50K...pay off mortgage or invest?

[corporalsparrow]

Hi there,

I've recently been lucky enough to get hold of a £50K lump sum and I'm vacillating between paying down the mortgage on a btl property, or bumping up my share portfolio.

The mortgage is currently being met by the tenants, so no great urgency to reduce it, but then again lowering debt is always a good feeling.

What would you do?

[soprano]

corporalsparrow said:

Hi there,

I've recently been lucky enough to get hold of a £50K lump sum and I'm vacillating between paying down the mortgage on a btl property, or bumping up my share portfolio.

The mortgage is currently being met by the tenants, so no great urgency to reduce it, but then again lowering debt is always a good feeling.

What would you do?

Option 3 - Another buy to let using the 50k as a deposit with tenants rent to cover mortgage? You might consider it a good time to buy?

[bogwoppit]

Surely the right thing to do if 50k drops into your lap is to buy an Aston?

http://pistonheads.com/sales/list.asp?s=423

[Beardy10]

Personally If you can afford I would invest it. We are more than likely going into a period of relatively high inflation in the next few years so it's a good time to have debts as the value of the debt will diminish with inflation.....which is exactly why we will have inflation. Not that the politicians will admit to that before an election.

[corporalsparrow]

Astute response. Thank's very much, I think that's what I'll do.

Although...that Aston...tempting.

[uuf361]

bogwoppit said:

Surely the right thing to do if 50k drops into your lap is to buy an Aston?

http://pistonheads.com/sales/list.asp?s=423

Noooooooooooooooooooooo................awful cars.

I would prob pay off the mortgage in that position (and hope to be in a few months time)

[NoelWatson]

Beardy10 said:

Personally If you can afford I would invest it. We are more than likely going into a period of relatively high inflation in the next few years so it's a good time to have debts as the value of the debt will diminish with inflation.....which is exactly why we will have inflation. Not that the politicians will admit to that before an election.

Can you explain why it is a good time to have debt in an era of high inflation/high interest rates?

[Beardy10]

Well firstly we don't have high interest rates and it's my opinion and I think those of quite a few people that Govt policy will be much more inflation friendly than it has been for a long time to inflate away the debt burden....i.e. as the economy grows the debt becomes a smaller % of GDP. So I think interest rates wont go roaring up at the first sign of inflation.

Obviously having cash in the bank is an extremely poor asset to own during a period of inflation as it gradually becomes worth less in real term, this is one reason why the gold price has gone up so much as it is traditionally a very good asset to own in times of inflation.

Certainly for the OP where his mortgage is being covered by tenants it's a no brainer IMHO.

[NoelWatson]

Beardy10 said:

Well firstly we don't have high interest rates and it's my opinion and I think those of quite a few people that Govt policy will be much more inflation friendly than it has been for a long time to inflate away the debt burden....i.e. as the economy grows the debt becomes a smaller % of GDP. So I think interest rates wont go roaring up at the first sign of inflation.

You seem to imply that Government will be able to control inflation if they allow it to take hold by mind power alone.

[uuf361]

musclecarmad said:

if you pay off the mortgage you may increase your tax liability which is bad.

Can you explain how as I thought there was absolutely no relief left for having a mortgage on a main residential property any more ?

[Silver993tt]

always pay off your debts first before investing.

[marcusjames]

Silver993tt said:

always pay off your debts first before investing.

Er, no. Not always.

[bogie]

marcusjames said:

Silver993tt said:

always pay off your debts first before investing.

Er, no. Not always.

surely many people on this planet including the banks themselves are making millions by doing otherwise LOL

[Beardy10]

NoelWatson said:

Beardy10 said:

Well firstly we don't have high interest rates and it's my opinion and I think those of quite a few people that Govt policy will be much more inflation friendly than it has been for a long time to inflate away the debt burden....i.e. as the economy grows the debt becomes a smaller % of GDP. So I think interest rates wont go roaring up at the first sign of inflation.

You seem to imply that Government will be able to control inflation if they allow it to take hold by mind power alone.

