What to do with £100k...???

M22kk56

Looking for advice on what to do with £100k I'm due to inherit in cash. My situation is as follows...

Currently have £200k mortgage on £250k house I live in and promo rate is fixed at 2.2% for three more years. I also have a BTL with £75k mortgage on £100k property at 4% interest rate.

I have no other debts and no big planned expenses in pipeline. I have 6 months worth of savings too and can contribute more to this from monthly wages so I'm comfortable (lucky!)

So how should I spend the 100k. Put it all towards reducing mortgage? ISA's...? Stocks...? Other...?

I'm less keen on another BTL due to amount of work involved. I am keen to learn about stocks and shares but not sure if it's a good idea to invest any with two mortgages hanging over me...

Keen on any thoughts...!!

tacpot12

What pension provision do you have in place? If nothing, I suggest you start a pension. If you have a pension, then I'd suggest you clear the BTL and put the remainder towards reducing the balance on the house you live in. Whether it is better to clear the BTL mortgage or halve the home mortgage is down to their term.

If you have some spare disposable income you can start saving into a Stock & Shares ISA if you are happy with your pension provision, or invest into your pension. Botth will give you the opportunity to learn about stocks & shares investing.

newja

Interesting thread and I shall be reading responses with interest.

From a personal perspective I would also be keen to tidy some mortgage debt up before going into stocks etc.

I do not have BTL so will not have all the info on advantages/disadvantes of taxation if you were to pay that mortgage off but, were it me, and I was forced to make a quick snap decision I would pay the BTL mortgage off in full, then you have one less debt.

I'd pay the remainder off my main mortgage, assuming that the lender allows for early payment and then look at chanelling the saving from the monthly mortgage repayments into a structured portfolio with someone like Hargreaves Lansdown with whom you can buy on "off the shelf" fund and share account package on the basis of some simple online questions about your attitudes to risk.

Then I'd look at the savings I was making on the BTW on a monthly basis too and direct that into a stocks and shares isa with, for example, HL. That way I'd reduce my debt but direct the additional monthly monies into a range of funds which I'd be able to view literally daily and then look at getting a financial adviser once your main mortgage is also paid off as you will have yet MORE money to play with on a monthly basis.

You would find that days like today, with the Italian uncertainties rumbling the market, you'd make paper losses but many fund also generate income which you can look to reinvest too and the little pot grows...also think about whether a pension contribtion can me made - I actually have a SIPP with HL too!

fiisch

How's the existing BTL going? Was that a conscious decision or accidental (i.e.: partner's previous flat etc.)? Roughly how old are you (e.g.: first jobber, nearing retirement etc.)?

The logical step - having taken that leap into the BTL world - would be to expand your property portfolio. This would likely be my preference in your shoes, but then I have a high risk tolerance. There are also many, many people who will advise against BTL due to the increasing government legislation etc. I suppose it's also relevant whether your existing BTL is via a company or individually let, as a company is more efficient to expand (beyond 4 IIRC).

Your LTV ratio on your own property is a little on the low side. You could:

- Pay off £50k of your mortgage (or as much as your current deal allows with no penalty, then pay the remainder when it's up for renewal) to give you £100k equity in a £250k home, i.e.: 60% LTV so that when renewal comes up you can access the best deals);
- Plough £35k (£25k deposit plus costs) into another BTL;
- £15k into a S&S ISA with a tracker - Vanguard is a popular choice, other provides do exist.

But that's just me. Always a nice problem to have though!

kidmugsy

£50k to Premium Bonds, £50k to gold sovereigns. Or
£50k to world cup memorabilia, £50k to Save the Panda. Or
.....


Unless you tell us a bit more, any answer that adds up to £100k might be as good as any other. Start off by telling us what you want to achieve with the money.

M22kk56

Thanks for responses so far, I've found all of them really interesting..!!

To provide the additional info some of you asked for...

I'm 35 years old, both mortgages have 25 years to run. I'm doing to BTL through my wife, who looks after our son full time so is not employed (so we pay no tax on BTL)

What do I want to achieve from the money? Difficult question but I guess I just wanted to see how to maximise it. Could it take 100k and turn it into 200k but either investing wisely or reducing interest etc. I'm not a greedy person and will likely give a large portion to charity, but was curious to learn from all your experiences....

ewaste

I don't suppose you could update us on you and your wifes pension situation, the usual comments with regards to maximising employer contributions and tax relief on your pension contributions come to mind. Taking into account your age you are in a good ballpark for long term tax efficient investment growth via a pension.

However I also agree with other posters regarding reducing your loan to value across your property holdings especially with a buy to let mortgage at 4%.

