Advice needed on what I can afford/do when buying a house post divorce

[Goose72]

I am still in the family home, which is struggling to sell, and I can’t afford to reduce the price further (it has already been reduced once). I need £125k to buy him out, although it’s not ideal
as the house is too big for me now and maintaining/heating it will cost more too (than a smaller house).

I want some advice, generally, about what I can do - either if I stay or downsize. Likelihood is, I will still need a mortgage to downsize. I don’t want to end up losing all of my disposable income as it would make me miserable and worry all the time. My NHS pension lump
sum, that I can get at 60, is around £70-£80k. I’m 52. Just want someone to give me advice on how to do this with either no mortgage at all or something that won’t cost much in monthly payments. I don’t mind using my lump sum pension to pay a mortgage off at 60.

I have no living close family (apart from
my 2 children, one at university) for advice.

Do I need an independent financial advisor or a mortgage broker?

1. Sounds like you need an interest only mortgage. They still exist. You need to see a mortgage broker. You use your pension lump sum to pay it off, so make sure the mortgage is no bigger than this.
2. Saying you “can’t afford” to drop the price of the house you are selling is the wrong way to think about it. The house needs to be sold. You sell it for the most you can get for it. If that’s less than the figure you had in your head, then that’s a shame. But you said yourself it’s not suitable for your needs and not really affordable long term, so it needs to go. Drop the price until it sells.
3. Based on what you’ve described it sounds like you’re in an ok position, although I appreciate it feels tough. Good luck!

You would be better speaking to an independent mortgage broker. A lot of people on here recommend Town & Country.

This is what I’m wondering too.

If the house is on the market, then anything you ‘lose’ by dropping the price you only lose 50% of that, as your ex also loses 50%.

If the amount to buy him out is £125K, then you need to raise a mortgage for that amount and the sale is irrelevant? Renegotiate the amount based on the open market sale price being lower and therefore the equity lower.

Figures would help - what’s the house on the market for, what’s the mortgage outstanding, what’s the financial settlement say, and how much is a smaller property to buy?

Have you considered that if this is a place to live for life, a ground floor flat in a purpose built block may be a good option? Cheaper to heat and no stairs for when you get older and potential mobility issues. Usually in more central locations, so near shops, restaurants, doctors bus routes etc.

Ultimately, you will have to sell for whatever the house is worth, the market doesn't care what you can afford. So look at what you can compromise on.

Can you relocate, once you have sold the house, somewhere more affordable? Healthcare professional seem to be in demand anywhere so you could get yourself a new job.

You could take in a lodger for a while to help pay your new mortgage.

I sold my London property last year and moved to a cheaper area by the sea.

I was 52 so I only took a small mortgage over 10 years. I have a spare room that I can always rent if I get in financial trouble in the future.

@Goose72 this all seems a bit jumbled. Are you in the process of divorcing? It sounds like you are. What will your settlement be?

How many dependents do you have living with you? Ie what size of house or flat do you need? What are the average costs of this size of properly in your area?

How much equity will you get in the house sale? You need all these details to determine what you can afford rather than concentrating on your pension lump sum which is 8 years off. Don't dip into your lump sum early if you can help it.

You may want to compare the after tax reduction in pension from taking the lump sum against the reduction in mortgage payment that lump sum would get you.

I am by no means an expert on this, but I remember being surprised by how much pension income you have to give up per £100 of lump sum taken, especially given that the pension income grows at or above inflation. The higher pension income may be enough to more than cover the higher mortgage payment, even after accounting for tax differences. It is certainly worth checking before deciding.

Lots of people who divorce don’t have enough money to keep the family home. Especially if the family don’t live there any more. Your ex needs his share and you cannot hold up a financial settlement forever. I would downsize and accept your house is not worth what you thought it was.

Regarding a mortgage. I would also accept you need to work. Your lump sum is not huge so what will you do if you need to spend all of if in 8 years time? I would be more pragmatic now, as your dh should be, and accept you have to work, not retire early at 60 and move on. I don’t think you have enough in the family pot for you to have it all. The NHS pension is as good as you can get. I’d never jeopardize that. It’s very valuable and you should add to it. Not well away from it.

@YankeeDad If the scheme pays out fully at 60, you don’t lose lump sum. If it could run to 66 or 67 or 40 years, then income from it can be affected. Nhs pensions are generous so I’d leave it to get the maximum out of it. Plus who want to rely on unearned income if Labour are still around? The vibes are poor for savers and those not earning from a job!

@TizerorFizz if there is an amount of lump sum to be had “for free” without any reduction whatsoever in the annual pension income, then of course it is good to receive that. I have read somewhere that a sum equal to 3x the annual pension might be available in this way.

However, this needs to be checked with an expert, but I have read that sacrificing a portion of the pension income is possible in order to get a higher lump sum, but with the ratio being 12:1, so £1 of initial annual income must be sacrificed in order to get an extra £12 of lump sum. For a person who has normal life expectancy at retirement, I personally think that is likely to be a bad deal in most taxes, even assuming the £12 is tax free but the £1 is taxed: I would not be happy to give up £1 / year pre tax, growing at inflation-plus for as long as I am alive, in order to receive a one-off extra £12, unless I had a life-limiting illness or very expensive debt such as credit card debt that I wanted to pay off.

I agree with others. Get the house sold asap. There’s likely to be a mini boost after the budget once people have a bit more certainty on what’s going to happen. Be priced to sell- maybe consider putting photos up on the property pages and taking feedback? It’s brutal but worth it.

What you need to realise from the sale is basically irrelevant unless you’re prepared to pay your ex off and live there if the price is unobtainable.

