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  • FIRST POST
    • Kaygan
    • By Kaygan 11th Aug 18, 12:50 PM
    • 3Posts
    • 0Thanks
    Kaygan
    Brexit: keep investing or pay off mortgage?
    • #1
    • 11th Aug 18, 12:50 PM
    Brexit: keep investing or pay off mortgage? 11th Aug 18 at 12:50 PM
    Hi all, newbie here.
    Husband and I have approx £76,000 in S&S isas. They have been fairly riskily invested but have made 20-40% over the past 10 years. Apart from a couple of k in our current accounts this is our life savings.
    We still owe £155,000 on our mortgage with 14 years to go at 1.89% tied in for the next 4 years.
    I am worried about brexit and losing a lot of our savings. We are early 40s with two small children.
    We are thinking of either:
    1. Take the £76,000 out, keep £16,000 as an emergency fund and pay off £60,000 of the mortgage. We currently save £500 per month so could then also apply this to our mortgage and clear it in 5 years. It will cost £3,000 in fees to pay off £60,000 but weíll save interest
    2. We take out £25,000 say and pay off some of the mortgage then get advice to invest more cautiously at a cost of approx £60 per month in advisorís fees (we are not savvy enough to do it on our own)
    3. We leave the £76,000 where it is and just overpay mortgage by £500 instead of saving it
    4. We carry on as we are (but Iíd be gutted if we lost savings even if it was just a paper loss so to speak)

    Am I missing something? Any sage advice? We are getting much more risk averse with age and small children. Our jobs are fairly secure but we are at the peak of our earnings (public sector). Both have occupational pensions and the kids have junior isas. No other debts.

    Thanks !!!128578;
Page 1
    • Economic
    • By Economic 11th Aug 18, 1:09 PM
    • 316 Posts
    • 323 Thanks
    Economic
    • #2
    • 11th Aug 18, 1:09 PM
    • #2
    • 11th Aug 18, 1:09 PM
    What investments are in the S&S ISA? If it is globally diversified then why will Brexit have a negative effect? Do you mean 20-40%pa?
    • kidmugsy
    • By kidmugsy 11th Aug 18, 1:33 PM
    • 11,762 Posts
    • 8,279 Thanks
    kidmugsy
    • #3
    • 11th Aug 18, 1:33 PM
    • #3
    • 11th Aug 18, 1:33 PM
    Project Fear is still running along nicely, I see.
    Free the dunston one next time too.
    • dunstonh
    • By dunstonh 11th Aug 18, 1:48 PM
    • 95,374 Posts
    • 63,005 Thanks
    dunstonh
    • #4
    • 11th Aug 18, 1:48 PM
    • #4
    • 11th Aug 18, 1:48 PM
    2. We take out £25,000 say and pay off some of the mortgage then get advice to invest more cautiously at a cost of approx £60 per month in advisor!!!8217;s fees (we are not savvy enough to do it on our own)
    You are paying for advice but asking for opinions on the internet. What does your adviser say?

    Why do you think Brexit is an issue?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • ruperts
    • By ruperts 11th Aug 18, 2:11 PM
    • 992 Posts
    • 1,650 Thanks
    ruperts
    • #5
    • 11th Aug 18, 2:11 PM
    • #5
    • 11th Aug 18, 2:11 PM
    I'm personally not concerned by brexit but if you are then that's a sign that your portfolio is invested above your risk tolerance.

    Sounds like you need to go back and re-examine what your risk tolerance is, then look at portfolios which suit. Comparing the expected rate of return of a suitable portfolio with the rate of interest on your mortgage will give you some guidance as to where your money should go.

    I've never used an advisor so don't fully understand how they charge, but I can't see why analysing your risk tolerance, suggesting a model portfolio and giving you some information on expected returns couldn't be done as a one-off with no ongoing fees.
    • jamei305
    • By jamei305 11th Aug 18, 2:15 PM
    • 365 Posts
    • 430 Thanks
    jamei305
    • #6
    • 11th Aug 18, 2:15 PM
    • #6
    • 11th Aug 18, 2:15 PM
    Presuming you have a fixed mortgage rate for the next four years and £76k in diverse international equities why would you want to change anything if you think Brexit will go badly?
    • Voyager2002
    • By Voyager2002 11th Aug 18, 2:42 PM
    • 12,424 Posts
    • 8,480 Thanks
    Voyager2002
    • #7
    • 11th Aug 18, 2:42 PM
    • #7
    • 11th Aug 18, 2:42 PM
    It is probable that Brexit will disrupt the economy in the short term (no opinion about the longer term). This is likely to mean an increase in unemployment, but the impact on public sector employment will be less direct. There may be consequences for interest rates, but if your mortgage rate is fixed then that is irrelevant to you.

