Mortgage Advice - What would you do?

Steve123456789

Hello, I’m just looking for people’s opinion on what they’d do in our situation.

Married
Both 25 y/o
Own our house - £240k
£140k left on mortgage, still in the first year, we have a 5 year fixed rate
Both earn £30k
Both paying into company pension - minimum amount we can, such that we get the maximum from our employers
Hit the max overpayment for the mortgage in the first year (this year)

My plan is to hit the max overpayment every year, with this value obviously decreasing year-on-year. Then after 5 years when it goes variable, should have about £65k left on it and around £30k to put down straight away. Then pay off mortgage in another year or so, save a deposit, buy-to-rent a cheap house and let rent pay mortgage. Rinse and repeat. Aim is to quit work ASAP. For me, at least.

Is this unreasonable?
What would you do?
Any advice?
Am I an idiot?

spadoosh

Consider stocks and shares unless youre particularly keen on being a landlord. Its a lot of risk for what is essentially little reward.

Variable rates are typically more expensive than fixed term deals. Depending on whats available at the time but it will probably be worth considering another short term fix (2 years).

There will be arguments about whether you should overpay with such low interest rates (ie its not costing a lot to borrow the money) when you could invest the money and make a larger return but in all likelihood it will be much over muchness and not make a massive difference.

Steve123456789

I know basically nothing about stocks and shares but the risk element puts me off.
Not got my heart set on being a landlord, just thought it was an easy way to buy a house. Is tie risk of this just the risk of a tenant wrecking your house?

spadoosh

Steve123456789 wrote: »

I know basically nothing about stocks and shares but the risk element puts me off.
Not got my heart set on being a landlord, just thought it was an easy way to buy a house. Is tie risk of this just the risk of a tenant wrecking your house?

From what youve put id say you know far less about being a landlord than you do about stocks and shares.

Stocks and shares you can (quite common) have it managed, you just need ot be willingto provide the funds and keep your eye on the ball (ie make sure the person investing on your behalf isnt doing stupid things). Theres a lot of legal liabilities you will have as a landlord, of which the consequences,should you fail to meet them could be large fines and or jail time.

heres a basic overall of LL responsibilities although its quite a simple view of it. https://www.gov.uk/renting-out-a-property Being a landlord is a job, its not something where you can just sit at home and count the pennies each month.

S&S is basically lending businesses money. Theres 2 ways to make money from it, either the share value increases between buying and selling or whatever shares you hold pay out dividends (a portion of the companies profits (simplistic, theres other things involved but you get the idea)).

Steve123456789

I wasn't counting all the legislation that you have to follow, and tests that have to be carried out as risk, because they're in your own hands.
A tenant wrecking your house is out of your hands, and shares decreasing in value is out of your hands.

jaydeejay

Hi Steve,
What you are really thinking about is financial independance FI and there is lots of info out there on this lots of blogs and books. You are already investing in the stock mkt through yr pension BTW.
Investing info a good start is Monevator and Meaningful Money, FI blogs I follow are YFiG, qiuetly saving, Miss Ziyou, Indeedably, Cashflowcop, Ditch the Cave, Mad fientist, DIY Investor and lets not forget Mr Money Mustache (he's American!).
Have a look on the Savings and Investment Board here.
You are making a great start, good luck on your journey.
JDJ
Forgot to say, investing doesn't have to be scarey as you have a longer time frame and look up compounding. If you plan it right and hold on then a stock mkt fall becomes a sale if you then buy in.

Steve123456789

Thanks for the reply. I already read Monevator and Mr Money Moustache. I'll take a look at the others though.
Investing in stocks and shares has been something I've wanted to do for a while, but never looked into it properly.


As I said, my aim is to be mortgage free around 32, then take it from there. It's more what to do at that point that I'm after advice about, because it's a good position to be in, I don't want to waste it.

jaydeejay

There is a school of thought to overpay mortgage and start to invest at same time. If you wait till mortgage is paid off then you will have missed out on 7yrs of investing and compounding, borrowing is cheap at moment so doing math seen as better to invest. Though being mortgage free comes with own bonus of giving security of home. So a lot of course down to own preferences.


Another diariast has recently changed tack, look up Shangajimmy on here.


JDJ

savingholmes

If you look up Dave Ramsey and Chris Hogan - they say invest at least 15% into pension - then put spare towards paying off house and kids college. They say most future millionaires pay off their mortgage in 10.6 years or less. I think you are on the right kind of track- you just need to get some tailored advice and look at the risk profile of different options - probably pay for some financial advice - and then make a choice or series of choices.

enthusiasticsaver

I would look into investing rather than BTL.

BTL is non diversified (solely in property and subject to property prices going up and down) whereas in investing you choose the level of risk and can be highly diversified. Multi asset funds can contain equities, bonds, commodities, properties. They can also be global which reduces risk even further.

BTL costs a lot to maintain and you may constantly be either having to pay tradesmen to sort out problems or doing them yourself if you are able. No maintenance with investments and passive trackers are low cost.

No chance of dodgy tenants not paying their rent or refusing to leave if you need or want to sell or trashing the property.

You have to pay tax on BTL rent and you take the risk of mortgage rates not going too high so the rent may not cover the mortgage. No such problems with investments if you keep them in stocks and shares isas or sipps. No borrowing involved either.

Property is illiquid and dependent on finding a buyer at the right price when you need to sell. You also have to sell the whole property. You can cash in investments whenever you want and only partially cash them in if you don't need the whole lot.

We went for investing and retired in our 50s. My boss went for BTL, ended up with a drug dealer in his HMO and is still working even though older than me as he has to pay the mortgages on his property empire.

BoGoF

The tax relief you get on your pension contributions means you should at least think about increasing from the minimum you are paying at the moment.