And then there was none.

[Moira Niedzwiecka]

Dave,

My heart goes out to you.

I hope your windfall comes through.

I have just cashed in my pension to be able to proceed with the build.

Be careful, they hammer you for emergency tax that you will need to claim back if entitled.

As daiking says, as hard as it may, be relying on your tenants to buy the property in two years time is risky.

People's circumstances can change overnight, as I know only too well, & they may not be in a position to buy the house.

Why are they waiting for 2 years?

I will keep everything crossed that it all works out for you.

I am sure it will if a bit later than planned.

[Stones]

@ProDave

 

I know we chatted about this last week.  Can't add much more than has already been said.  I've certainly been in the position previously where we couldn't move forward due to delays selling a house, so I really do have sympathy for your situation.

 

Chin up as they say, it could be worse - I'm just back from the hospital with my wife, who having fallen heavily on her arm in August (and been given the all clear at A&E) had an X-ray today which revealed a significant fracture, which unsurprisingly has not healed.  Cast up to her shoulder with an operation to the pin the bone a real possibility.

 

 

[ProDave]

Re selling / renting the old house.

 

The tenants are continuing to run it as a B&B and by advertising it a lot more are getting a much higher occupancy than we ever did. Be we only ran it as a hobby business, we didn't want to be too tied.  Being self employed, they would not get a mortgage straight away. Most lenders want to see 2 years of accounts before they will lend against that income, hence letting them rent it for 2 years to get to that point.  I do believe they want to buy it, but also in the real world recognise there is a big difference between wanting to do something, and being able to do it.  I suspect when it comes to it they will also have a property to sell, so that's another complication.

 

In the mean time we will have had 2 years rent.  That has helped a bit moving the build forward, but boy it really would be slow if that was all we had.

 

 

 

[Declan52]

Could you get a mortgage that is covered by either your old house and b&b or the value of the new build where it sits now. Only get the least amount you need to be able to get your new build livable, £10k-£30k. Take it as a short term loan for 2-4 years where once the sale of your b&b goes through you can clear what's owed and be mortgage free. Depending on what your rental income is earning you it might not even cost you anything/much to service the payments. 

[Jeremy Harris]

Bugger of a situation to find yourself in, Dave.  If I had some spare cash (sadly I don't) I'd gladly offer you an interest-free loan so you could carry on with work.

 

Declan's idea of a mortgage is a good one, especially if the amount needed is modest compared to the value.  Some building societies are still offering interest-only mortgages for a limited period (often 5 years), so it may be worth looking into.

 

 

[ProDave]

Since paying off our mortgage some years ago, borrowing has not been on my agenda. I have always worked n the principle that when you are short of money, the very last thing you want to spend it on is interest. That's why I have always driven a second hand car I own outright rather than a new one with a loan, or worse one of these lease deals.

 

I got "burned" expecting this windfall that now may or may not happen and spent in anticipation of that.  In theory I can grab my pension in a few months, unless something changes (it will be shortly before the spring budget so hopefully they can't cock it up for me, but I won't bank on that)

 

If I could be certain that one of these was an absolute certainty then I would seek out something like a credit card with a 0% deal to tide me over, but I don't have the certainty to do that just now.

[Roger440]

6 minutes ago, ProDave said:

Since paying off our mortgage some years ago, borrowing has not been on my agenda. I have always worked n the principle that when you are short of money, the very last thing you want to spend it on is interest. That's why I have always driven a second hand car I own outright rather than a new one with a loan, or worse one of these lease deals.

 

I got "burned" expecting this windfall that now may or may not happen and spent in anticipation of that.  In theory I can grab my pension in a few months, unless something changes (it will be shortly before the spring budget so hopefully they can't cock it up for me, but I won't bank on that)

 

If I could be certain that one of these was an absolute certainty then I would seek out something like a credit card with a 0% deal to tide me over, but I don't have the certainty to do that just now.

