Buy Your Next Home With Tax Free Cash Released From Your Pension
Discover how you could currently be sitting on the cash you need to buy your next home.
Getting a mortgage large enough to buy the home of your dreams has never been more difficult.
Following the credit crunch of 2008, it seems many things have conspired to work against people looking to raise a mortgage to buy a home. But with the benefit of hindsight, it was clearly a disaster waiting to happen, and boy are we paying the price now.
In the ‘good old days’ before 2008, mortgage lenders were practically throwing money at people wanting to buy a home. Unbelievably, some lenders were advancing up to 125% of what the property was worth. They’d obviously forgotten that values can fall as well as rise!
Other lenders were giving out mortgages to people without asking for any proof of their income. If you had a pulse, chances are you could get a mortgage!
And others still were happy to lend on an interest-only basis, without checking if the borrower had any means whatsoever of being able to repay the debt at the end of the mortgage term!
When you look back, it seems amazing that decent, reputable financial institutions were taking such a cavalier attitude to money. It was bound to end in tears. And, of course, it did.
We’re now all suffering the fall-out from that appalling lending policy.
And it isn’t going to get any easier in the medium term, with such financial instability around the world.
Today, it’s not just that mortgages are hard to obtain. The associated fees have also rocketed, adding significantly to the overall cost of borrowing. It’s vital to take it all into account in your planning to avoid paying well over the odds.
Lenders now demand such substantial deposits, it’s virtually killed-off the prospect of first time buyers making it to the first rung of the property ladder.
And home-movers who have been used to making interest-only payments are shocked at the cost of having to now include capital repayments in their monthly mortgage charge.
The net result is there’s much less money being lent, or available to borrow, either through a mortgage or a loan, compared to the past. And it’s leaving people short of cash for the home they want to buy.
There’s one source of funding that’s rarely considered.
Your pension fund.
In your various jobs, you could have been part of your employer’s pension scheme. Chances are you might have taken out a pension in your own name. And you could have contracted out of the State Pension Scheme, or SERPS as it was called. In fact, you could have a number of pension pots. Together, they could add up to a sizeable amount of money. Funds that are being looked after for you by pension providers. So how has your money been growing?
It won’t surprise you to learn that since the credit crunch, the financial markets have been volatile to say the least. Growth in the average pension fund has been around 3% to 5%. And the coming years are likely to be as unpredictable as the recent past.
If you need to borrow money to complete your home purchase, consider pension release. Particularly if you’re going to be charged more than 5% on a second mortgage or a secured loan, including the cost of the fees. You could save yourself money by releasing tax free cash from your pension instead.
When you ‘borrow’ through pension release, you can set the ‘interest rate’.
You’re in control. You could choose to pay nothing to your pension, and give yourself an ‘interest-free’ loan. But that would be unwise, for you’re likely to lose out when you come to retire and expect to draw on a decent income. A better idea is to pay your pension at least 5%, and more if you can afford it.
This is what could be achieved with pension release. You’ve moved some of your cash from your pension fund to your home, where hopefully it will appreciate in value. And if you make payments to your pension as a ‘thank you’ for the cash, your fund will continue to build.
Pension release can be a good move.
Whilst pension release sounds like a no-brainer, as anything to do with money, you need a thorough review before you sign on the dotted line. That’s because you may be entitled to some valuable benefits and guarantees within your pension, and you wouldn’t want to lose them through pension release.
Without question, as part of your house purchase appraisal, you should review all your pension funds with an independent pension specialist, to see whether it’s a good idea to release some tax free cash from your pension to complete the purchase of your home.
Complete the form above to see how much tax free cash you could get using pension release.
If you’re a estate agent, home search agent or property specialist, you could do more business by helping your clients release cash from their pensions »