Early 30s and not sure what's best to do for the future

[thenortherner]

After years of failing to make the best use of my money - not spending it wisely rather than getting into any form of debt - I finally came to my senses a bought my first property in November 2015.

I scraped together the deposit from my own savings and got a fixed rate mortgage for 3 years at 2.89%. Including fees the total borrowing came to around £113K. Ever since I've become completely adverse to risk, debt and any form of fixed outgoings that can't be switched off. Getting a mortgage really has changed my outlook.

Just over 12 months on and I'm down to just £82K from £113K with another £2K to be overpaid at the end of this month. A chuck of this capital repayment came from a sum I received when I lost my job mid way through last year, and did the sensible thing instead of buying a Lotus.

Anyhow, I've really got the bit between my teeth now and want the house paid off within 6 years, basically before I'm 40.

I've no dependants and I earn £50K per year. I've chosen a lifestyle and property that's well within my means to allow for a sizeable amount of disposable income and no sleepless nights as far as mortgage payments go - I think it's around £390 a month now. I hate being tied into contracts so I've done everything I can to avoid them e.g. no SKY TV, a SIM only phone deal etc. I owe a relatively small amount on a personal loan to fund my car, but other than that, nothing.

At the moment I'm paying off an extra £1K per month in mortgage overpayments. Mortgage overpayment calculators show that if I continue doing this I can be mortgage free in around 6 years.

I'm just not certain doing this is the best use of my money. I've no savings since a lot of my spare income goes into overpayments, and my pension is worth literally nothing. As said before, I wasn't too sensible in the past so never paid more than the minimum 1% contribution.

I'm now a bit concerned for the future with having no pension.

My current line of thinking is to get the house paid off asap and then once that's done, put the same amount into a pension as I'm paying in mortgage and overpayments combined, circa £1390 a month.

I know next to nothing about pensions, other than work contribute and match up to 2.5%, though I could read up when the time comes and the house is paid off.

Any thoughts appreciated.

Thanks,

[Ahbefive]

Jeez, £115k wouldn't buy a 1bed flat around my way, a 2 bed flat would be at least double that. Lucky you.

[thenortherner]

I paid £131K for what is a very small 2 bedroom, newish build home. It costs next to nothing to run - £30 gas/electric, Band A council tax etc.

And it's in a decent enough area of Cheshire so it's not as though I've chosen to live somewhere awful.

The neighbours put their identical house up for sale a couple of months ago for £145K and it sold within weeks. I'd be keen to see what it went for when it finally ends up on the land registry database.

That's why I live in the north. I might earn a bit more in the south but not enough to make up with gap in housing costs worth it.

[CrouchingWayne]

As a starter, I'd probably up my pension contributions to get the matched amount from the employer if I were in your shoes.

If you're going to contribute heavily in 6 years anyway, you're getting a "free" £7500 from your employer (being £50k x 2.5% x 6hrs) plus any capital growth over that time. That's not too far away from 10% of the mortgage amount outstanding for "free"

Edited by CrouchingWayne on Monday 8th January 20:03

[baliongo]

I am no financial authority (far from it) but i paid my mortgage off in my early forties and sold it soon after downsizing from the 4 bed detatched house to a 3 bed bungalow i now own,prices here in Kent rocketed.Being mortgage free is a great feeling and i did go a bit crazy buying this and that with the monthly amount i now had spare.

I started putting the same amount as my mortgage payments into the bank and saved approx £36k and added this to the profit i made from the 4 bed tucked a decent amount away....

I decided against putting any away in my pensions as i wanted the cash available..I am now semi-retired and planning retirement soon aged 50yrs..

good luck...

Edited by baliongo on Monday 8th January 20:08

[Ari]

I can't answer any of your questions about pensions, but did want to say that I did exactly what you're doing, overpaid the mortgage like mad, avoided all possible contracts like Sky, managed things like switching utilities, and basically kept outgoings to a bare minimum. I cleared my mortgage at just over 40 and it was the best thing I ever did. It's a great position not just in reducing interest payments, but in suddenly giving a huge amount of freedom.

Two pieces of advice from my own experience and that of friends.

Don't marry someone with less (assets) than you. Live with them, whatever, just don't put yourself in a position where a huge proportion of what you've created can be taken off you.

Don't by a boat (for broadly the same reasons! )

[CaptainSlow]

Apt user name OP. If I were you I'd be wacking far more into the pension...you need to aim to bring your net position down to the standard tax rate.