 

Whilst i sympathise with your current position, borrowing money is as cheap as it will ever be. Im no expert on cashing in a pension, and id say seek advice, but im pretty sure that the costs and tax will be more than what you would pay on interest on what im guessing is a relatively small amount of money.

 

I think its time to set your "principles" aside and look at the actual numbers/costs/implications of the options outside of a loan/mortgage. 

[oldkettle]

Dave, I think @Declan52 and @Roger440 are right. There is quite a difference between paying 5+% interest like 10 years ago and sometimes below 2% now. If you can get a reasonable rate it will almost certainly be MUCH cheaper than cashing in a pension. If the numbers are right and they let you realise your dream, wouldn't it be good enough?

[Jeremy Harris]

The best feeling I had was when we had no mortgage.  However, it was easier to borrow in order to finish the new house than try and do it as and when money came along. 

 

I didn't like the idea at all, but it was really the only sensible option, and although it went against the grain to borrow money at our stage in life, it was relatively painless, not too costly, and relieved a lot of money worries.

 

I  still don't like having had to borrow money, on principle, but  I've learned to live with it.

[jamiehamy]

I'm with @ProDaveon not borrowing - but I'm going to join the crew and give a bit of tough love. 

 

In effect, any borrowing be an advance on the rent OR even better, the proceeds of the sale of the house. 

 

If you have an asset such as a house sitting there with no finance owed and you're not going to at least entertaining using it  (directly or indirectly) as a security on a loan to finish the house, then you could be a long time in the caravan. 

 

If you want to see the project through,  it's my view that you are going to have to compromise with yourself here. Of course I don't know all your circumstances but regardless - please make sure you're not being stubborn and doing yourself out of enjoying your new house sooner. 

 

I did a course years ago and it really got through to me that when you're stuck, if you don't do something differently, you're unlikely to get a different result. 

 

Think outside your own box. 

 

Doing the same - we could do the first BuildHub crowdfund - you set it up (plenty of sites out there), I'll put in £1k. How much do you need to be in a position to get certification to live there?

 

 

 

 

 

[TheMitchells]

17 minutes ago, jamiehamy said:

Think outside your own box. 

 

Doing the same - we could do the first BuildHub crowdfund - you set it up (plenty of sites out there), I'll put in £1k. How much do you need to be in a position to get certification to live there?

 

 

 

 

 

Great idea!  we could add something!  Particularly if we get our renovation sold soon.

[ProDave]

Re the pension thing.

 

This is one of 3 pensions I have, and the smallest of them. The only one that was a defined contribution scheme (The others are defined benefit and the main plank of my retirement funding and will not be raided)

 

The very worst thing I could do with it, is buy an annuity.  Thankfully that is no longer your only choice. 

 

The plan is to take the 25% tax free lump sum immediately, then put the rest into a drawdown fund.  As I understand it, that is then taxed as income, so the tax you pay, depends on the tax thresholds in place and how much else you earn, and of course how much you draw..  So I don't think the tax implications of drawing it gradually are serious, and no more so than drawing it as a pension where you would still be taxed. The worst case would be taxed at source and some of that refunded at the end of the tax year when submitting your tax return.

 

I am not bothered about being short of funds in retirement. That would only be an issue if I reach retirement and the old house still had not sold. The ultimate sale of the old house makes this little pension fund seem rather insignificant in the big picture.

 

The loan issue is that we really don't earn much. We earn enough to live on, but not to fund the build in any significant way, nor to repay a significant loan in a short period.  I could of course take on more work, but then I would not have so much time to build a house.....

 

I hope things will become clearer in the new year.

[jpinthehouse]

Hi,  not the best situation to be in  but you have started your dream, I would agree with most of the above, your lucky to have two assets that can be mortgaged, maybe worth short term pain (having a mortgage)  for long term gain (finishing your dream)

[Jeremy Harris]

10 hours ago, jamiehamy said:

Think outside your own box. 

 

Doing the same - we could do the first BuildHub crowdfund - you set it up (plenty of sites out there), I'll put in £1k. How much do you need to be in a position to get certification to live there?

