Mortgage Free or Double Down?
Discussion
I'm 36 this year and looking towards retirement. We currently have 2 BTLs and our own place. All in around 800k in property assets with around 450k in borrowing. Not huge numbers but not bad either.
We've got 2 under 2s and I'm looking to move, which leads me to two routes. Both me and the wife are well into higher rate tax so the income from the BTLs is now negative when taking tax into account.
We can sell up and get a mortgage free property around the 350-400K mark (very similar to what we have now) or sell the BTLs and double down to buy somewhere around the 700K mark with a modest increase in mortgage costs (£600/m) with a view to downsizing at 55-60 to retire with a large CGT free cash lump sum
I've had a chat with our IFA and he's pretty on the fence, either makes sense. We're also on the fence and see the benefits of both.
I was wondering what others would do in a similar position? None of our friends or family are...
We've got 2 under 2s and I'm looking to move, which leads me to two routes. Both me and the wife are well into higher rate tax so the income from the BTLs is now negative when taking tax into account.
We can sell up and get a mortgage free property around the 350-400K mark (very similar to what we have now) or sell the BTLs and double down to buy somewhere around the 700K mark with a modest increase in mortgage costs (£600/m) with a view to downsizing at 55-60 to retire with a large CGT free cash lump sum
I've had a chat with our IFA and he's pretty on the fence, either makes sense. We're also on the fence and see the benefits of both.
I was wondering what others would do in a similar position? None of our friends or family are...
Edited by Lurch1989 on Wednesday 8th January 14:24
At your age I'd go for option 2 if you can afford the additional mortgage payment.
We were very close to moving a couple of years ago and buying a far larger house with huge garden but it was a lot to buy and also needed several hundred thousand spending on it.
We could get the funding and afford the mortgage (assuming no job losses etc) and it probably would have turned out to be a good long term investment but it would have meant not much disposable income for the other things we really enjoy like several holidays and taking our kids to lots of nice places.
I'm 51 next month and the thought of having a new mortgage for £500K+ at that age wasn't appealing coupled with where interest rates were heading at the time so we pulled out and are very glad now that we did.
We still have a lovely detached house and our current mortgage will be gone in a couple if years.
I think if we were closer to your age though we would have probably gone for it.
We were very close to moving a couple of years ago and buying a far larger house with huge garden but it was a lot to buy and also needed several hundred thousand spending on it.
We could get the funding and afford the mortgage (assuming no job losses etc) and it probably would have turned out to be a good long term investment but it would have meant not much disposable income for the other things we really enjoy like several holidays and taking our kids to lots of nice places.
I'm 51 next month and the thought of having a new mortgage for £500K+ at that age wasn't appealing coupled with where interest rates were heading at the time so we pulled out and are very glad now that we did.
We still have a lovely detached house and our current mortgage will be gone in a couple if years.
I think if we were closer to your age though we would have probably gone for it.
To me it depends on the quality of your tenants and the overall net yield you're getting from the BTLs. If you've got good long-term tenants in place then I'd definitely be keeping the BTLs (with a view to gifting them to my kids as we get older)
Lurch1989 said:
Both me and the wife are well into higher rate tax so the income from the BTLs is now negative when taking tax into account.
I'm genuinely curious how the income from the BTLs can become negative due to your tax rates. Either they are loss-making (in which case the income is negative regardless of your tax rate) or they're making a surplus, on which you pay 40% tax. I'm not in a similar position...
But...
Lots of people swear by buying bricks and mortar but to me it's just as volatile as the stock market, only with much higher maintenance fees.
My aim is to be mortgage free before I'm 40. We have a modest 3 bed detached in the east Midlands.
I'm doing that by pumping any "spare" money into a stocks&shares ISA, which are currently at ~+18% over the last 12m. I know these can go up as well as down and it is a risk, but so is everything.
Once I have enough in there to delete the rest of the mortgage, I will do.
After that I'll put enough into a salary sacrifice pension to take me down a tax bracket and then whatevers left (up to 20k) I will continue to put into my stocks and shares ISA as the returns seem to be pretty good.
But...
Lots of people swear by buying bricks and mortar but to me it's just as volatile as the stock market, only with much higher maintenance fees.
My aim is to be mortgage free before I'm 40. We have a modest 3 bed detached in the east Midlands.
I'm doing that by pumping any "spare" money into a stocks&shares ISA, which are currently at ~+18% over the last 12m. I know these can go up as well as down and it is a risk, but so is everything.
Once I have enough in there to delete the rest of the mortgage, I will do.
After that I'll put enough into a salary sacrifice pension to take me down a tax bracket and then whatevers left (up to 20k) I will continue to put into my stocks and shares ISA as the returns seem to be pretty good.
You say you are are looking to move but is that for demographics , size or just because ?
What would give you more pleasure in house terms ie knowing its mortgage free or the new house itself ?
What would you have more regrets over if you didn’t take a course of action ?
I was 42 when we moved to somewhere my wife had always wanted to live ( hundred metres away from our then existing ) , borrowed 75% of the cost and have spent about 50% of the cost more over the years.
