Investing lump sum. Advice?

[AnotherEDer]

Hello

Doing some financial spring cleaning. Wondered if the worldly-wise could offer their thoughts on what they'd do with a small investment sum.

My missus and I have owned our 1 bed flat in ED for about 2 years. We owe about ?230k on our mortgage and believe the property has increased in value by ?30k. Completely by surprise, we have just come into some money (?40k - 55k) and not sure what the most sensible course of action would be, considering the scary rate at which house prices are increasing.

Would it be worth trying to look at a second step on the ladder, given our joint income has also increased since we first bought (in which case, our beloved ED would no longer be an option). Nothing seems to be rising as fast as property values. Or, chuck it in a S&S ISA and worry about the elusive 3 bed house a few years down the line? We're just worried that by this time we might be priced out altogether.

I am very privileged to be in this situation I realise, so please resist any snarky comments.

Thanks!

(ps, I am a long time forum poster but posting under a diff address for this post)

[Reg Smeeton]

This topic doesn't belong in the main gossip section, it probably belongs in the Lounge.

However, my personal suggestion would be:

* think about improvements you can make to your flat that will add value, for example a loft conversion, new kitchen or side extension. ?30k spent wisely on improvements can add ?50k to the value of your flat - and the gain is entirely tax free. And you get to enjoy the benefits too.

* if there aren't any improvements that will add value, then I'd use most of your lump sum to pay off part of the mortgage. There aren't any investments at the moment that give you as good a guaranteed return as the rate you pay for your mortgage (unless you have a stupendous deal).

* treat ?5-10k as "rainy day" or long-term savings money and put it in a low/medium risk share ISA.

Reg.

[bob]

RS could not have said better my self.

Bob S

[Salsaboy]

I would pay down the mortgage. You are probably paying more in interest on your mortgage than you would earn in a savings account.

Failing that, go to Vegas and put it all on red!

[Loz]

Add my vote to 'pay down the mortgage', unless you do want to go down the upsizing route.

[????]

Paying down the mortgage with interest rates at rock bottom is in investment terms a poor choice - if you are cautious and worried about your job security, then it is a conservative and very safe choice, but. I sense you are looking for a a bit more risk with potentially higher returns?

[AnotherEDer]

Thanks for all replies so far. Some answers

- We could only realistically make say ?5k's worth of cosmetic improvements to this place as we're in a 1 bed maisonette, so not a lot of room to greatly improve the space, and certainly not structurally

- Our interest rate is 3.9%. Not worried about job security, touch wood.

- Thanks, definitely keeping 5-10k in a rainy day ISA.

- We have no other debt

- I'd never thought of making down payments as it doesn't 'feel' like the money is going to tangible use! Perhaps a naive view.

- Our biggest long term worry is ever finding a family sized home, and we'd like to start a family within 4 years. Even the usual suspects like moving out to Nunhead/ Brockley or even further to Herts (or ED favourite Beckenham) and commuting in are seeing increasing prices every month. It seems to be spiralling beyond control. Can't believe that I noticed a 4 bed house in East Dulwich going for over ?1M the other day.

Cripes, you're right Reg, wrong forum. Admin, feel free to relocate.

[SteveUK1978]

?40k paid off your mortgage at 3.9% would save you ?1,500 a year in interest - certainly tangible.

[????]

and ?40K in a FTSE tracker last year would have paid you a lot more than that if you cashed it in tomorrow?..just pointing out. People who make money with money take risks - is that for everyone, no - but that's the truth.

[Mazza6]

Speaking from experience when you have the little one(s) money in the bank for a rainy day is so reassuring! As inevitable your joint income will come down (maternity leave etc) and in some cases change of jobs to suit the little one.

[????]

ftse 100 up 14.4% in 2013, so ?40k= ?5760 profit in a tracker, give or take some admin fees..plus ftse 100 companies generally don,t go bust and you,d get dividends thrown in with a decent tracker......not sure if I,d do this now but just illustrating

[Mick Mac]

Is that you Declan?

[LondonMix]

Is there anywhere you would like to live where you could realistically move into a house using the extra 40k an the gain you've made on your flat? If that really is your biggest financial concern for the future, then you should move.

If you can't move and you want to figure out how best to invest the 40k that entirely depends on your risk appetite. Paying down your mortgage being the safest option and investing in stocks (or buying a small buy-to-let property) being on the riskier end of the spectrum. What you choose is too personal for anyone to give you advice as it depends on how risk averse you are and how quickly you need the money-- equities can be a good long term investment but the potential volatility in the stock market means that you should be prepared to ride out a storm.