    One probable impact is a fall in sterling (arguably this has already happened), meaning that if you hold international equities then their price in sterling will go up.


    All in all, Kaygan seems to be pretty well protected from the most obvious negative impacts, just so long as that S & S ISA is not mainly invested in UK small companies.
    • bowlhead99
    • By bowlhead99 11th Aug 18, 3:09 PM
    • 8,283 Posts
    • 15,135 Thanks
    bowlhead99
    • #8
    • 11th Aug 18, 3:09 PM
    • #8
    • 11th Aug 18, 3:09 PM
    A few thoughts:
    :
    1. Take the £76,000 out, keep £16,000 as an emergency fund and pay off £60,000 of the mortgage. We currently save £500 per month so could then also apply this to our mortgage and clear it in 5 years. It will cost £3,000 in fees to pay off £60,000 but we!!!8217;ll save interest
    Originally posted by Kaygan
    a) if you only have a couple of thousand in savings and presumably there will be various things coming up which might require those savings (eg a new car, holidays, things for kids growing up etc), it makes a lot of sense to have a proper emergency fund. Your couple of k of current accounts is not much of an emergency fund and if you did have some emergency or job loss etc you wouldn't want to be in the position where you have to sell investments (which might have just declined in value at that moment but would recover in due course) to cover your emergency.

    So whether you choose to pay off your mortgage or not, moving £16k from investments to cash is something that makes good sense. Maybe it should be more depending on your ongoing or potential spending patterns

    b) If you are saving £500 per month as it is, you could apply that to your mortgage and clear it faster than you otherwise would do. However, note that with that kind of amount, each of you could open up a 'regular saver" account with (e.g.) Nationwide or M&S or others, allowing you to each put in £250pm earning 5%.

    As you're only paying 1.9% on the mortgage it doesn't make sense to spend the £500pm on directly paying down the mortgage to avoid that 1.9% on the mortgage when you could instead be earning 5% on the same money. If at the end of a year's saving in such accounts you can't find a savings deal paying close to the rate of your mortgage, perhaps then pay off some more mortgage.

    c) you mention there are £3000 of fees for paying off £60k of mortgage. That's quite steep and although you say "but we'll save interest", the fee is more than two years' interest charges. So with that big up front fee meaning that £60k paid in is only £57k paid off... and it'll take a couple of years or more of mortgage interest savings to "break even", before you start to actually save any mortgage interest... and from that point, the amount you're saving is still only 1.9% a year until the end of your current fixed rate deal.

    So, if your current £60,000 of investment or £60,000 of alternative savings product generates only 1% a year for the next four years, overall it is preferable to paying off the mortgage and being able to save 1.9% in year three and 1.9% in year. If you are nervous that your investment ISAs will give a worse result than 1% a year for the next four years, you can find fixed rate cash ISAs for that timescale (which would mature when your deal has expired and there's no longer a penalty) paying comfortably more.

    An exception would be if you pay down £60k including penalty and you can then also pay off the rest of the mortgage with another penalty by taking a new loan with same or different provider and better loan-to-value at a much improved rate (ie because you only owe under £100k on your property rather than £155k). However the rate on a new 4-5 year fix may not be a huge amount lower even after all the penalties for early-paying this one.
    2. We take out £25,000 say and pay off some of the mortgage then get advice to invest more cautiously at a cost of approx £60 per month in advisor!!!8217;s fees (we are not savvy enough to do it on our own)
    d) If you pay off £25k of mortgage and create your £16k of emergency fund, there's about £35k of investments remaining to be advised on. While £50-60pm is probably a reasonably minimum amount for an independent financial advisor to want to be paid, to give you ongoing reviews and servicing each year - it's a large proportion of the £35k: close to 2% a year. And presumably they would want something up front as well as that ongoing £50-60pm.

    If it's truly invested in a 'cautious' fund with limited growth prospects to protect the downside rather than focus on upside potential: the advisor cost of 2%, plus cost of the fund itself, plus cost of the platform on which the fund is held, may substantially eat up most of the income and growth in excess of what you could get in a selection of risk free best-buy cash accounts and term deposits.

    To avoid high ongoing advisor costs (as detailed ongoing reviews and servicing is not really required if you're not investing huge amounts with ongoing annual additions) you could probably pay for one-off transactional advice where you pay up front for the recommendation(s) and implementation rather than keep paying the advisor every month. You are not going to be given a highly tailored personalised bespoke portfolio as someone who just wants £40k of investments which are reasonably cautious compared to what you currently hold. So you could probably monitor and understand the portfolio yourself, and add to it where spare cash allows - which may just be a single mixed asset fund.

    e) Although you don't feel confident selecting your own portfolio with lower risk than you currently have, you could do what a lot of other people do and do some research to understand the options, and then buy without advice, saving the initial transaction advice fee and the ongoing advisor fee.