Once you’ve accepted an offer, work out your equity. Then go and see an independent mortgage advisor who will give you an idea of the max you can borrow, rates, cost etc. Others are right that to keep monthly payments down you could think about interest only and also a reasonably long term. You should also look at loan to value too- the higher your deposit as a proportion of the price, the lower the rates.

Then once you’ve got your figures you know the trade offs and can make a educated decision about what you can afford comfortably, what would be a stretch and the sacrifices in terms of income.

In your position I would try to keep the mortgage as low as reasonably possible but equally get somewhere with a bit of longevity if you can.

I’d still have my monthly pension but I’m thinking of using the lump sum I’d get to pay off any mortgage.

How much are you hoping to have after the house is sold?

Are you considering moving to another part of the country?

@Goose72 Would you get a bigger lump sum by working longer? On your own, there’s different calculations about savings I would have thought.

@YankeeDad Mt lump sum was more than 7 times my annual pension. Not 3 times. I could have had a smaller lump sum and a bigger annual pension but we wanted to invest the lump sum which had worked for us and it’s tax free (at the moment!!). I just would not spend all of a lump sum on buying a house. I would look at having a standard mortgage and working. The op is 52, not 62.

@TizerorFizz the numbers can work out favourably in some cases, but in general, one of the “advantages” of sacrificing some pension income in order to take a larger lump sum and investing that is that an advisor can manage the investment portfolio from that larger lump sum and receive a fee for that, but they obviously cannot receive a fee on the higher pension income, so it is difficult to get unbiased advice, because the advisor gets paid more if they advise you to take the lump sum.

I think a key question to ask any advisor before taking any “extra” lump sum is: what annual rate of return before fees and taxes, and what annual rate of return after fees and taxes, would I need to earn on the invested larger lump sum in order to come out better off than if I had just taken the minimum lump sum and maximised the pension income? Related question would be, what assumptions are they making about inflation, taxes and fees? And could they show their workings on this calculation? Just by way of illustration: if you expect to earn 9% pretax on stocks and 5% pretax on bonds, and even if fund fees are contained at 0.5% by using a lot of passive funds in the mix, in a 60-40 portfolio and assuming a 30% overall tax rate, that portfolio would only earn you an average return of just4.8% after tax, and you would also carry investment risk with that.

That tax rate on investments might be about to get even higher if the CGT rate gets increased with the new budget.

I suspect that with a conversion ratio of 12:1, you might need better than that 4.8% after-tax return in order for the investments to produce more inflation-adjusted disposable income than the pension.

I personally think that the main advantage of the larger lump sum is if a person would rather have a chunk of money now, in order to have certain life experiences during the younger / healthier part of retirement, and is willing to give up a portion of their income later in life in order to enjoy that. Otherwise I think it is generally difficult to make the numbers stack up in favour of taking a larger lump sum, unless it is to pay off expensive debt.

It stacks up if it’s part of a bigger portfolio
of savings! I don’t invest in a building society! We often make much more than that! We have had an investment portfolio for 25 years so I do trust them! However debt is a factor too. Plus, in this case, both pensions will have to be taken into account for a financial settlement. Not just the NHS one!

Has a financial order already been made? Are you sure that your ex will not make a claim against your NHS Pension?

@TizerorFizz I don't know properly, but one of the current issues with NHS pensions is that they have been changed a couple of times in the last 20 years. People retiring in the next 15-20 + years will have two separate pots, one that can be taken age 60 the other at state pension age - and if you work past 60 only the latter is still increasing (approximately). I think they have made it so you can take the first pot at 60 without having to retire - though partial retirement better than full time for most even if they want to and are able to keep working. The only thing I can say for certain fact though is that it's complicated ...

Do you have access through union or employer to financial, especially pension, advice?
Are you intending whatever you purchase to be long term? If so you need to consider location, needs, convenience and so on for the future as well as now.
Could you look at purchasing a new build where the builder will buy your house?

The most important point on the thread is GinnyPiggie (and if you are in England or Scotland). If in England everything comes down to the financial order on the divorce and if the court has sealed it (or ordered it after proceedings). Nothing is certain until then. Assuming the court has ordered that wife pays £125k to husband with no spousal support paid to each other and no sums payable to children (our court order says I, the higher earner, support children at university stage) I would be remortgaging to release £125k now on an interest free basis, pay the husband off, keep the larger house as who doesn't want more space and many student children move back after university not matter what they might be saying now; not going part time and once the pension lump sum comes (unless this week's Autumn Statement abolishes that right) then deciding if to use that to repay some of the £125k.

On a salary of about £50k you probably will be allowed to borrow 4 times that so £125k is probably fine. I would start by getting the mortgage approved; then pay the husband the £125k and take things from there. However do nothing whatsoever unless and until there is that sealed court order about a clean break divorce settlement.

FYI
I received a quote from an independent mortgage advisor a year ago.
They would only lend maximum 3x my actual salary for a mortgage.
I did have a deposit saved.

I suggest that you get some mortgage quotes.

@Goose72 in answer to your first question, you need a financial adviser in the first instance (as someone said you may be able to access this service through your union).

But before you see one, you need a spreadsheet of all your financial affairs.

I’m in Unison so I’ll check

My NHS pension is in two schemes - the 95 section and the 2018 section. We can take the 95 section at 60 and get the lump sum. A lot of staff drop hours but I need to sort out the ins and outs if this. From what I know, many people have missed out on money they could have had as they didn’t start claiming at 60.

I’m looking at a house £50k cheaper so that may help things. Need to sell ours though!