What should my strategy be (my scenario inside)

Savingforahouse123

Should I overpay my mortgage or invest it? Pls read below before answering? 

I’m 28 & single. Bought my house in the summer for £168k. I put down £148k so have just a £20k mortgage fixed at 2.79% interest over 5 years (so tiny mortgage).

I can overpay £2995 a year (If I overpay buy more I’m penalised with a fee) and I’m yet to overpay so I could overpay by £2995 this month as lump sum, then £2995 anytime next year. My mortgage is currently £357.51 a month. If I overpaid it’ll go down to about £318. Alternatively, I can take time off my mortgage term instead from overpaying. 

I currently have £17k in cash savings and £5k in crypto. I had a career change to something more fulfilling and took a massive pay drop now earning just £22k per annum (unlikely to go up much) but I live incredibly frugally. Even on my £1500 monthly paycheck I still save. I have no debts.

If I chose the investing route, I’d choose ETFs / diversified index funds. Tolerance to risk is high due to my age.

Alternative option is to save for a Buy to Let / a property I rent out on Air Bnb 

Based on my situation, should I overpay or invest in ETFs / index funds or save for a BTL?

400ixl

How about something in the middle?

With savings accounts being higher rates than your mortgage at the moment, put the overpayment into a regular saver account (First Direct do one at 7% but does require you to open a current account as well where you can put up to £300 a month into). Put the over payment into that and then in a years time you can take the base amount to pay the yearly over payment in one go and keep the interest difference for longer term investment.

Anything over and above the mortgage overpayment could then go into the longer term investments.

Band7

What are your [works] pension arrangements?

Savingforahouse123

Band7 said:

What are your [works] pension arrangements?

Employee 5% contribution 

Employee 4% contribution 

I’ve never really had high paying jobs and don’t think I ever will (I have learning difficulties) so my overall/total pension pot is small. 

If I invested in diversified ETFs / index funds (not through work) then those funds will be holding stocks for 40+ years so I’d treat it as basically a private pension pot

Band7

Savingforahouse123 said:

Band7 said:

What are your [works] pension arrangements?

Employee 5% contribution 

Employee 4% contribution 

I’ve never really had high paying jobs and don’t think I ever will (I have learning difficulties) so my overall/total pension pot is small. 

If I invested in diversified ETFs / index funds (not through work) then those funds will be holding stocks for 40+ years so I’d treat it as basically a private pension pot

9% is better than nothing but not a lot. If you upped your contribution, would your employer's contribution also go up?

If you opt for investments, which is the right thing to do for long term planning,  make sure you do them in a tax wrapper, such as an S&S ISA or a SIPP. Watch out for charges though. Lots of good information on https://monevator.com/ 

Albermarle

hen those funds will be holding stocks for 40+ years so I’d treat it as basically a private pension pot

It would make a lot more sense just to either add more to your works pension, or alternatively into a separate pension as you will benefit from tax relief in either case.

. If saving for retirement/over such a long period, then best to do it within a pension.

Eco_Miser

Albermarle said:

hen those funds will be holding stocks for 40+ years so I’d treat it as basically a private pension pot

It would make a lot more sense just to either add more to your works pension, or alternatively into a separate pension as you will benefit from tax relief in either case.

. If saving for retirement/over such a long period, then best to do it within a pension.

Yes, except that pension pots are at the mercy of a future government raising the age you can access the pot again. Having some funds in an accessible-at-any-age  S&S ISA is a useful safeguard.

Albermarle

Eco_Miser said:

Albermarle said:

hen those funds will be holding stocks for 40+ years so I’d treat it as basically a private pension pot

It would make a lot more sense just to either add more to your works pension, or alternatively into a separate pension as you will benefit from tax relief in either case.

. If saving for retirement/over such a long period, then best to do it within a pension.

Yes, except that pension pots are at the mercy of a future government raising the age you can access the pot again. Having some funds in an accessible-at-any-age  S&S ISA is a useful safeguard.

You are right as a general comment, but the OP is 28 and said they wanted to invest on a 40year+ timeline. Seems unlikely the pension access age would move so much.

bostonerimus

Pay off any high interest debt and loans first.
Save 6 months of spending in the bank for emergencies
Max out your pension payments, you can probably invest in index funds there, and just keep paying the mortgage.
If you have any spare money invest in index funds in an ISA or just a ladder of bank saving accounts if you want something safe.

You'll be mortgage free in 5 years and have a good start on retirement savings. 

jaypers

Being mortgage free is incredibly liberating, both financially and mentally. Saying this, as others have said, make sure you have a stash of money for emergencies. 6 months worth of bills is advisable. Read what you’ve said about pensions, but never underestimate the difference a small increase in contributions will make to your overall pot. You are still very young, so doing this now is the best financial advice I can give. It’s all about balance too as you need to enjoy life while you’re young. 

Savingforahouse123

Thanks all!