Advice needed on investing vs savings / mortgage

[tinx]

I'm in an investment quandry at the moment. Mortgage has recently been paid off after years of serious overpayment so I am deciding what to do with my new found wealth, at the moment it seems to be going on more extravagant living expenses and a little going into a savings account. I've no idea how we survived before we paid off the mortgage

Anyway I would love to do a buy to let and buy a flat but since paying the mortgage off I only have about £20k in savings towards that dream, so in the meantime I need to invest elsewhere before I have the capital to do a buy to let. Some good ideas in this thread but still not sure, I don't think I'm willing to risk it on the stock market. I'm one of those annoying people who is desperate for interest rates to go up now.

 

[Perkino]

Thanks again for all the responses. Seems over-paying on the mortgage is the way to go!

Even if you cannot make over payments you should look at a shorter term fixed and then every 2 or 3 years pay off a chunk before renewing at a smaller amount

 

[LlcoolJ]

Even if you cannot make over payments you should look at a shorter term fixed and then every 2 or 3 years pay off a chunk before renewing at a smaller amount

Yeah that's basically what we've done but instead of saving, every time the fixed term has ended we've got a shorter deal and paid a bit more each month. Has knocked years off the mortgage and means it'll be paid off in about 5 now.

If you increase the repayments to what you can afford then it removes the temptation to dip into the money you're saving to pay off a chunk at a time too.

 

[Bold Seagull]

Perhaps it is wrong to look at this way, but your mortgage is the cheapest money you can ever borrow. It is not always the case, but the interest you pay on your mortgage is equal to, or thereabouts to interest you can earn on capital. Paying off your mortgage will mean you completely own your home, but that capital is locked into the home, you can never access that value unless you sell it, it is tied in.

If you saved, invested the money that would otherwise overpay the mortgage, you are building up a capital reserve that could be invested elsewhere, as others have said, in another property, or whatever else. Pay off the mortgage early, and that capital reserve is locked into the home. It is there of course, but it is not accessible, although you are free of the burden of maintaining your borrowing repayments.

I guess really it comes down to where you are mentally with your own finances. It is a very personal outlook on how you view risk, borrowing, investments etc.

 

[LlcoolJ]

Perhaps it is wrong to look at this way, but your mortgage is the cheapest money you can ever borrow. It is not always the case, but the interest you pay on your mortgage is equal to, or thereabouts to interest you can earn on capital. Paying off your mortgage will mean you completely own your home, but that capital is locked into the home, you can never access that value unless you sell it, it is tied in.

If you saved, invested the money that would otherwise overpay the mortgage, you are building up a capital reserve that could be invested elsewhere, as others have said, in another property, or whatever else. Pay off the mortgage early, and that capital reserve is locked into the home. It is there of course, but it is not accessible, although you are free of the burden of maintaining your borrowing repayments.

I guess really it comes down to where you are mentally with your own finances. It is a very personal outlook on how you view risk, borrowing, investments etc.

All completely correct but when you're not "investment minded" then I find it's better to lock the cash into property. Only speaking about myself as I know that if I had the extra cash lying about then I'd probably spend it.

As it is, when we've had extra money we've "spent" it on reducing the mortgage on our house or buying another one. So you don't really notice the money going out and there's no temptation to either take it out and spend it or put it in something more risky as it would be a pain in the arse.

But I'm very lazy.

 

[CheeseRolls]

I'm in an investment quandry at the moment. Mortgage has recently been paid off after years of serious overpayment so I am deciding what to do with my new found wealth, at the moment it seems to be going on more extravagant living expenses and a little going into a savings account. I've no idea how we survived before we paid off the mortgage

Anyway I would love to do a buy to let and buy a flat but since paying the mortgage off I only have about £20k in savings towards that dream, so in the meantime I need to invest elsewhere before I have the capital to do a buy to let. Some good ideas in this thread but still not sure, I don't think I'm willing to risk it on the stock market. I'm one of those annoying people who is desperate for interest rates to go up now.

You have not mentioned the best form of tax free long term saving, chuck as much many as you can into your pension.

 

[dazzer6666]

You have not mentioned the best form of tax free long term saving, chuck as much many as you can into your pension.

Not necessarily. Depends on what you already have in pensions (lifetime cap), your tax band, T&Cs of your pension scheme, how it's invested etc etc. All down to individual circumstances.

