Investment for the next 3-5 years

Pepod

Hi everyone, looking a bit of advice for an investment for the next 3-5 years.

I currently can save ~£500 per month, which will hopefully go up a bit more next year.

Situation is basically this - I recently remortgaged to a 5 year fixed rate and can no longer make any overpayments. I knew this when I remortgaged but this was by far the best rate I was able to get. I had previously been making overpayments and would in theory like to continue doing so. I am looking for a way to invest my monthly savings in such a way to try to protect against inflation but trying to also not risk too much with equities. I don't believe in timing the market but I personally feel a correction likely within 5 years so don't want to lose out that way. Once the fixed rate period was up on the mortgage I would then use my savings to 'overpay' when remortgaging.

Would be interested in any advice/suggestions.

Thanks in advance

El_Torro

Base on what you say I think your best bet is to save in a combination of regular savers and long term fixed rate accounts. With some work you should be able to get better interest than your mortgage rate.

See here for more details: https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

A question: why such a rush to overpay your mortgage? You would probably get better returns by investing in the stock market. Investing is a long term game though, you should be invested for 10 years minimum.

AnotherJoe

What El Torro said plus look at investing via your pension, with much better returns due to tax relief. Far too many people in here obsess on overpaying their 1% or 2% mortgage whilst they miss out on 20-30-40% benefits through tax relief.

Aretnap

El_Torro wrote: »

A question: why such a rush to overpay your mortgage?

Important point. If you have a decent loan to value ratio, you can currently get a mortgage rate as low as 1.21%. Meanwhile you can get interest rates as high as 1.46% on an instant access account or 2.36% on a fixed rate account. So even setting aside the stock market, if you have spare cash you are better off financially putting it in the bank than paying down your mortgage.

Of course that crude comparison won't be true for everyone. You have to factor in the fee on a mortgage as well as the interest rate, if you have large savings there may be tax to pay on the interest, and if your loan to value ratio is low you won't get the best mortgate rate (and it may be worth paying down a portion of it to get a lower rate on the rest). However it does show that paying off your mortgage is not a no-brainer, even in the short term and even if you don't fancy taking on the risk of investments.


(And yes, do especially make sure you are not overpaying at the expense of your pension, especially if you are a higher rate taxpayer and/or your employer will match your contributions - in which case pension contributions will be much more valuable over the longer term than mortgage overpayments)

Zero_Sum

Aretnap wrote: »

Important point. If you have a decent loan to value ratio, you can currently get a mortgage rate as low as 1.21%. Meanwhile you can get interest rates as high as 1.46% on an instant access account or 2.36% on a fixed rate account. So even setting aside the stock market, if you have spare cash you are better off financially putting it in the bank than paying down your mortgage.

Of course that crude comparison won't be true for everyone. You have to factor in the fee on a mortgage as well as the interest rate, if you have large savings there may be tax to pay on the interest, and if your loan to value ratio is low you won't get the best mortgate rate (and it may be worth paying down a portion of it to get a lower rate on the rest). However it does show that paying off your mortgage is not a no-brainer, even in the short term and even if you don't fancy taking on the risk of investments.


(And yes, do especially make sure you are not overpaying at the expense of your pension, especially if you are a higher rate taxpayer and/or your employer will match your contributions - in which case pension contributions will be much more valuable over the longer term than mortgage overpayments)

The ultra low rates also come with a hefty product fee. So unless your mortgage is in the millions, you're getting nowhere near that rate.

I think most overpay purely for psycological benefit regardless of financial benefit of other options.

MaxiRobriguez

I think most overpay their mortgage because they don't know any better, rather than it being a conscious choice. If people were equipped with the knowledge about the ability to gain 20%+ tax bonus on SIPPs and a general knowledge of how to invest in simple index trackers then they would almost unanimously opt to do just that rather than overpay.

[Deleted User]

Employers' sharesave schemes are a great form of medium term investment for £500 a month.

SonOf

MaxiRobriguez wrote: »

I think most overpay their mortgage because they don't know any better, rather than it being a conscious choice. If people were equipped with the knowledge about the ability to gain 20%+ tax bonus on SIPPs and a general knowledge of how to invest in simple index trackers then they would almost unanimously opt to do just that rather than overpay.

Plus, it is not really helped by sites like this. Not so much this section or the pension section where posters will often point out that overpaying a mortgage whilst shorting your retirement provision is silly. However, there are articles on overpaying the mortgage and a forum section on it as well. The people in that section are unlikely to realise what they are doing could be a very bad thing.

I have popped into the overpaying section occasionally and seen posts from higher rate taxpayers in their 40s and 50s massively overpaying whilst having virtually nothing go into their pension. Missing out on 40% relief and not using investments that average 5%-7% p.a. over the long term to pay down a debt they can easily afford costing 2%.

Most sensible people do a combination of things. Not 100% into one area.

cloud_dog

Got to be honest, felt a little sad at reading these posts.

Sure from a pure numbers game they are absolutely correct but from a real world perspective less so. There are soooo many other real world considerations (job security, health, ability for your partner manage the situation, etc, etc).

MaxiRobriguez wrote: »

I think most overpay their mortgage because they don't know any better, rather than it being a conscious choice. If people were equipped with the knowledge about the ability to gain 20%+ tax bonus on SIPPs and a general knowledge of how to invest in simple index trackers then they would almost unanimously opt to do just that rather than overpay.

SonOf wrote: »

Plus, it is not really helped by sites like this. Not so much this section or the pension section where posters will often point out that overpaying a mortgage whilst shorting your retirement provision is silly. However, there are articles on overpaying the mortgage and a forum section on it as well. The people in that section are unlikely to realise what they are doing could be a very bad thing.

I have popped into the overpaying section occasionally and seen posts from higher rate taxpayers in their 40s and 50s massively overpaying whilst having virtually nothing go into their pension. Missing out on 40% relief and not using investments that average 5%-7% p.a. over the long term to pay down a debt they can easily afford costing 2%.

Most sensible people do a combination of things. Not 100% into one area.

Thrugelmir

Pepod wrote: »

Situation is basically this - I recently remortgaged to a 5 year fixed rate and can no longer make any overpayments.

No overpayments allowed?

Pepod

Thrugelmir wrote: »

No overpayments allowed?

Slack phrasing from me sorry - no allowance without occurring a charge.

To give some more info that I perhaps could/should have included initially:

I am a higher rate tax payer, pension is by salary sacrifice and I currently sacrifice around 16% with my employer adding 10%. I am pretty content with what my pension is doing at the minute and the provisions for it.

I want to make some overpayments to reduce the term of the mortgage and to try and protect a bit against rates rising, which they surely must do at some point given where they are now.

We are looking at perhaps building our own house within the next 10 years or so. Funds would be required for this and again it puts me off investing in the stock market. I believe 10 years to be around the minimum timeframe to be investing 'long term' if that makes any sense - and given where the market is at the minute, I personally think that piling money into it at this time, whilst wanting to have access to that money within 10 years is asking for poor returns. I am not an expert naturally and may be absolutely wrong but this is the way I currently feel about it.