Allow for the complete cost
Finance and professional costs
- Mortgage interest and lender fees
- Trustee and pension administration
- Financial and pension advice
- Solicitor, valuation and survey
Property costs
- Stamp duty and any applicable VAT
- Insurance and property management
- Service charges and RTB costs
- Repairs, compliance and refurbishment
Contingencies
- Vacant periods and rent arrears
- Interest-rate increases
- Unexpected capital expenditure
- Cash needed for retirement benefits
Stress-test the plan
The purchase should not depend on full occupancy and unchanged interest rates. Model at least a two-percentage-point rate increase, one or more vacant months and a significant repair bill. Compare expected net rent with the annual mortgage payment and retain accessible cash.
Property is illiquid and can concentrate a large portion of retirement savings in one asset. Values and rent can fall, sales can take time, and the pension remains responsible for repayments and costs during vacancies.
A practical liquidity reserve
A common planning starting point is at least six months of mortgage repayments and normal property expenses, in addition to the deposit and purchase costs. The required reserve may be higher depending on the property, lease, retirement horizon and trustee policy.
See the reserve in numbers
The calculator includes six months of mortgage repayments and annual property costs in the estimated cash requirement.
Run an illustration