 

[bhanutz]

Not necessarily. Depends on what you already have in pensions (lifetime cap), your tax band, T&Cs of your pension scheme, how it's invested etc etc. All down to individual circumstances.

Pensions are the most tax efficient way of investing money though...

 

[dazzer6666]

Pensions are the most tax efficient way of investing money though...

It's very limited if you're paying higher rate tax now - rules have changed (relief is tapered).

 

[bhanutz]

It's very limited if you're paying higher rate tax now - rules have changed (relief is tapered).

Only for threshold income of over £110k.

 

[dazzer6666]

Only for threshold income of over £110k.

Yep, but it pretty much kills the tax advantages of pension saving for anyone in that bracket

 

[Bad Ash]

Do Nationwide customers still get a payment holiday? I believe they changed their terms and conditions after 2008 when the rates plummeted. I did a quick Google and it now says "You may be able to apply for a payment holiday if your Nationwide mortgage was reserved on or before 3 March 2010".

 

[bhanutz]

Yep, but it pretty much kills the tax advantages of pension saving for anyone in that bracket

Not if you plan properly!

 

[Audax]

Perhaps it is wrong to look at this way, but your mortgage is the cheapest money you can ever borrow. It is not always the case, but the interest you pay on your mortgage is equal to, or thereabouts to interest you can earn on capital. Paying off your mortgage will mean you completely own your home, but that capital is locked into the home, you can never access that value unless you sell it, it is tied in.

If you saved, invested the money that would otherwise overpay the mortgage, you are building up a capital reserve that could be invested elsewhere, as others have said, in another property, or whatever else. Pay off the mortgage early, and that capital reserve is locked into the home. It is there of course, but it is not accessible, although you are free of the burden of maintaining your borrowing repayments.

I guess really it comes down to where you are mentally with your own finances. It is a very personal outlook on how you view risk, borrowing, investments etc.

All valid points. On the counter side to that, however, is that the way the UK housing market is at the moment "locking" your money away in a house a low risk, decent yield, investment. Getting the money back out again should you need to isn't going to be a particularly lengthy process, either - again, due to the high demand and generally low supply of housing as a seller you have a lot of choice.

Of course, it all depends on personal circumstances. For us, with a 1 year old kid and only a single income our priorities are on getting our monthly costs down as low as we can, and putting our money where it can work the hardest in terms of making sure we have enough each month. For us, that means shovelling as much as we can into the mortgage, especially as we intend to stay in the property long term. Once our current fix is over we'll look at our best options beyond that. By then we'll be at a point where our LTV is heavily in our favour - both because the property value has gone up significantly, and because we've overpaid quite a lot. So the priority might change at that point.

 

[BBassic]

With regard to over-paying, is it better to overpay each month or to save for 12 months and then whack over a lump sum? Personally speaking I'm leaning towards over paying each month because doing that would mean the money is then out of my account and thus unavailable for me to dip into.

 

[dazzer6666]

With regard to over-paying, is it better to overpay each month or to save for 12 months and then whack over a lump sum? Personally speaking I'm leaning towards over paying each month because doing that would mean the money is then out of my account and thus unavailable for me to dip into.

This is what we did...........it then just feels like you have a higher mortgage, and you quickly get used to it, with no danger of using the lump sum for some other impulse purchase.

 

[CheeseRolls]

Not necessarily. Depends on what you already have in pensions (lifetime cap), your tax band, T&Cs of your pension scheme, how it's invested etc etc. All down to individual circumstances.

Not sure I follow your argument - Pensions are not the best form of tax free long term saving IF you have already chucked in as much as you can to your pension pot ?

 

[dazzer6666]

Not sure I follow your argument - Pensions are not the best form of tax free long term saving IF you have already chucked in as much as you can to your pension pot ?

Not quite - for higher earners (starting at £110k pa as [MENTION=3792]bhanutz[/MENTION] says) the tax advantages have been largely stripped away, basically (even if you haven't reached the limit)

 

[bhanutz]

Not sure I follow your argument - Pensions are not the best form of tax free long term saving IF you have already chucked in as much as you can to your pension pot ?

You have 2 limits...The Lifetime Allowance £1,000,000 (unless you have protection) and an Annual allowance of £40k (tapered if you are a high earner as stated above). The annual allowance is also reduced to £10k if you are taking income from a drawdown plan or similar.

 

[Justice]

Middle class thread alert