I think what I am implying is that the interest rates will not be raised at the first sign of inflation. Of course they will not want it to become rampant but they will certainly be much more accommodating of inflation than they normally would be. That is of course a very dangerous game but they don't really have much choice....at this stage there isn't a Plan B. That's why none of the politicians have come up with any concrete way of reducing the budget deficit through spending cuts etc.

[Adam B]

uuf361 said:

musclecarmad said:

if you pay off the mortgage you may increase your tax liability which is bad.

Can you explain how as I thought there was absolutely no relief left for having a mortgage on a main residential property any more ?

becasue the OP is talking about his BTL not his main house - on his BTL he can offset mortgage costs vs the rent

[uuf361]

Adam B said:

uuf361 said:

musclecarmad said:

if you pay off the mortgage you may increase your tax liability which is bad.

Can you explain how as I thought there was absolutely no relief left for having a mortgage on a main residential property any more ?

becasue the OP is talking about his BTL not his main house - on his BTL he can offset mortgage costs vs the rent

Oh, I'd missed that - I'm only paying off my main residential for that very reason.....

[nomisesor]

musclecarmad said:

if you pay off the mortgage you may increase your tax liability which is bad.

is your mortgage on a low rate

i wouldn't get another property - it's a load of ball ache

£30k premium bonds and £10,200 ISA keeps it all tax efficient and what the other £9,800 in a pension and get tax relief. depends on your earnings as to how far in the 40% band you are

personally i'd 'invest' in something slightly exotic. How about a nice 993 turbo, a nice ferrari 355 or classic? won't lose money and you can have fun.

Mortgage - depends as said above, on tax and rate.

Property without the "ball-ache" - consider a REIT - (DOI, I have shares in LSR.L)

Premium bonds - currently paying 1.5% on average - 1:24000 odds to win a prize each month (usually £25) and with £26bn of bonds in circulation the odds of winning the £1M top prize are a miniscule fraction of the odds of winning the lottery. For a rock solid guaranteed inflation-proof investment consider instead another NS&I product - index-linked certificates - 3 & 5 yr terms, RPI+1% if held to term. RPI is currently nearly 4% so a higher rate taxpayer would have to earn about 7% interest to beat that. Max of £15k per issue (so you could put £30k in now) and no limit on reinvestment. How far into the 40% band? If you're up to £100k then you'll pay 60% tax (plus N.I.) on the next £12k so critical to try to take any income over that threshold in a tax-efficient way.

ISA - ? drip feed £850 a month into a low charge ~0.65% index tracking fund or ETF to avoid timing issues.

355 & similar - not as an investment. Lots around so not as rare as e.g. DB5 or other highly desirable classics / future classics, potential for a dud one, annual "management" (servicing, repairs, insurance, tyres & fuel) charges of ?10-15%. However I suspect MCM was suggesting it as an investment in pleasure rather than a financial proposition!

[Dr_Gonzo]

Adam B said:

uuf361 said:

musclecarmad said:

if you pay off the mortgage you may increase your tax liability which is bad.

Can you explain how as I thought there was absolutely no relief left for having a mortgage on a main residential property any more ?

becasue the OP is talking about his BTL not his main house - on his BTL he can offset mortgage costs vs the rent

You only get relief on the interest portion of the payment.

[uuf361]

Dr_Gonzo said:

Adam B said:

uuf361 said:

musclecarmad said:

if you pay off the mortgage you may increase your tax liability which is bad.

Can you explain how as I thought there was absolutely no relief left for having a mortgage on a main residential property any more ?

becasue the OP is talking about his BTL not his main house - on his BTL he can offset mortgage costs vs the rent

You only get relief on the interest portion of the payment.

Which for my BTL's is peanuts at the moment (Lifetime Base Rate Trackers) so am expecting a big tax bill this year

[bogwoppit]

uuf361 said:

Dr_Gonzo said:

You only get relief on the interest portion of the payment.

Which for my BTL's is peanuts at the moment (Lifetime Base Rate Trackers) so am expecting a big tax bill this year

Which does of course mean that you made more profit, so not all bad eh