Personal Finance/Tax/Investment Plan
Discussion
Is there more to your financial situation than you're saying?
They're not particualrly rmarkable salaries but you seem to have got a very hefty mortgage that runs until you're 69.
OK, you've got a reasonable savings buffer which is nice to have, but I'd have thought a priority would be to reduce the term and amount outstanding on your mortgage, but your thoughts seem to be about moving to IO - are you expecting a big inheritance or something?
I think you might be in for something of a shock when you have kids. Both of you earn ballpark the same as one of my daughters and her husband. Their house is worth £250K and they have around £100K outstanding, I suggested a step up in house size and they think I'm being barmy - their two kids (now at state junior school) apparently cost an absolute fortune to run.
They're not particualrly rmarkable salaries but you seem to have got a very hefty mortgage that runs until you're 69.
OK, you've got a reasonable savings buffer which is nice to have, but I'd have thought a priority would be to reduce the term and amount outstanding on your mortgage, but your thoughts seem to be about moving to IO - are you expecting a big inheritance or something?
I think you might be in for something of a shock when you have kids. Both of you earn ballpark the same as one of my daughters and her husband. Their house is worth £250K and they have around £100K outstanding, I suggested a step up in house size and they think I'm being barmy - their two kids (now at state junior school) apparently cost an absolute fortune to run.
You haven’t really given enough information. Obviously you didn’t buy that house or have that amount of cash knocking about from those jobs and that info probably heavily influences the answers you need.
The car is a nonstarter on those numbers for me. And interest only I would say should be used as a tool rather than to free up spending month to month.
The child thing will be tricky, look into the costs of that, suspect it makes the 40k job barely worth doing.
Also unsure why you hold so much cash?
The car is a nonstarter on those numbers for me. And interest only I would say should be used as a tool rather than to free up spending month to month.
The child thing will be tricky, look into the costs of that, suspect it makes the 40k job barely worth doing.
Also unsure why you hold so much cash?
A few observations:
- You'd have to be potty to be considering extending your mortgage/ adding more finance to buy a car in your position.
- I'd look at over paying the mortgage to reduce the term - do you think you'll be working at 69? It's a very chunky size compared to your salary.
- I'd look at dripping most of the cash into equities over the next couple of years. Any reason you have so much cash relative to a smallish pension pot?
- You'd have to be potty to be considering extending your mortgage/ adding more finance to buy a car in your position.
- I'd look at over paying the mortgage to reduce the term - do you think you'll be working at 69? It's a very chunky size compared to your salary.
- I'd look at dripping most of the cash into equities over the next couple of years. Any reason you have so much cash relative to a smallish pension pot?
Sheepshanks said:
Is there more to your financial situation than you're saying?
They're not particualrly rmarkable salaries but you seem to have got a very hefty mortgage that runs until you're 69.
Was what I was thinking also. They're not particualrly rmarkable salaries but you seem to have got a very hefty mortgage that runs until you're 69.
For comparison, we have a not dissimilar combined household income, our monthly mortgage payment is 30% of yours, with 20years on the term (exc overpayments), we’re mid-30’s.
I just wouldn’t be comfortable with that value of home/mortgage/outgoing - never mind going IO !
Regarding point 4) SIPP’s with Fidelity mean fees are capped at £90/yr if using ETFs.
0.72% seems quite hefty for a workplace pension also, think mine is 0.2X% with Aegon.
Edited by AllyM on Friday 27th December 00:09
Financial Overview and Strategy
You have built a strong financial base, with significant cash reserves, stable income, and thoughtful investment and savings habits. Below, I address your queries while integrating additional considerations for risk, tax efficiency, property strategy, and investment implementation.
1. What Would You Change?
Portfolio Diversification and Allocation
Your high cash reserves (~£265k) are excellent for liquidity but could be optimised by shifting a portion to investments. A portfolio allocation tailored to your risk tolerance and goals might look like:
70% equities: Global ETFs or index funds (e.g., Vanguard FTSE All-World).
20% bonds: Short-duration bonds to hedge against rising rates.
10% cash/alternatives: Emergency fund and opportunistic investments.