    It can be a bit of a minefield if you are not experienced in buying and holding investments and don't have the knowledge or confidence, so you may not be ready for it after a weekend of reading. Still, it can save significant advisor charges, just buying an off the shelf medium risk fund such as "L&G Multi Index Fund 5 Accumulation", rather than paying an advisor £60pm to recommend it to you and tell you what it's worth every so often.

    If you don't know what you are doing there is no substitute for having a regulated professional give you suitable advise for which you have recourse via the financial ombudsman if the advice turns out to be unsuitable. At least, that's what the advisors will say. Of course, there is a substitute really, which is to research for yourself. But understandably, some people don't have the time or inclination for that, and would prefer to either buy the advice or stick to simple options like savings accounts or mortgage overpayments where the outcome is known up front. Those simple options are unlikely to be the best way to grow your overall wealth, but at least the downside is limited.

    Of course, putting your money in something with a fixed and known-up-front return - like bank account or mortgage overpayments - rather than a market-based return - like investment fund (s) - is not without "risk" because you don't know how inflation will eat away the nominal value of those savings, whereas investment funds invested in equities and property etc are more inflation-proofed.

    3. We leave the £76,000 where it is and just overpay mortgage by £500 instead of saving it
    f) this seems the worst option for the £76k because you have admitted (i) your current holdings are higher risk than you want to take so the portfolio needs a change relatively soon; (ii) in your own words you are "not savvy enough to invest on our own"; (iii) you do not have an emergency fund; and (iv) again in your own words you would be "gutted" if the investments declined in value.

    g) you can overpay the mortgage by £500pm but as mentioned in (b) above, it is more lucrative to use that money on regular saver accounts at 5% than overpay mortgage at 1.9%.
    4. We carry on as we are (but I!!!8217;d be gutted if we lost savings even if it was just a paper loss so to speak)
    h) "Carrying on as you are" sounds suspiciously like what you would be doing under your option 3, which I disapproved of Except perhaps you are not currently using your £500pm to pay down your mortgage.

    So what are you spending the £500 surplus on each month - just throwing it into the S&S ISA pot? Probably if you are uncomfortable with your current ratio of investments to savings to mortgage, you should divert it away from S&S ISA to other things, like building up cash savings or paying down the mortgage. Or extra pension if one of you is higher rate taxpayer and can benefit from decent tax relief.

    But as mentioned I don't see much value in paying down the mortgage when it's under 2%. You can get better than that on regular saving or current account deals from banks and building societies (and no rules against having accounts with more than one institution). Even if you had exhausted all the best deals and were only able to find a term deposit for the next four years at a bit less than the 1.89%, I'd personally rather have a pile of cash and a large mortgage, than a small amount of cash and a smaller mortgage.

    The reason being, it's more flexible to have cash than a lower mortgage. You can spend the cash on some opportunity which comes up, while if you pay down the mortgage you can't get it back without a remortgage process.

    The reason to avoid mortgage debt is where it costs more than you can possibly earn on savings. If it doesn't cost any more, or much more, and you can pay it off like a shot if you want to, and it's guaranteed not to increase in price for the next few years (after which time there are no penalties for paying it down), I just wouldn't be in a hurry to clear the mortgage by £500pm - because it costs me flexibility.
    Last edited by bowlhead99; 11-08-2018 at 4:40 PM.
    • bostonerimus
    • By bostonerimus 11th Aug 18, 3:28 PM
    • 2,368 Posts
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    bostonerimus
    • #9
    • 11th Aug 18, 3:28 PM
    • #9
    • 11th Aug 18, 3:28 PM
    Don't withdraw from your ISA! as you'll loose tax free compounding.

    You can think of paying down your mortgage as a 1.85% fixed income investment....so maybe use £250pm to overpay the mortgage and £250pm to buy equities in your ISA. Or better still try to find some savings from your monthly budget (ie cancel TV subscriptions; reduce food and drink bill etc) and add that to the ISA/mortgage pay down equation.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 11th Aug 18, 3:36 PM
    • 95,374 Posts
    • 63,005 Thanks
    dunstonh
    I've never used an advisor so don't fully understand how they charge, but I can't see why analysing your risk tolerance, suggesting a model portfolio and giving you some information on expected returns couldn't be done as a one-off with no ongoing fees.
    That portfolio will need rebalancing. The allocations are fluid and not static and funds go off the boil and need replacing. Most IFAs deal with people with larger amounts so you have bed & ISA, bed & pension, CGT calcs etc.

