Should we still buy a house now my wife won't be retiring?

9 January 2014

Q

I am due to retire in 18 months. My wife and I have been living in a tied cottage while working and have investments, including Isas and funds of £275,000. The plan was always to buy a little property and hopefully have some cash to live off, but now my wife has to work for another 10 years before receiving her pension. Should we continue paying rent or do we buy a house with the cash, presuming we can actually do that with our money?
From
BE/Norfolk

A

Before you do anything else, I recommend de-risking the strategy for your investments to avoid the risk of them falling in value just as you need to access them. This theory applies for investments that may be surrendered to purchase a property or those that remain to produce an income.

There are several factors to consider, not least the rental terms and how competitive the payments are. Compared to the capital expense of purchasing a new home, the rent may be extremely competitive on the basis that you have been in a tied arrangement. Combined with the fact that you are familiar with what has been your home for some time, this could prove more economically viable.This, of course, depends on your available monthly income and ability to include rental payments within your budget.

As a nation, we are obsessed with home ownership but in your case the two options need to be contrasted carefully to see if paying rent and drawing an income from your capital leaves you better off than buying a home with the majority of your capital but at least not having to pay rent. The former option may provide more flexibility, at least in the short term.

I suggest investigating the possibility of drawing your wife's pension early (assuming you are not referring to her state pension). If there are explicit penalties for doing so, then it may not be viable. However, depending on the type of scheme, she may be able to draw an annuity sooner without incurring a penalty. In many cases, the assumed greater income received by drawing an income later does not make up for each year of ‘lost' income in the interim.

Many experts are predicting property price rises in the near future so if you do decide to opt for property purchase, it may be worth considering doing so sooner rather than later. If you don't need to live in it for 18 months, then you could let it out in the meantime and generate some additional income.

[Video:1]