Active discussions

Meet the Other Phone. Child-safe in minutes.

Meet the Other Phone.
Child-safe in minutes.

Buy now

Please or to access all these features

Talk
Money matters

Find financial and money-saving discussions including debt and pension chat on our Money forum. If you're looking for ways to make your money to go further, sign up to our Moneysaver emails here.

Original poster

Another mortgage panic thread... sorry!

18 replies

Lavagirl · 28/09/2022 18:35

Ours is up for review imminently and I'm not sure what to do. Will see a broker, but in the meantime any advice would be great.

For the past 5 years we've made quite small repayments on our first small house in (a quite shitty bit of) London because when we set it up I wasn't working. Now our joint income is greater, (together about £100,000) plus I've managed to save/inherited a big lump of money (c. £100,000) that I don't know what to do with, currently it's going nowhere in my bank account.

Should I invest my money in a different property and rent it out? Use it to pay off a big chunk of the existing mortgage? Take the opportunity to buy a bigger house for the family with bigger mortgage repayments? Up the payments on the existing mortgage and keep my savings in the bank?

I feel so nervous about where to put my money, especially as things are moving so fast around mortgages, interest rates, etc. Taking a risk... or even making a decision....at a time when the cost of living is sky-rocketing feels terrifying.

Any advice?

OP posts:
Londongent · 28/09/2022 18:42

The least risky decision would be paying a chunk off your mortgage, and that would never be a terrible move.

Mosaic123 · 28/09/2022 18:59

Agreed. Also depends how secure your jobs are, if you have or are planning children, if you are considering private education. Many factors to consider.

Paying off some of the mortgage is unlikely to be a bad decision.

YumYummy · 28/09/2022 18:59

How big An amount can you pay off without incurring any charges? I’d go with that amount for now.

CandyLeBonBon · 28/09/2022 19:22

I've had a similar situation (smaller amount) I'm paying as much off my mortgage as I'm allowed to. Right now battening down the financial hatches seems most sensible.

Pingoola · 28/09/2022 19:24

How big is your mortgage?

Afterfire · 28/09/2022 19:33

In the current climate I would use it to pay off some of your mortgage. We used the inheritance from my Mum to pay off our mortgage and I’ve never been so pleased we did with the way things are today.

JaninaDuszejko · 28/09/2022 19:34

Find out what interest rate on your mortgage you can get at different LTVs. It may make sense to use it to reduce your mortgage or it may make more sense to put it in your pension or tax free savings vehicle. I wouldn't invest the £100K in a bigger house unless you are bursting at the seams and have plenty financial wiggle room (and how much more house would £100K actually buy in London anyway). I know MN love them but I wouldn't invest in a rental property, I'd rather have a decent chunk of money in easily accessible savings right now.

nemo99 · 05/10/2022 22:33

It may be worth paying off some of your mortgage - but not if the rate you are being charged is less than the after-tax rate of interest you can earn.

Even if interest rate on mortgage is higher, it would be a good idea to hold back enough to pay 3 months of expenses - an emergency fund. Doing so is a good idea in normal times - but I would say especially so given the precarious state of the economy and possibility of there being a major recession and job cuts. (If your jobs are more secure, then clearly this is less of a worry.)

No way would I buy real estate in the UK at present. Any realistic expectation must be that there will soon be significant declines in capital value. Also, compare carefully the post-expenses, post-voids, and post-tax rental yield you can expect compared with the dividend yield on an investment in equities.

BarbaraofSeville · 06/10/2022 08:19

Should I invest my money in a different property and rent it out Almost certainly not.

Use it to pay off a big chunk of the existing mortgage Whatever else you decide in the future, this is likely to be the best use of (most of) the money as part of your mortgage renewal.

Take the opportunity to buy a bigger house for the family with bigger mortgage repayments Possibly, but that depends on how your existing property suits your current and future needs, income stability, that sort of thing. Property prices are widely expected to fall, which could be a good time to upsize, as it could make the step up the ladder cheaper.

Up the payments on the existing mortgage and keep my savings in the bank You could do that with some of it. Having a decent emergency fund, perhaps £10-20k, is always a good move, but the rest depends on the relative interest rates and from what I've seen, it's going to be more difficult than in the past to get a higher rate on savings than what mortgages cost and I say that as someone who has spent the last 15 years saving instead of overpaying our lifetime tracker mortgage because I've always got a higher interest rate on savings, but the balance has now tipped and I'm currently in the process of shifting things around and sending savings to pay down a lot of the mortgage.

But in the very least, don't keep huge sums of money in 'a bank account' at the very least, put it in instant access savings for the interest, or maybe an ISA or Premium Bonds if you have a decent amount, now that there is a realistic chance of breaching the interest limits on the personal savings allowances for more people.

DoodlePug · 10/10/2022 23:37

BarbaraofSeville · 06/10/2022 08:19

Should I invest my money in a different property and rent it out Almost certainly not.