You should also easily afford to make £500 per month over payments.

[thenortherner]

Thanks.

The thing is I'll never realistically be able to downsize, unless I moved into an apartment and even then it wouldn't really free up too much cash.

Ref. marriage, yep, I'm with you on that one, having just seen my dad who's in his 50s divorce for the second time and the impact it had. What's mine's mine. Even if I were to meet someone who has more than I do, if it were to go tits up I wouldn't try to take what isn't mine on principle.

[thenortherner]

CaptainSlow said:

Apt user name OP. If I were you I'd be wacking far more into the pension...you need to aim to bring your net position down to the standard tax rate.

You should also easily afford to make £500 per month over payments.

Do you mind me asking why?

If I had a 'spare' £1250 a month and had to chose between a mortgage overpayment or big pension contribution, what would you do and why?

Thanks,

[BoRED S2upid]

If it were me I’d reduce the overpayments and increase the pension accordingly no harm in being mortgage free if 10 years instead of 6. The money in your pension then has longer to grow whereas in your property it may not increase at all. It’s a balancing act and many people pay nothing into their pension and are still working when they are 70. Plus your a higher rate tax payer (just) so it makes even more sense to put more into the pension pot.

[sidicks]

You're being extremely sensible and planning for the future is great. Just don't be 'too sensible' and defer all of your consumption so long into the future that you don't get a chance to enjoy it!

[CaptainSlow]

thenortherner said:

CaptainSlow said:

Apt user name OP. If I were you I'd be wacking far more into the pension...you need to aim to bring your net position down to the standard tax rate.

You should also easily afford to make £500 per month over payments.

Do you mind me asking why?

If I had a 'spare' £1250 a month and had to chose between a mortgage overpayment or big pension contribution, what would you do and why?

Thanks,

It all depends on what your plans are. Are you likely to want to start a family? How long do you want to work for?

I currently making 25% employee pension contributions as it's all higher rate. I know the market is high at the moment and will likely come down but there isn't much alternative.

[Yipper]

Buy a Lotus.

[thenortherner]

Don't worry, I'm not living off bread and water just yet and I'm not denying myself a decent enough standard of living.

I'm not too sure about family plans and I want to stop work as soon as possible but on a level of income that won't make for a miserable existence!

[mjb1]

I'm in a not too dissimilar situation, bought a house same time as you, same size loan, but I'm late 30's and my income is a lot less than yours.

Up your pension contributions right away. Certainly overpay the mortgage, but not at the expense of earlier pension contributions. I only just started with my pension at 37, now wish I'd done it earlier. I did some projections in a spreadsheet, and basically, assuming average growth of about 5% annually, for every 10 years earlier you start contributing to your pension, the final pot size doubles. At least up your contributions to get your employers max contribution.

[Fipster]

Absolutely take advantage of your matched employer contributions, and absolutely pay a few grand into your pension to take advantage of the higher rate relief available on the last £5k of your earnings. £5k in your pension this year will cost you £3k.

[Esotericstuff]

My GF’s dad was a successful business man. Lived a modest but comfortable life and died before he could retire. Be sensible, but live for today as well as tomorrow.

[colin79666]

A bit worried you say no savings. Put together some savings in an easy access account to cover at least 3 months expenses including mortgage payments. Hopefully you won’t need it but if you lose your job again or fall ill then at least it gives you some breathing space.

Unless your car loan is interest free you are probably best paying that off first. No point paying off the mortgage quicker than needed if your car is costing more.

Get into your employers pension scheme (assuming not self employed) as its free money basically. The earlier you get money into the pension the more time it has to grow. If you delay this until you pay off the Morgage then you will have to pay much more in per month to get a decent pension come retirement.

[xeny]

thenortherner said:

If I had a 'spare' £1250 a month and had to chose between a mortgage overpayment or big pension contribution, what would you do and why?

Thanks,

Because pension contributions aren't taxed. At least pay enough in pension contributions that you're not paying any 40% tax, because i understand the appeal of paying off the mortgage, but you might as well minimise quite how much you give to the government.

Yes, you're paying interest on the mortgage, but you're earning (typically greater) investment returns on your pension payments.

[DSLiverpool]

Instead of overpaying why not get another property? I was never a huge pension fan as most of my family expire before 60 (! I am 54) so I paid down our forever house as fast as I could telling the wife that the house is the pension.
In your case if you had another £100k house / terrace etc that could give you an income in later life.