Near Cash Returns for Funding Mortgage Repayments

mark55man

Hello.  In my SIPP I have built up a pot matching the amount of my mortgage at my estimated early retirement date in 18months. I would then draw this down over the remaining 2 years of my mortgage (Its in my SIPP for HRT and company contribution reasons).  I have enough tax free headroom not to worry about triggering MPAA (as I don't want to do that until I am sure I won't work again)

My current split is 20% each in gold, property, and 60% in global equities.  But now that the base rate is at 3% and my mortgage is at 2.1% I was thinking to remove the risk for this hypothecated chunk by fixing the return.  I have spent most of my investment career avoiding bonds as a specific investment rather used them as part of multi asset funds.

So what return might I expect and what funds are available to achieve this - I did try googling but was swamped with bond funds which I don't quite think match my need.  I think my question is a split between money market and deposit funds, but those were not showing up as any where near 3%.

So I am grateful for any help thank you  

[Deleted User]

I think the cleanest and safest way to achieve what you want is to buy 1 and 2 year gilts (or whenever you plan to repay; just match the duration).  You should get about 3% on them, minus the cost of purchase. Should be able to buy direct from Debt Management Office, if you get on the “approved list”. 

mark55man

Thanks Mordko - would that mean I have to bring them outside the SIPP - I don't have a problem with doing that.  Although if I did that I might then just use some of the 5% building society offers available as we are talking about money well under protection limits so don't need anything too sophisticated. I wasn't sure if you could get Gilts inside a SIPP

I was trying to keep stuff inside the SIPP but for no real reason other than delaying crystallisation decisions

[Deleted User]

You need to talk to your SIPP provider.  There is no reason why you can’t buy gilts directly within your SIPP wrapper, but it depends on the platform. 

Example: https://www.ii.co.uk/ii-accounts/sipp/buying-bonds-in-a-sipp

NedS

I agree, UK gilts should give you a better guaranteed return that your 2.1% mortgage rate. It may depend on your SIPP platform, but HL have a large range of gilts you can purchase within a SIPP:

https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/uk-gilts

For example, TN25 (0.25%, 31/01/2025) will currently yield around 3.25% to maturity. You will need to factor in any platform fees to hold these as investments within your SIPP.

mark55man

Thanks both.  Currently not with iii or HL for this money but you give me hope.  I will fire off a message and check what I can do and how much is charged = I believe HL is 0.45 so that would be a chunk off of it.