Do you have a financial anxiety, dilemma or quandary? Ask Jessie Hewitson!
As a seasoned money journalist and editor, Jessie Hewitson is now taking on the role of financial agony aunt for The i Paper. She is here to answer readers’ burning questions while consulting with top experts in the field—many of whom typically charge high fees—to ensure readers receive the very best advice. Jessie will blend this expert counsel with her own life experiences, which include not always making the most prudent financial decisions in her personal life. If you have a question, feel free to email her at [email protected], and be sure to include “Ask Jessie” in the subject line so she can get to work on your query.
A Reader Asks…
I find myself at a pivotal moment in my life and I’m uncertain about the best course of action. At 70 years old, I recently opted for voluntary severance from my job. I currently own a semi-detached house in Ipswich valued at approximately £260,000, and luckily, my mortgage is fully paid off. Just a year ago, I was excitedly preparing to buy a property with my partner of five years after his divorce. Tragically, he passed away unexpectedly due to an illness, which has completely upended my plans.
I have a strong desire to relocate to Woodbridge, about six miles away, as I have close friends there and it meets all my needs. However, the property prices are quite steep, and I would prefer a place near the town center and the riverside. I am contemplating the idea of renting a flat—either one or two bedrooms—while retaining my current house and renting it out for some extra income. I am hesitant to sell my existing home.
My annual income is around £84,000, sourced from pensions, a small property rental portfolio, and income from a trust fund. An estate agent mentioned that landlords typically do not consider rental income when assessing affordability, which raises my concern about how feasible it will be to rent at my age. I am unwilling to part with any of my rental properties, as I am fortunate to have reliable tenants. Nevertheless, my other income sources should be sufficient to cover the rent and still leave me with some funds to visit my two children and grandchildren who live abroad. What should I do?
Jessie Replies…
I recently spoke with financial adviser Adam Johnson, who shared a compelling story about a client who had £1.3 million sitting in her current account, earning almost nothing. Despite Adam’s persistent advice to move her funds, she remained reluctant. During a visit to her modest home, he observed her struggling with a half-broken kettle that required numerous attempts to function. He suggested, “If you let me transfer your money into a savings account earning three percent interest, you could earn enough to replace that kettle by the end of our meeting.” She chuckled at the idea but continued her struggle with the kettle. It dawned on Adam that, despite potentially gaining an extra £30,000 in interest, she wouldn’t replace the kettle because it provided her with a sense of security—her current account felt safe, even if it was not yielding any returns.
This brings me to your situation, which echoes a similar cautiousness often seen in the post-war generation, where frugality was instilled from a young age. Now, let’s explore your options:
- You can choose to rent your current home while renting a new one.
- Alternatively, you could sell your current home and purchase a new one, even in a pricier area.
- If you prefer, you could rent out your current home and buy a new one simultaneously.
Contrary to what the estate agent told you, David Forsdyke from Knight Frank clarifies that landlords do consider rental income when evaluating affordability. Given your solid income and the fact that you’re unlikely to host wild parties, you would likely be an attractive tenant for many landlords.
Furthermore, I wonder if you have considered the possibility of obtaining a mortgage. Many people mistakenly believe they can no longer secure a mortgage after reaching 65, but this is a misconception. Lenders have adapted to changing societal norms, recognizing that people are living longer, borrowing more, and working past the traditional retirement age. Some lenders impose no upper age limit; they focus solely on affordability. Based on your income and rental properties, you would likely qualify for favorable borrowing terms.
Still, I must ask if you truly want the responsibility of being a landlord while also renting a new home. This arrangement could introduce unnecessary hassle into your life. If managing two properties seems overwhelming, consider a more straightforward solution: sell your current home (which incurs no capital gains tax as it’s your primary residence) and either buy a new one or rent. You could even secure a top-up mortgage based on your rental income.
Adam, who is a senior partner at St James’ Place and director at New Forest Wealth Management, raises an important point about risk. He typically aims to minimize risk for his clients to meet their financial goals. He questioned whether it’s wise to take on the risks associated with turning your home into a rental property, as there could be periods without tenants or challenging tenants, especially when you could achieve sufficient income without such risks.
It’s clear that the loss of your partner has been devastating, and I want to express my sympathies. If selling your home feels too painful or if buying a new place without him is simply too challenging, then renting might be the best route for you. However, I want to emphasize that you are in a strong financial position—you may find it awkward to hear, but you have enough wealth to consider your own needs and not feel obligated to leave everything to your children and grandchildren.
If you have any doubts about whether you can afford to spend some of your wealth on yourself, you absolutely can. You shouldn’t feel guilty for wanting to enjoy your life. If managing your properties becomes burdensome, consider simplifying your situation, even if it means earning a bit less. You’ve had a challenging year; don’t hesitate to move to that desirable area and travel to see your grandchildren as often as you wish. In short: invest in your happiness. It’s time to embrace life and enjoy yourself!
