Paying mortgage off vs. investing

herringn

We are both named on the house, so if we were married then she could take half my pension if she left? puh!

So when you talk about the BTL being taxable, is that an annual tax or when you sell the property?

Any ideas on the rate of tax? does that depend on earnings?

Would it be worth having one name on one of the houses and another on the BTL for tax and to reduce exposure if the bottom fell out of the market and we were in negative equity with the BTL,

Your_Hero

herringn wrote: »

We are both named on the house, so if we were married then she could take half my pension if she left? puh!

So when you talk about the BTL being taxable, is that an annual tax or when you sell the property?

Any ideas on the rate of tax? does that depend on earnings?

Would it be worth having one name on one of the houses and another on the BTL for tax and to reduce exposure if the bottom fell out of the market and we were in negative equity with the BTL,

Both. Income tax on rental, and Capital Gains Tax (CGT) on the profit from sale.

If you have a mortgage on your own residence, then you both usually have to be named on the mortgage or else the non-borrower has to sign a waiver.

In an ideal world, probably better to have the lower taxpayer (likely to your other half due to children) on the BTL so the rental income is all theirs for tax purposes. But then you would have no legal ownership of property which many people won't like. Having it joint ownership means you can spread the income between you two, and also the capital gain at the end when you sell to make use of both your CGT allowances (approx. £10,900 off my head).

Income is taxed by adding to your total income for the year and taxed at highest marginal rate. CGT is also added to income upon sale and it's 18% for BRT and 28% for HRT.

As deposits for a BTL is normally around 25% minimum, usually 30% nowadays, it would be fairly difficult to get into serious negative equity...Not to mention, negative equity is only a concern when you sell or it needs to be repossessed. Since you intend to hold it for 25-30 years as mentioned previously, this should not be a problem. There are of course no guarantees in life.

sebtomato

HappyMJ wrote: »

Bricks and mortar isn't the safest best. Cash generally is. House prices can depreciate.

Cash will depreciate too, if only invested in a savings account not beating inflation, and very few are, even before tax...

sebtomato

herringn wrote: »

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

Stock market, for sure, if you don't have enough to invest in property. Invest the money on low cost/fee FTSE100 and FTSE250 trackers...

SG27

In my opinion property isn't a great investment. It's just about the most illiquid asset you can have. Buying and selling fees are massive. And it takes work, time and effort to keep it profitable. Yields are far too low to justify it for me.

hcb42

If you want to reduce your outgoings in the medium term, a buy to let doesnt really achieve that..in fact if could end up significantly increasing them, especially if you have a period with no tenant

shaneshaneshane

Surely the safest route is to pay down the mortgage to the max allowed before fees are introduced each year and live safe in the knowledge that you are practically mortgage fee in cash vs debt terms while you start your family.

May not be the most profitable but will probably be the safest/ best way for peace of mind.

Although I am sure there will be much smarter people on here than me with better ideas.

Thrugelmir

Personally I would pay down the existing mortgage. Once you've cleared your mortgage totally. Then you can invest your money as you wish. By drip feeding into a variety of options some short term and some long. Having no mortgage takes away one of life's biggest worries.

BarleyGB

Ive made a choice not to pay down my mortgage, seen my savings grow at a pretty steady 15-20% over the last 3 years (invested across various funds).

Its grown above my outstanding mortgage (around 3% APR), being single and with an appetite for risk decided id rather use the money and make it work. I have probably been lucky and caught the post recession up turn but I like to think with careful investment management I can return 10%+ per year. Not doing so well in 2014 so far am in the process of diversifying the equity focus of my savings into a BTL.

In my mind I have paid off my mortgage, its just that I have the money and am making it work, currently milking the above 3% break even return had I actually cleared the mortgage balance.

All depends on personal situation, appetite for risk, who knows in 12 months I could be ruing the day should the stock market crash? Personally im in it for the long term so would hope that would present a further buying opportunity and id ride out the average peeks and troughs over time.

Thrugelmir

BarleyGB wrote: »

but I like to think with careful investment management I can return 10%+ per year.

When you find the holy grail let us all know.