 

 

Sounds an interesting idea, I'd be in.

 

 

On the subject of money for retirement, my late father in law gave me some advice when I was given the opportunity to take early retirement and didn't have a lot of time to think about the consequences (retiring at 58, so no state pension for 7 years and an indexed linked pension of 51% of my then salary).  He'd been a senior captain with British Airways, and an RAF fighter pilot before that, so had two main pensions, neither of which were the maximum they could have been, because he'd had a break between leaving the RAF and becoming an airline pilot for a few years, where he'd accrued no pension whilst he was getting a licence, ratings etc.  When he retired his income was about the same as mine.  Post-retirement, his pensions added up to a bit less than 3/4s of mine.

 

The first thing he said was that when you are retired your outgoings drop.  He couldn't explain it all, he just said that he'd noticed that a lot of his day to day minor spending had reduced a lot.  I noticed exactly the same thing, and  it's significant, at a guess it accounted for a saving of around 5% less casual expenditure a month.

 

The second thing he said was that the effect of tax and national insurance is such that halving your gross income does not halve your net income, or come close to it.  In my case I retired on 51% of my former salary, stopped paying NI, as I had enough qualifying years, so saved another 8% or 9%, meaning my pre-tax pay was already close to 60% of what it had been.  I then found that the effect of the variable income tax rates, plus the tax free allowance meant that in reality my net income post-retirement was over 70% of the amount I'd been getting when working.

 

My guess is that a lot of people will notice the same sort of effect, where their income needs drop after retirement.  I think a fair bit of it is the sum of all the incidental costs associated with working, like commuting, work clothes, refreshements at work or when travelling, etc, and they all add up every month.

Edited November 30, 2017 by JSHarris

[Ferdinand]

Just an OT note at @JSHarris' comment.

 

There has been political talk of keeping pensioners paying NI, as a way of redressing the alleged generational impbalance. Whatever your view, keep a weather eye on it. I think something like that will happen in the next 10 years; there is a lot of unnuanced campaigning on this issue, and they want changes and symbols.

Edited November 30, 2017 by Ferdinand

[ProDave]

The above is why a lot of my eventual retirement pot will be the residue from eventually selling the old house and a lot of that will be free of tax liabilities.

 

I am ingrained not to trust "the government" Too many times I have looked forward to something and just before I get to the qualifying age, they pull the ladder a little higher. That's why I won't really trust I can get my pension next year. When I have the lump sum in my bank and the rest in a drawdown fund, I will believe it.  Likewise I am told I will get my state pension now at age 67, well I will believe that when it happens if the ladder has not been raised even higher.

[joe90]

I’m with the majority, yes I know, I hate borrowing myself but be practical, the interest rate is very low. If you finish the house, move in, then you can work full time if necessary to make ends meet. After lots of I’ll health myself, death of my wife, problems with kids I believe quality of life and happiness are the main things to wish for. Your quality of life will be far better in your house than suffering having to live in a caravan ( I know I have done it !!!). I am very lucky in that I am retired with a pot to complete my dream home but it nearly fell through with the sale of my last house. I am up for crowd funding as well. How much do you estimate you need to complete and move in?

[ragg987]

Hi @ProDave, sorry to hear about your situation. Funding our build was the single most stressful aspect for me - we had to sell 2 houses as well as juggle a self-build mortgage and a family loan. It was  major relief once our mortgage finally came through - despite the fact that I was borrowing to the hilt as our houses had not sold, the pressure lifted massively and we could get on with the dream. Once our build was completed and we sold the others I ratonalised everything into a small and affordable mortgage.

