What would you do?

[Thingsthatgo]

I am not very money savvy... so please advise me.
We own our house, which has a mortgage of £230k.
Our monthly income is roughly £4.5k, and our current mortgage repayments £1k.
We save around £1k per month.
We have savings of £30k and we are about to be given £120k from inheritance.
Would you pay off as much mortgage as possible with all the money, or is there another type of investment we should consider?
We could, for example, buy a small flat with cash in this area and rent it out (probably around £800 per month).
(We are interested in the best financial use for the money, not using it for fun!)
Thank you

Professional advice needed I think.

Personally I'd be chary of moving into buy to let at any time, still less now in what looks like a falling market, but I'm probably letting my prejudices show too
.

@Bromptotoo thank you for answering. Stupid question... would the advice be from a financial advisor? Would I just find one online? I have never been in this position before.

Why would you not pay off the mortgage? Compare the interest on that with the interest on cash/investments or the gain on a buy to let (not as easy as they used to be- higher taxes).

Personally I'd use it to pay off the mortgage. But no harm getting independent financial advice (google IFAs near me).

With £150k in your pocket I think you've a lot of options.

Reducing the mortgage is one of them but there's a load of stuff to explore too.

Paying a chunk for an IFA might be a step too far but OTOH there's stuff like IHT, Pensions, how you split ownership of the house etc that need thinking about.

Probably depends on mortgage rate. Assume £1k/month, your own a low rate fix.

I’d put:

£20k each into easy access/6 month fixed bond savings @5%. Depending on your tax bracket (less if higher rate).

£20k each into “growth” stocks within an ISA. The general market is on its knees, could be a good time to get in.

£18k each into 6% fixed rate bond for 1 year.

Rest (£34k) into home improvements that reduce your out goings (solar panels, energy saving improvements, electric car etc).

In April 24 transfer the £40k in easy access/6 month fixed bond to ISA (1 year at presumably 4-5%), or continue to invest in stock market if you think it’s a good time.

Then depending when your cheap fixed mortgage rate expires, start shuffling money back to overpay.

You’re on* a low rate fix.

When does your current mortgage deal end? Making a repayment before it ends would result in a repayment charge.

If you still have a year or more before the current rate ends, you could find a savings account paying a good rate of interest (look on MSE for best rates, and it's worth splitting the money into 2 accounts so you stay under the FSCS compensation limit in the unlikely event that a savings provider goes bust.)

An IFA will most likely recommend investing the money. This isn't neccesarily a bad thing but for a lower risk strategy I would always suggest paying off debt first, especially in the current climate as your rate may well triple when your current deal ends.

Buy To Let comes with all sorts of other risks (mainly legislation, maintenance, and bad tenants) and even if it went well, you would potentially just be using the extra income to pay the additional mortgage payments on your home once the rate has increased.

One other thing. I’d consider investing in yourselves.

Are there any courses that could boost your employability?

Thank you for all of your advice. Our mortgage runs out dec 2025, and it is a low rate at the moment.
I guess we make as much interest on it as we can and see what the interest rates are doing. I am keen to pay off as much mortgage as we can to be honest, but I want to explore other options to make sure I am not just taking the easy option.
I love the idea of doing additional training to improve earning potential, (although all the things I want to learn do not lend themselves to high earning! )

I'd put it in savings accounts - fixed term for 2 years perhaps - and pay off the mortgage at the end of 2025. You can then plan to start drip-feeding the £1K per month into a Stocks & Shares ISA (or SIPP) from Jan 2026. In the 2 years between now and then, you can keep thinking about it, and if you have a better idea, change your plans if you want to.

I wouldn't consider BTL unless the regulatory environment changes in favour of landlords and interest rates fall back to near Zero.

Max out Stocks and shares ISAs or even Cash ISAs which are paying around 6% now. You can get £40k in - £20k now and £20k after April 5th.
Everyone I know with rental property is getting out, it’s the hassle. You will also have to pay CGT eventually.
I’d overpay your mortage and put as much as you are able into your pension, no investment can beat the tax relief.

How old are you? What do you have for your retirement either in pension or S&S ISA at the moment?

Buying a rental property is likely not the right answer.

You don't have to do 100% of one or the other. Depends on what you already have, your age and when you want to retire