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Original poster

Can anyone help - £100k - best use of it in our circumstances?

54 replies

SamanthaJones · 10/11/2011 18:04

I've name changed for this but I am a regular, I hope that's ok.

I'd be grateful for any views - we recently inherited £100k and aren't sure of the most sensible thing to do with it. (We will get some IFA advice too)

We have a mortgage which is interest only, with repayments of £700 a month

We are about to convert it to repayment, which will be 1,900 a month

We already have another buy to let house (with no mortgage) which gives us a rental income of £625 a month

We are considering buying another with the £100k which will give us a rental income of £550 a month

The total rental income of £625 (that we already get) + £550 (if we bought new place, cash) + the £700 we already pay would be = £1850 so effectively we could convert to repayment and rental would cover our mortgage (we could cope with the odd period unlet)

Or we could just pay £100k off our mortgage

Or we could have an offset mortgage, not sure about that

Thanks for any advice anyone can give.

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pinkytheshrunkenhead · 10/11/2011 18:10

Surely it makes more sense to have your rental properties on interest only mortgages for tax purposes.

But yes, I would buy more property but then I am a greedy cah!

I would not pay 100k off a mortgage personally

Original poster
SamanthaJones · 10/11/2011 18:12

Thank you

We won't get a mortgage though on a BTL (I don't think) as I'm not working and dhs salary was used to get the main mortgage

We have it on our main house at 50% LTV

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tentative123 · 10/11/2011 18:13

I'd pay off the current mortgage.

StaceymAloneForver · 10/11/2011 18:13

i'm no expert but surely paying 100k off your mortgage would incur charges? I would go for the property personally

Original poster
SamanthaJones · 10/11/2011 18:31

No charges if we pay off £100k - there's still mortgage left, it wouldnt pay it all off.

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pinkytheshrunkenhead · 10/11/2011 18:36

Have the income from a rental property and if you change your mind sell it and pay some off your mortgage, that rental property |(provided you pick well) will always have its intrinsic value and can be cashed in at any point for what you paid for it - in the meantime you have the income. Seriously though look at changing the rental properties to interest only as it really does help with tax.

LydiaWickham · 10/11/2011 18:37

personally, I'd pay down my mortgage. Interest rate won't stay this low forever.

pinkytheshrunkenhead · 10/11/2011 18:42

If you paid 100k off the mortgage, how much would that reduce your payments?

said · 10/11/2011 18:42

How can rental property be cashed in at any point for what you paid for it? Confused

Alibabaandthe80nappies · 10/11/2011 18:48

I would look at an offset mortgage, because it will lower your payments but leave you able to access the cash if you need to for other things.

If you are not keen on that, then half off the mortgage and half in medium-long term investments, depending on how much other cash you have in the bank. General advice is that it is worthwhile having up to 6 months outgoings (income if you can manage it) in easily accessible places - ie. not tied into a 5-year bond or anything.

pinkytheshrunkenhead · 10/11/2011 18:50

Well mine are worth what i paid for them (more in fact) if i sold them - property has it's value and in between time I am making money

Alibabaandthe80nappies · 10/11/2011 18:52

pinky - anecdote does not make evidence. What about if property prices fall?Banks are always going to be jumpier about getting their money back on BTL mortgages than primary homes, I personally would rather have one mortgage and own somewhere else outright than have two mortgages and two banks to deal with in the hypothetical situation that the shit would hit the fan.

veryconfusedatthemoment · 10/11/2011 18:54

I have had an offset mortgage for a very long time - I really like the flexibility. You keep your savings for a rainy day.

But the comment re interest only mortgages being better for the tax for commercial letting is good advice.

pinkytheshrunkenhead · 10/11/2011 18:56

But they are not falling at a rate of £550 a month are they? The tighter the market gets the better the rental market is - that is a fact. If the bottom falls out of the market letting will be no problem at all - even even than it is now - if it is let the drop in house prices is actually not so important anyway because you are still making 6k a year. Making that much a month on a 100k house is a great investment.

Original poster
SamanthaJones · 10/11/2011 18:57

We would still have £20k+ in cash in the bank and our monthly income even if we spent the £100k

Thank you for all these views, very useful.

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Original poster
SamanthaJones · 10/11/2011 18:58

If we pay £100k off the mortgage our monthly mortgage (converted to repayment) would be £1,400

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ragged · 10/11/2011 18:59

Take 100k off current mortgage. No hesitation. I don't see how you could do better.

Original poster
SamanthaJones · 10/11/2011 19:00

Rental Market is v v good round here, lots of students, agents say places go v quickly

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Original poster
SamanthaJones · 10/11/2011 19:01

Ragged, but why? (genuine question!I really don't know best thing to do)

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Original poster
SamanthaJones · 10/11/2011 19:02

We won't get a BTL mortgage

So we buy cash or not at all

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Original poster
SamanthaJones · 10/11/2011 19:04

Yy shrunken head, that's what we're thinking: making £550 a month on £100k is good sense.

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pinkytheshrunkenhead · 10/11/2011 19:07

Well 20k savings is enough - not many people need more than that as a slush fund so tying it up is a good idea. The stock market is sluggish at best and personally I do think you need to know your stuff to give it a go. I really do think property (particularly when someone else is paying the mortgage) is the safest thing - given the capriciousness of the euro markets anything could happen there - what about letting the house back to a housing association? Nice long term let with a slightly lower yield but they often offer maintenance agreements to offset this. Then at least you have a guaranteed income for a set period.

mummmmmy · 10/11/2011 19:08

Oh, I wish I had this dilemma!

£550 per month on a £100k property gives you an annual return of 0.066% on your investment which doesn't sound very high to me and that is before taking into account any maintenance costs for the property or potential gaps without tenants. I'd expect the interest on your mortgage to be higher than this. In which case I'd pay off the mortgage.

If you think there is potential for the btl property you buy to go up significantly in value it may still be worth doing though for the sake of the capital gain.

Your personal tax situation is quite important as well as if you are buying the rental place for cash almost the full amount of income will be liable to income tax and any capital gain will also be taxable when you sell it. How much tax you pay will depend on your total income though so not possible for me to comment on that really.

mummmmmy · 10/11/2011 19:12

Ack, I take it back. Not sure why my calculator gave me 0.066% - should be 6.6% which is actually pretty good in this market! I'd seriously consider the btl property but would do the tax calculations first as could make a big difference.

Original poster
SamanthaJones · 10/11/2011 19:13

Are you sure about 0.066? Sounds low! Mortgage rate is 2.49

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