Are we mad!! Mortgage free or buy to let??

goodwithsaving

Do you actually want advice, as requested, or are you going to disregard it?


I'm young(ish) and think you are mad. Tax laws etc. are different. The market is different. There is no substitute for the security of being mortgage free and ability to save for retirement.

I have 39 working years left - probably more if pension age increases upwards of 70 - and if I could choose mortgage free or btl property, it'd be mortgage free every time. More money to save each month, plough into a better life and afford myself flexibility when I am older.


You're mad, yes.

steampowered

It sounds like you will soon be in a position where you own your house outright and can clear your debt, but have very little pension savings.

You will therefore be in a position where you can start using the money are currently paying on the mortgage for something else.

It sounds like the priority for you is therefore to work out the best way of funding your retirement.

I think you need to try using a retirement income calculator to assess how much income you are might get from your pension and the state pension. It might be much less than you think.

You basically have two options:
1) Use that money to invest in a pension
2) Use that money to invest in property

I think you need to consider the pros/cons of each option so that you can make a rational decision.

Pensions are invested in stocks and shares. The stock markets historically generate returns on average of about of 8-10% a year.

The key advantage of investing through a pension is that you will get tax relief. The key disadvantage of investing in property is that you will get clobbered with a range of extra taxes (income tax on rent, higher rate stamp duty, capital gains tax if you sell) and so on.

Please crunch all of the numbers before you decide to remortgage your house to fund a property investment. By the time you factor in mortgage repayments (remember there will be interest rate rises over the next few years); income tax; letting agent fees; property running costs - you might find those exceed the rent. Of course you will make a profit if house prices increase above inflation and you have good tenants. But you will make a loss if interest rates rise, house prices drop or you suffer from void periods or bad tenants.

Wizimum

Goodwithsaving I'm going to listen. Thank you for taking the time to reply

Didn't ask will the intention of ignoring advice that contradicts my original thinking.

enthusiasticsaver

BTL property cons
You will have to subsidise it by £300 upwards per month
You have to pay tax on rent
No guarantee property will rise in value
Any sickness, redundancy will put your home at risk given you are increasing the mortgage by £140k.
You will either have to work until 70 or put plans in place to repay the mortgage by selling as you don't have large pensions
You have to factor in vacant periods when you will have no income but still have a mortgage to pay, maintenance costs and tenants who don't pay let alone inconvenience of sorting out dodgy boilers, broken down appliances, complying with onerous LL regulations and paying for insurances/service charges.
All your assets in UK property so very dependent on property values remaining stable.

Advantages of pensions
Tax efficient
Possibly extra money from employers up to certain amount if they match your contributions
Can be put into drawdown any time after 55 including releasing 25% tax free amount for travel, fund early retirement etc.
Extra contributions from HMRC
The earlier you start the more time you have to benefit from investment growth.
Flexible in when you can take it out and how much to take advantage of PA.
No worries about maintenance, service charges, dodgy tenants.
Diversified globally across equities, bonds, property etc and different sectors.

zagubov

Everybody else here has provided far more detailed arguments in favour of paying of credit card debts, paying into pensions as early as possible, and don't think that property letting is a suitable lucrative pursuit for amateurs.

What I can say is that I admire you for paying off your mortgage early. I've also been an amateur landlord, had a fair bit of credit card debt, and didn't join a pension scheme until very late in my working history.

My life experience of all three circumstances reinforces my determination to warn you as if you were my younger self,
don't prioritise acquiring landlord responsibilities until you can pay off your debts and finance a pension scheme that will look after you in your old age (e.g by investing in property funds).

BarleyGB

You posted on the Property Forum and Savings and Investments forum.

Without exception every reply (many from those experienced in property / investments) has suggested your proposition has little merit.

Think long and hard is my advice, on what could be a 6 figure gamble.

What if rents don’t increase (Labour are proposing a cap) What if property prices stagnate or go down (some areas in the UK still havnt recovered above their pre 2008 value yet or have seen little to no growth)

BarleyGB

How much have you weighed your proposition vs alternatives for e.g. next 20 years.

Increase employee pension contributions (with employer match)?

Clear debts and pay remaining lump, plus say £500 per month into a SIPP (+ 20% tax relief)

If you’re only looking at positives there’s no reason (and more likelihood in my opinion), that over 20 years you could accrue approx £400,000 pension pot from £1000 per month gross contributions (£600-800 net plus employer contribution and tax relief)

If you think you might need some of the money before retirement invest a proportion in an ISA

- note that it’s not always financially prudent to clear a mortgage on a low interest rate as the same amount invested could generate a better return.

lookstraightahead

A story about some friends of mine. They have been lucky in that they met young, bought young and paid off their mortgage. They had been able to take advantage of properties soaring which put them in a great financial position (more by luck than financial planning), and have had no major life setbacks like divorce.

Then, once the mortgage was paid off, they thought they were "wealthy". They came up with all sorts of plans, moved house a lot, renovated - you name it. Because they thought they could make money any which way, they didn't stop to think. Now they've lost most of it and live in a tiny house with debts.

As someone who did plan but stuff happened, my advice would be to enjoy what you have. Don't complicated your life. Your kids will cost you a fortune now, more than ever. Invest in pensions. Work hard as well. Have a stress free life!

dwsjarcmcd

Another vote for madness! Having become an accidental Landlord, it isn’t easy or particularly profitable! When our last tenants left (they were excellent thankfully, unlike earlier ones) we sold the house for exactly the same as we paid for it 10 years earlier. We were lucky that we didn’t have a mortgage on it, or else it would have been loss making.

Pensions are much more effective than property given the tax-relief versus the tax charges!

Zanderman

Agree with the 'yes you are mad' diagnosis, and just said so on your other thread too.