If you had the choice of buying a flat (to let) or paying off your mortgage?

ZiggerZagger

There is a small chance that in a few months time I may have access to a sum of money (it's a work dependent deal).

I'm 42, recently divorced, large mortgage, almost no pension (starting again after divorce).

I will attempt to make the maximum payments each year into a pension.

If this deal comes off, I could be entitled to a sum of money that could pay off the mortgage. Or I could buy a buy to let property (2 bed flat) that would pay around £1k a month. The mortgage is at a rate of 0.99%. The rent from the buy to let is less than the mortgage payments (mortgage is a 15 yr one).

I have a good job now but it's in what I would call a high risk industry with a private company with v poor job security. If I lost this job, I suspect I would get another but earning significantly less than I earn now.

The risk averse person in me says pay off the mortgage. The long term investor in me says get a 2 bed flat while you can as you will need more than your pension (as I'm only starting now and may not be able to contribute full amount each year for a significant time period).

What would you do? (There are a lot of maybes here but would be interested to know others thought processes).

Pixie5740

High risk, low job security. Pay your mortgage off otherwise you could find yourself in the position of covering 2 mortgages on less pay.

What kind of yield would you expect from a BTL?

ZiggerZagger

Yield would be around 4% but that is pre tax and I'm a higher rate tax payer

Pixie5740

Does the 4% account for void periods? Even if it does, 4% isn't that great especially as a higher rate tax payer. Have you considered what the CGT might be when you eventually come to sell?

ZiggerZagger

I'm in a high priced property area (hence the lower yields) - chances are I wouldn't sell it but keep it as buy to let and then leave it to my kids.

catshark88

We were in a similar position and chose to pay off our mortgage. It has been such a stress lifter.

Pixie5740

Your BTL property doesn't have to be in exactly the same area you live in. What other investments have you considered? There are many more investments out there offering better returns and less hassle that are more tax efficient than property.

ZiggerZagger

I can totally see how it would be a stress lifter and that's a big consideration for me especially as I'm a single parent.

I have thought about some other investments but the biggy for me is the income producing potential of a buy to let in my retirement years as there's a chance I won't have a substantial pension pot when I get to retirement....

(I could look to other areas but they would be far away from me here in areas I don't know well at all which may potentially make it harder for me to manage and I'd need to get to know them to buy etc)

Pixie5740

You can have more than one pension.

If you had the BTL generating some income and an income from your work pension would that be enough to cover void periods, maintenance and repairs?

If your current home, a BTL and whatever assets you have total more than £325k then your estate will have to pay 40% IHT.

Thrugelmir

ZiggerZagger wrote: »

Yield would be around 4% but that is pre tax and I'm a higher rate tax payer

Is that net or gross , i.e. before or after costs and expenses.

ZiggerZagger

Net (of expenses but not net of tax and it is assuming I won't pay someone else to manage it and it is before taking into account any potential void periods)