Pension Contributions
Person 1: Your approach to maximising pension contributions above £50,270 is highly tax-efficient. Ensure you monitor the annual allowance (£60k) and lifetime allowance considerations.
Person 2: Increasing pension contributions beyond £5k/year could be beneficial, especially with employer matching. Consider using salary sacrifice to maximise tax efficiency.
Emergency Fund
Your expenses (£2,400/month mortgage + future childcare costs) suggest maintaining a 6-12 months emergency fund (~£50-75k). Premium bonds or cash accounts at 4-5% work well here.
Staggering Major Expenses
Stagger the house renovation (£100-150k) and car purchase (£65-100k) to avoid depleting liquidity. Prioritise the renovation, as it enhances property value and utility.
Family Planning
Begin allocating funds to a childcare and education fund, such as a Junior ISA. This prepares for future expenses (e.g., ~£15k/year for childcare).
2. Would You Consider Using a Financial Advisor?
A financial advisor could add value for:
Holistic planning: Aligning investments, taxes, and pensions with life goals.
Inheritance tax (IHT) planning: With total assets exceeding £1 million, IHT will likely apply.
Complex scenarios: Balancing cash flow for renovations, car purchases, and family planning.
Suggested resources:
Unbiased and VouchedFor for UK-based Independent Financial Advisers (IFA).
Consider a fee-based adviser (~£500-£2,500 for a financial plan) to avoid ongoing management costs unless necessary.
3. What Platforms Do You Invest Through, and What Funds Would You Consider?
Platforms
Vanguard: Low-cost (0.15% fee, capped at £375/year). Ideal for passive investors using Vanguard funds.
Interactive Investor: Flat fee (£12.99/month) suits larger portfolios.
AJ Bell Youinvest: Percentage-based (0.25%), user-friendly for smaller portfolios.
Hargreaves Lansdown: Higher fees (0.45% up to £250k) but excellent research tools.
Funds
Global Equities:
Vanguard FTSE All-World ETF (VWRL).
iShares MSCI World ETF (SWDA).
Bonds:
Vanguard Global Bond Index Fund.
Short-duration bonds to reduce interest rate risk.
Alternatives:
REITs for property exposure (e.g., iShares UK Property ETF).
Commodities (e.g., gold funds) for hedging.
4. Partial Pension Transfer to a SIPP
Platform Recommendations
Interactive Investor: Flat fee (£12.99/month). Ideal for active investors.
AJ Bell Youinvest: Lower cost for smaller portfolios (0.25%).
Vanguard: Only Vanguard funds, but low cost (0.15% capped).
Hargreaves Lansdown: Higher fees but excellent tools.
Considerations
Compare your current pension fees (0.72%) and fund performance to SIPP options.
Partial transfer allows you to test SIPP platforms while retaining employer benefits.
5. Financing the Car Purchase
Cash vs Financing
Financing part of the car allows you to retain liquidity for renovations or investments. Options:
Car finance (PCP/HP): Rates typically 5-10%. Manageable for short terms.
Mortgage extension: At 3% fixed, extending the mortgage is cheaper, but it adds long-term debt.
Recommendation
Use part cash and car finance. Avoid extending the mortgage unless rates remain low or liquidity is critical.
Additional Considerations
Market Conditions Context
Rising interest rates make bonds more attractive for income and diversification.
Equities remain volatile; diversify globally to reduce UK-specific risks and include some ESG funds for sustainability goals.
Risk Mitigation
Use pound-cost averaging to invest cash reserves gradually (e.g., £10k/month over 12-18 months).
Hedge against inflation with equities, commodities, and inflation-linked bonds.
Tax Planning
Bed & ISA: Sell non-ISA investments and reinvest within ISAs each year.
CGT Harvesting: Use the £6,000 allowance to reduce taxable gains.
IHT Planning:
Establish trusts for family wealth transfer.
Consider gifting strategies under the annual allowance (£3,000 per year).
Property Strategy
Mortgage overpayments: Overpaying could save interest and reduce LTV for 2027 remortgaging.
Interest-only mortgage: Prepare by building equity and ensuring lender requirements (e.g., repayment plan).
Remortgage strategies:
Compare fixed vs tracker rates in 2026.
