£17,000 - best ways to invest?

jdw2000

Hi all,

If anyone has any advice on the below then I'd love to hear it:


- 37 years old, no kids.

- £149,000 mortgage (house worth £200,000). 1.25% interest rate (0.75% above BoE rate). Part repayment.

- £123,000 BTL mortgage (property worth £145,000). 4.95% interest rate (variable rate). Interest only.

- £30,000 in pension

- About to receive £17,000, and wonder what to do with it...


A house extension is the best thing I have thought of so far... I may be able to create a bedroom in the loft which would add value to the house... Not had that priced up yet, but shouldn't cost more than £17K?

Any other options? Pay off a chunk of the mortgage?


Many thanks.

jamesd

Pension amount seems low for your age. Any sign of you being a higher rate tax payer or close to it? Any employer matching or salary sacrifice available for a work pension?

For nil risk uses, the 4.95% BTL mortgage rate is interesting and the amount that seems most desirable to reduce. Do you know that you can use your own home as security when borrowing to release capital from a BTL business or to raise financing to replace part of a mortgage secured on the BTL property? Still limited to the interest being deductible only for borrowing up to the value of the property at the time it entered the BTL business.

At BoE plus 0.75% I'd be avoiding any overpayments at all on the residential mortgage. That's just too cheap compared to investment returns and the BTL mortgage. But maybe you could swap some of the residential and BTL mortgage amounts to reduce the business interest liability from the 4.95% to 1.25%. Personal tax advice should be sought before doing this to ensure that you structure it correctly so that the interest is deductible from rental income. Do not just pay £15,000 off the BTL loan then start deducting 1.25% interest instead of 4.95% from rental income on the £15,000, get personal advice on how to do it.

If you used money on a house extension, when would you realise the value of that investment? Planning to move soon? Or would it prevent the need to move? Loft extensions aren't wonderfully great for value, how's the back or any side return? If lots of space out the back a two storey or even just one storey extension might be worth considering.

What other savings and investments do you have? Do you have enough readily accessible to say pay all necessary living costs for a year? Or two or three if you like more security?

When do you want to retire? Not when you think you can, but when you'd like to? 55? Earlier? 55 is the earliest you can take pension income but you can retire earlier if you can accumulate more money outside a pension to cover the gap.

dunstonh

£17,000 is not a large amount. You have a mortgaged buy to let. So, you need to keep back a bigger emergency fund than most. If that is all the liquid savings/investments you have then I wouldn't do anything with it other than cash based. You could I suppose take a couple of grand and put it into investing but not much more.

Like jamesd says, your pension is low for someone your age.

A house extension is the best thing I have thought of so far... I may be able to create a bedroom in the loft which would add value to the house... Not had that priced up yet, but shouldn't cost more than £17K?

Not really an investment though.

Pay off a chunk of the mortgage?

With low interest rates, is it worth it?

jdw2000

Many thanks indeed to both of you for your kind advice. It is much appreciated!

No, I have no contingency funds, so maybe this is a good opportunity to have something in reserve.

With regards the pension, I only started it a few ago (sadly). It is a 10% matched contribution scheme from my current employer. Just out of interest, what would the amount typically be for an average earner of my age? This is a big priority for me now, and i wish I had started it sooner.

dunstonh

Just out of interest, what would the amount typically be for an average earner of my age?

It is difficult to put a finger on it as later starters paying more will see their fund grow at a different rate to an early starter paying less. It also depends on whether you have someone wanting early retirement or normal retirement etc.

However, one of those rough guides, is to have £35k by 35. It is not accurate by any means. It is just to get people to think about where they are and where they should be.

jamesd

The first key to good retirement planning is to have a target, then pay in enough to reach that target. The second is to pick sensible investments and pay attention to them, not ignore them.

So your next step isn't so much asking what you should have, it's working out when you'd like to retire and how much you need to be adding to get there. There are many pension calculators around.

10% matching by your employer is a good starting point. Good to get the full match.

At the moment you're fairly short on non-pension pots so beyond that I'd say go with investments inside a S&S ISA before more pension payments. This is because the S&S ISA investments can grow like pension pots but are accessible both now and at any needed rate if you need to draw money faster than pension rules would allow.

Because of compounding over time it's true for both pension and ISA investing that you get more for the same amount of money paid in early than later.

To give you some idea of what someone older than you who wants to be able to retire early might be using, my current split is about 60% take home pay, 40% pension contributions (combined me and employer). And full S&S ISA use on top of that each year from the net pay.