Furthermore depending upon the age of your son have you thought about starting a Junior ISA, which might be a nice thing to do with inherited money.

M22kk56

Sure...neither of us have significant sums in a pension. My wife's will be almost nothing, apart from £40k ISA she can access in 7 years time. My pension around £20k at the minute. It is certainly something we should look at.

I am torn between trying to get ourselves totally mortgage free within 10-15 years and then ploughing money into pension or investments OR putting some into mortgage and some into pensions/investments...

We have a savings account for son but reluctant to put too much there due to poor interest rates and don't want gift him money when he is older, he has to earn it...!!

enthusiasticsaver

I would put a proportion in a pension (SIPP) for your wife up to 100% of annual earnings less a 25% contribution from HMRC. A non earner can put in maximum £2880 per annum topped up to £3500 by HMRC. If she is earning £10000 through the BTL then she can invest £8000 and HMRC will put in £2000.

I would make additional payments into your pension depending on what pension it is. £20k is not a lot for a 35 year old so addressing that sooner rather than later is sensible. Leaving it until the mortgages are repaid will be too late as you are limited on how much you can put in each year depending on your earnings.

I would put £40k in s and s isas for you and your wife unless you have already used this years allowance. Check out some diversified multi asset funds on trustnet or monevator. Vanguard life strategy funds are popular.

I would repay some of the BTL mortgage as that is more expensive than the residential one. If you are limited to 10% per annum then overpay your residential one too by 10%.

greenglide

If she is earning £10000 through the BTL then she can invest £8000 and HMRC will put in £2000.

Only if the BTL is being run as a limited company and the profits are being taken as salary rather than dividends.


BTL is not a qualifying income for pension contributions.

kidmugsy

M22kk56 wrote: »

I have 6 months worth of savings too and can contribute more to this from monthly wages so I'm comfortable

greenglide wrote: »

Only if the BTL is being run as a limited company and the profits are being taken as salary rather than dividends.

fiisch wrote: »

Pay off £50k of your mortgage (or as much as your current deal allows with no penalty, then pay the remainder when it's up for renewal) to give you £100k equity in a £250k home, i.e.: 60% LTV so that when renewal comes up you can access the best deals

It seems to me that there are two different issues here.

(i) How much of the money - both forthcoming capital and surplus monthly income - to devote to reducing outgoings on the mortgages in the next three years and consequently how much of the money to devote to investing in, for instance, S&S ISAs, pensions, and even, perhaps, more BTL.

(ii) Assuming that part of the money will be spent on reducing the mortgages, how best to schedule those reductions.

The big decision on topic (i) is presumably mainly a matter for the instincts of the couple concerned. My own instinct would be try to reduce monthly outgoings and then direct the larger monthly free income into e.g. personal pension for Mrs (£2,880 p.a. net probably, for the time being), occupational pension for Mr, and S&S ISAs.

If, however, Mr hopes to become a higher rate taxpayer in the foreseeable future he might be better to pay no more into his occupational pension than is required to maximise his employer contribution and maximise his use of salary sacrifice (if available). In other words bung some of the money into S&S ISAs or savings accounts, expecting later to fish it out again and contribute it to a pension when it will avoid 40% tax rather than (I assume) 20% tax.

(ii) If the BTL mortgage is flexible, or easily replaced by one that is, I'd be tempted to reduce that mortgage substantially so that my avoidance of 4% interest starts immediately - that's on the assumption that I can borrow money back again in case my situation changed. I'd also be working out how best to achieve a 60% LTV for the mortgage renewal on the owner-occupied house in three years time. If that involved deferring opening S&S ISAs for three years I would just accept that and try instead to find savings accounts that paid high interest for that three year period (e.g. regular savers and current accounts). If any substantial part of my cash were earning less that 2.2% p.a. interest then I might direct it to overpaying that mortgage.

I'd be reluctant to look for another BTL partly on the principle that diversifying investments is probably a good thing. Having almost all my capital in just one type of property - residential housing - seems daft to me. If I wanted risky investment I could at least diversify from housing and try using derivatives instead.

If in three years time the couple find themselves with a 60% LTV mortgage on their house, virtually no mortgage on the let property, and the beginnings of an investment strategy using pensions and ISAs as tax wrappers, plus their dollop of emergency cash, I'd say that they'd be in pretty good nick financially.

Two last points: (a) while Mrs isn't earning and is raising the child, Mr really ought to check that he's got (at least) adequate life insurance and income protection insurance to look after their interests, and (b) would they be able to conjure up free money by transferring part of Mrs's Personal Allowance to Mr?


COME TO THINK OF IT: some insurance for Mrs too? For a widower to raise a child is presumably an expensive business.