I own 2 properties - £22k payment coming my way - what should I do with it?

irfy278

Hi all,

Complete newbie here. I've signed up to ask just one question and hopefully gain some sound advice to hopefully help me take a big step towards become mortgage free.

The scenario...I am planning on selling my car soon and expect to receive around £32k for it. I will be keeping around £10k to purchase another car meaning I'll have around £22k left which "I don't need" for anything anytime soon.

The question is how do I best make use of this cash? I have 2 properties with further details below.

Property 1 - BTL
Purchased in 2011 - was my home until we moved 3 years ago
Remaining mortgage balance of £24k and 7 years left.
I am currently on a 2 year fixed term and have 12 months remaining
The interest rate is 2.04%
Monthly mortgage payments are £355
Monthly rental income is £506

Property 2 - Main Residence
Purchased 12 months ago (March 2021)
The remaining mortgage balance is £97k and 19 years left
I am currently on a 2 year fixed term and have 12 months remaining
The interest rate is 3.13%
Monthly mortgage payments are £570

• Should I use the money to fully clear the mortgage on the BTL (would add £2k from savings) and then use the rental income to make overpayments on our main property which would mean we pay around £1k per month and have the mortgage fully cleared in 9 or 10 years if we stick to the £1k per month.

• Should I leave the BTL as it is and let the rental income pay the mortgage on the BTL and have it cleared in 7 years naturally and instead use the £22k to make a lump sum payment on the main residence mortgage which would reduce the term left significantly

Just for context, I am 35 years old and like everybody else would love to be completely mortgage free as quickly as possible. I want to use this money to help me achieve this but would like advice on how best to use it ie. which way would make things cheaper, quicker etc. I have no other debts, loans etc. and have never owned a credit card.

If there are any other suggestions apart from the two I have made please let me know, I am open to anything! 

Dazed_and_C0nfused

What is your pension provision like?

Although it is perfectly logical to want to clear your mortgage debt it isn't necessarily the best choice financially.

Especially if any pension contributions would attract higher rate tax relief.  Or help avoid the High Income Child Benefit Charge.

FtbDreaming

Are there tax benefits to having the BTL mortgage? If there are then I’d be tempted to pay it off your residential mortgage as it’s a higher balance and higher interest however as you’re in a fix you need to look at if there’s an Early Repayment Charge if you overpay by more than a certain amount. 

If it was me I’d be aiming to get the residential one down as much as possible as that’s the ultimate Mortgage freedom goal. 

irfy278

Dazed_and_C0nfused said:

What is your pension provision like?

Although it is perfectly logical to want to clear your mortgage debt it isn't necessarily the best choice financially.

Especially if any pension contributions would attract higher rate tax relief.  Or help avoid the High Income Child Benefit Charge.

To be honest I just have a basic works pension where I contribute 4% and my employer contributes 3% - I have no other plans in place.

A few others have said the same to me in the sense that paying off a mortgage would mean I am not "cash rich" but we don't have kids and there are currently no reasons why I would need a large amount of cash in the next few years.

The thought of paying interest for the next 19 years is horrible - I would rather spend my wages on enjoying life when I am in my mid 40's and onwards.

irfy278

FtbDreaming said:

Are there tax benefits to having the BTL mortgage? If there are then I’d be tempted to pay it off your residential mortgage as it’s a higher balance and higher interest however as you’re in a fix you need to look at if there’s an Early Repayment Charge if you overpay by more than a certain amount. 

If it was me I’d be aiming to get the residential one down as much as possible as that’s the ultimate Mortgage freedom goal. 

There are no tax benefits to the BTL mortgage.

I've looked in the early repayment & overpayment charges on the residential mortgage and I think there is a way I could pay 20k over the next 12 months (during the fixed period) without it costing me anything. The 10% lump sum annual allowance would take care of around half the amount I have available and the rest I could spread over 12 months as monthly overpayments. I would need to confirm with the lender though.

powerspowers

Other things to think about are emergency fund and if you had a risk of having no tenant for a while would you be able to cover btl mortgage. 

The money may work harder in your pension, which means either retire earlier or cover the gap in pension contributions if you did have time out of work for whatever reasons in 40s/50s 
paying off mortgage is a good plan but just check it’s the best way for your money to work for you!