I was at the time very well paid and knew that I could probably pay the mortgage off sooner rather than later ( assuming my bonus’s came in as planned ).
Our deciding factor was would we have regrets later on if we didn’t at least give it a go !
Good luck in your decision making.
What would give you more pleasure in house terms ie knowing its mortgage free or the new house itself ?
What would you have more regrets over if you didn’t take a course of action ?
I was 42 when we moved to somewhere my wife had always wanted to live ( hundred metres away from our then existing ) , borrowed 75% of the cost and have spent about 50% of the cost more over the years.
I was at the time very well paid and knew that I could probably pay the mortgage off sooner rather than later ( assuming my bonus’s came in as planned ).
Our deciding factor was would we have regrets later on if we didn’t at least give it a go !
Good luck in your decision making.
Some years ago, I was in a similar situation - had a house I rented out with a small mortgage, and a mortgage on my main house. Rent easily covered the rental mortgage, and my main mortgage was fairly small and affordable.
I was probably around 40 at the time.
However - I realised one day that if I sold the rental I'd have enough capital to clear my main mortgage. I did so, and have never regretted it - although it didn't really cause me much of a problem to pay it, it felt like a weight had been lifted. Was very happy being debt free.
I was probably around 40 at the time.
However - I realised one day that if I sold the rental I'd have enough capital to clear my main mortgage. I did so, and have never regretted it - although it didn't really cause me much of a problem to pay it, it felt like a weight had been lifted. Was very happy being debt free.
Countdown said:
I'm genuinely curious how the income from the BTLs can become negative due to your tax rates. Either they are loss-making (in which case the income is negative regardless of your tax rate) or they're making a surplus, on which you pay 40% tax.
For ease. Income is £20k pa, mortgage repayment is £15k of which 5k is interest. 5K is allowable expenses at 20%. So 1k. So our profit for tax purposes is £10k-1k= £9k of which we're taxed 40%. So £4ksih. All of a sudden your £5k profit is £1k after tax, before any expenses are taken. This year expenses have been over £4k, year before we had a 3 month void and refurb.I agree someone's paying the mortgage for us, so it's still profitable as a whole but it isn't cash generating, if anything it's the total opposite, whilst also pushing me further up the tax bracket - perilously close to the 100K cliff.
BoRED S2upid said:
Mortgage free at 36 would be incredible. Think of it like you would have £600 free cash every single month of your life to spend on the kids or holidays or trips out. That will make a big differences I’m sick to death of paying a mortgage every single month for 30 years.
It's £1500 a month for the next 19 years 
Neither answer is wrong - and worse than that, the right answer for you today might not suite you in a decade or more.
One of my buddies is looking to move, going all in on a house that won't have the mortgage paid off by the time he retires - he's gambling on increasing his earnings, increase in the value of the property and if necessary, downsizing to retire.
For me personally, that'd leave me sleepless at night so I've done everything I can to get our mortgage cleared and save save save. It changes your perspective on life - now I can approach things with a little more "f
k You": https://www.youtube.com/watch?v=XamC7-Pt8N0
But then my buddy isn't in quite the same position and therefore he's still gambling to build his fortress of solitude.
One of my buddies is looking to move, going all in on a house that won't have the mortgage paid off by the time he retires - he's gambling on increasing his earnings, increase in the value of the property and if necessary, downsizing to retire.
For me personally, that'd leave me sleepless at night so I've done everything I can to get our mortgage cleared and save save save. It changes your perspective on life - now I can approach things with a little more "f
k You": https://www.youtube.com/watch?v=XamC7-Pt8N0But then my buddy isn't in quite the same position and therefore he's still gambling to build his fortress of solitude.
OurLurkio said:
For ease. Income is £20k pa, mortgage repayment is £15k of which 5k is interest. 5K is allowable expenses at 20%. So 1k. So our profit for tax purposes is £10k-1k= £9k of which we're taxed 40%. So £4ksih. All of a sudden your £5k profit is £1k after tax, before any expenses are taken. This year expenses have been over £4k, year before we had a 3 month void and refurb.
I agree someone's paying the mortgage for us, so it's still profitable as a whole but it isn't cash generating, if anything it's the total opposite, whilst also pushing me further up the tax bracket - perilously close to the 100K cliff.
Thanks for clarifying - yes that makes sense.I agree someone's paying the mortgage for us, so it's still profitable as a whole but it isn't cash generating, if anything it's the total opposite, whilst also pushing me further up the tax bracket - perilously close to the 100K cliff.
At your age there's no way I'd have been sensible
But
One thing that being mortgage free does is give you great flexibility in terms of work.
You aren't as tied to the income. So if you want a change or a rest it's a lot easier. If st happens then it's easier to handle.
And you can max out your ISAs or pensions and still have some beneficial tax treatment on investment growth.
But
One thing that being mortgage free does is give you great flexibility in terms of work.
You aren't as tied to the income. So if you want a change or a rest it's a lot easier. If s
t happens then it's easier to handle.And you can max out your ISAs or pensions and still have some beneficial tax treatment on investment growth.
davek_964 said:
Some years ago, I was in a similar situation - had a house I rented out with a small mortgage, and a mortgage on my main house. Rent easily covered the rental mortgage, and my main mortgage was fairly small and affordable.
