Retirees & mortgages: advice needed urgently!

tempuscat

Apologies in advance for the length of this question.

I’m 59 and retired; my wife is 57, and working. My early retirement was not elective, but a compulsory redundancy. My private pension is £7,000, due to rise to £8,000 pa at age 60. My wife earns £15,000 pa. Our combined income is, therefore, £21k at the moment. We have no debts of any kind and we own our home outright. It is currently valued at £250k.

For 20 years, we have holidayed in a small villa in Southern Spain, one of three owned by a British family who have lived over there for 25 years and with whom we have become good friends. We’ve always dreamed of a life “in the sun” when my wife retires at age 60, and intended to relocate to that area of Spain where all our friends are – both British and Spanish – so as to benefit from local links.

We have just been telephoned by the owners of ‘our’ villa that they have decided to sell. They have offered us first option. Because the property continues to bring in rental income, they are quite happy to wait for us to sell here in the UK. The property is delightful and because we know its provenance / ownership history, would make a perfect purchase. And selling our UK home would enable us to move there immediately, with funds to spare. However. . .

For family reasons, we would also need to purchase a smaller, cheaper UK property. A relative lives us, and could not move to Spain. My wife also wishes to continue working for the next three years so as to maximise the (smallish) private pension to which she is entitled on retirement at age 60. So all three of us would theoretically move into a smaller property here, in addition to owning the Spanish property (which would continue to be rented for holiday lets by our friends: it is well-established, and currently more or less booked through to March of 2006). When my wife retires, we would sell the UK property and move to Spain, as by that time the situation involving our relative will have resolved itself.

Unfortunately, we don’t have enough funds to finance all this.
We can purchase one or other property outright. But not both. We estimate the amount of shortfall at £25,000. As noted, we have no debts of any kind, and a current gross income of £21k, rising to £22k next year. That income would also be swelled by whatever lettings income came from the Spanish property over the next three years.

Normally, we would wait until we could afford the cost of something we wanted. But we feel this is rather a unique situation that is unlikely ever to arise again.

In the past we have never had a problem with any mortgage or credit application. But now we’re wondering if our age might count against us, to the point that no institution would be prepared to grant a £25k mortgage on a likely UK property valued around £100k.

We’re nervous about approaching our bank, or any building society, without some forewarning by money experts here who know far more about these things than we do. Any advice, therefore, would be greatly appreciated as we need to decide on what to do next. Thanks!

payless

Whilst not being in a position to state whether a mortgage is suitable / recommend a lender / product :- based on your comments I can't see you having a problem in raising the cash from a mainstream high st lender for a UK property whilst you are UK based

Fairdo_2

I know that I have dealt in a similar situation and went to C&G for my clients then.

The retirement income was proof of affordability at that time.

Do you know what you wifes income will be in retirement?

I would assume you would only want the mortgage for 3 years, but many Lenders have a 5 year minimum term (although you could pay it off in 3 years if the product allows).

There are plenty of other Lenders who would entertain lending into retirement as long as income allows.

Hope this sets your mind at ease.

I would speak to a Mortgage Broker to get your case put in the best light with Lenders. Also speak to your own bank and explain your situation. The worst they could do is say no.

EdInvestor

Hi tempuscat

Why are the people in Spain selling now?

I have heard that property prices are falling in Spain (due to the sharp slowdown in mortgage equity withdrawal in the UK).You might do a lot better to wait.

Seems to me you need to maximise your retirement resources - I wouldn't be bounced into anything that could cut your assets or income at this stage.

tempuscat

Many thanks, payless / fairdo / edinvestor for these speedy replies: really, really helpful. Just to quickly pick up on some points raised:

* payless: very encouraging -- it was our advanced age (aargh) we were worrying about, thought this would put off a prospective lender


* fairdo: thank you for this detailed help. Re income: my wife's income at retirement at 60 would be a combination of State and private pension, so her total would be around £7,000pa. Mine would be £8,000pa, so our combined income would be £15,000 until my State pension kicked in at 65.

You're absolutely right about the mortgage term: we would want to sell the UK property in three years time and then use that equity to help us in our retirement in Spain.

