£100K inheritance - what to do?

Luckyboy

Hi folks,
I've just joined the forum as I'd like some of your collective wisdom please.
I'm due to inherit £100K from a family member once probate is all sorted and I'm really pondering what to do next with the money. My immediate thought is to pay off the mortgage, but I'm not sure if that'd be the best idea or not.
Our circumstances are:
1. Married couple in mid/late 30s with one child, another on the way (all being well).
2. Mortgage of £104K at 2.8% (AFAIK) over 13 years with 5% penalty for early repayment. 10% limit on overpayments per year without being charged.
3. We'll definitely want to move house in the next couple of years as we need more space and at least one extra bedroom.
What would you advise is the best course of action to take?
Thanks,
Mr L. Boy

badger09

Not enough info;)

For starters:
Do you have any debts apart from mortgage?
Do you have an adequate emergency cash fund?
Do you both have adequate pension provision?
Do you have any savings or investments?
What rate of tax do you pay?
What equity do have in your house?
How much more will a bigger house cost you?

etc etc

Albermarle

Also someone posts a similar question every other day , so worth spending some time going through past threads as the advice is usually similar.

badger09

@ OP

Didn't intend to put you off, but answering some of the questions above would help.

tacpot12

Even without the answers to the questions, given that you are likely to want to buy a larger property, I would put the money on deposit somewhere safe (e.g. NS&I or split between two banks) and use it to reduce the amount of mortgage you need. Overpay 10% of the mortgage each year to increase your equity. Make sure you ask the lender to reduce your mortgage term, not reduce your monthly repayment.

Luckyboy

badger09 wrote: »

Not enough info;)

For starters:
Do you have any debts apart from mortgage?
Do you have an adequate emergency cash fund?
Do you both have adequate pension provision?
Do you have any savings or investments?
What rate of tax do you pay?
What equity do have in your house?
How much more will a bigger house cost you?

etc etc

Thanks for the prompts. Answers below:

1. No debts apart from mortgage
2. Emergency cash fund - c. £20K in the bank
3. Pension is a pittance. Not sure exactly how much I have though.
4. No other savings or investments (apart from £2.5K ISA and £20K in bank)
5. I pay higher rate of tax
6. We have c. £175K equity in our house
7. Bigger house in our area will cost at least £600K

Hope that helps!

xylophone

Pension is a pittance. Not sure exactly how much I have though.

I pay higher rate of tax

Time you paid attention to your pension?


https://www.theguardian.com/money/2013/sep/28/child-benefit-pension-contributions-higher-earners

https://www.theguardian.com/money/2013/sep/28/child-benefit-pension-contributions-higher-earners

xylophone

You plan to move to a larger and much more expensive property within a couple of years?

Your wife expects to stay at home with the children for the next couple of years?

You might consider making the maximum allowable mortgage capital repayments and holding the balance of the cash in your wife's name in accounts earning as much interest as possible.

El_Torro

Based on what you've said it looks like the best course of action is to increase your pension contributions (preferably by salary sacrifice) so that you are no longer paying higher rate tax.


Since you've already got £175k equity in your house and your next house is going to be worth about £600k that means you'll have roughly 29% equity in your new place. Getting this above 40% will reduce your interest rate, though I still think that upping your pension payments will be of more benefit to you for now. Especially if your current pensions aren't worth much.

xylophone

so that you are no longer paying higher rate tax.

Particularly in view of the Child Benefit situation.

System

https://www.reddit.com/r/ukpersonalfinance/wiki/lumpsuminvestment

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