Life After the Mortgage

carboot_karaoke

This weekend, thanks to some forumites  l discovered we are in a position to pay off our mortgage hurray!!

But this now leaves me the question of what we should now do with our income in the short/long term.

We are mid 40's modest earners 22k /18k respectively and this is unlikely to change significantly in the coming years. 

With the mortgage cleared we are left with 15k in an investment bond - which l can withdraw and 12k in a 1 year fixed Isa @ 4% maturing in January. 

We will have about £600 extra available each month although, l must admit after 15+ years of living frugally l would like a nice family holiday as a little indulgence .

We also don't have much in the way of a pension just a few 1000 which l know needs addressing!! Although once we have an empty nest we do plan a significant downsize which should raise 100K .

Any suggestions ?? For example would you cash in the investment bond and replace with a savings account? I feel like a savings account is more reliable but the bond has produced a good return.

We have also talked about investing in a BTL for when our eldest leaves home. Probably 4+ years away.  

I know future planning (ie Pension ) is important but would like easy access to some funds for emergencies etc. 

solidpro

On 22k/18k a year, ISAs and Pensions. That is all you need to know.

Setup your own account with HL or Vanguard or whoeever, open up a SIPP or ISA and start paying in £600 a month. You'll never hit any of the maximum annual thresholds and in a few years you'll have a nice little nest egg. That's the simple and probably most educated answer.

For a more controversial one, FWIW in the 'olden days' (i.e. 2018), we were mortgage free, took out £100k mortgage on the house and bought a BTL through our own Ltd investment company (director's loan). We now own 2 houses outright, one of which brings in £1500 a month rental, is low maintenance and I can see it from my front door. Lovely little pension fund, right there. Personal mortgages on your own property are always much lower interest than a BTL mortgage, so works out better if you can fund the whole thing yourself. It's not for everyone, requires constant attention to detail but if you buy the right place, replacing a few taps and getting some annual checks done is worth the instant income. The way the housing market is going, all that cash tied up in bricks around your own beds is probably losing you money, so why not leverage it against some more bricks around someone else's beds that provides additional income? Plus in a bear market you could get a bargain. Then again you might think 6% interest on £100k is too high (it's not, check a bank loan), or remortgaging might emotionally feel like going backwards. I got over it and you might too.

If you want an emergency fund, put £600 a month into premium bonds or a savings account for a year first.

If you want a holiday do that first.

Maybe you need to bust out a 5 year plan and stick to it.

Albermarle

Presumably you both have workplace pensions so you can easily just ask your employer to increase your monthly contributions. Some employers will increase their contribution, if you increase yours ( up to a point). Plus you get tax relief.

BTL generally works better for people with some landlord experience and/or some good handyman skills.

Although once we have an empty nest we do plan a significant downsize which should raise 100K .

Downsizing often does not bring as much cash as the initial expectation, so do not rely on this too much.

solidpro

Albermarle said:

Downsizing often does not bring as much cash as the initial expectation, so do not rely on this too much.

I agree. Stamp duty, legals and moving costs suck. I'd only bother doing it if the new place was going to improve my mental health and life quality, rather than just some extra money.

Plus, better the devil you know. One bad neighbour can ruin your retirement.

carboot_karaoke

solidpro said:

On 22k/18k a year, ISAs and Pensions. That is all you need to know.

Setup your own account with HL or Vanguard or whoeever, open up a SIPP or ISA and start paying in £600 a month. You'll never hit any of the maximum annual thresholds and in a few years you'll have a nice little nest egg. That's the simple and probably most educated answer.

For a more controversial one, FWIW in the 'olden days' (i.e. 2018), we were mortgage free, took out £100k mortgage on the house and bought a BTL through our own Ltd investment company (director's loan). We now own 2 houses outright, one of which brings in £1500 a month rental, is low maintenance and I can see it from my front door. Lovely little pension fund, right there. Personal mortgages on your own property are always much lower interest than a BTL mortgage, so works out better if you can fund the whole thing yourself. It's not for everyone, requires constant attention to detail but if you buy the right place, replacing a few taps and getting some annual checks done is worth the instant income. The way the housing market is going, all that cash tied up in bricks around your own beds is probably losing you money, so why not leverage it against some more bricks around someone else's beds that provides additional income? Plus in a bear market you could get a bargain. Then again you might think 6% interest on £100k is too high (it's not, check a bank loan), or remortgaging might emotionally feel like going backwards. I got over it and you might too.