I was probably around 40 at the time.
However - I realised one day that if I sold the rental I'd have enough capital to clear my main mortgage. I did so, and have never regretted it - although it didn't really cause me much of a problem to pay it, it felt like a weight had been lifted. Was very happy being debt free.
I’m with you on that. We got to the position of being mortgage free about 5 years ago, but when we moved here two years ago, thanks to post COVID country property bounce, we had to take out a modest mortgage to get what we really wanted. While I don’t regret it, I can’t wait to get it paid off asap (especially as we are paying more having taken the mortgage out in the aftermath of the Liz Truss experiment…).I was probably around 40 at the time.
However - I realised one day that if I sold the rental I'd have enough capital to clear my main mortgage. I did so, and have never regretted it - although it didn't really cause me much of a problem to pay it, it felt like a weight had been lifted. Was very happy being debt free.
Financially, it may not always be the best decision (depends on your own circumstances, rates your paying, ambitions etc) but for me, it was a brilliant feeling to not have a mortgage and know that even if times got tough, we would never have the bank breathing down our neck…
OurLurkio said:
BoRED S2upid said:
Mortgage free at 36 would be incredible. Think of it like you would have £600 free cash every single month of your life to spend on the kids or holidays or trips out. That will make a big differences I’m sick to death of paying a mortgage every single month for 30 years.
It's £1500 a month for the next 19 years Cow Corner said:
davek_964 said:
Some years ago, I was in a similar situation - had a house I rented out with a small mortgage, and a mortgage on my main house. Rent easily covered the rental mortgage, and my main mortgage was fairly small and affordable.
I was probably around 40 at the time.
However - I realised one day that if I sold the rental I'd have enough capital to clear my main mortgage. I did so, and have never regretted it - although it didn't really cause me much of a problem to pay it, it felt like a weight had been lifted. Was very happy being debt free.
I’m with you on that. We got to the position of being mortgage free about 5 years ago, but when we moved here two years ago, thanks to post COVID country property bounce, we had to take out a modest mortgage to get what we really wanted. While I don’t regret it, I can’t wait to get it paid off asap (especially as we are paying more having taken the mortgage out in the aftermath of the Liz Truss experiment…).I was probably around 40 at the time.
However - I realised one day that if I sold the rental I'd have enough capital to clear my main mortgage. I did so, and have never regretted it - although it didn't really cause me much of a problem to pay it, it felt like a weight had been lifted. Was very happy being debt free.
Financially, it may not always be the best decision (depends on your own circumstances, rates your paying, ambitions etc) but for me, it was a brilliant feeling to not have a mortgage and know that even if times got tough, we would never have the bank breathing down our neck…
As mentioned above, it removes the worries of things like job loss and just means you can be a bit more relaxed about stuff.
op said:
double down to buy somewhere around the 700K mark with a modest increase in mortgage costs (£600/m) with a view to downsizing at 55-60 to retire with a large CGT free cash lump sum
This would be my choice. Enjoy a nicer home now, more space for the children as well. Your earnings will increase over the time as well so the £600/month will soon feel much less. You still have the option to downsize earlier if you wish to do so.
I would get out of buy-to-let as it is only going to get worse for landlords in the next few years.
Until recently I was an 'accidental' landlord, all above board, declaring everything to HMRC, etc. Annual returns were handled by my Accountant, who told me that the gross rental payments are now treated as personal income so tax is payable on all of it at the recipient's higher rate. After costs I was losing money every month so had to sell. CGT was then payable on difference between purchase and selling prices. Then there is the hassle and costs of Landlord Registration (also had to pass an online course which took all day). The new tenancy rules will also effectively remove most of a landlord's control of their property. Being a private landlord is not worth it nowadays.
Edited by lunarscope on Wednesday 8th January 15:34
Interestingly, my view is different now aged 42 than it would have been 5 years ago. I would 100% be going mortgage free and living a higher quality life. As I get a little older, I’m less bothered about ‘stuff’ and more about experiences and a stress free life.
I’ve just swapped my newish A6 for 4 year old golf estate just so I don’t have any outgoings on cars. If you told me I’d do that a few years ago I’d think you were barmy.
I also have 2 kids similar ages and I would say that has had a significant bearing on my risk appetite.
Good luck, whichever path you choose I’m sure you’ll be happy. All I would say is if you’re mortgage free with a pile of cash and decide that actually you would like that fantastic £700k house, then there’s nothing stopping you going and do it.
I’ve just swapped my newish A6 for 4 year old golf estate just so I don’t have any outgoings on cars. If you told me I’d do that a few years ago I’d think you were barmy.
I also have 2 kids similar ages and I would say that has had a significant bearing on my risk appetite.
Good luck, whichever path you choose I’m sure you’ll be happy. All I would say is if you’re mortgage free with a pile of cash and decide that actually you would like that fantastic £700k house, then there’s nothing stopping you going and do it.
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