What to do with my savings?

J0SH

Hi everyone not sure if this is the correct part of the forum to post in as it’s not just about a mortgage but here goes!...


I have 2 houses, one is my own home that I live in and the other is a buy to let property. I have mortgages on both, which are as follows:


My house:
18.7 years left
103k left to pay
I pay £757.72 pm, it is a repayment mortgage and the rate is 5.79% fixed until 02/04/2013.
On this I can overpay a maximum of 10% of the annual balance each year, anymore and I will incur a charge.


The BTL:
19.2 years left
71k left to pay
I pay £494.22, it is a repayment mortgage the rate is 5.39% fixed until 31/03/2016.
On the BTL I can only overpay 5% of the annual balance each year. Again anything over this and I will be charged.


Now you have all the information I think you need these are my questions I need help with.


I have £30000 in savings (currently in premium bonds) but what is the best thing I could do with it?


Should I pay 10 and 5% off both mortgages to reduce the term? – leaving me with about 16k to do the same again next year, and of course making me pay less interest



Or should I use the money to buy a second BLT property? – Which could make me more in the long term than the interest saved by paying off the 5 and 10% !?


Or something else, though I think one of the above options would be best?


Sorry it’s a bit of a long first post and I hope it all makes sense.

Edit: Just to also say I have some savings in a cash ISA for any emergencies so no need to save any of the 30k.

getmore4less

What's the follow on rates on both loans.

Whats the gross yield on the rental?

Purchase price and current value of both places?

Gross yield on any proposed purchase?

Income and tax rate

J0SH

getmore4less wrote: »

What's the follow on rates on both loans.

Whats the gross yield on the rental?

Purchase price and current value of both places?

Gross yield on any proposed purchase?

Income and tax rate

The gross yield is what I get befor the mortgage and my tax comes out yeah? if so £7500 a year

The BLT purchase price was £132,500
Current value £139,950

My house purchase price was £140,000 and prob still worth the same if not a little more due to the work i have done on it.

Havent worked out what I would yield on a 2nd BLT but i guess not as much as my first due to only being able to put 30K despoit down. I guess it would make me money in the way that somebody is paying the mortgage for me.

Sorry for sounding thick but what do you mean by income and tax rate? what I am earning a year from my job? If so, Annual Salary 31,814.40 thats before tax

bigadaj

The experts would tell you that your btl should be on interest only, as then the interest can be off set against tax, however little point changing now as you would incur fees.

You have experience of btl so it's basically your call on the risk you are adopting. In terms of assets you will be massively weighted in property, so diversification into shares or commodities would be one recommendation.

You have good cover on the current property and so would need to run the figures, with your deposit minus buying costs you would be looking at around 100,000 purchase price. Can you get property for that sum, and if so can you get the required yield, probably 600 a month, and if so what is demand like.

Apologies if I am pointing out the obvious.

J0SH

Thanks for the reply, I still offset the intrest I pay on the BTL off my tax and want to keep it as a repayment.

I could get a property for around 100,000 but it wouldn't get me anything near £600 pm, so maybe the best option is to overpay my mortgages and work on paying them off as early as possible...

Thrugelmir

J0SH wrote: »

I could get a property for around 100,000 but it wouldn't get me anything near £600 pm, ..

Pay down your residential mortgage by the maximum you able. Also consider starting a pension plan to maximise tax relief. If you continue adding BTL properties you will find yourself paying 40% tax on part of your total income.

J0SH

I think I am sorted with pensions, I already pay into a pension that i started about 8 or 9 years ago, and I am in the army so will have a good pension from my job.

Should I pay 5% off my BLT or only concentrate on my own home?

getmore4less

Wiith £7500 rent and a purchase price of £132500 thats a gross return of 5.66% so after expences and tax you are probably losing money on the rental since you have total borrowings exceeding the value.

What are the follow on rates?


Another rental £100k £600pm rent at similar interest rates would not get you that close to 40% tax.

£70k + £70k @ 5.5% is £7.7k rent 7500 + 7200 leaves £7k less other expences.

Still under £40k, 40% tax is at £42475.


I think I would foucus on cheaper lending thats why the follow on rates is important, if these are good then that part is done if not then what do you need to do to get a much better rate on the residential first.

BTL does have scale economies so keeping the cash back in case an opportunity comes up that will be a good yielder might be an option.
Another option if your place be a good rental, is to consider letting that and getting yourself a new place.

J0SH

Thanks for the reply,

I think I understand what you are saying!

So I think my best option at the moment would be to pay off the 10% from my mortgage(my house) and look for a better deal when the current one ends next year? and once on a better deal and having less borrowing maybe then is the better time to look at a new BTL?

Is there any point in paying 5% off the BLT

getmore4less

is there any point in paying 5% off the BLT

That will depend on the follow on rates and potential remortgage rates and how much cash reserves you need.