Explore offset mortgages to reduce interest costs while retaining liquidity.
Technology Integration
Use tools like Sharesight for portfolio tracking, YNAB for budgeting, and cloud storage (e.g., OneDrive) for document management.
Alternative Planning Scenarios
Career Change
If income changes, adjust pension contributions and maintain a larger emergency fund.
Family Planning
Budget for childcare and potential income gaps during parental leave.
Investment Returns
If returns are lower than expected, increase equity exposure or reduce non-essential spending. Higher returns could allow early retirement savings or larger investments.
You have built a strong financial base, with significant cash reserves, stable income, and thoughtful investment and savings habits. Below, I address your queries while integrating additional considerations for risk, tax efficiency, property strategy, and investment implementation.
1. What Would You Change?
Portfolio Diversification and Allocation
Your high cash reserves (~£265k) are excellent for liquidity but could be optimised by shifting a portion to investments. A portfolio allocation tailored to your risk tolerance and goals might look like:
70% equities: Global ETFs or index funds (e.g., Vanguard FTSE All-World).
20% bonds: Short-duration bonds to hedge against rising rates.
10% cash/alternatives: Emergency fund and opportunistic investments.
Pension Contributions
Person 1: Your approach to maximising pension contributions above £50,270 is highly tax-efficient. Ensure you monitor the annual allowance (£60k) and lifetime allowance considerations.
Person 2: Increasing pension contributions beyond £5k/year could be beneficial, especially with employer matching. Consider using salary sacrifice to maximise tax efficiency.
Emergency Fund
Your expenses (£2,400/month mortgage + future childcare costs) suggest maintaining a 6-12 months emergency fund (~£50-75k). Premium bonds or cash accounts at 4-5% work well here.
Staggering Major Expenses
Stagger the house renovation (£100-150k) and car purchase (£65-100k) to avoid depleting liquidity. Prioritise the renovation, as it enhances property value and utility.
Family Planning
Begin allocating funds to a childcare and education fund, such as a Junior ISA. This prepares for future expenses (e.g., ~£15k/year for childcare).
2. Would You Consider Using a Financial Advisor?
A financial advisor could add value for:
Holistic planning: Aligning investments, taxes, and pensions with life goals.
Inheritance tax (IHT) planning: With total assets exceeding £1 million, IHT will likely apply.
Complex scenarios: Balancing cash flow for renovations, car purchases, and family planning.
Suggested resources:
Unbiased and VouchedFor for UK-based Independent Financial Advisers (IFA).
Consider a fee-based adviser (~£500-£2,500 for a financial plan) to avoid ongoing management costs unless necessary.
3. What Platforms Do You Invest Through, and What Funds Would You Consider?
Platforms
Vanguard: Low-cost (0.15% fee, capped at £375/year). Ideal for passive investors using Vanguard funds.
Interactive Investor: Flat fee (£12.99/month) suits larger portfolios.
AJ Bell Youinvest: Percentage-based (0.25%), user-friendly for smaller portfolios.
Hargreaves Lansdown: Higher fees (0.45% up to £250k) but excellent research tools.
Funds
Global Equities:
Vanguard FTSE All-World ETF (VWRL).
iShares MSCI World ETF (SWDA).
Bonds:
Vanguard Global Bond Index Fund.
Short-duration bonds to reduce interest rate risk.
Alternatives:
REITs for property exposure (e.g., iShares UK Property ETF).
Commodities (e.g., gold funds) for hedging.
4. Partial Pension Transfer to a SIPP
Platform Recommendations
Interactive Investor: Flat fee (£12.99/month). Ideal for active investors.
AJ Bell Youinvest: Lower cost for smaller portfolios (0.25%).
Vanguard: Only Vanguard funds, but low cost (0.15% capped).
Hargreaves Lansdown: Higher fees but excellent tools.
Considerations
Compare your current pension fees (0.72%) and fund performance to SIPP options.
Partial transfer allows you to test SIPP platforms while retaining employer benefits.
5. Financing the Car Purchase
Cash vs Financing
Financing part of the car allows you to retain liquidity for renovations or investments. Options:
Car finance (PCP/HP): Rates typically 5-10%. Manageable for short terms.
