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Borrowing vs selling investments
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Fatbritabroad
Posts: 573 Forumite

I realise there's no right or wrong answer to this but just want to get some viewpoints on what others would do in my position O wise sages of mse
I have approximately 133000 in non pension savings and investments of which 34000 is cash. My pension is well taken care of. My current mortgage is just over 3 x my salary and just over 2x mine and my partners. Ltv is about 58% now
I have two big spends I 'need' to do this year. Some house renovations totalling about 35k and I want to finally ditch my silly lease car and buy a decent second hand one to last for which I've set myself a budget of 20k max. I've also got my first child on the way in November so although the house renovation is more of a want than a need I really want it done before the child is born so the house is finished and there's no other big bills on the horizon. I'm 38.
My dilemma is how to pay for the above spend. I'm seriously considering taking some money out our house. I'm normally anti borrowing but as I have checked and the bank will lend me up to 50k as a further advance at the same rate as my current mortgage (2.59% and fixed for ten years in 2016 August at a cost of about 180 a month) so no danger of rate increases anytime soon . Getting rid of my silly lease car would free up 600 a month which I intend to invest with maybe some of it going on reducing my mortgage again up front
I just don't see logically why id want to sell my investments when I can borrow so cheaply provided I a) don't over leverage myself which I don't feel I would be as new mortgage if I took the full 50k would still be less than 3.5x my salary.
And b) I'm not tempted to spend the money on other things which I'm not. Partner is intending to return to full time work
With a kid on the way I also like the idea of having plenty of liquidity as well re child care costs etc as we don't have a support network and will continue to build my non pension investments which have always been lacking over house and pension. When the fix rate ends I'll be 46 and can use investments to pay a chunk off or refix if the rate is attractive still.
I just wanted to give an overall state of finances to gauge what others would do.
I have approximately 133000 in non pension savings and investments of which 34000 is cash. My pension is well taken care of. My current mortgage is just over 3 x my salary and just over 2x mine and my partners. Ltv is about 58% now
I have two big spends I 'need' to do this year. Some house renovations totalling about 35k and I want to finally ditch my silly lease car and buy a decent second hand one to last for which I've set myself a budget of 20k max. I've also got my first child on the way in November so although the house renovation is more of a want than a need I really want it done before the child is born so the house is finished and there's no other big bills on the horizon. I'm 38.
My dilemma is how to pay for the above spend. I'm seriously considering taking some money out our house. I'm normally anti borrowing but as I have checked and the bank will lend me up to 50k as a further advance at the same rate as my current mortgage (2.59% and fixed for ten years in 2016 August at a cost of about 180 a month) so no danger of rate increases anytime soon . Getting rid of my silly lease car would free up 600 a month which I intend to invest with maybe some of it going on reducing my mortgage again up front
I just don't see logically why id want to sell my investments when I can borrow so cheaply provided I a) don't over leverage myself which I don't feel I would be as new mortgage if I took the full 50k would still be less than 3.5x my salary.
And b) I'm not tempted to spend the money on other things which I'm not. Partner is intending to return to full time work
With a kid on the way I also like the idea of having plenty of liquidity as well re child care costs etc as we don't have a support network and will continue to build my non pension investments which have always been lacking over house and pension. When the fix rate ends I'll be 46 and can use investments to pay a chunk off or refix if the rate is attractive still.
I just wanted to give an overall state of finances to gauge what others would do.
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Comments
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I don't think I'd borrow now to delay the sale of investments. Now looks like quite a good time to sell investments, the future may not be.
However, if I was reasonably confident I could pay down the extra debt without selling the investments at all, I'd lean towards taking on the extra debt.0 -
Thanks masonic
Yes I'm confident I could pay the debt down within a reasonably short period (say 5 years). Getting rid of my car would put me at total bills for the month of less than 2k vs a take home salary net of pensions and Saye of just over 4k 4k (plus my partners if she does go back to work is about 2k so even if she goes part time we aren't very stretched which is how I like it,) I've also got share saves coming up in about 3 years time that I can clear a big chunk of the debt so those are no risk investments so even if the markets down I've got ways of paying it off.0 -
Like I say it's just the psychological thing I think of borrowing out your home to pay for non income producing assets which I've always been taught is a big no no. But if you have the money anyway earning likely a better return than the borrowing cost it makes sense. Just a bit worried I'm missing something lol0
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On the other side of that equation is selling assets to pay for something, then buying those assets back in a few years, likely at a higher price than you sold them for.
You could frame it in a slightly different way - you are taking out the loan in order to retain those income producing assets that you'd otherwise need to sell. Providing you are not just kicking the can down the road, I don't see a problem with that.0 -
Thank you yes that's a helpful way of thinking about it0
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To answer the question we would need to know something about the investments. If they are producing a total return of more than the mortgage rate, and offer near-zero risk, then borrowing in order to hold on to them is clearly the correct decision. In the real world we would need to make a judgment about the degree of risk they present, and of course what it would mean for your house if the value of those investments were to fall.0
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As above. Interest rate on loan lower than returns on savings/investments then get a loan, if its similar, say within half a percent or so, then the answer is still possibly get a loan. At the moment the cost of borrowing is so stupidly low that this is a good option for people with a decent amount of money put aside. The normal concern of doing it as extending the mortgage secured on your house meaning if god forbid there was a downturn in your circumstances over the next decade it puts your home more at risk doesn't apply when you actually already have the money.
As for the car, £20k will buy you a new small or mid-sized car from pretty much all mainstream companies like Ford, Vauxhaull, Peugeot etc. If you're going to consider new I would say to look at financing the car separately from the house renovations as there's a lot of 0% interest deals on the go. £10k will get you a very good one a couple of years old and maybe even newer. I know when I was looking recently at replacing my Mondeo it was only going to cost me £15k for a less than 2 year old Mondeo Titanium (almost top spec) with 15,000 miles on the clock.This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com0 -
Thank all for your responses
The cash is in cash earning between 1.5% and 5%
the rest is Saye about £7250 that has 3 years to run and 250 a month going in so that is no risk
About £5000 in stock investment purchase with my company where I buy £150 a month tax free as long as I keep them 5 years
About 49k in vanguard lifestrategy 100 and 15k in blackrock consensus100 all held in isas.
About 22k in 4 or 5 p2p sites all in isas spread between 5% and 15% interest0 -
I'd liquidate the investments. In total £133k outside of your pension wrappers seems a sizable sum to have , unless you've particular objectives for this money in mind. As far as P2P is concerned the cows do finally seem to be coming home.
Ask yourself why interest rates are so low? One commentator has forecast global GDP to be in the region of 3.2% for 2019. As the tensions between the US and China are starting to bite. Investing has no certainty of outcome. No one ever became poor by realising a paper profit into hard cash.
You don't say how big your mortgage is. Personally I'd be paying this down in any event. As part of a multi pronged strategy.0 -
Mortgage is 278k house worth 495k
Gross salary is 90k. Partner earns about 40k0
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