Use it to pay off a big chunk of the existing mortgage Whatever else you decide in the future, this is likely to be the best use of (most of) the money as part of your mortgage renewal.

Take the opportunity to buy a bigger house for the family with bigger mortgage repayments Possibly, but that depends on how your existing property suits your current and future needs, income stability, that sort of thing. Property prices are widely expected to fall, which could be a good time to upsize, as it could make the step up the ladder cheaper.

Up the payments on the existing mortgage and keep my savings in the bank You could do that with some of it. Having a decent emergency fund, perhaps £10-20k, is always a good move, but the rest depends on the relative interest rates and from what I've seen, it's going to be more difficult than in the past to get a higher rate on savings than what mortgages cost and I say that as someone who has spent the last 15 years saving instead of overpaying our lifetime tracker mortgage because I've always got a higher interest rate on savings, but the balance has now tipped and I'm currently in the process of shifting things around and sending savings to pay down a lot of the mortgage.

But in the very least, don't keep huge sums of money in 'a bank account' at the very least, put it in instant access savings for the interest, or maybe an ISA or Premium Bonds if you have a decent amount, now that there is a realistic chance of breaching the interest limits on the personal savings allowances for more people.

This, excellent advice 👍

Oddbutnotodd · 11/10/2022 08:53

There is no issue in breaching the savings allowance. There is no limit . You just pay tax on the interest.
When we inherited a similar amount we paid £50k off the mortgage and invested some.
Under the present financial situation I would probably favour paying a bit more off the mortgage. Having financial security is worth it. You can rebuild some capital and pay into an ISA over time.

BeardOToots · 11/10/2022 22:08

I’d suggest looking into an offset mortgage. You can put your savings into that and the money will save you interest on your mortgage. It will act as though you have paid that sum off the total owed, whilst giving you full access to it, should you ever need it.

I’ve been slowly building up a pot in mine and according to online calculators it will save me £20k in interest over the remaining period of the mortgage. I don’t know why they aren’t more popular really.

Bookclub99 · 11/10/2022 22:12

BeardOToots · 11/10/2022 22:08

I’d suggest looking into an offset mortgage. You can put your savings into that and the money will save you interest on your mortgage. It will act as though you have paid that sum off the total owed, whilst giving you full access to it, should you ever need it.

I’ve been slowly building up a pot in mine and according to online calculators it will save me £20k in interest over the remaining period of the mortgage. I don’t know why they aren’t more popular really.

Offset mortgages have much higher interest rates than standard mortgages (the banks aren't stupid) so although you "save" interest costs through having offsetting savings, because you are paying a higher interest rate on the portion of your mortgage which isn't offset, it is probably cheaper to have a normal mortgage.

BarbaraofSeville · 12/10/2022 04:32

I've looked at Offset mortgages on an off and agree that they're poor value compared with normal mortgages.

On a related matter, Santander have just launched an instant access savings account paying 2.75%. It's limited edition, only available until 1 November or if it sells out sooner and is probably the best paying unrestricted (as long as you have under £250k in it) product on the market.

www.santander.co.uk/personal/savings-and-investments/savings/esaver

If you already have a Santander account it takes seconds to open, and I can't see it lasting long at all. Although thinking about it, they've probably priced in the next interest rate rise and might even launch a better account after that. So looks like we might be in a 'rate chasing' period again for both savings and mortgages.

Anyway, as 2.75% is well above what my 1.5% Chase account is paying I've opened mine and moved my savings across. It's also higher than my mortgage rate, for now, so overpayments will go that way too.

On the matter of limits on savings interest, what I meant was, if you earn enough interest to pay tax, rather than paying tax, especially if you're a higher rate taxpayer, where you pay tax on all interest above £500 per year, its then worth looking at tax free products like cash ISAs, premium bonds and, if you're saving for the long term, investment ISAs.

Winter2020 · 12/10/2022 04:41

I think it would be a very risky time to buy property. If your tenants don't pay their rent I doubt you could afford to pay both mortgages.

If house prices fall you have put money down the drain.

If one of you is a higher rate tax payer or the rent received makes either of you a higher rate tax payer (which it will one of you at least if your household income is 100k) the higher rate tax payer will not be able to deduct mortgage intetest as an expense in full - result is you could have a tax bill to pay on a loss.

Pay a chunk off your mortgage and keep some savings back for a rainy day (e.g. 6 months expenses in case of job loss/sickness).

silentpool · 12/10/2022 04:46

Are you married? Will you legally ringfence your inheritance in case of a divorce? In which case, I'd pay down the mortgage.

BeardOToots · 12/10/2022 07:52

I’ve just had a peek at current rates, you are quite right. When I took mine out the difference in cost between offset and a straight repayment was tiny. The gap has widened significantly over the last couple
of years!

redmapleleaves1 · 14/10/2022 08:40

@BarbaraofSeville thanks for the tip about the Santander savings account. Far better than I was getting elsewhere, and I've opened one in the time it took for the kettle to boil. Thank you.

New posts on this thread. Refresh page