What to do with big lump sum after house sale?

JJDebs

Hello,

I am literally a financial dunce. I read lots of stuff and it makes me anxious so am reaching out for help. backstory- 20+ years ago I inherited £50k and bought a house mortgage free. Fast forward 8 yrs and we remortgaged it to buy another home which had to complete in 28 days. We rented out our house no.1….. fast forward 3 years, moved again, took out another mortgage- so now we have 2 mortgages. We were doing good, apart from terrible tenants who did so much damage to the house. Fast forward- tenants gone and son lived there rent free for 6 years to save his own house deposit. At the same time my 40 yr old hubby had sudden severe mental health issues which now leaves him unable to work. So we have 2 mortgages, 1 wage, and you guessed it - slow, spiralling debt. It crept up slowly, you think you are in control until suddenly you are working 80 hr weeks to try and stay afloat. Son bought his own home, phew- rental income back! Except that very month Covid struck and our tenants could not pay their rent. And so it went on. I was working so hard to pay off the credit cards, store cards, overdraft (£30k worth). It was a mess. 

Breaking point arrived- we made a decision - I was working so many hours and getting nowhere fast with escalating cost of living (gas and electric especially 🥶😱😱)- we decided to sell both houses and downsize.

we moved 4 weeks ago, I paid off everything left that I could (£10k credit cards- had already paid off £20k), store cards, overdraft, reduced mortgage with a lump sum (couldn’t pay off as fees too much). 

We now have the £160k mortgage and 200k in the bank. It’s sitting in an account with 0.25% interest, and I have no clue what to do with it! Having been in debt my whole bloody life I can be a 0% credit card tart, I can get cashback deals and cheap insurances but savings???? What the hell are they???? 

Any advice would be massively appreciated. Instead of making me calm I’m super anxious 😬😥

housebuyer143

Why are you not paying off the mortgage with the £200k? What are the fees? What is the interest rate on the mortgage? 
Depending what you do with it depends how risk adverse you are. There are fixed accounts, instant access and then shares etc. What are you initially leaning towards?

Albermarle

Where you put it largely depends on when you might need the money.

If you plan to pay off some of the mortgage soon, then this part needs to be kept in an easy access savings account paying > 3%.
If you might need some money in a couple of years then a fixed term savings account paying > 4%
If you have a longer plan then you could look at investing some of it or add it to your pension, if you have one.

I am literally a financial dunce.

This could well hamper your future prospects, when you can retire etc.
So I suggest you move the money for now to three different  easy access savings accounts with good interest rates ( you should limit the amount in each one to £80K for safety reasons, whilst you work on improving your personal finance knowledge. Start here .
How to save | MoneyHelper
 .Savings accounts: 3.55% easy access or up to 4.71% fixed (moneysavingexpert.com)

eskbanker

JJDebs said:

We now have the £160k mortgage and 200k in the bank. It’s sitting in an account with 0.25% interest, and I have no clue what to do with it!

There will be a variety of options - mortgage as above, but also investing within or outside pensions (what provision do you both have?), or saving, or spending, etc, etc, depending on your objectives, timescales, attitude to risk, and plenty of other factors, but the best thing to do would be to open a couple of easy access savings accounts to start putting that money to work while you take a breath and consider options:

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

Brie

I'd be chucking as much of the savings at the mortgage as is possible.  I suspect your interest rate is significantly higher than what you get on savings and even if there's a fee for paying a large amount it's likely to be less than the interest due for that amount.  

Meanwhile how about dropping some on the premium bonds?

Cisco001

Fix rate cash isa
Stock and share isa
Check pension if higher contribution required
High interest easy access saving account (Tamdem, Chase, etc. I tried Chip, but personally not comfortable with not knowing account number...)
Fix term saving account

Please beware tax on interest rate, but if your husband not working, I think it is OK if banking in his name.
https://www.moneysavingexpert.com/savings/tax-free-savings/

£85k per bank/ BS as usual. 

Zoe02

Whilst deciding what to do why not put in a higher interest instant access account?

Will say depending on the mortgage fees and interest rate, as soon as you can pay it off.

tacpot12

I'm not surprised that you are anxious. Having to manage this novel situation as well as coping with your husband's mental health issue was always going to be a strain. But you have managed your evolving financial situation well enough, so there is no need to worry that you will not be able to continue to manage well going forward. 

I think clearing the mortgage as and when the terms and conditions allow you to do so is important as it removes another potential worry. This means that you will want to keep about £160k in high interest accounts ready to make further lump sum payments when these can be made. These can be notice accounts (i.e. you have to give so many days notice to withdraw the money) as you will know the next point at which you can make a lump sum repayment off your mortgage. As you make your lump sum repayments, your regular payments or the mortgage term will drop, and you should be left with some money if you put exactly £160k in these notice accounts. 