    The ombudsman as actually not keen on advisers putting in place model portfolios without ongoing servicing. When we do something on a transactional basis, we use multi-asset funds. Not a model portfolio (and our model portfolio had outperformed multi-asset funds net of charges).
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • davetrousers
    • By davetrousers 11th Aug 18, 3:40 PM
    • 5,639 Posts
    • 4,881 Thanks
    davetrousers
    ..........
    .....

    • Thrugelmir
    • By Thrugelmir 11th Aug 18, 3:45 PM
    • 60,121 Posts
    • 53,453 Thanks
    Thrugelmir
    4. We carry on as we are (but I!!!8217;d be gutted if we lost savings even if it was just a paper loss so to speak)
    Originally posted by Kaygan
    That's the inherent risk of investing. While charts may say that over the long term returns are guaranteed. The day you require the money markets may have dipped.
    Certainly no harm in building your cash savings up to fund larger financial outgoings or overpaying the mortgage.
    Last edited by Thrugelmir; 11-08-2018 at 3:50 PM.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • Terry Towelling
    • By Terry Towelling 11th Aug 18, 3:55 PM
    • 643 Posts
    • 540 Thanks
    Terry Towelling
    4. We carry on as we are (but Iíd be gutted if we lost savings even if it was just a paper loss so to speak);
    Originally posted by Kaygan
    Welcome, Kaygan.

    Your point#4 suggests you donít want to risk losing any of your savings Ė real or on paper Ė but your S&S ISAs are capable of delivering a loss with or without any Brexit complications. So, what follows is based on the least risk possible and converting much/all of your S&S investment into cash.

    In truth nobody can tell you what Brexit will deliver but you are probably right to use your Ďfearí as a way of examining whether your current savings regime is appropriate or not.

    I would agree you should secure yourself an emergency fund in an easy-access interest-paying savings account.

    Some say that overpaying the mortgage is not the best way to use your cash but it is a guaranteed and fully-quantifiable way of saving money. Your mortgage rate is quite low but it may still be good to overpay it whilst the rate is low and have less debt to service when the rate rises.

    The question is how best to overpay it.

    As suggested by others, the best (least risk) option is to take advantage of high-interest current accounts and regular savers or fixed rate accounts for, say, 4 years and then use the proceeds of that regime to pay a lump off the mortgage at the point where the rate rises or you renegotiate your borrowing. That should also avoid penalty fees.

    This creates flexibility because you can change your mind at any point in the process and you still have the cash at your disposal. Also, at the end of 4 years, things may be different all round and having that cash available will enable you to change direction if you need to. Consider also, if you convert your wealth into cash now, and the markets do take a tumble post Brexit, you could actually plough a chunk back in at much lower prices and watch it appreciate through the recovery (not guaranteed of course).

    You could also Ďplayí with your emergency fund by recycling it into numerous regular savers. Virgin, for example, seems to bring out a new regular saver every couple of months. The rate isnít the best (2.25%) but they are easy-access, allow as many withdrawals as you like over their 14 month term and you donít have to follow them through to maturity if you find a better savings option elsewhere. You could have 7 of these on the go within a year.
    • Kaygan
    • By Kaygan 11th Aug 18, 5:37 PM
    • 3 Posts
    • 0 Thanks
    Kaygan
    Thank you for taking the time to reply.
    The £500 we currently save is £400 into S&S isas and £100 into an easy access savings account but we use this for Christmas and holiday spends here and there so do deplete it every so often.
    It seems paying off the mortgage is not the answer. Our advisor suggested we use the £500 to build cash reserves while the market is high and complete a risk questionnaire which they would then use to overhaul our current investments.
    To be fair itís not just brexit that worries me. Over the next decade we will move from our forties to our fifties (hopefully) and our parents will move from their 70s to their 80s. There are questions like will our health/our parents health allow us both to continue to work full time etc.
    Our advisor suggested the economy is due a recession. Can we ride the wave???
    • jimjames
    • By jimjames 11th Aug 18, 7:09 PM
    • 12,775 Posts
    • 11,475 Thanks
    jimjames
    Project Fear is still running along nicely, I see.
    Originally posted by kidmugsy
    Project reality and more if we end up with no deal
    Remember the saying: if it looks too good to be true it almost certainly is.
    • Thrugelmir
    • By Thrugelmir 11th Aug 18, 7:14 PM
    • 60,121 Posts
    • 53,453 Thanks
    Thrugelmir
    Our advisor suggested the economy is due a recession. Can we ride the wave???
    Originally posted by Kaygan
    How secure is your employment? Are you making adequate pension provision?

    Little point in worrying about matters outside your control. Focus on what you can influence. Set your different goals and adjust accordingly.

    What investments do you hold?
    Last edited by Thrugelmir; 11-08-2018 at 7:16 PM.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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