Paying mortgage off vs. investing

herringn

Hi all,

I'm 32 and have 76k left to pay on our mortgage, the house is worth approximately 190k or was when we purchased it in 2007

My partner has just inherited 50k, what we cant decide is whether to pay this off our mortgage and could clear the remainder in a few years and then try and use our house as equity for a buy to let mortgage on another property or just use this as a deposit,

I have a pension but by other half doesn't, so we would like to get a buy to let as her pension fund.

We are going to start trying for a family in October so her earnings are going to reduce for a few years,

I wondered if anyone has any advise on the best route to take with this?

HappyMJ

I'd invest it but it's not the best route...it's just what I would do.

A BTL can be a lot of trouble. They aren't a buy it and leave it investment. You need to keep the property well maintained and finding new tenants can be a pain especially if you've scheduled something else or are really busy with something.

RickyC_IFSWP

If it were me, I'd use some of the inheritance as deposit for the BTL property, but ensure you have sufficient emergency funds to cover for vacant periods/refurbs etc.

You may want to consider applying for the BTL mortgage before your partner reduces her earnings to start a family.

Please also read up on the responsibilities of a landlord because it's not a case of simply collecting rent, and you have to be aware of the risks you're taking on (i.e. borrowing, management of property/tenants, taxes, stress).

El_Torro

Personally I try to have a diversified portfolio. So if you already have a fair bit of equity in the house I would perhaps look at bolstering your pension / your wife's pension, or putting money into a Stocks & Shares ISA. If you already own a house and are looking to get a buy to let then are you putting too much into property?

What if property prices underperform compared to shares over the next couple of decades? Then you'd wish you'd had more money in shares.

What you should do long term is guesswork really and a lot of it comes down to what you're most comfortable doing. Also worth bearing in mind is that you have to pay tax on buy to let income. There are more attractive tax benefits in pensions and ISA's.

Your_Hero

In my opinion, as you are looking to start a family, the safest option would be to pay down your current mortgage if you can do this without penalty. This means that hopefully, by the time you have children you will be (almost) mortgage-free which would reduce your monthly expenses and easier for you to manage on 1 income.

This would also have the added benefit of no additional stress since having a newborn would be stressful enough and the last thing you want to do is to have a BTL property with bad tenants and risk re-possession if you have no rent to cover the mortgage (bear in mind you will just have 1 income only too). This is especially the case if you are a first time landlord.

herringn

Thanks for all the advice,

Understand the pit falls around BTL and good advice about applying for this before the family grows, tax was also not something i had considered.

I was always under the impression that long term bricks and mortar was the safest bet, so i guess a pension would tick all of the boxes, i suppose i like the idea of a property as its tangible, also if anything every went wrong in the relationship (not good to think about i know, we have been together 11 years) but thought it would be good to have another property if the worst did happen and we split up.

I would buy something locally as i have a lot of friends and family in the building trade and that are plumbers so maintenance doesn't really concern me.

The driving force behind it is to make her more secure for the future and to reduce our costs whilst she is off work. Not sure if i am wishing too much with this and if its possible to do both at the same time

I have no idea how you use the equity in our current possibility, costs etc etc.

Daniel54

Are you married ?

If not,then marriage would give her much greater security

HappyMJ

Bricks and mortar isn't the safest best. Cash generally is. House prices can depreciate. The house could be destroyed by the tenants and insurance refuses to cover it.

herringn

No Daniel, not married its not something she wants to do and i'm happy with that,

MJ, what would be your recommendation on investment over a 25-30 year period be?

HappyMJ

herringn wrote: »

No Daniel, not married its not something she wants to do and i'm happy with that,

MJ, what would be your recommendation on investment over a 25-30 year period be?

If I already owned a property then I'd diversify by having investments in stocks and shares...but your pension may already be invested in these so I'd make sure my portfolio is as balanced as possible. It may be a BTL property it may be more stock market shares. All I was trying to say is that it's not as safe as you think. There are risks. The safest investment is cash in the bank it cannot depreciate (it can in real terms just not in actual value) and in the event of bankruptcy of the bank it'll be refunded by the government. The interest rate may rise much faster than we think and you'll be paying more in interest than you get in rent. You may be unable to sell it for what you paid for it and you could lose money.

Although my personal choice is property....just not too much of it. Usually the one you live in is enough to balance most portfolios.

Daniel54

She has few if any rights to your pension,That is why I asked ( assuming the house is owned 50/50.)

Cash will over time be eroded by inflation

You could usefully look into a low cost lifestyle fund like the Vanguard funds .Plent of information on these on the Savings and Investments board.The ISA aloowance wil lsoon be £15k per annum and unlike a BTL money in an ISA is free of tax on income and CGT