Recession Looming - so pay off mortgage instead of investing?

DoctorStrange

I've been stuck in indecision over whether to pay off my mortgage (c. £170k @ 1.7%) or invest the money instead.

I can't help but feel I should be able to beat 1.7% but I fear a recession is looming and my attitude to risk is become less. (One of my pension funds is down 20% YTD which, although I know isn't really relevant as there's still 15 years until I can access it, has spooked me a little and made me reconsider whether I'm truly comfortable with some of the risks I took).

Plus, I work in financial services on a freelance basis so I'm leaning towards getting my monthly expenses down to a minimum so that I have more 'months in the bank' in my rainy day fund (which is independent of my savings/investment account and will have at least 6 months of my reduced expenses in it).

I appreciate the whole 'mortgage free vs investments' argument is largely a personal one, but I'd appreciate any thoughts on whether, even in a recession, there's still med-risk ways to beat 1.7% on a 5 year horizon?

Or am I on the right track with trying to lower monthly expenses and increasing my rainy day fund instead?

EdGasketTheSecond

Is that mortgage fixed at 1.7% though? What if the rate rises?
I would pay it off if you can.

Zero_Sum

Whats the mortgage term?
You can still get 2% on a 1 year fix cash savings account

DoctorStrange

Sorry, should have said that mortgage rate is fixed for another 3 years, and that I'm a higher rate taxpayer so would probably need, what, 2.96% to get to 1.7% net - is that right?

Mr.Saver

DoctorStrange wrote: »

Sorry, should have said that mortgage rate is fixed for another 3 years, and that I'm a higher rate taxpayer so would probably need, what, 2.96% to get to 1.7% net - is that right?

No, as a higher rate taxpayer, you'd need to pay 40% tax on interest outside a tax wrapper and above the £500 PSA. In that case, you'd need roughly 2.83% gross interest rate to get 1.7% net. (Calculation: 2.83% * (1 - 40%) ~= 1.7%)

As a higher rate taxpayer, you'd be better off by putting the money into your pension account if that doesn't bring you over the lifetime allowance.

DoctorStrange

Sorry, I was calculating at 42% but forgot that NICs don't apply to savings interest.

Re the pension, I'm not sure if I'm going to keep funding that or just leave the contributions in my LtdCo. I know that'll cost me 19% extra but it means I can access the money any time instead of waiting another 20 years. I'm working on a plan to retire early and I'm hoping to have enough sitting in the LtdCo to keep me going until I can access my old company pension, which will then be hopefully topped up 10 years later by the state pension. I'll admit I hate the though of paying 19% tax that I could easily avoid but it does seem worth it for the extra flexibility!?

Zero_Sum

DoctorStrange wrote: »

Sorry, should have said that mortgage rate is fixed for another 3 years, and that I'm a higher rate taxpayer so would probably need, what, 2.96% to get to 1.7% net - is that right?

You can still earn £500 tax free in interest
Then there is ISA's usually the rates are a bit less but still should be able to get better than 1.7% for 3 years.

You could also open an IFISA and have a dabble in P2P.
Can get around 5.6% in ratesetter (which is arguably tge safest P2P option)

But as others have mentioned pension is a good choice if 40% tax payer.

Thrugelmir

DoctorStrange wrote: »

I work in financial services on a freelance basis

A sound reason to be cautious. Recession or not. People lose their regular income every day. Just doesn't make the news.

Alexland

DoctorStrange wrote: »

One of my pension funds is down 20% YTD which, although I know isn't really relevant as there's still 15 years until I can access it, has spooked me a little and made me reconsider whether I'm truly comfortable with some of the risks I took

What fund have you invested in to see a 20% decline in a period of generally favourable investment returns?

Alex

Money_Grabber13579

Alexland wrote: »

What fund have you invested in to see a 20% decline in a period of generally favourable investment returns?

Alex

Possibly Woodford? I’m down 22% on that fund, but fortunately was only a small part of my overall portfolio.

AnotherJoe

DoctorStrange wrote: »

I've been stuck in indecision over whether to pay off my mortgage (c. £170k @ 1.7%) or invest the money instead.

I can't help but feel I should be able to beat 1.7% but I fear a recession is looming and my attitude to risk is become less. (One of my pension funds is down 20% YTD

Who are your investments with? That's terrible.