Seeking Advice on Mortgage Repayment vs. Buy-to-Let Investment

g000444555

I own a house valued at £450,000, where I currently reside. Here are the key details of my financial situation:

- Remaining mortgage: £270,000

- Mortgage rate: Fixed at 1.87% for 5 years

- Time until remortgage: 3 years

- Projected remaining mortgage in 3 years: £230,000

Additionally, I have:

- £105,000 in a Stocks and Shares ISA

- £20,000 in savings accounts

My annual savings capacity is £32,000 after taxes and expenses, but in practice, I save £17,000 due to £15,000 spent on travel.

My income is primarily from full-time employment, supplemented by renting rooms to lodgers.

I'm considering two options for the future:

1. **Continue Saving:** Keep the money in my Stocks and Shares ISA and savings accounts. Aim to save as much as possible and potentially repay a significant portion, if not all, of the £230,000 mortgage in 3 years.

2. **Buy-to-Let Investment:** Purchase a buy-to-let property for £100,000, expecting an annual rental income of around £3,360 after tax, maintenance, management, and insurance.

Which option seems more reasonable given my situation?

Foxhouse

For me (as an ex-landlord) option 1 is by far the most sensible.

If you're only expecting a 3.36% return on your £100000 investment over a year, put the money in a high rate savings account. Will give you similar return for far, far less hassle.

Albermarle

Posters tend to get negative reactions to suggestions of buying a BTL.

Increased tax and regulation make it a lot less attractive than it used to be. Best left to experienced landlords with multiple properties and good contacts in the building and maintenance trades.

You can fix savings rates at not far off 5% for s few years ( 4% after tax) 
For the longer term a well invested S&S ISA, should do even better.
Or perhaps better a mixture of both.

Hoenir

You make no mention of pension provision. 

3 years time you are likely to suffer a sizable increase in monthly outgoings unless you reduce your capital balance outstanding on the mortgage. 

Alexland

Yup what's going on with the pension? It can be a very tax efficient way to stash spare income and it's a lot less bother than BTL.

g000444555

I'm not sure how pensions relate to the two options we're discussing. Last year, I contributed a total of £50k to my private pension, including my contributions and my employer's contributions. I plan to do the same this year. Since retirement isn't in the near future, my pension is a long-term investment and doesn't impact my current dilemma. In 3 years, my mortgage payments might rise if interest rates increase beyond 1.87%. Therefore, I'm considering Option 1 to potentially pay off the mortgage early. I might reduce pension contributions next year to meet the £230k mortgage repayment goal. 

kempiejon

g000444555 said:

I'm not sure how pensions relate to the two options we're discussing. Last year, I contributed a total of £50k to my private pension, including my contributions and my employer's contributions. I plan to do the same this year. Since retirement isn't in the near future, my pension is a long-term investment and doesn't impact my current dilemma. In 3 years, my mortgage payments might rise if interest rates increase beyond 1.87%. Therefore, I'm considering Option 1 to potentially pay off the mortgage early. I might reduce pension contributions next year to meet the £230k mortgage repayment goal. 

If I had £50k going to the pension, 4-5% interest on cash deposits available, 3 years before the mortgage rate potentially increases and £230k in mortgage, £125k already saved and a potential £30k annual savings rate and I was comfortably meeting my mortgage repayments I wouldn't change anything much. You can clearly afford it. If you were invested in being mortgage free or retire early you can tune your payments. In 12 and 24 months you could have a view on mortgage rates but for now why do you think you need to do anything?

3% return on BTL seems a red herring.

boingy

I'm in no way recommending a BTL but it's not enough to look at the return from the rents. You also need to factor in the likely growth in the value of the property. There are no guarantees but it's likely that the final gains would be higher than the simple annual rent minus costs figure.

On the other side you have to look at the mortgage rate that may well triple when the current fix ends in three years time so maybe you don't want your capital tied up in a BTL at that point.

Finally, as a self-confirmed tight- ar** I can't help thinking that curtailing those travel expenses for three years will go a long way to paying off that mortgage and leave you free to spend more on travel in subsequent years. 

So I'm very much the "pay off the mortgage whilst keeping an emergency fund" camp but everyone is different. 

Bostonerimus1

I would only recommend BTL if you buy it outright ie don't take on more mortgage debt and if you have the fortitude to take on the responsibility of being a landlord. I would concentrate of becoming entirely debt free by making extra mortgage payments and long term pension and ISA investments. K.I.S.S.

g000444555

 but for now why do you think you need to do anything?

3% return on BTL seems a red herring.

Not taking any action now essentially aligns with option 1, which is to "continue saving." I don't necessarily feel compelled to make a change, which is why I posted the question to help decide whether to keep my current approach or explore the BTL route.

It seems you're recommending option 1, as are most of the other responders.

Thank you for your input; it's much appreciated!

Hoenir

g000444555 said:

I'm not sure how pensions relate to the two options we're discussing. 

We have no idea as to your personal position. As with many threads there's a drip feeding of information.