I would also check your husband's national insurance record, and make voluntary payments of NI if he can improve his state pension entitlement by doing so. If he is claiming ESA (or could claim ESA), he will be getting (or can get) NI credits so it might take a bit of research to determine whether making voluntary payments will really make a difference or not. The Pensions board on MSE is read by some good experts who would be able to advice if you can get his state pension forecast. You should use a benefits calculator, e.g. the one at EntitleTo.co.uk if you have not checked what benefits he might be eligible for. If he is not receiving Personal Independence Payments, have a look to see if he might quality for these.

With the money set aside for repaying the mortgage, the remaining savings that you need to decide what to do with are reduced to £40K. Bolstering your own pension provision or investing most of the money in a Stocks & Shares ISA might be sensible, but I would recommend prioritise creating an emergency fund with some of it - perhaps £5,000? I would put this sort of amount into an Easy Access Savings Account or possibly Premium Bonds. Access to money from Premium Bonds can be pretty quick, it usually takes about less than 10 days. 

Money you put into your pension is impossible to access before you are 55, so you should really only put money into your pension that you are absolutely sure that you won't need before you are 55. If there is any doubt about whether you might need some of this £40K before you are 55, put it into savings accounts. 

JJDebs

housebuyer143 said:

Why are you not paying off the mortgage with the £200k? What are the fees? What is the interest rate on the mortgage? 
Depending what you do with it depends how risk adverse you are. There are fixed accounts, instant access and then shares etc. What are you initially leaning towards?

Hi there, thanks for your reply. The bank quoted £15k early redemption fees if we paid it off now so wanted to avoid that. We have 3 years left on fixed rate of 1.4%. Defo not keen on shares, I’d be happy with fixed account for period of time. 

JJDebs

Thanks all for your replies- this has given me loads of info to think about. I can pay off 10% of mortgage every year (just did that in February as we sold the house) so can’t pay anymore until Feb 2024 so I think splitting cash into different pots will work with next 10% (+£5k emergency fund) in easy access (high interest as I can find to still earn), then tie next payment up for a year in a notice account if that makes any difference interest wise. The rest of the mortgage pay off money could be tied up fully in a higher rate account for 3 years until the fixed mortgage rate expires and we are free!! 

Hubby’s pension is rubbish- mine is NHS so will prob pay me lump sum of about £60k + £1000-1500/mth as recent changes to NHS pensions has of course reduced its value. 

It’s a good start, hopefully! And thanks to those who shared links for me to start to actually be a grown up and look at learning about my finances a bit better! 

propertyrental

JJDebs said:

housebuyer143 said:

Why are you not paying off the mortgage with the £200k? What are the fees? What is the interest rate on the mortgage? 
Depending what you do with it depends how risk adverse you are. There are fixed accounts, instant access and then shares etc. What are you initially leaning towards?

Hi there, thanks for your reply. The bank quoted £15k early redemption fees if we paid it off now so wanted to avoid that. We have 3 years left on fixed rate of 1.4%. Defo not keen on shares, I’d be happy with fixed account for period of time. 

You are doing the right thing with your mortgage if a) paying it off early will cost £15K (really??!) and b) it's only costing you 1.4% in interest for now (that's a good rate), and c) you can pay off 10% a year penalty free

So
* put aside 16K (10%) to pay down the mortgage again in Feb 2024. The best easy access savings account you can find - eg Hanley Building Society(post or in branch only) or Chip. But check the comparison tables eg here.  Or here.
* put another £14,400 in a 1 year year fixed rate savings account to pay down mortgage in Feb 2025. Again, shop around for best rate  (In May 2024 move it to an easy access account till Feb 2025)
* That leaves the mortgage at £129,600, so £!2,960 in a 2 year fixed rate account to pay down in Feb 2026
* That leaves the mortgage at £128,300 which you can pay off  "in 3 years", so sometime later in 2026? Might as well add that to the 2 year fixed account above ready for when the mortgage can be paid off penalty free 

That leaves around £40K. Assuming a) you don't want to blow it on holidays and b) you already have a sufficient 'emergency fund' (?), and c) no long term costly plans (helping kids get on property ladder?), then boosting your pension(s) is an efficient investment.

* If you make contributions to your workplace pension, the employer (eg NHS) also contributes, + your contribution gets tax relief. See here for more.

* If you open a new personal pension, you'll get tax relief on what you pay in so your monthly pay will effectively increase see Gov guide here

If going the pension route, do lots of research to compare advantages of workplace Vs personal pension, and if Personal, then shop around or r get advice.

Pension Wise here offers free Government backed advice sessions on pensions.