 

It seems you have some assets in the form of a mortgage-free house and and pension available, question is what is the most sensible way to use these to unblock the jam. My thoughts are:

• in the end this is "just money" and is the means to realise your dream
• treat it like a business transaction - based on costs and outcomes
• potentially your DC pension is growing at 4-10% p.a. and is free of any tax (provided total pension pot remains below £1m)
• potentially a mortgage on your house will cost no more than 2% plus an upfront application fees

It seems to me that the best option would be to mortgage the house to fund the remainder of the build plus keep some in reserve for monthly mortgage repayments. Yes you are in debt but you have a potential house sale to back that plus you can move out of the caravan sooner. If your house does sell in 2 years then you can release the mortgage and cash in on the balance (there may be a capital tax liability if that is considered a second home). Plus it might be possible to offset some of the interest on the mortgage against your rental income.

 

In terms of pension, yes you have access to 25% tax-free but by using that to fund the build you have stopped it growing by said 4-10%. Mortgage is cheaper.

 

Another note - you do not have to start drawing down on the balance 75% of the DC - you can defer it and it could keep growing. If you are working at the same time then it is most tax-efficient to not take a monthly income else you will pay tax at the marginal rate on the whole pension (e.g. 25% or 40% depending on your income). Delay the pension income until you stop working, if possible, to take advantage of the annual tax-free allowances.

 

On an aside, it may be worth getting a valuation on your DB pensions with a view of transferring it to a DC. Transfer values are extremely high, though it means you increase the risk.

http://www.telegraph.co.uk/pensions-retirement/financial-planning/now-time-cash-final-salary-pension/

[TerryE]

18 hours ago, JSHarris said:

Declan's idea of a mortgage is a good one, especially if the amount needed is modest compared to the value.  Some building societies are still offering interest-only mortgages for a limited period (often 5 years), so it may be worth looking into.

 

We got an interest-only loan for the Monmouthshire.  That is we did not have to make repayments on the capital,  This had an interest rate of ~1% for the first two years, jumping to 4% after that.  We took this out on our existing property.  We were totally honest about the reason for it , and in fact they will only give an  interest-only mortgage if you have established a credible lump sum repayment strategy -- in our case selling our old house and moving into the new one once complete.   We had to prove that our pensions would cover the interest payments.  Towards the end of the two years, they did contact me and offer alternative minimum term extensions to the mortgage, but it now looks as if we will only pay one month at the higher rate before we complete on the sale of our old house.  A bit of a real bargain, thanks to the Monmouthshire.

[SteamyTea]

Going a bit left field, have you thought of making the caravan more liveable?

[MikeSharp01]

12 hours ago, ragg987 said:

In terms of pension, yes you have access to 25% tax-free

As I understand it you get the first 25% of every draw down tax free - so I don't think you can take the 25% tax free portion in one lump and leave the rest. I will be happy to be corrected on that one.

[MikeSharp01]

12 hours ago, ragg987 said:

On an aside, it may be worth getting a valuation on your DB pensions with a view of transferring it to a DC. Transfer values are extremely high, though it means you increase the risk

Only think about, let alone do, this if you really understand the risks. I am no expert but there has been loads about this switch in the press and only a very small subset of the pension holders can make this work for them in the long term. Essentially the main case is if you have a second pension / income that you can live on then its worth doing, sadly the other case is where you have a life limiting illness and you want to have cash now for treatment or the just doing the things you always wanted to do.

[ProDave]

Rest assured my DB pensions are staying just where they are. They are something "my generation" have the benefit of, something which people joining the workforce now will be unlikely to get.

[Guest Alphonsox]

9 minutes ago, MikeSharp01 said:

As I understand it you get the first 25% of every draw down tax free - so I don't think you can take the 25% tax free portion in one lump and leave the rest. I will be happy to be corrected on that one.

 

You can - and in fact that is how most people treat their DC schemes. You currently get to take 25 % tax free from a pot when it is "crystalised" (to use the industry jargon). That occurs when you change it from a savings account to an income account.The alternative is to split your DC pot into multiple smaller pots each of which you take 25% from tax free and the rest as multiple taxed drawdown income.

 

 

[SteamyTea]

I have suggested that to keep things readable, we merge all the crowd/P2P/F2F money lending post together as I can't follow it all.