You thought a home purchase was years off. You had nothing to fear in the markets and so invested aggressively in volatile stocks for maximum growth.
Fast forward a year and you look into options like shared ownership, a family gift, haggle a pay rise, the savings your Grandma put aside for youā¦ it might just be possible. Heck, maybe you could even bargain-hunt a spare room to let out for another income stream.
But a decent chunk of your deposit is in risky stocks. You could be making an offer in a week, or maybe six months to a year.
How would you go about liquidating cash from your portfolio?
My personal view:
Focus on the GIA since ideally you want to keep the ISA allowance youāve filled. Start selling off stocks that have performed well so you make an instant return. Prioritise those that have gone ex-dividend. Consider the upside/downside risks of more volatile stocks.
But what then of the tech stocks? The Tesla, Google, Facebook, Palo Alto Networks that could rocket or tumble in the coming months? Do you keep the winners and cut losses on the losers or vice versa and hope for a reversal? What then when you have a pile of cash to sit on over the winter? Would you be comfortable with a lower-risk ETF for that period of time?
I plan to be buying in about a year and am leaving most of my money thatās not tied up in illiquid investments sitting in my bank account earning 1% interest. Super boring but donāt want to risk the market taking a turn just before I buy.
I bought my house in July and sold all of my investments to do so. So now Iām starting my ISA from scratch whilst overpaying on the mortgage. It was pretty hard to sell all of my investment funds up but I couldnāt have bought the house without it.
I saw this the other day and it peaked my interest. Whilst I found the two presenters barely tolerable, they do raise a couple of interesting points on overpaying a mortgage at current rates.
I wouldnāt invest in risky volitile stocks if I was saving for a house.
I would maximise my HTB ISA and keep all of my cash in non taxable investments.
One approach is to think about your biggest possible future regret and then minimise it. If the regret is missing out on some growth, then you might stay in stocks until the last moment. If it is Something Happening that meant the house purchase couldnāt proceed (like a market drop reducing the value of your assets or whatever), then you might sell now and go to the safety of something more cash-like. You canāt optimise both capital growth and capital safety
Honestly it wasnāt an easy decision to make for me. Ive had a few tough choices to make financially recently (all positive ones). It makes a lot of sense to not overpay right now but Iām actually trying to build up the equity in my house to be eligible for a better rate. My deposit was only 15% so my rate is fairly high, relative to base rate - so that is my main driver. Having the equity is also a good source of capital should I need to release it via remortgage. I looked at an offset mortgage but again the rate was the issue there. Final reason was to build up a payment holiday, with a gloomy economic outlook & a fairly precarious job situation I thought it was prudent to have this ālocked-inā.
I definitely agree that overpaying doesnāt make sense for everyone but for me right now I guess it does.
Iām overpaying my mortgage now, I know in theory I should get a better return elsewhere, but the feeling of being ahead on your mortgage is worth it, also itās equivalent to a risk free return. No matter how safe you play it with stocks itās never risk free.
I have built up a decent size portfolio in freetrade before switching to overpaying
I agree completely. Its entirely up to the individual. I hate being in any sort of debt, good or bad, so when I got an early inheritance I lumped the lot on my mortgage and will continue to do so until its gone.
The other thing I toyed with was doing Buy to Let. Tax implications made me put my money elsewhere though. Planning on doing a video on this very soon too.
Canāt disagree with that, the leverage makes me uneasy too. Iām backing Grainger plc, Iām not a big fan of the REIT scheme - I think companies should retain earnings wherever they can
Obviously canāt predict how Iāll feel when I have skin in the game but personally I would take the leverage given low mortgage rates. My ambition is to remortgage as soon as my loan-to-value improves through a mix of property appreciation and paying down debt and invest the cash unlocked in index trackers - providing I have a suitable emergency fund to cover mortage payments in a recession. Thereās also the backup of getting a lodger if things really tank.
