Starting all over again at 51

I am 51 and about to be divorced after 23 years of marriage and five of separation. I have two problems: a mortgage and my pension.

As part of the divorce settlement, our house in Bristol will be sold and we have agreed that I will have £100,000 from the house - or more if it fetches a higher price.

I will also get at least £16,000 from an investment policy which matures in May, so I reckon on having a minimum cash sum of £115,000 with which to buy somewhere to live.

Apart from £1,500 in a mini Isa for emergencies, I have no other savings but, as I can easily manage with a small flat, I hope to be able to buy a new home outright.

The property market in Bristol is horrendous and I don't really know what I am going to be able to afford. For £115,000, I might be able to buy a two- bedroom Victorian place, but it would be in a dodgy area and not particularly safe. I don't know whether to take out a mortgage so I could afford a better property. At least that would give me a more expensive house from which I could downsize at a later stage.

If I need to raise, say, a further £20,000, what is the best way of doing so? Can I get a mortgage for such a small amount?

My second problem is how to enhance my pension. I have worked in the Civil Service for 13 years, most of it part-time, and earn £17,000.

I have given up any claim on my former husband's pension in exchange for a larger share in the equity of our property. He is 53 and my state pension will have to be based on his contributions. I have asked for a pension forecast but have been waiting five months for it.

Apart from that, I will be solely reliant on my own pension. Eighteen months ago, this was reckoned to give me, at retirement, a total of £3,607 a year plus a lump sum of £10,821.

I live quite modestly, although it is easy to say that when I earn £1,000 a month. If I had much less, I am sure it would be difficult.

I have no debts and no large outgoings. I estimate that, realistically, I should be able to put a minimum of £200 a month into some sort of pension.

Would it be best to buy added years to the Civil Service pension or should I be looking at a combination of savings? I can buy almost five added years for £198 a month.

Action plan

Some smaller building societies impose a minimum
?25,000 on mortgages but large banks like Abbey
National, Nationwide and the Halifax will lend smaller
amounts.

Peter Gettins, product analyst at Town &Country
Mortgages, says: 'A fixed-rate mortgage is the best
one to look at. A two-year scheme will get her the
lowest rate but, if she wants stability for longer, a
five-year is also worth looking at because there are still
some good rates there. Julie will have a vast amount of
equity in the house, which is good, and her income is
not an issue.'

But lenders will insist that you repay over a fairly short
period, says Gettins: 'While most lenders are happy to
lend past retirement age, they will not go past 70 and
will want to see post-retirement income to cover the
debt.'

On a repayment mortgage, this makes your
repayments more expensive than if you repaid over 25
years. Borrowing ?20,000 at 4.5 per cent over 10 years
costs about ?200 a month, which would use up all your
spare money. You could choose an interest-only loan,
which would cost about ?75 a month, but you must
have a plan for repaying the debt.

You could save regularly in Isas or pay off chunks
when you can afford it. Or if you downsize in, say, 15
years' time, you could take a gamble that higher house
prices will give you enough profit to pay off the
mortgage.

'That is probably a reasonable gamble,' says Gettins.

James Dalby, head of research at Bates Investment
Services believes your mortgage ought to be as small
as possible to make sure you are not still in debt when
you retire: 'I would also recommend that any mortgage
is repayment based.'

He adds: 'I suggest Julie holds back ?10,000 of the
?115,000 as a safety net to help with the costs of
buying a new property and leave her with an
emergency fund. The money could be held in an easy
access account such as Scottish Widows Instant
Transfer account where the interest rate has been
consistently high and is currently 3.75 per cent.'

You should check that your cash Isa is earning a good
rate of interest. Safeway's mini Cash Isa pays a very
competitive 4.2 per cent.

Your state pension forecast is taking an extremely
long time, although the Department for Work and
Pensions says that divorce inquiries do take longer
than others.

You will not be able to claim your basic state pension
on your husband's national insurance contribution
record until he reaches 65.

But in any case you will not be entitled to a state
pension at 60 because you will be caught by the later
state pension age for women. As you were born on 28
April 1951, you will reach state pension age on 6 May
2012, when you will be 61 years and 8 days old. The
only consolation is that there will then be less time to
wait before your ex-husband reaches 65.

Dalby advises: 'Before deciding whether to buy added
years, Julie should ask her employer for a forecast of
what this would give her in terms of extra pension and
lump sum. This is important in determining whether the
option provides good value.'

He adds: 'As a rule of thumb, it is sensible to split any
money between boosting pension provision and
building up other savings. This often proves to be the
most flexible strategy in funding for retirement.'

You could put ?100 a month towards buying added
years and ?100 into an Isa. Dalby recommends
starting with an equity-based fund such as AXA Select
Growth which invests in a range of world markets. As
you get nearer retirement, you should move your
money to a safer place.

Julie's plan

1. Think carefully before taking on a mortgage.

2. Buying a more expensive house could be
worthwhile if you think house prices will rise.

3. If you do take a mortgage, have a clear plan for
repaying it.

4. Keep back part of your lump sum as an
emergency fund.

5. Split your monthly savings between pension
contributions and more flexible savings.

6. Find out how much benefit you would get from
buying added years before deciding if this is the
best route.

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