Approx 35k savings - what would you do?

kiss_my_face

Hi,

I'm after some opinions/advice on what to do with around 35k savings.

My partner and I have around £35,000 between us. We are both in jobs which cover our current bills/mortgage. The £35,000 is currently in various bank accounts earning as much interest as possible like many people on here do (Santander/BOS/Tesco etc).

My partner says to buy a cheap flat and let it out and effectively let someone else pay off the mortgage on it. I say that it's not quite as easy as that!

We are due to remortgage our house in March 2017 - probably paying somewhere between 1.6% and 1.9% interest. We've got £70,000 left on it. We've also both been paying into our teacher's pension schemes for the past few years.

So, would you...?

1) Invest in a buy to let flat?
2) Overpay the mortgage on our current house by putting the £35,000 lump in?
3) Spread the £35,000 in various other things (current accounts, ISAs, pension etc?)

Any advice appreciated - I know that there is no right answer and no way of knowing for sure, but I don't like the idea of the money just sitting there doing nothing. If we overpay the mortgage now, are we shooting ourselves in the foot by not having that 35k handy?

jimjames

How come you don't have an option 4? Use the money to invest in S&S ISAs between you and make the most of the tax allowance? Or did you mean S&S ISAs for option 3?

Far too many people seem to immediately jump into looking at BTL without even thinking about normal investments.

But it's probably a good idea to do a mix of things, overpay mortgage if it helps get a better rate, put some into pensions especially if that benefits tax wise and look at using your S&S ISA allowance.

xylophone

The £35,000 is currently in various bank accounts earning as much interest as possible like many people on here do (Santander/BOS/Tesco etc).

Then it is not

doing nothing?

Being a landlord is not an easy option.

You need an emergency fund and if this is your emergency fund then simply sinking it in your own mortgage or a BTL might be unwise.

At the moment, the interest you are earning is above the rate of inflation although this may not continue to be the case.

You could consider using your stocks and shares ISA allowances, but not with any money that you may need to access in the short term.

george4064

You're right to be skeptical on the buy-to-let option, you can earn similar returns with a passive diversified portolio that's easier to manage and does the work for you without any/with little intervention.

VeroWright

Invest in a new business and make money flow in passive. You can double or even triple your earnings, in short terms (like 3 or 6 months).

p00hsticks

How secure are your jobs ?
Do you have a separate emergency fund put aside or is this within the £35k ?

There is a general rule that it is worth having an emergency fund of around six months salary in readily accessible cash for times of unexpected need.

p00hsticks

VeroWright wrote: »

Invest in a new business and make money flow in passive. You can double or even triple your earnings, in short terms (like 3 or 6 months).

I see you are in New York. This is a UK based forum, so investment opportunities may not be the same here....

Mogley

Well done for saving the £35k. What do you need the savings for? Once you have clear objectives you can plan your saving's location to meet those objectives.
I cannot comment on option 1) as I've no experience.
A combination of the other two options would work depending on your savings objectives.

bowlhead99

So, would you...?

1) Invest in a buy to let flat?
2) Overpay the mortgage on our current house by putting the £35,000 lump in?
3) Spread the £35,000 in various other things (current accounts, ISAs, pension etc?)

Imho you've listed the choices from worst to best.

3) spread your money between short and medium term savings and between long and very long term investments. A good solution.

2) You will be able to remortgage at a low rate. 2% is the government's general inflation target and most forecasters (including Bank of England) expect inflation may exceed that level in the coming years. So, paying off a mortgage which is only at 2% or so is gaining you nothing in real terms, and the rate of the mortgage will be lower than the returns available on long term investments.

The only reason to go for this option is where paying off some more of the mortgage to bring it down from its £70k level to something that gets you a better LTV and therefore a decently better interest rate on the whole £70k (ie saving interest not just on the few thousand you pay off, but on the rest of the outstanding balance too).

1) becoming professional landlords as a sideline to your busy teaching jobs seems the worst option.

You have £35k of cash.
-Let's say you keep £8-£10k aside for your emergency fund/general cash savings for your normal needs in your day to day life (a few month's net pay).

-Then for your new property lettings business you probably need another £5k+ slush fund for that, to cover unexpected issues like a new boiler, initial and ongoing refurbishment and maintenance, tenant trashes the place after failing to pay rent and needing to be evicted, property stands empty a few months and generates no income to pay the mortgage etc.etc. And you need £3k for stamp duty on a £100k property, and £1k for solicitor costs and tenancy agreements etc. So let's call it £10k for this "initial capital and running-my-lettings-business" pot.

So the amount of money available out of the £35k to buy a property is £35k -£10k - £10k = £15k. You can get a BTL mortgage for up to 75% of property value. So with the £15k deposit together with the BTL mortgage of £45k, you have £60k to spend on the cheap flat that your partner has eyeing up.

The monthly income on a £60k flat is not high. If you're both in full time work, then out of that you will presumably want to pay an agent to deal with the tenants and pay DIY people to do your repairs etc.

Those costs can be offset from your tax bill, and so can the mortgage interest - but the interest is only deductible at basic rate 20% even when one or both of you become high rate taxpayers. The mortgage principal payments can't be deducted against income tax at all.

Then when you sell it, if there's a gain you can look forward to paying capital gains tax on that.

By contrast, investing in S&S ISAs is free of income tax and capital gains tax regardless of your personal tax rates. If you're looking long long term or are high rate taxpayers, personal pension can also be good because of tax deferral and potentially complete relief if you eventually draw it back out of the pension in a year you don't have much other income.

eskbanker

p00hsticks wrote: »

I see you are in New York. This is a UK based forum, so investment opportunities may not be the same here....

Sing along now: "If you can make it there, you can make it anywhere"....

kiss_my_face

Thanks everyone, that's really useful so far! I haven't got much time to reply right now, so will have a proper look over everything tonight, but a few points/answers...

We have about 12k on top of the 35k, so we have a good emergency fund. My girlfriend's job is very secure, mine is secure but only part time so my wages vary. I earn enough to pay the bills, but don't always have much left over.

I know very little about S&S ISAs which is why I didn't list them in the first place. I will start researching them properly!

We'll get a very good LTV ratio when we remortgage, so I don't think putting more money in will effect that aspect of it.

We've managed to do some good saving by being fairly frugal. No kids, no big holidays, no wedding, no takeaways, rarely eat out unless we have a discount voucher - that kind of thing! :-)

And finally, we've never really thought of having a savings goal. We just want to be able to pay the bills and have a roof over our heads really. Neither of us come from families with any money and aren't going to inherit anything, so what we've earned/saved is what we'll have.