Use ISAs or borrow more for house move

[ComeOnJ]

We are about to place an offer on a house and plan to port our current mortgage.

The new place is slightly more expensive and we'll also have to pay stamp duty and fees etc. We have some cash savings we can use but we will need an additional £65k from somewhere.

We could apply to increase the mortgage. If we did this, we should be able to pay off the whole thing (current mortgage and additional borrowing) within about 18 months due to work bonuses. We are on a variable rate (BEBR + 0.14) and can make unlimited overpayments. LTV would be 17%.

Alternatively we could fund the additional £65k from our ISAs (currently all S&S- I'd move the money into a money market fund now if we were going to do this).

Am I right in thinking that it would probably be better to increase the mortgage? Obviously no one knows what will happen to investment returns or the BEBR over the next 18 months (I am expecting at least 0.5%+ on the BEBR) but typically you'd expect a higher return from investments. We'd also lose that part of the tax free allowances that we've built up.

Broader plan is to retire in the next 5 years or so.

WWYD?

We have been in a similar situation and kept the s&s ISAs and upped the mortgage. Providing you see these as a long term investment they will easily outpace mortgage rates. Also are you likely to be a higher rate tax payer in retirement? If so that makes the decision even clearer cut.

Is the £65k in ISAs your only or the majority of your savings? Will you have another savings buffer if the bonuses don't materialise or you lose your jobs?

Using the ISA money now and presumably replenishing it from the bonuses will take at least a couple of years to get it back to £65k. The annual allowance for cash ISAs will have reduced to £12k by then, although still £20k for S&S. And you can't know the state of the market - if it's volatile you might buy on a high and then suffer an immediate loss. As you're close to retirement age (or is this very early retirement?) do you want that level of volatility?

Without even trying to calculate what the cost of each option might be, I think I'd increase the mortgage.

Agree with first response. Once you’ve lost that ISA allowance you won’t get it back, and as it sounds you’re likely to be higher rate tax payers, that’s something to avoid if you can.

Thanks, all. The £65k wouldn't be all of our ISA investments. We will have a cash buffer as well.

Yes, we will want to draw on ISAs in retirement, especially as we are retiring early.

It's all pointing to increasing the mortgage, isn't it? Thanks everyone.

Yep keep the ISAs, especially if you want them in retirement.