The hesitation we have over approaching any institution with a mortgage application is, er, what happens if we're then refused??? Would that then have an adverse effect on our credit history?? (Or are we being paranoid!)

* EdInvestor: an important point, and glad you raised it. Reason for the sale is that our friends are looking to purchase a much larger property in the same area and so need to fund that purchase. Property prices in that area have actually mirrored, and still mirror, the ups / downs / plateaux of the UK market. So due to our familiarity with the area, and regional prices for a similar property, we know we are being offered a very fair deal (and of course, it gets around the problem of buying abroad from people you don't know, perhaps ijn a place where you have no local contacts or local knowledge). Our friends certainly aren't pressurising us in any way though; as noted, the property continues to bring in a gross rental income of £500 per week when let. To be honest, that letting income figure has to be a major consideration for us, even though we aren't actually 'buy-to-let' investors -- merely a couple of ageing spirits who'd really like to secure our future in a familiar place (he said, wistfully!)

PS: I know this is going to sound daft, but we've done our sums re cost of living, Spain v UK, and a Spanish retirement is actually more affordable than a UK one -- we currently pay, for example, £140 a month in Council Tax; the Spanish property charge is £125 (equivalent) per year. Our gas/electricity monthly bill is £85 averaged out over the year; in Spain, it would be less than a quarter of that. There are obviously going to be upsides and downsides to every such comparison, but the fact is for people such as us, facing a not-too-distant future on a fixed income, the UK is actually becoming too expensive a place in which to live. And then, of course, there's the ****** weather. . !!!

Fairdo_2

Well done tempuscat.

Obviously well considered and though out opinions. (Obviously condusive to your maturing years!)

From the points you raised with me, it would be better to discuss the situation hypothetically first with the broker and maybe also your existing bank.

There is no need currently to obtain a commitment into an Agreement In Principle, which, in many cases, could start putting "Footprints" on your credit file.

You should only need to do this when you are looking to proceed and you have a very good idea of which lender from the shortlist you would prefer to deal with.

EdInvestor

Tempuscat

I hear what you say about the comparative cost of living and the overall plan sounds like a good idea, especially since you've been going there so long, it will be like a pair of old slippers when you finally move there

Why don't you sell your UK home, buy the Spanish property outright, invest the remaining capital to provide income and use the income to rent somewhere in the UK to cover the 3 year gap?

The holiday letting income from the Spanish property can also be used to subsidise the UK rent if necessary.

It's very cheap to rent these days because there is so much competioon between TL landlords.Unless I've misunderstoood, can't quite see why you need a mortgage at all.

payless

Would tend to agree with EdInvestor - Whilst I said you should not have trouble raising finance , not sure if its would be right .. hence my orignal disclaimer

-Higher (geared) exposure in property market
- Extra costs of yet another sale in 3 yrs time

Fairdo_2

Can't argue with the last two posts.

It could be a better option for you.

Obviously a matter of choice, but it makes good sense.

tempuscat

Apologies for belated response -- had to rush out!

Well, really don't know what we'd do without you three: this is getting repetetive, I know, but many thanks! (And fairdo, thanks for the line about maturity -- my wife doesn't think so!!)

After all the advice here, I'm now beginning to think we should follow the lead given here and look at renting, rather than buying, here: area rentals here for a smallish property are £500 a month, so for three years that would be £18,000 (dead money!)

Against that, however, would be interest income from equity released from the sale of our existing home, plus whatever rental income accrued from the Spanish property. And, as you've all indicated, that would also remove the costs associated with buying a property here in the UK and then having to re-sell it three years later -- when perhaps the overall costs involved in that buying and selling would equal or maybe exceed whatever increase may've occurred in the property's value during our time of ownership.

So, er, umm. . . Many, many thanks again: I seem to have taken up a lot of people's valuable time, but we really were stuck for ideas (and perhaps lacking confidence, too). Sangria, or maybe Rioja, to this distinguished trio is on its way! :beer:

payless

Yes - the interest on the spare £75K invested/ deposited and the savings of interest on the £25K borrowed, plus lack of fees would go a long way towards covering that rental cost.. and remember the value of property can go down as well as up!

Its a tough balance , as you may prefer to own rather than rent, or even prefer to have a base here in case things don't work out

Best of luck whatever course you take ..