[Mick Mac]

Another not in favour of paying off mortgages in a rising market. If you pay off the mortgage can you borrow back the over repayment? If not then it's money you lose control over if that rainy day comes along.

I once had a discussion with a work colleague a fair few years ago and I predicted that shares would rise more than property over the coming years so I expected to invest in shares.

His response was ok but no bank lends you 4 times your money to invest in shares hence a shares investment needs to outperform a property investment by a significant multiple.

Property investment remains tax efficient and a 50k can get you a 200k plus property.

Not without risks but you have to live wit the decision so you take your choice. Good luck.

[Pugwash]

My husband came into a sum of money quite unexpected following the death of his only relative. The executor was an accountant and we had a meeting with him and uncle's stockbroker and they advised to pay off as much as possible of our mortgage (around ?90K) to reduce our monthly repayments. ( This went down from ?120 pm to ?50)Keep some of the investments that Uncle had which were performing well, cash in the poor performers.

We took out a couple of ISAs.

If selling your current property is an option - use the money towards a bigger place.

[AnotherEDer]

I suppose our risk appetite is more influenced by the fact we will need our circumstances to change in 3 years or so. That's the control factor we see on the horizon - starting a family will mean we need to buy a bigger place. That's why I'm skeptical about stocks and shares.. I thought the benefit to those was only felt if you leave it in there long term.

As for down paying on the mortgage, please can you explain the real benefit? Our monthly repayments are manageable at the moment and we're not really in need of extra disposable. Or have I misunderstood?

Sorry I'm not being much help am I?!

- Young & foolish.

[Jeremy]

Quids... you're not seriously suggesting that somebody with little financial knowledge invests in this?

 

[Mick Mac]

Or anyone with great financial knowledge for that matter.

[????]

No Jeremy..Read all my posts , caveated throughout and making it clear about depend on risk appettite etc...also, of course, anyone with a private or emlpyoer pension is almost certainly doing this anyway.....

Dripping payments into a FTSE tracker on a monthly basis over a two year period say reduces that charted volatilty pretty well too...doing it over 5 years evemn more so etc, etc

[srisky]

If you are considering moving in the near future then you need to factor in stamp duty, which is 3% for properties between ?250k & ?500k & 5% for those ?500k-?1m i.e. ?7.5-15k & ?25-?50k, respectively.

Wrt to paying extra on the mortgage:

- how much does the interest you are paying on your mortgage compare with what you'd earn by saving?

- if you reduce your mortgage capital then you will reduce your monthly payments towards the remaining capital as well as interest payments. If the amount you are paying currently is manageable you may be able to pay a lump sum, keep the monthly repayments the same with the result that you continue to reduce your capital and also the term.

- are there any restrictions on how much you can overpay your mortgage?

- how is the interest on the mortgage calculated and applied - daily, monthly or annually? E.g. if the interest on the remaining capital is calculated annually on Dec 31 then there is no advantage in reducing the capital now. Rather, it would be better to save the money and pay the lump sum in Dec.

Here's a link that may better explain: http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

[alice]

hi anotherEDer

you have been given a sieze the moment opportunity make the jump now and here's how

50k more likely price increase of your flat [average inc ?80k over last 2 years]

50K suprise money

50k extra you could raise given youve said salaries have increased and present repayments are not a problem

which would give you enough to get something like this

http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=REGION%5E85321&maxPrice=475000&maxBedrooms=3&displayPropertyType=houses&oldDisplayPropertyType=houses&radius=0.25&googleAnalyticsChannel=buying cluttered but brill potential: location parks overground size garden

what d'ya think? [ps no its not my house]

[Jeremy]

???? Wrote:

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> No Jeremy..Read all my posts

Was being a bit facetious, but my point stands. The prospects of long term growth look bleak.

Whether drip feeding funds reduces the volatility is debatable... and arguably pointless when volatility is the only real reason I can think of for investing in the FTSE.

Still - it beats moving to Penge I guess.

[david_carnell]

What about using it as a deposit for a BTL mortgage on another property?

Would the rental returns over low interest mortgage be worthwhile?

[Lowlander]

Risk averse? Follow the majority advice and pay down the morgage - way better returns than the stockmarket at ?1500 guaranteed a year.

Imagine if you'd invested in the FTSE100 in 2000/2008? You'd have made nothing (and probably lost through charges).

If you do fancy some risk, put ?5k on the stockmarket, but do some research first....

[Jeremy]

david_carnell Wrote:

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> What about using it as a deposit for a BTL

> mortgage on another property?

Does Brendan still read the forum? Is it safe to mention BTL?