How far your pension money can take you in real estate terms

Many people have been tempted to withdraw part of their pension money through the Government’s emergency withdrawal process, which was established to help people with their finances during the coronavirus pandemic. This once-in-a-lifetime opportunity to access some of your hard-earned cash that you have saved for your retirement can be put to extremely good use and can pave the way for you either owning a significantly better property than you could expect to own using savings alone, or owning a property sooner than expected.

Of course, everyone will be withdrawing differing amounts because the amount you receive will vary according to the size of your pension saved. Emergency withdrawal regulations specify that you can withdraw up to CI$10,000 plus 25% of the remaining pension. For this reason, we will examine a few differing scenarios, looking at how far a pension withdrawal – plus savings – can go, when considering purchasing a property. In any case, you have to bear in mind that Stamp Duty costs will equate to 7.5% of the total cost of the property and that other charges will equate to around 3.5%, to a total of approximately 11%.

In the first scenario, let’s assume an individual has been able to withdraw CI$10,000 from their pension, and they have been able to save an additional sum of CI$10,000 during the course of their career so far. Some banks have offered 5% down as a deposit in the past, although this is uncommon nowadays. More often, banks will require you to put down 10% of the purchase price before they will offer you a mortgage on the remainder of the property. So, in this first scenario, if the individual has to put aside a 10% deposit and pay 11% costs, their purchasing power is CI$95,238. This is a substantial sum that could buy you a piece of land which could eventually be the location of your future home, a great investment for anyone. If the bank required 15% down, that figure would reduce to CI$76,923, but this would still enable an individual to get on the all-important property ladder with a piece of land.

The second scenario sees an individual who may possibly have been working for longer, thereby able to save up more in cash, as well as build up more of a pension. If they were to save CI$20,000 and withdraw CI$20,000 they would be able to purchase a condominium for CI$190,476. This is assuming 11% costs and 10% down at the bank. Equally, they could consider purchasing a larger plot of land, or land in a more highly sought-after location. In any case this would still be a great investment. If the bank required 15% down, the purchasing power would be reduced to CI$153,846, perhaps on the low side for a condominium but definitely affordable for a piece of land.

The third scenario sees a couple who may have been working for a while and managed to save a more considerable sum of CI$50,000 and who have been able to withdraw a total of CI$50,000 from their pensions between them. A total of CI$100,000 to be used to purchase a property will enable them to purchase a substantial property for CI$476,190, assuming the same 11% in costs and having to put down a 10% deposit with the bank. If the bank wanted 15% down that amount would reduce to CI$384,615, still a tidy sum which can be used to buy a home.

In all of the above scenarios we are trying to illustrate the huge purchasing power of a relatively small amount of savings when combined with a pension withdrawal. Combining the two gives an individual or a couple purchasing power that they could not ever have expected to have before the Government’s emergency withdrawal plan came into place. It could help you get onto the property ladder a lot sooner than you could imagine, or help you purchase a more substantial piece of land or a property that was previously out of your reach.

If you’d like to learn more, please contact us at 233-3000.