future planning advice

Craig_W_2

(Mods, please feel free to move this thread if you think it belongs elsewhere)

My wife and I need some advice. We live in a rented house in an area we could not afford to buy and would like to be able to buy our own house one day, probably somewhere cheaper.

Ages: both 44
Gross joint earnings: £46,000 pa
My total pension pot value: £45k
Her total pension pot value: £66k
Property: £25k equity in a BTL house worth £83k (we have a £58K mortgage with 19 years left)
Savings: £39k in a mix of ISAs, savings and interest-paying current accounts
Amount we save each month: £500 (all other bills, including pension, life insurance, holidays, car costs, etc, are accounted for in our budget and £500 is the remainder)

We want to know what is the best thing we could do with our capital to grow it so that we can one day buy a property of our own to live in. We estimate we would need around £225k in today's money to buy something of the size and location we would want and we would be happy to wait until our 60's as we are happy where we currently live and work.

What are the different options to try and generate such a sum? Are there any?!

We were considering buying another BTL in order to leverage rental income but we are wary of putting all our investment eggs in one basket. What else could we do? Would we be better off putting our savings into our pensions or some other form of investment?

Would we be best to go to an IFA to answer these questions? If so, do we need more targeted questions or information?

All advice gratefully received.

atush

Save more by reducing outgoings, earn more. Sel rental, not buy another. As the income is taxed and isa income and pension contributions aren't.
as well as looking at where you can afford to buy now with 64K deposit in your commuting zone.

And yes yu are in the wrong place. Investing, savings and home ownership forums would be better

Linton

How much is the net BTL income compared with the rent you pay? Agree with atush that you probably should sell the BTL and look to buy a house for you to live in. You couldnt move into the BTL could you?

£39K in cash is rather a lot. You dont really need more than say 6 months living expenditure for an emergency fund. You could either use the rest for a house deposit or if you wont need it to buy a house in the next 5 years you could think about investments rather than cash interest for a better return.

If you increase your pension payments will your employers contribute more? If so that could be worth doing.

Your overall net worth seems a bit low for your age - there is the danger that after you retire you wont be able to afford your current lifestyle. So I agree with atush that living cheaper and saving more could be sensible.

I fear that the sums of money concerned are too small to justify an IFA.

Craig_W_2

Thanks, both.

We can't really save more - we budget tightly and have three kids to look after.

As I said, we don't want to move yet but want to create a lump sum so that we can buy when we want to, perhaps in 15-20 years time. That's why we're interested in investment options.

The BTL income is 120% of mortgage payments. The BTL property is too far away from where we work to live in.

No, our employers' pension contributions won't increase if we increase our pension contributions.

jamesd

It appears that you have a long term dream and that you will not really be able to act on it until after age 55-57 regardless of what you do in the meantime. This implies that use of pension contributions would be the way to go so that you can benefit from the tax relief that is not reclaimed on the lump sum. If either of you is in a salary sacrifice pension scheme that would be the preferred one to make the contributions, due to the NI benefit as well as the income tax one.

I hope that most of the existing £39k is invested with S&S ISAs, since normal savings won't do your job very efficiently. Some use of P2P lending may be useful for money outside a tax wrapper. At the moment it appears that you may be spending around £30k a year and so £39k outside a pension pot is a suitable amount for emergency and contingency money that has to be available over a year to three timespan. So i don't think that moving any of it into a pension is a good idea.

At 44 you may have useful value from having a lot of money outside a pension. If you were to continue accumulating outside, you would more rapidly reach a time when you could meet your minimum required spending level with this money for life, topped up first by the workplace pensions at 55 then the state pensions at state pension age. How long this would take and whether it's realistically practical depends in large part on your minimum spending needs.

You appear happy with the rented house, though it seems as though it is fairly expensive compared to your incomes. There is one "trick" that you can use to possibly save money on this cost. You can offer your landlord one or even two years of rent paid up front in advance as a lump sum in exchange for a 10% or 20% discount on the rent amount. Your landlord may well take this to allow them to invest in another property, say, seeing the discount as a fair price to pay for access to the money. You could tell your landlord that you're in the position to pay in advance for a year or two and invite them to make a discount offer in exchange if they are interested in that and you don't want to propose an amount.

Craig_W_2

Many thanks for your response, James. That is just the sort of input I was hoping for.

However, I need some clarification. In your first paragraph you seem to suggest that shifting more money into our pensions might be a good idea, especially if we can pay by salary sacrifice, which I can.

However, in the 2nd and 3rd paragraphs you seem to say switching our savings into our pensions would be a bad idea (para 2) and we would be be best to keep growing our savings outside of our pensions (para 3). Could you clarify?

No, the ISA's are not S&S. I will take a look at switching some of the ISA money over.

As I said, much appreciated.

atush

If you dont think you will buy until age 55 or older, then pension IS a good idea as your money will receive an immediate boost- in your case by 32%.

However, things could change so investing some of your savings into S&S isas would be a good idea as they would grow better than cash over the long term and could be accessed earlier.