Help with our investment

seven-day-weekend

Hello, I think it may be my first time on this particular part of MSE.

My husband and I are hoping to receive about £70k from the sale of our house in Spain. (Fingers crossed!).

We have a small mortgage of £30k on our English house, which is a fixed rate of 3.04% for two years. It lasts until 2023 unless we pay it off early. We took out this mortgage in October 2011 and after two years can pay it back without penalty. If we pay it back before that we have to pay £1000.

We have ISAs with about £5k in them at the moment and about £7k in Premium Bonds, plus other small bits and pieces adding up to no more than a couple of thousand. We have no debt other than the mortgage.

We are in our early 60s. I have a State Pension and am a non-taxpayer. My husband has a Teachers' Pension and a reduced amount of Incapacity Benefit, he pays tax.

In 2014 I will have my Local Government Pension to come, this is about £50 a week and a lump sum of about £6k. In the same year my husband will get his State Pension of about £120 a week, but will lose his IB of £61 a week.

Has anyone any advice on how best to use our investment, in particular whether it would be best to pay the mortgage off after two years?

Thanks everyone for your advice.

Moist_von_Lipwig

If the mortgage repayments between now and October next year is more than a £1000, isn't it worth paying off the mortgage early?

Totton

The mortgage rate is cheap as a loan but getting rid of the mortgage will feel good :-)

Your pensions sound as if they should be enough to cover your living costs other than perhaps any large bills for maintenance on the house. For that you have your premium bonds and other savings, personally I'd ditch the premium bonds (keep a small amount if you like them) and put the cash into a Cash ISA.

I would consider keeping the cheap mortgage until October 2013, until then you can match or beat the 3.04% interest rate with your cash ISA savings and not have to pay the penalty release fee. Come October 2013 then I would pay off the mortgage completely if you can.

HTH,
Mickey

BLB53

Has anyone any advice on how best to use our investment, in particular whether it would be best to pay the mortgage off after two years?

I think it would be a good idea to pay off the mortgage in two years as you probably don't want to be paying for it out of pension income.

With the rest of the sale proceeds, I would seriously look at creating a second income stream based on higher yielding equities. Over the next two tax years you could tuck all the £40K in S&S isa between the two of you. This would provide a steady income of around £2K per year tax free and rising every year ahead of inflation.

The basic process is described in a book I downloaded 'Slow & Steady Steps...' recommended on www.monevator.com weekend reading column last weekend. Well worth getting hold of a copy.

Also worth bookmarking the site as there are some very good articles every week.

Good luck with the investments.

BLB

Jegersmart

BLB53 wrote: »

With the rest of the sale proceeds, I would seriously look at creating a second income stream based on higher yielding equities. Over the next two tax years you could tuck all the £40K in S&S isa between the two of you. This would provide a steady income of around £2K per year tax free and rising every year ahead of inflation.


BLB

I would strongly disagree that £40k in S&S ISA's would provide a "steady income" however you should definitely use ISA wrappers whenever possible for tax purposes. There are many choices within ISA's so you should be able to find something with the right risk profile for your particular situation.

Good luck!

J

BLB53

I would strongly disagree that £40k in S&S ISA's would provide a "steady income"

There are many UK focussed investment trusts which have consistently paid a rising dividend every year for many many years.

For example, City of London currently yielding around 4.6% has increased its dividend for each of the past 45 years. Its manager has been in charge for over 20 years - it holds a portfolio of mainly UK blue chip equities.

Now if thats not steady income, I really don't know what is.

seven-day-weekend

Thanks all for your comments. It seems that most people recommend paying off the mortgage after two years.

I don't think we could put 40 grand in stocks and shares - much too risky for us! But thanks for your advice.

Thanks to everyone who replied.

Jegersmart

BLB53 wrote: »

There are many UK focussed investment trusts which have consistently paid a rising dividend every year for many many years.

For example, City of London currently yielding around 4.6% has increased its dividend for each of the past 45 years. Its manager has been in charge for over 20 years - it holds a portfolio of mainly UK blue chip equities.

Now if thats not steady income, I really don't know what is.

Sure, I should clarify that I disagreed more with the word "steady" being mixed up with "guaranteed" or similar over a longer period. Just because it has "increased" the dividend payout for 45 years doesn't mean that it is going to do so going forward. Apologies if I seemed abrupt - I am just aware that people's perception of risk is usually based on past performance or history - and of course it should be mentioned that the valuation of the holding would have fluctuated quite a lot over a longer period as well if that is of importance to the OP.

J

Jegersmart

seven-day-weekend wrote: »

I don't think we could put 40 grand in stocks and shares - much too risky for us! But thanks for your advice.

Thanks to everyone who replied.

There are many choices within an ISA wrapper - including many asset classes that are not equities - so I would do some research and go from there.

Good luck with the sale.

J

seven-day-weekend

Just to say we got our money, it was over £80k in the end.

We paid the mortgage off (£29.5k), paid about £3k improving our home, spent £3.5 k on a rewire and new heating for our son's flat, put £10k in a one-year bond so have about £34k left.

We have seen a flat in the same development as our son's. It is up for £72k but has been for sale for ages and needs a lot of work doing to it,also it is being sold off as part of a deceased person's estate so we think we could get it for a lot less, we would not be prepared to pay more than about £62k. It has a ninety year lease, quite good on these particular properties.

If this price is acceptable, we would like initially to have it as a buy-to-let, until we are ready to move into it ourselves (hopefully not for about twenty years!).

We thought maybe around £20-22k on a deposit and the rest on a mortgage. Then we would need to spend about £10k on it (wiring, heating, new windows, new flooring).

Do people think this is a viable and sensible proposition?

xylophone

Just to say we got our money, it was over £80k in the end.

Was there a CGT liability?
tp://www.hmrc.gov.uk/cgt/intro/when-to-pay.htm
http://www.shelteroffshore.com/index.php/property/more/capital-gains-tax-rules-overseas-property-10295