Releasing Pension Funds for a Mortgage Deposit

Are there alternatives to using my pension for a property deposit?

For most people, using a pension is the last resort. More traditional sources for a deposit would be savings or the equity that’s built up in a property you already own.

If we’re looking at pensions, there’s usually a good reason. You might want to top up the equity you have available, or perhaps you’ve not been on the property ladder for a while and have instead focused on putting money into a pension. There are no other quirky or magic solutions, sadly.

Could I use my pension as security for the mortgage instead of withdrawing the funds?

No, but there could be other options. Over the last two decades, interest-only mortgages have been very taboo, but there are some instances where lenders will lend on an interest-only basis.

If you’ve got a strong enough pension to give them security around the interest-only borrowing, they will take that into consideration. I would say that’s very niche. I could count on one hand the times we’ve ever dealt with that in the last decade.

For most people, it’s not a viable solution. It’s technically possible, but lenders generally want cash as a physical deposit rather than using the pension as an offset.

What types of property could you potentially buy using released pension funds for a mortgage deposit?

For residential properties there’s no restriction, other than what the mortgage company might allow or disallow.

If there’s something quirky about the property, such as being a non-standard construction type, that may have an impact. That’s more around the mortgage available rather than the deposit funds coming from a pension, though.

How can a mortgage broker help here?

A mortgage adviser is a really useful support here, and particularly one from McKendry Dunion. But in this scenario, you absolutely have to take pension advice on whether releasing the money is a good idea. You would then marry that into any mortgage decision.

We’re quite lucky at McKendry Dunion because we have both those skills within one firm. We can certainly give pension advice and then follow up with mortgage advice. It’s not essential for you to use us for both areas, though.

Just don’t access pension funds without taking proper advice for a property purchase. It’s not a bad idea, necessarily, and for many people this is the right solution – but it should be taken under careful guidance.

Key Takeaways:

• You generally need to be 55 to access pension funds for a property deposit, although this age is rising to 57.
• 25% is normally tax-free; the remainder may be taxed as income. Large withdrawals may push individuals into a higher tax bracket.
• Withdrawing funds will certainly impact your long-term retirement income and pension growth, as the money is no longer invested and growing within the pension pot.
• Lenders will accept cash released from a pension as an eligible source for a mortgage deposit, provided you can supply documentation that shows a legitimate paper trail.
• It is absolutely essential to take proper pension advice on whether releasing the money is a good idea before accessing the funds, and then combine that with mortgage advice.
• Using a pension is generally considered a last resort; more traditional sources for a deposit include savings or equity built up in an existing property.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.