House Sale Pension Idea

How to avoid signing your life over to a mortgage
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Nomad
Posts: 57
Joined: Wed May 16, 2018 5:23 pm
Location: UK

House Sale Pension Idea

Post by Nomad » Tue Sep 11, 2018 2:30 pm

At present my house is paid for without a mortgage.
Also, I am not far from 55 years old which is the age I can my hands on my pension in the UK.

If I sell my house or even remortgage it.
I can then take the money raised and pay it into my pension.
For each 800 pound that goes in, the tax many adds 25% because I am currently a basic rate tax payer.
So 800 becomes 1000 and I can make 25% on any monies thus processed,
but the max pension contribution is 40k per year.

I can pay the re-mortgage with a fixed rate pension for a couple of years at about 2.5% interest,
then pay it off when I get to 55...

However, I'm a bit apprehensive about this whole idea ;)

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Bankai
Posts: 262
Joined: Fri Jul 25, 2014 5:28 am

Re: House Sale Pension Idea

Post by Bankai » Tue Sep 11, 2018 3:24 pm

With tax relief, you'd get an extra 8k top up when contributing 32k (for a total of 40k). You could do this now and again in April for 16k total (and potentially again in each subsequent April). So potentially free money, however:

1) Selling a house is a hassle and costs you both time and money - you need to calculate how much it would cost you and compare it to simply enhancing your pension contributions from your salary to achieve similar gain without having to sell

2) You need to live somewhere so it's either more transaction costs or ongoing rent (and time in both cases) - do you have a plan for after the sale?

3) Depending on where you live, you might miss on house price inflation if you're out of the market. The reverse is also true, if you're living in an area which is in structural decline, selling might be even better as the house is likely to lose value.

4) Where would you park the rest of the money before subsequent pension top-ups? The stock market might potentially do well depending on how bad Brexit will be and how low the £ will go (75% of ftse100 earnings is made abroad so the lower the £, the better the earnings)

Also, intangibles:

1) Do you live alone or with family? The more people live with you, the more impact this will have

2) How much do you like your place - I presume you aren't considering staying there forever since you're entertaining the thought of selling it

There are too many moving parts to give a black and white answer. This would be a good idea if, for example, you're moving into your SO's place (splitting bills instead of paying full) while ugly Brexit sends the stock market up but the housing market down - you save on bills, avoid house price plummeting while banking on 25% pension top up and enjoying raising stocks. On the other hand, this would be a bad idea if you're buying another place (transaction costs x2) and parking the remaining money in the stock market at the beginning of a post-Brexit bear market.

Also, the higher your NW, the less impact 8k will have.

Another idea is to increase your pension contributions from your salary to 32k, get 8k relief this way and live off the remaining 8k (assuming you're making 40k) - you avoid all the hassle of selling etc. while training your ERE muscles living on 8k. If you think you need more than 8k, adjust the numbers.

Nomad
Posts: 57
Joined: Wed May 16, 2018 5:23 pm
Location: UK

Re: House Sale Pension Idea

Post by Nomad » Fri Sep 14, 2018 2:55 am

Thanks for your opinions, they are well thought out.
I do need to synchonously move out of this place and into another to avoid brexit shock
Or the alternative is simply to remortgage money onto this house. Loan money at 2.45 percent for a fixed period while gaining 25%.

1) just me, not cat even.
2) I like the house but there are better houses.
One blocker is I'm thinking about different areas and coming up with too many choices.
A simple remortgage and put it into pension could net a useful haul.

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