Big house or pension?

[WhichHoose]

If you had a budget that could buy you a really nice house, would you go for a nice house or a more modest home (that still met your needs, but only just) and put the rest into your pension?

My pension pot is about £1k due to extended ill health and I'm 36 so while I really want a nice house, I'm scared of getting used to the space/comfort then having to leave it when I retire to fund my retirement!

My budget is £375k (North of England) and the houses that would just about meet my needs are £170k with repayments of around £300 a month with the deposit I have (£130k).

WWYD?

The pension POT is currently worth around £2000
giving an income in the order of £5 per month

To get a private pension of around £1000 a month
(same value as the state pension)
currently requires a pot of £300,000

Too many people are reaching retirement age still with mortgages or rent to pay.
I would ALWAYS go for housing security
before locking money away

Stakeholder pensions are a bad joke. They will NEVER provide financial security.

What is your plan for income?

Carry on working.

If people are still paying out £1000 a month on rent in their 60's
as well as living expenses
they will need a £600,000 pension pot
which is NOT going to happen under the stakeholder percentages.

I'm usually an advocate for pensions by compound interest on a pension will not beat house price gains. On average 5-10% a year on your house. If it's your only house, you pay no tax on it, whereas if it goes in your pension you will pay tax on it at your marginal rate when you draw down.

So just based on maths if you buy in a good area the house will put perform the pension every time. You will need to downsize to release they cash tho and pay some stamp and moving fees.

But no tax on house price gains vs tax on pension drawdown is a no brainer.

Buy a house then downsize to retire.

A house that meets your needs in your 30s is unlikely to in your 70s.

If you want a home for retirement you need no stairs access, a downstairs loo and a space/room downstairs you can sleep in.

If you don't have these you could end up having to move anyway.

Also when you are old enough to not be able to drive you need to be in short walking distance of grocery shops etc.

TBH I have a tax client who bought a big house and now rents out parts of it to provide her baseline income.
The £7500 annual rent a room allowance
on top of personal tax allowance, goes a long way

Being mortgage free is NOT to be underestimated

I don’t think you can guarantee house prices will keep climbing as they have done. House prices increases are becoming increasingly unsustainable.

House prices do not need to keep rising.
Rents will keep rising.

I have a client who had to move back from Spain due to Brexit who is living in rented and thus (in her mid 70's) working to cover rent even though she has two small DB pensions and a state pension.

Rent is the kicker

But you don’t pay tax on the money that goes into your pension and you also have to pay interest on the money you borrow to buy a house so not sure your maths adds up.

I meant people saying OP should buy the bigger house or two houses and then downsize/sell to release equity. There is no guarantee they would have enough to live on that way either.

@BlackBoxes you pay tax when you tax your pension, you would pay no tax on profits from the house sale.
I agree if they need a mortgage pension is probably better as the growth should be more than capital gains less mortgage paid. But if they buy outright, no tax, no brainer. Free capital gains money.

Speculative property buying is not a good plan
but prioritising pension payments into a stakeholder scheme
versus housing security
is not either.

Yes but you buy your house with money that has been taxed whereas you invest in your pension before tax so it is a wash.

How much space do you actually need? Do you have a big family to accommodate? Lots of furniture? Personally I’d go for a small house in the best area and try to pay 230k-270k. Ideally something that potentially could be extended in the future but is also liveable as it is. A small 60’s bungalow? Buy a house with longevity in mind to avoid the costly expense of moving again.

@BlackBoxes agree, but op says the budget is 375k or so, ie they have the money now so post tax, if it was pre, I'm 100% with you, gross pay into pension all day. I think this is a net lump position?

Lots of people on this thread missing the point that the OPs pension pot will currently not cover a caravan weekend to Dorset.

Stakeholder pensions are micropore to the plaster of paris that DB pensions provide.

I see people whose TOTAL pension contributions are <£15 a month
(because employers go for the low cost calculation method)

NOTHING will make those pots into something you can live off while not working.
It is disingenuous to pretend otherwise.

I went for the house. It’s glorious if I do say so myself. I could swing a thousand cats and still have space. My pension pot is 3k at 33.

I am investing my own pension. I started last week. Jumped into crypto for the run to halving. Will take that out after and go isa until the next halving. And repeat.

Already made 10% this week.

@5thCommandment - the OP will still have to make mortgage payments - bigger house means higher mortgage payments which equals less salary to put towards pension.

Ah, I was assuming she would have a smaller mortgage and therefore be able to afford to also make monthly contributions. Versus a larger mortgage and no monthly contributions.

@BlackBoxes - per the OP you are correct. OP says her deposit is £130k.

I'm not sure about that...

Houses you must buy from you net pay, normally funded by a mortgage including interest.
And houses need money pumping into them to jerk the up to date - everyone conveniently forgets to do that maths when looking how much house prices have risen.

Pensions are funded from gross and compound interest works for you (not against you like a mortgage).

In summary, I'd only ever have as much house as I need, no more.

*Too many people are reaching retirement age still with mortgages or rent to pay.
I would ALWAYS go for housing security
before locking money away

Stakeholder pensions are a bad joke. They will NEVER provide financial security.*

@Talkinpeace Thanks for your perspective. Are you suggesting the money should go into mortgage overpayments rather than any financial savings? If we buy the cheaper house, we will have the mortgage paid off in about 9 years if we overpay by about £400 a month. If we buy a £300,000 house, we can pay it off in 25 years at £1300 a month-ish. Whichever house we go for will be well within our maximum budget on a 25 year mortgage so there's zero chance here that we will be paying a mortgage after we've retired.

As I've already said, to pay the extra money into a financial product to provide for my retirement, I will be opening a SIPP or stocks and shares ISA where I control the investments (or at least the portfolio) myself, not divvying around with the shit stakeholder pension my employer has opened to pay lip service to the law. Overpaying the stakeholder pension seems like the worst of all the ideas because no one aside from me has any vested interest in making it grow and I have no control over how it's invested.

And yes, 100%, that's a 2000 pot not £2000 a month. 🤣 Wouldn't be slightly worried with that. DH has a DB teacher's pension though, and TBH with the recent changes with effect from this year, it looks like he now has to put more into it than he will ever get out of it. I just don't want to be dependent on his money to survive in old age.

My parents bought the biggest house they could afford in 1975 and sold it for £5 million 40 years later.

Your house is your pension.

@Talkinpeace what are stakeholder pensions a joke? Please educate me

Anyone today thinking U.K. residential property asset inflation will duplicate the previous 50 year trend needs a serious reality check.