savings : pay off mortgage or buy a buy-to-let??

clarkster2005

Hi, we are in need of some advice, we have enough savings to pay off our mortgage. But we have thought about buying a buy to let property. Any ideas on whats the best to do with this money? Thanks.

Archi_Bald

It is impossible to provide a meaningful answer without having much more detail. What is your outstanding mortgage, what is the interest rate, what if any are early redemption penalties, what pension provisions do you have, what are your tax rates, how much have you got in cash emergency fund, what do you know about landlord obligations etc etc etc

Linton

Why either?

I suggest that investing in shares/funds is much more flexible. As long as your mortgage interest rate is comparatively low you should on average and over an extended time period gain more from investment returns than lose by extra mortgage interest. And if circumstances change you can easily sell some or all of the shares/funds to pay off some or all of the mortgage. Not so easy with a BTL

clarkster2005

The interest is the base rate plus .75. So basically nothing with 30k left. We know nothing about shares or investments so this option is out of the question.

le_loup

But you do know about buying and letting property?

jimjames

clarkster2005 wrote: »

The interest is the base rate plus .75. So basically nothing with 30k left. We know nothing about shares or investments so this option is out of the question.

How much do you know about BTL? I assume not too much as you've asked the question.

Btl is a business so you need to treat it that way. The two options you've given are very different so not easily comparable as one will give you a lot of work and potential risk while the other has none.

If you know nothing about investment then it would be worth finding out as you're otherwise excluding a potentially flexible option that may meet all your goals.

bowlhead99

clarkster2005 wrote: »

We know nothing about shares or investments so this option is out of the question.

So, how much experience do you have of making a leveraged buy to let investment, in which you are putting your whole life savings into a property lettings business that owns a single property and hopes to run it as a profit rather than a loss?

we have enough savings to pay off our mortgage

The interest is the base rate plus .75. So basically nothing with 30k left.

. If the interest is basically nothing then there is no point paying it off and losing access to a large chunk of funds that you could only get back by remortgaging.

The traditional choices would be to save the money in accounts that deliver an after tax return greater than the 1.25% (plenty are available, and presumably that's what you are already doing), or invest the money in liquid investments (shares/bonds) that typically deliver a much higher return than cash but come with risk.

Or, at the extreme risky end of the scale, you could get yourself a buy-to-let mortgage on a £120k property. And just hope that you don't suffer long void periods causing you to fund the mortgage payments out of your own pocket, high maintenance bills, problem tenants that don't pay the rent and leave you with £20k of damage, increased interest rates that stop the rent income after tax from having a hope of covering the mortgage and other bills, and eventually sell the place for £90k leaving you having lost over £50k out of your original £30k stake, just at the time that base plus 0.75 has become 3.75 increasing your mortgage on your own home to much more expensive levels that take a big dent out of your salary with no remaining means of clearing it because your liquid assets are long gone.

Good luck with whatever you decide. Personally, I would definitely not pay off my mortgage early if the interest I owed on it was no more than inflation. If they are happy to pay them off in 2018 pounds, don't pay them off now in 2014 pounds which can be put to valuable use elsewhere.

But beyond 'don't pay the mortgage off early' there is no real answer to "what's best to do with £30k" because everyone wants different things out of life.

Archi_Bald

clarkster2005 wrote: »

The interest is the base rate plus .75. So basically nothing with 30k left.

At current interest rates, and for £30K, it makes no financial sense to pay off the mortgage, even if you could pay it off without any penalty.

You haven't answered any of the other questions so it is still not really possible to give many meaningful answers. Generally speaking, £30K isn't much, and if your only other asset is your house, putting more money into property is one of the riskiest strategies you could possibly pursue (all eggs in same basket etc).

I won't be posting further responses unless you are able to provide answers to the questions I asked earlier.

Thrugelmir

clarkster2005 wrote: »

Hi, we are in need of some advice, we have enough savings to pay off our mortgage. But we have thought about buying a buy to let property. Any ideas on whats the best to do with this money? Thanks.

What are your plans for retirement i.e. pension provision?

clarkster2005

I have a decent pension but the wife does not. This is why we are thinking about a btl.

kidmugsy

clarkster2005 wrote: »

I have a decent pension but the wife does not. This is why we are thinking about a btl.

Rather than thinking about a pension for your wife?