I am a 67-year-old woman who has not made enough pension or investment provision to live comfortably in the future although I have equity in my property. Friends have just bought a houseboat moored on the Thames, which appeals to me. How does one go about such a purchase and what other options do I have to ease my situation?
Penelope is active and in good health, enjoying many hobbies. The most conservative of her options are to control her monthly expenditure to match her monthly income or to gain a paid position. However, her questions lead me to assume that neither of these is feasible.
She needs to ensure she is claiming all state benefits. The minimum income guarantee for this year will top up her income to £98.15 a week.
Penelope could move in with family or friends or borrow money from them. Alternatively, she could consider equity release as the schemes available are greatly improved from their predecessors. She will need to speak to her family to ensure they understand that a proportion of her home's value will be given away to secure her financial independence.
A percentage of her property value could be advanced to her to spend as she wishes. Fixed-rate interest can be charged for the term of the loan. Most important, no repayments need to be made during her lifetime as the interest is compounded and is repaid when the property is sold or on her death.
Penelope will maintain ownership of her home so she will benefit from any further increase in property prices. Further loans may be taken out in the future if required. There are, of course, charges for valuation and administration costs, such as a penalty if she sells the property, but equity release is one of her few options if she does not increase her income. The capital released can be used to subsidise her income, enabling her to stay in her home.
She needs to think very carefully before selling her conventional home and buying a floating one. There are over 15,000 people living in houseboats. Location is one of the most important lifestyle decisions to be made but, as Penelope wants to be nearer to London, a houseboat could provide a solution as onshore house prices spiral. However, prime mooring sites can command considerable mooring fees and, as you get near to a major town, sites become less available.
Residential berths have little security of tenure and those featuring a lot of favourable amenities can cost more than £4,000 a year.
Leasehold mooring offers more security but is difficult to obtain in popular areas. Mooring in an unapproved area could breach planning regulations. The boat will require a residential licence if on a British waterways navigation. A 60ft houseboat licence will cost £550 a year. To get the licence, the boat must have a boat safety certificate, which is akin to the MOT for a car. Beware that, if a boat does not have this certificate, expensive works may be required to get the boat up to standard. The boat must be insured and it would be prudent to include contents, which will cost around 1 per cent of insured value.
The internet provides a number of sites with information on static houseboat purchase – www.vcmarine.co.uk may be a good start. As an example, a 60ft houseboat, four/six-berth, built in 1999 with a pump-out toilet, shower, washing machine and diesel central heating, could cost around £50,000. Prices range from £10,000 to £100,000 but less space or fewer amenities may be too restrictive. The initial survey before purchase can cost around £1,000, especially if the houseboat needs to come out of the water.
For a younger person, a houseboat moored in London may be ideal but, as Penelope ages, the cost of houseboat maintenance should not be underestimated. The cold UK winters could be hard for her.
An alternative for Penelope could be to rent out a room in her current home. If the rent is below £4,250 in this tax year, it is exempt from tax under the rent-a-room rules. This scheme does not apply to renting out other property.
The £4,250 limit is gross income and she cannot deduct any expenses. If Penelope charges more rent than this, the excess is taxed as income. However, in such cases, she can choose to either treat it under the normal rules (taxed on the net profit, allowing for expenses) or the rent-a-room rules. A lodger would help with bills and the extra income could help Penelope organise canal boat holidays to part-satisfy her wish to be on the water.