Pension or BTL

Kobi11

I am a novice buy to let investor holding a full-time job like many others. I am torn between contributing to a pension (which I only recently started in my last job) or using this proportion of income to reduce the mortgage on my rental property.

My employer (NHS) contributes a significant proportion to my pension pot, which was the only reason I opted for a pension, but I equally have to make a significant contribution to this. In all, about £270 go to my pension contribution monthly - which I think will repay my mortgage.

I have never had a pension until I started this job , with c 25 years left to retirement, I was wondering if it would make more financial sense to channel this contribution to the mortgage i.e changing to a repayment mortgage rather than an interest-only mortgage.

The rental property is in a prime London location with potential to continue rising in value. My question is with c25 years to retire, would it make more financial sense to channel to this contribution (£270) to repay my BTL mortgage and benefit more from the sale of the property, or to keep making monthly contributions to this pension? I am sort of leaning towards this idea. I know it's all about speculation, and risk, but would be interesting to hear anyone in a similar situation or can proffer some thoughts. Thanks all

martindow

If NHS pensions are still ones that pay out based on your final salary I'm not sure that you can pay in extra money. Final salary pension schemes are generally a good deal and well worth having.

penguingirl

martindow wrote: »

If NHS pensions are still ones that pay out based on your final salary I'm not sure that you can pay in extra money. Final salary pension schemes are generally a good deal and well worth having.

I don't think the OP is talking about overpaying- I think they are considering not having an NHS pension at all. The scheme is now career average rather final salary, but still pretty generous (I think you get 1/30 of your career average per year you contribute, up to half salary).

OP- I think there are some tax perks to paying into a pension, so if you choose not to pay in you will get less than £270 extra.

Personally I'd stick with your multiple options approach of having investments and a pension, rather than putting all my eggs in one basket, but I'm not a huge risk taker.

booksurr

no brainer - always pension first in your case

1. you have a decent pension scheme
2. you get tax relief on your pension payments
3. the employer contributes to it (the so called "free money aspect")
4. you do not get tax relief on your mortgage payments
5. the property price will rise anyway such that the relative size of the o/s mortgage in 25 years time will be irrelevant as a % of the whole
6. your only way to realise the money in the property is to either carry on letting it as an income in retirement (in which case paying off the mortgage is totally counter productive) or by selling. If you sell you get back (under current CGT rules - who knows what they will be in 25 years) a max 72% of the repaid mortgage - that may or may not be a worse performance than your pension but one thing is sure you know exactly what you will get from the pension and (current rules assumed) 25% of it can be tax free lump sum

keep the BTL, take an income for as long as you can take the strain of being a LL and sell only if you need the capital sum locked up in it and want to give up being a LL

meantime get a decent pension as well so you hit retirement with multiple options