Overpay mortgage or enter BTL

jainraghav74

Hello

My current scenario as below and I was looking for some guidance:

Married, 2 kids
Husband - full time employment, age: 33
Wife - Home-maker taking care of kids, age: 33

Wife - no pension account
Husband - 9 qualifying years for state pension, workplace pension £19k
Husband - 40% taxpayer band (before and after pension contribution)

Residential Mortgage (joint account) - 1.65x husband salary - fixed term deal ends in 2021

Other debt - NIL

Should we:
1 - Overpay the residential mortgage? We have already used overpayment allowance till Jun and this will reset in July
2 - Pay more into husband workplace pension? Currently putting maximum that employer will match plus some extra.
3 - Enter Buy To Let? Currently seen a property for which 15% deposit available. Thinking of purchasing 60% share wife and 40% husband, so that rental income is split accordingly to have low tax rate.
4 - Invest into Vanguard funds or something else?
5 - Other

Thanks for the guidance and showing pros and cons of various options.

Apologies if this is posted in wrong thread.

jainraghav74

some more info, if it helps getting guidance:

- Our current equity is 30-35%, so LTV band is 65-70%
- Outstanding mortgage of 1.65x salary, here salary is before any tax / NI / pension is deducted

I was hoping for some clarity in June itself, before overpayment allowance starts in July.

Thanks for the help.

tom9980

jainraghav74 wrote: »

Hello

My current scenario as below and I was looking for some guidance:

Married, 2 kids
Husband - full time employment, age: 33
Wife - Home-maker taking care of kids, age: 33

Wife - no pension account
Husband - 9 qualifying years for state pension, workplace pension £19k
Husband - 40% taxpayer band (before and after pension contribution)

Residential Mortgage (joint account) - 1.65x husband salary - fixed term deal ends in 2021

Other debt - NIL

Should we:
1 - Overpay the residential mortgage? We have already used overpayment allowance till Jun and this will reset in July
2 - Pay more into husband workplace pension? Currently putting maximum that employer will match plus some extra.
3 - Enter Buy To Let? Currently seen a property for which 15% deposit available. Thinking of purchasing 60% share wife and 40% husband, so that rental income is split accordingly to have low tax rate.
4 - Invest into Vanguard funds or something else?
5 - Other

Thanks for the guidance and showing pros and cons of various options.

Apologies if this is posted in wrong thread.

I would open a pension for your wife either a sipp or private pension she is missing out on tax free relief even as a non taxpayer. See the pension forum.

I would not BTL due to ongoing regulation changes but if you did 99% of the income should go to wife because of her tax free allowance.

Salary sacrifice into your pension could be viable again see pension forum.

Investing in broad and diverse funds like vanguard are definitely good options using a stocks and shares ISA.

jainraghav74

I would open a pension for your wife either a sipp or private pension she is missing out on tax free relief even as a non taxpayer.

We didn't do this because we thought putting extra money in husband workplace pension was more beneficial as husband is getting 40% tax-relief vs 20 or 25% that wife would get (2880 + 720)

I would not BTL due to ongoing regulation changes but if you did 99% of the income should go to wife because of her tax free allowance

We were of belief that since wife has no income to fund the BTL option, she cannot have more than 60% share. If this is wrong information, then we will do 99% to wife as suggested.

Investing in broad and diverse funds like vanguard are definitely good options using a stocks and shares ISA

This is the option we are actually considering since residential mortgage interest rate from July onwards will be sub 2% and fixed for 2 years. Most likely we can get >2% yield with S&S ISA. Also since our LTV band will be below 60% in 2021, any rise in bank of England interest rate will hopefully not hit us very hard considering relatively low value of outstanding mortgage amount.


Our dilemma is that whether to put spare money (in order of preference) is:
S&S ISA
or; go for BTL with highest allowable ownership share to wife
or; overpay residential mortgage (sub 2% yield) in Jul

tom9980

The gain from btl, overpaying your mortgage or from the isa is likely a lot less than the wifes tax relief gain surely. Not to mention gives her more security in her own right should you not be together in 30+ years time.

Thrugelmir

jainraghav74 wrote: »

We didn't do this because we thought putting extra money in husband workplace pension was more beneficial as husband is getting 40% tax-relief vs 20 or 25% that wife would get (2880 + 720)

Tax is likewise paid on the way out.