Plan A or Plan B?

[Shytalker]

I’m 54 and have just inherited £50k. Not enough to feel rich but enough to think about moving house.

I’m trying to decide what’s best to do!

Plan A
Port my current mortgage of £155k and do a sideways move to a 3 bed (currently in 2 bed) so I can have a lodger to bring in tax free £600 a month. Mortgage would be for 14 years to make it affordable. I may have to downsize before paying it off.

Plan B
Buy a smaller property for around £450k. No lodger income. Mortgage would still be for 10 years. Would give me less to play with in retirement (if I ever can afford to retire).

For context, I’m a single parent to a 14yr old who I need to get through state education until they’re 18. I work full time, job is pretty secure. No child maintenance from ex, so the lodger money would help make up for that. Salary is £55k so not huge but okay. Happy keep working as long as possible. Housing is very expensive where we live.

Rubbish pension so house equity is part of the ‘exit’ plan in say 10 years, ie downsizing at say 64/65 if I’ve had enough and need to release a bit of cash.

The £50k is effectively buying me a lodger income (£600pcm is realistic, and no tax to pay) and a slightly larger house for the next 8 years or so.

I know stamp duty is ridiculous but 3 yrs of lodger money would pay it back.

Am I missing anything? I don’t have anyone to ask IRL and I don’t want to make a mistake.. 😕

Do you actually need to move house? If not, how about plan C- £20k in a S&S ISA now, £20k in the new tax year and £10K the year after that. No need for a lodger, equities historically outperform property.

Also do consider how much increasing the mortgage term would cost in interest, as that may wipe out some of your lodger money.

Do you have enough in your pot for all the conveyancing fees as well as SDLT? Otherwise if not that will eat into the £50k that you want to put into the value of the house.

Do you, and does your 14 year old, want a lodger?

It sounds like you should be reasonably comfortable on your income - take home of a bit north of £3k per month assuming student loans and a 10% pension contribution, and a mortgage of say £1250 a month, that leaves £1,750 to play with which seems like it should be okay for two?

3 years of having a lodger before I was even getting any return on my investment would put me off, but I like my peace and quiet.

Can you use the £50k to reduce your mortgage now and then overpay to get it paid off sooner. No moving expenses, less interest on the mortgage and more long term security.

I'd never bring in a lodger where a child was present

Agree with this.

Why do you need to move house?

There’s not a chance I’d have a lodger with a 14 year old girl in the house.

Thanks for your replies. Some useful considerations. To respond, 14yr old is a boy, quite adult for his age, we live near a hospital so I’m thinking a young medic or postgrad. Not particularly worried by lodger bit. The move is being driven largely by a desire to boost income. Even if I put money into the mortgage to bring it down a bit, it doesn’t equate to £600 or so a month. I realise a 3rd person will push up bills slightly (and increase my council tax). I figured I’d have more money coming in, a slightly more spacious house (teen is v tall as are all his mates!). My ex stopped paying anything about a year ago and the loss of that has made a big difference. The value of a slightly more expensive should go up in 8yrs I’d have thought.

Add up the costs of moving and the costs of a bigger mortgage. I think the lodger plan won’t actually make much money and there is always a risk of things going wrong. Move if you really want to move but don’t move to make money because it rarely adds up.

Girl/boy, nope still wouldn’t have a lodger with a 14 year old.

Moving is expensive and lodgers are a faff. Just invest the cash, max out a stocks and shares ISA, before the new financial year, then full amount again in the new financial year, then the balance the year after.

You could also consider voluntary contributions to your pension or over paying the mortgage.

I’m not clued up on ISAs. Had a S&S one years ago, ended up losing money and thought i wouldn’t do that again. Property seems a better bet tbh, especially as demand is high where we live, although I realise not everyone agrees about property being a solid bet. Also, an ISA wouldn’t bring in extra income as such would it? It’s my living day to day I’m trying to improve, as my outgoings are high (trying to boost my pension, pay for critical illness and income protection etc, it all adds up)

Moving is really expensive.

I’m addition to stamp duty, Calculate a 1 or 1.25% on your sale price for EA
£1k for surveys, £1.5k for conveyancing, another few £100s for expenses, like cost of bank transfers , more for land registry fees, searches etc
You will probably need to pay your mortgage lenders legal costs to port or change mortgage (£300 - 600)
Removal: £1k

Almost half your £50k gone.

In a bigger house your bills will be higher. Higher council tax band, higher insurance. Higher heating bills, even before you add the lodgers showers, washing , heated room etc. Water will go up (lodger).

And you will probably want to spend on decoration, new carpets etc.

I’d stay where you are and save / invest the ££ as suggested above , or put it in your pension.

OR see if it would cover a loft conversion?

Cant you just stay out and put the money in a high interest account and use that for making general daily life nicer?

Put it in a high interest account and use it to over pay your mortgage, you'll be mortgage free sooner and as you pay it down if you have to fix again etc your ltv will improve and you'll get better rates/, lower repayments. Your plan to move and get a lodger won't actually make money when you consider the costs of moving, increased mortgage and bills in a larger property

Also have you factored in that if you earn £55k your lodger income will be taxed at 40%.

seems a terrible plan but maybe I’m biased because I would hate to bring a stranger into my home.

I don't think it is. I think you can have up to £625 per month tax free, under the rent a room scheme.

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Another vote for either a stocks and shares ISA or just paying down your current mortgage.
I think you're overestimating what you'd get for your £50k if you moved, bearing in mind the associated costs, and it doesn't seem like you've really weighed up the benefits v risks of a lodger.

Have you maxed out your £20k ISA allowance for this year yet? You still have a few days. I’d go that, then another £20k goes in after 30 April. That’s £40k earning tax free returns. Much better idea than a lodger. At 6% very modest return you’ll be getting £2400 a year tax free, no costs no hassle.

If you are too risk averse for a stocks and shares ISA, how about premium bonds? £50k could all go in at once and on maximum holdings you should get a win most months, which you could put in a savings account and use it to improve your day to day. Either paying a lump sum off the mortgage or into your pension or putting towards a holiday or similar.

If your pension provision is poor put it into a SIPP and claim the tax relief on it. You could start to draw it down at 57, but if you are happy to continue working and can manage on your current income just keep it invested.

A lodger sounds like a grim way to turn £50k into income. I mean, you are correct that £7200 py IS better than you would get from any cash savings, but you haven't taken moving costs into account, and for me, the disadvantage of having someone in my home outweighs any benefit.

If I didn't need to move, I would invest it into a pension & S&S ISAs and hope for tax free growth of 5-10%.

Plus reinstate your claim with the CMS. I know it is a hassle but the dad shouldn't just stop paying, teens are expensive.

Unless you've got some reason you really long to have a stranger live in your house the lodger idea sounds awful. Firstly in relies on you consistently having a lodger which you might not and secondly it relies on the lodger being nice which they might not be.