Mortgage extension: At 3% fixed, extending the mortgage is cheaper, but it adds long-term debt.
Recommendation
Use part cash and car finance. Avoid extending the mortgage unless rates remain low or liquidity is critical.
Additional Considerations
Market Conditions Context
Rising interest rates make bonds more attractive for income and diversification.
Equities remain volatile; diversify globally to reduce UK-specific risks and include some ESG funds for sustainability goals.
Risk Mitigation
Use pound-cost averaging to invest cash reserves gradually (e.g., £10k/month over 12-18 months).
Hedge against inflation with equities, commodities, and inflation-linked bonds.
Tax Planning
Bed & ISA: Sell non-ISA investments and reinvest within ISAs each year.
CGT Harvesting: Use the £6,000 allowance to reduce taxable gains.
IHT Planning:
Establish trusts for family wealth transfer.
Consider gifting strategies under the annual allowance (£3,000 per year).
Property Strategy
Mortgage overpayments: Overpaying could save interest and reduce LTV for 2027 remortgaging.
Interest-only mortgage: Prepare by building equity and ensuring lender requirements (e.g., repayment plan).
Remortgage strategies:
Compare fixed vs tracker rates in 2026.
Explore offset mortgages to reduce interest costs while retaining liquidity.
Technology Integration
Use tools like Sharesight for portfolio tracking, YNAB for budgeting, and cloud storage (e.g., OneDrive) for document management.
Alternative Planning Scenarios
Career Change
If income changes, adjust pension contributions and maintain a larger emergency fund.
Family Planning
Budget for childcare and potential income gaps during parental leave.
Investment Returns
If returns are lower than expected, increase equity exposure or reduce non-essential spending. Higher returns could allow early retirement savings or larger investments.
If you plan to work another 31 years, try and have some fun along the way. Believe me, at 50 you’ll be regretting having a plan to work to 69. It’s good to be super financially organised but especially when kids come along, you’ll need money for doing things/more holidays/way more stuff.
Thank you for taking the time for the detailed reply to the poster above (Paddy1970), this is exactly the sort of information i was also hoping for.
The v12 would be part of the plan to have fun (alongside continuing to travel over the next year or two) which could be liquidated at any stage and returned to fund either the house renovations or mortgage repayment (although the former options don’t seem as popular as i had hoped on here
).
The v12 would be part of the plan to have fun (alongside continuing to travel over the next year or two) which could be liquidated at any stage and returned to fund either the house renovations or mortgage repayment (although the former options don’t seem as popular as i had hoped on here
).Edited by Anonymous PH on Friday 27th December 08:56
Edited by Anonymous PH on Friday 27th December 08:59
This is something I often wonder about as I get older.
The idea of hitting 50 and knowing I've got another 20 years ahead of me just to pay off the house is slightly depressing.
I think a lot of people have a moment when they wake up and realise they really don't want to work forever just to accumulate stuff.
The idea of hitting 50 and knowing I've got another 20 years ahead of me just to pay off the house is slightly depressing.
I think a lot of people have a moment when they wake up and realise they really don't want to work forever just to accumulate stuff.
b
hstewie said:
hstewie said: I think a lot of people have a moment when they wake up and realise they really don't want to work forever just to accumulate stuff.
I think I’m already at this stage, i favour experiences over accumulating stuff hence the low expenditure. The house was an extravagance due to schools, etc.The car is simply because I’d love to do a European road trip in a v12 (ideally convertible).
Travel plans this year include at least Peru, Australia , America, China, Germany and France (some are for work) and we managed 8 countries in 2024 including Vietnam, Malaysia and Cambodia.
Panamax said:
Why are you borrowing cash on the mortgage when you already have cash at hand? It's costing you a lot of £££ for no reason, unless you have some grand plan for spending those cash savings.
Makes sense while mortgage is on a lower fixed rate than the ISAs are yielding.The funds in the ISAs could probably be better invested but that introduces a risk that they might fall in value.
You’ve done a great job of accumulating cash and property equity!