If you want an emergency fund, put £600 a month into premium bonds or a savings account for a year first.

If you want a holiday do that first.

Maybe you need to bust out a 5 year plan and stick to it.

Thank you for your response. 

With a Vanguard account am l restricted on when l can take out a withdrawal   ie does it have to be +55 years? 

Do you need experience with these accounts...because l dont have any 😄.

Also your BTL experience is definitely worth considering...after a holiday!!

carboot_karaoke

Albermarle said:

Presumably you both have workplace pensions so you can easily just ask your employer to increase your monthly contributions. Some employers will increase their contribution, if you increase yours ( up to a point). Plus you get tax relief.

BTL generally works better for people with some landlord experience and/or some good handyman skills.

Although once we have an empty nest we do plan a significant downsize which should raise 100K .

Downsizing often does not bring as much cash as the initial expectation, so do not rely on this too much.

Thank you for your response l will speak to my employer and see what they say reference pension.

We are fairly "handy" with basic things...we brought the "money pit" 🤣 and have had to learn along the way. But we do have friends who are tradesmen.  I  would have to be convinced it was a good investment before taking on a big commitment.  

I'm not going to count on our downsize budget to much, it's many years in the future and alot could change. 

grumbler

carboot_karaoke said:

l discovered we are in a position to pay off our mortgage hurray!!

And the mortgage interest rate is...?
About 10 years ago I was in the same position, but kept the mortgage for the final few years thus making small profit from it because the savings rates were much higher than my tracker mortgage rate.

solidpro

carboot_karaoke said:

With a Vanguard account am l restricted on when l can take out a withdrawal   ie does it have to be +55 years? 

Do you need experience with these accounts...because l dont have any 😄.

Also your BTL experience is definitely worth considering...after a holiday!!

I think essentially you have a £20k annual tax-free ISA allowance that, when you deposit goes into a very low return Cash ISA. Once that's there you can then buy shares using that Cash ISA money turning it into whatever fund you're buying. If it was VLS100, it's a S&S ISA. You can withdraw anytime, as far as I know (never needed to do it and have seperate emergency funds) but you have to sell your share in whatever fund you're invested your ISA in, returning it to Cash ISA and then you can withdraw it.

Obviously a SIPP is different but I used Vanguard and HL amongst others to invest in the same funds using those two different tax wrappers. I'm invested in VLS100 which is High risk, because I'm in it for at least 20 years which should be enough to ride out any bumps. I don't see why you couldn't feed into a VLS40 or 60 which is much lower risk because only half or so is stocks and shares and the rest is much safer bonds, guilts and cash - and I believe you can take it out anytime (someone might prove me wrong). As I understand it, the Cash ISA used for investing is a bit like a high risk and slightly slower access savings account. It might take up to a week trade-in/withdraw, and if you're doing it when the markets are down you'll get less than you put in, but you can get at it if you need to, a lot quicker than selling a property.

I don't have any experience other than reading a few short books, some really biased advice from a financial advisor and being ripped to shreds on here.

By your description, if you know plenty of tradesmen, sorted out a 'money pit' you could do BTL. 

carboot_karaoke

grumbler said:

carboot_karaoke said:

l discovered we are in a position to pay off our mortgage hurray!!

And the mortgage interest rate is...?
About 10 years ago I was in the same position, but kept the mortgage for the final few years thus making small profit from it because the savings rates were much higher than my tracker mortgage rate.

Our mortgage tracks the base rate +0.79%. So currently 5.79%. Which l think is +0.50% the highest fixed ISA. It would have to be an Isa otherwise I think I'll pay tax on savings interest. 

In all honesty I will be leaving a small balance (a few £1000) on the mortgage to keep it open.  It's a fully flexible product allowing you to withdraw up to our original mortgage if necessary.

solidpro

carboot_karaoke said: It's a fully flexible product allowing you to withdraw up to our original mortgage if necessary.

You have a mortgage that lets you easily just take a huge loan at whatever the base rate is +.79%? So for example if you needed a quick £50k you can just get it? I've never heard of that - I thought you had to remortgage.

Albermarle

Do you need experience with these accounts...because l dont have any 😄

Which is why for now, it will be easier just to stick with the workplace pension and increase the contribution.

Longer term though a better knowledge of personal finance issues is a good thing to have .