Pay down mortgage vs investing UK

[LFH86]

Hi,

First post here, although have been reading for a few months now.

My husband and I have inherited a couple of chunks of money over the last few years and now we have a baby, we're finally getting round to doing something with it. We have an emergency fund of £20k and no significant debts apart from our mortgage (other than small credit card amounts which are paid off in full every month and student loans which in the U.K. are not worth hurrying to pay off).

We have about £90k to play with. Our home is worth about £300k (living in SW London, so VHCOL area) and we have around £163k still to pay off, with 18 years left on the mortgage. Our current interest rate is 2.99% which is fixed until December 2018. We can overpay by 10% per year while we're on the fixed rate, which we have done for this year already.

My original plan was to split the money and use ~£56k to pay down the mortgage (so 10% in January - £16k - and then a further £40k as a lump sum when we're out of the fixed rate). And then invest the rest. I've spoken to an IFA who is setting up the investments for me and that is being done at the moment.

However. As I mentioned, we have a baby and we are thinking we probably don't want to bring him up in a big, expensive city living so far away from our parents. We're originally from near Manchester where COL is cheaper, and we could get a 3/4 bedroom house in a decent area for around £200k (we're not set on any particular area, but from various searches I've done, this looks reasonable).

If we were to move in the next 3-5 years, is it even worth paying off more of our mortgage? Or would we be better off investing it all now and just getting a much smaller mortgage when we move?

Any advice very much appreciated!

[webguy]

If there was a good chance I was moving in 3-5 years then I wouldn't pay any more towards the mortgage. The only benefit to doing so is that you essentially make 2.99% return on that money by saving yourself the interest on it. There's no real tangible advantage to having more of your mortgage paid off as your monthly payment is still the same until it's all paid off. The best two situations to be in with owning a house is to have it paid off completely (so you have no monthly payment and have decreased expenses/increased cashflow) or to have the least amount possible into the house so that you have the least amount of capital invested. There's no tangible difference between having 10% of your mortgage paid off or 90%, as your payment is the same.  Personally, I would put the amount needed for a deposit on a house in Manchester in a CD so that it's safe, and then invest the rest. Then when you sell your current house in London you can use the proceeds from that to invest further.

[TartanTallulah]

We moved from an urban area to the Middle of Scenic Nowhere in 2011, downsizing in the process. I'd had a large mortgage on a McMansion in the city (not London!) and had been chipping away at it for the previous few years. There was a small amount left - around £60,000 - which I assumed I would be able to port effortlessly as it was about 30% LTV on our new house.

I was wrong. In the aftermath of the sub-prime lending crisis the fact that I was moving without a job to go to (although with plenty of scope for freelancing and a track record of having freelanced before - it was what I'd been doing when I took on the original large mortgage, I was one of Northern Rock's better calls) was A Problem. I was expected to jump through hoops, prove that I could continue to pay the mortgage and pay several thousand pounds' worth of fees. The fact that I'd been a mortgage holder for more than 20 years, never missed a payment and was on track to clear the mortgage off well ahead of schedule meant nothing.

"Stuff this," I said, cashed in my underperforming endowment policy two years before it was due, cleared off the mortgage, and bought the new house outright.

With hindsight, it would have been better financially to have kept the mortgage and invested the proceeds of the endowment policy in the stock market. At the time, in the circumstances I was in, it was absolutely the right decision and I have no regrets.

YMMV. Just another perspective.