4 reasons not to pay off your mortgage!

In October 30, 2015
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property investmentI read an interesting article the other week, titled “4 reasons not to pay off your mortgage!” you can read the full article here. The headline grabbed my attention as this is a common discussion I have with many clients, as there is always that internal struggle as to whether they should be paying off their mortgage early or taking this spare cash and investing it for the future. Whilst there is no “one size fits all” answer and this decision should be well considered for each individual circumstance, I do often find that many people have an obsession with paying off their mortgage early and with property investment in general.
I think this is mostly because many people find property safe and secure. They understand property investment, the housing market and feel comfortable with this kind of investing. Many clients remember buying their houses 30 years ago for £50,000 and are delighted that their house is now worth £250,000!
Investments into stocks and shares are often seen as more scary for some people, it is confusing and subject to fluctuations and therefore seems more high risk. As a result, I often see clients paying off their mortgage early and building buy-to-let portfolios for their retirement security, all based on the argument that “property gives far better investment returns than equities”.
But is that actually true? The short answer, according to this article is NO.
Many people do not realise that over the long term, returns generated on shares is superior to that generated on property. As the article explains, the FTSE 100 has posted annualised total returns of 9.6% since its inception in January 1984. House prices, meanwhile, have risen by 6.1% per annum during the same time period and, while this is very respectable, it appears as though shares beat property in the long run.
This definitely makes for some interesting reading and food for thought. This is before we even consider the serious liquidity and tax inefficiency issues with property. A buy-to-let portfolio is subject to Income Tax on the rental yield, Capital Gains Tax on the sale proceeds and is liable to Inheritance Tax when you pass away. Investments however can be tailored to be Income Tax, Capital Gains Tax and Inheritance Tax free, plus provide you with the liquidity that bricks and mortar cannot.
So should you stop over-paying your mortgage and stop building your property portfolio? NO. You should not make any decisions without taking professional financial advice first.
Your investment strategy should be one that is completely bespoke and right for you. There is no right or wrong investment strategy, just what is best for you and your personal needs. A good investment approach means you should not put all your eggs in one basket. Seek professional financial advice and spend time really planning what you want to achieve and what is the best investment approach to help you reach your goal.

You can read the full article here: 4-reasons-not-to-pay-off-your-mortgage

 

Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. Tax rules can change at any time.

 

Please remember your home or property may be repossessed if you do not keep up repayments on your mortgage. We give clients the option to pay for mortgage advice by fee rather than commission. Equity Release refers to lifetime mortgages. To understand the features and risks, ask for a personalised illustration.

 

The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto Enrolment, Tax Advice and Estate Planning.

 

The opinions contained within this blog, do not constitute financial advice and no action should be taken based on this content alone.

 

Jasmine has been a qualified Financial Planner since 2008. She has also been a member of the Society of Will Writers since 2012. She is passionate about helping Clients build their wealth and achieve the financial lifestyle they desire. Her areas of expertise are that of Savings, Investments, Pensions and Retirement Planning.

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The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto-Enrolment, Tax Advice and Estate Planning. Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. https://register.fca.org.uk/

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