What sort of mortgage rate are you expecting to get at the end of the current fix? A 1% increase would add a few hundred to monthly outgoings I would think. I imagine LTV would not be an issue but would you risk having any affordability issues with salaries relative to mortgage with the additional borrowing?
What is the salary trajectory for you both? If you expect to go over £100k an option could be reducing pension contributions to match employer match only, even if in the short term. There is likely a similar cliff for person 2 also.
I know you have mentioned tax efficiency and your pensions are low in context of assets, but I would be thinking of maximising upcoming efficiencies over the near term: Child benefit & related HICB charge, £100k personal allowance taper, £100k childcare cut off.
As others have said well done on working towards a £1.1million house and sports cars on basic rate salaries (after pension deductions). I also think I would struggle to afford these plus the travelling mentioned above on the salaries quoted, but you will have the information available to make that decision.
What sort of mortgage rate are you expecting to get at the end of the current fix? A 1% increase would add a few hundred to monthly outgoings I would think. I imagine LTV would not be an issue but would you risk having any affordability issues with salaries relative to mortgage with the additional borrowing?
What is the salary trajectory for you both? If you expect to go over £100k an option could be reducing pension contributions to match employer match only, even if in the short term. There is likely a similar cliff for person 2 also.
I know you have mentioned tax efficiency and your pensions are low in context of assets, but I would be thinking of maximising upcoming efficiencies over the near term: Child benefit & related HICB charge, £100k personal allowance taper, £100k childcare cut off.
As others have said well done on working towards a £1.1million house and sports cars on basic rate salaries (after pension deductions). I also think I would struggle to afford these plus the travelling mentioned above on the salaries quoted, but you will have the information available to make that decision.
Edited by CarDoodle on Friday 27th December 10:16
Sheepshanks said:
Panamax said:
Why are you borrowing cash on the mortgage when you already have cash at hand? It's costing you a lot of £££ for no reason, unless you have some grand plan for spending those cash savings.
Makes sense while mortgage is on a lower fixed rate than the ISAs are yielding.Plus i can use the ISA allowances (£40k a year between us) that i would otherwise lose year on year. Assuming rates keep decreasing this is favourable for my mortgage position but not for my cash position hence the question.
If rates increase or stabilise then I’m currently hedged against this.
I would anticipate rates would be similar to our current rate of around 3-3.5% in 2027 (They were already down to around 3.5-3.8% recently).
Salary trajectory is likely to be upwards (based on an any reasonable scenario).
Risk with transferring cash to equities is that the market drops and rates increase (which i think is highly unlikely but the worst case scenario).
Also as I’m already paying into pension down to the 20% bracket I don’t need to reduce outgoings further (not yet at least).
If I could increase my returns on the savings we have to say 6-8% this would be significant and the IO mortgage could allow me to pay for childcare whilst maintaining my position to avoid 40% tax or even higher (assuming pay rises in the next few years).
Edited by Anonymous PH on Friday 27th December 10:52
Edited by Anonymous PH on Friday 27th December 10:53
bhstewie said:
hstewie said: This is something I often wonder about as I get older.
The idea of hitting 50 and knowing I've got another 20 years ahead of me just to pay off the house is slightly depressing.
I think a lot of people have a moment when they wake up and realise they really don't want to work forever just to accumulate stuff.
I know what you mean and the enlightenment of having the mortgage paid off and knowing that you own your house outright is an intangible value which we tend not to measure when making financial decisions.The idea of hitting 50 and knowing I've got another 20 years ahead of me just to pay off the house is slightly depressing.
I think a lot of people have a moment when they wake up and realise they really don't want to work forever just to accumulate stuff.
For the OP, a 31 year mortgage does not necessarily mean he will choose to work for another 31 years. He could downsize or move out of London altogether in the future. So some thought processes along these lines are good to air with the family if that is an option.
I had paid off my mortgage completely then I downsized and moved out of Surrey to Yorkshire. The one thing I would have done differently in hindsight is that I would have kept the mortgage and used up my ISA allowance. When I retired I was left with a lump sum from AVC tied to my DB work pension and that is now in GIA (taxable general investment account). If I could do it all again I would have used that lump sum to pay off the mortgage while using my income for investments in ISA tax wrappers.
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