It's a should I pay off the mortgage one - new rate will be 5.6% - leasehold flat, rented out

northnineteen

The facts do seem to indicate I should pay off the mortgage but I'm feeling a bit stuck and reluctant. This is the first time in my life I've had significant savings and almost to my surprise, with an ISA maturing and a redundancy payout plus 17 years of paying down the mortgage, there is enough money in hand to pay it off.

I'm 52.

Tiny flat bought on my own in 2006; I slipped in when 100% mortgages were around; after the financial crash it was worth a lot less than the mortgage, which led to much stress

For the last three years the mortgage rate has been 1.98%

I moved out of my flat to live with my partner two years ago

The bank gave me permission to let my flat; I wanted to keep hold of it in case my relationship didn't work out

My mortgage fix is ending and the new mortgage will be a buy-to-let product

Best rate is 5.6%. Higher than I can get in savings interest rates.

Paying off the mortgage would still leave me with six months of emergency money

Why am I hesitating? It's like I think there will be some kind of catastrophic emergency that means I'll regret not having that bigger amount of savings. Once the money's paid down the mortgage, it's gone. This is an emotional reaction, I realise. I'm so used to only having myself to rely on, have been financially independent since I was a teenager. No help from family has ever been possible, in fact, I had to help my mother pay off her own mortgage, long story.

My partner isn't good with money, earns very little and although things have been going well relationship-wise and we're now five years in, I'm still cautious. Particularly because we broke up once during that period and then got back together.

Probably the only rational reason to keep hold of my savings is towards a deposit for a new property with my partner. However, there is no firm plan to do so, and it's all a bit pie in the sky. I'd say it's about five years until this might happen, and even then, the only way my partner could come up with a share of the deposit is if he got an inheritance through his elderly parent passing away. Blunt, but true. My partner and I keep finances separate at this stage. I pay him £600 a month and it's not earmarked what that's actually for - towards bills and his mortgage, I suppose.

Next bit of detail is why my flat won't be particularly sellable for a few years.

It's a leasehold flat with a horrendous managing agent. The company (essentially a family) is now so vilified on social media and their awful reputation is so widespread that the flat is unsellable. (Martin's Money Forum has a thread about them). Conveyancing solicitors are telling would-be buyers to steer clear of properties "managed" by this company, if things even get to the conveyancing stage.

Leaseholders in the building have recently gone to tribunal and won right-to-manage and we will be instructing a reputable managing agent. But it will take a couple of years to properly untangle and distance ourselves from the gangster company. The gangster company is also the freeholder under another company name, so may still spook potential buyers. Purchasing the freehold may be something me and my fellow leaseholders want to try in a couple of years, but I've no idea of the cost. Hoping for leasehold reform to actually happen. 

Sorry this is long!

In short, if you were me, would you use a large chunk of your savings to pay off a mortgage before it rises to 5.6%, even though the flat won't be sellable for a few years

Typhoon2000

You can still get a BTL mortgage in the future on an unencumbered property if you need cash in the future. Granted it will take a couple of months but you say you have 6 months savings. So I would pay it off ( consider it a savings bond with 5.6% tax free interest rate)

northnineteen

Typhoon2000 said:

You can still get a BTL mortgage in the future on an unencumbered property if you need cash in the future. Granted it will take a couple of months but you say you have 6 months savings. So I would pay it off ( consider it a savings bond with 5.6% tax free interest rate)

Really helpful, thank you. Yes, I’m forgetting that I could get a BTL mortgage in the future if needs be; this isn’t a one time only opportunity 

goater78

Pay it off. Will reduce the hassle and means the money you get in rent won’t need to go towards paying interest on the mortgage. Will give you a small steady income. 

dimbo61

Agree with others pay it off.
Mortgage free and you own an asset  and steady income stream.

amnblog

Everything you are stating suggests the property may be unsaleable, or un-mortgageable given the problems with the freeholder/managing agents.

If you have a tenant covering the mortgage and other costs why would you put your cash in and risk not being able to easily access it again.