Property as a pension – avoid losing your home due to being unable to pay the shortfall

I recently read a news article outlining several case studies whereby people retire and come to the end of their mortgage term, but because their pension fund and savings accounts have under performed they are unable to make up the shortfall and face losing their homes. This is where I believe that property as a pension needs to be planned properly and as part of a well thought out property investment strategy.

There are some very sad and disheartening stories of families becoming victims of a toxic combination of financial and economical situations, which in many cases are beyond their control.

Worryingly these stories will be re-iterated further across the UK by families who find the financial provision they thought they were making for retirement does not materialise, and unless they have been able to clear their full mortgage before hitting retirement their income will just not be enough to cover the outstanding mortgage debt.

Equity release is one of the few options open to those families who opted for interest only mortgages and are now past the age of being able to remortgage. As most lenders have an upper age limit around 75 years beyond which they are not happy to lend.

Equity release may remove the immediate worry of having enough money to live off and pay the bills, but it is a highly costly approach to resolving a problem which could have potentially been avoided with additional planning.

With regard to investing abroad, it is true no one predicted the severity of longevity of our current financial and economic woes, and I do not believe we are out of the woods yet. However those who chose to invest abroad often did so without doing their due diligence and knowing the market they were investing in, which always brings its own risks. America in particular suffered badly in this last housing drops, as they could be accused of being even more liberal than the UK with their lending criteria so their mortgage foreclosure rate at the beginning of the slump was extremely high.

With lending tightening up and banks like Fannie Mae and Freddie Mac having to be bailed out by the Federal Government because of the poor quality of the mortgages they had securitised house prices fell like a stone in some parts of America. Those from the UK who had invested in America for capital growth felt that pain, as they were left themselves totally exposed.

The lesson to learn from this experience is to do your due diligence and to invest in property for cash flow. The capital growth element is a bargain, and shouldn’t be something you gamble on.
I also read with interest a story of a family who took out an interest only mortgage backed by an Endowment Policy in 1986. I purchased my first home around 1995, aged 26 years old and I remember at the time that there was a mass of bad press in the papers about Endowment Mortgages. I deliberately choose to put my mortgage onto a Repayment basis as the press was highlighting the fact that the policies were under performing and many families were being left with shortfalls to cover their mortgages.

So it was interesting to read how a family only realised that they were at risk of a shortfall 5 years ago, had they ignored all the warnings signs?

This same underperformance of the Stock Market is going to affect millions within their pensions in the future so there is a whole tranche of people who will be adding to the pot of those struggling to cover their mortgage in retirement if they haven’t paid it off.

History is repeating itself as the press is awash with articles on the pension crisis heading our way. So I wonder how many families will stick their heads in the sand for 25 years and hope it will all go away. Unlike the family in this report who managed to cut back for 5 years to make up the shortfall they were facing, this will not be an option. Failure to act now to the warning signs will mean a lifetime of cutting back, not simply 5 years.

If you would like to discuss your pension options or to explore property as a pension or other property investment strategies, contact me Gill Alton, at Alton Property Partners for impartial advice.

Gill Alton

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Gill Alton is the founder of Alton Property Partners, which provides a comprehensive and personal Property Portfolio Building Service for investors in the UK.

Alton Property Partners manage the entire investment process, from sourcing property at a discounted value, co-ordinating the Mortgage, arranging the refurbishment, right through to ensuring it is ready for the rental market.

The service is specifically aimed to support those who recognise the value of a UK investment portfolio, but lack the time, or knowledge to be able to invest for themselves because they are full time employees or Business Owners. With full consultation and comprehensive financial analysis, clients can be assured that their portfolio of strong yielding properties will be built to exacting standards and they will be kept up to date every step of the way.

Having been involved in property for 16 years Gill has built a personal portfolio for her family, and in addition to Alton Property Partners, runs a Property Mentoring Business, Venus Property Mentoring which focuses on supporting new investors onto the investing ladder. Having originally left the Corporate world to be a Qualified Mortgage Broker, Gill’s husband now focuses on their family Mortgage Brokerage in Maidenhead – Alton Mortgages.

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6 Bramble Drive, Maidenhead BerkshireUKSL6 3NX United Kindom •0845-095-5060

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