retirement be an option?

Balgroggy

https://forums.moneysavingexpert.com/discussion/comment/82051513#Comment_82051513

My income is £47,000 at present. My wife doesn't work but has a pension that is paid into a US account, but its not much.

About £7,000 in savings, but wanting to keep much of that for moving expenses etc.

We are looking for somewhere in a reasonable commute to London. Travel expenses on trains etc, are paid by the company I work for. We rent at the moment in Ashford Kent, so was looking either somewhere in the area here, or anywhere we can have a detached, quiet place that I can still get into London fairly easily. Obviously looking somewhere out of the area will bring its own issues, not knowing the area, so not sure if its suitable etc.

As I said, ideally, getting an interest only mortgage and overpaying until retirement is looking our best option, but if there is any other options I'm not aware of, that could maybe settle the argument for us.

El_Torro

Regarding an interest only mortgage, I don't think you can use the value of your future potential pension pot as a repayment vehicle. Banks don't like to do this (probably by regulation aren't even allowed to do it), many endowment mortgages didn't work as expected.

Probably the most realistic way to get an interest only mortgage is to tell your lender that you plan to downsize at the end of the term. Even then the bank will probably want at least 50% equity in the property. Whether you actually do downsize or pay off the mortgage is up to you.

Herzlos

Would you stay where you are if landlord wasn't selling? What is it likely to be worth?

If so, then trying to buy from the landlord will save a lot of hassle on both sides - estate agent fees, moving fees, etc. Your landlord should be offering it to you for a bit below market to account for making life easier though how much will depend on your budget and how generous they feel.

silvercar

under the Right to Rent Act, there is no tenancy end, just a requirement to give 2 months notice.

If you like the house then buying it is a good option as it saves hassle, you should get a good price and there won’t be any unwelcome surprises, given you know the property. Also saves on the cost of moving.

I’d be moving any foreign money into UK savings account asap, lenders are more happy with money in pounds as opposed to foreign accounts.

Worried_fool

You wrote that your landlord is "looking to avoid a double whammy of inheritance tax and capital gains at the same time". He can avoid this by continuing to rent to you: no CGT is due when the asset of a deceased person is sold. Conversely, selling now would mean a CGT liability, and the money were then saved and formed part of his estate, it would be subject to IHT.

I know it is not your problem, but …

gwynlas

You would possibly be able to get a 25 year mortgage with some lenders but would need to show that you can afford payments after retirement. Obviously there is a cost involved in living anywhere.

A place of your own would obviously give you more security than a tenancy even with new legislation but you would be responsible

Alternatively you could look at social housing for the over 55's which give you security without spending all your money on a deposit and fees

Balgroggy

https://forums.moneysavingexpert.com/discussion/comment/82051585#Comment_82051585

I've heard there are specialist mortgage companies that cater for the over 55 and can do interest only mortgages with an 80% LTV, just you need to go through a "later life" mortgage broker to get them. Is this true? Names I heard were, Market Harborough Building Society and LiveMore

saajan_12

We have been renting that same place for nearly 7 years to a wonderful landlord. He is now 78 and looking to avoid a double whammy of inheritance tax and capital gains at the same time. So he decided to tell us that he is thinking of selling. Our tenancy doesn't end until the end of January and he has said he is willing to extend it until March, just so we can get the right place to move into.

To clarify a few things here ^: If he sells now, pays CGT, and later the beneficiaries inherit the money, then if large enough his estate would be subject to IHT as well, ie a double whammy. If instead he keeps the property and his beneficiaries inherit the property, or sell it soon after his death, then only the IHT is payable, and NOT the CGT since the CGT clock is reset effectively.

Also since 1 May, all tenancies are periodic so you can leave with 2 months notice or the landlord can give you 4 months notice to evict for a sale. The original ending in Jan dates are irrelevant now.

The questions are, if I extend my retirement to say 70 and if I can get an interest only mortgage on the expected future amount of my pension pot, would it be worth doing? Or should I continue to rent?

Also looking at if I go and interest only mortgage, overpaying to make it almost paid off by the time I retire.

Unlikely to be accepted by a lender - interest only for your main residence is rare anyway and the expectation is you would need to use your pension to live off (maintenance, utilities, food, transport, fun, etc). Especially having used your 25% draw down already, the rest of the pension pot would be paid over time so wouldn't give you a realistic way of getting a lump sum to pay off the mortgage. And any overpayment plans aren't included in the original offer, since the lender can't enforce that.

WHAT I WOULD DO:

Enquire with some lenders on a repayment mortgage they would offer you, using your 25% lump sum as a deposit and based on your income upto your retirement age. If this covers a house you would like to live in, then its worth considering. Remember even if your house is paid off by retirement, you're then in a property you have to maintain yourself eg will you be able to afford the boiler breaking while on a fixed income?

If it doesn't or you decide against it, continue renting - as long as the rent is well within what you can afford to pay out of whatever your future pension income is in future.

Balgroggy

https://forums.moneysavingexpert.com/discussion/comment/82051601#Comment_82051601

We probably would, as the house is pretty good overall. However, some of the neighbours are rather inconsiderate, so there's that factor to consider. Also likely house price will be in excess of $300,000, so beyond our budget, unless he is willing to drop the price as he wont be paying listing fees etc.