Imagine owning an ISA that’s producing a second income large enough to cover your monthly mortgage. Sounds impossible? I don’t think so.
Let’s take a closer look.
A path to mortgage freedom?
According to Rightmove, the average UK monthly mortgage repayment is £1,592. But there are huge regional variations. The average for Scotland is £809. Londoners pay £2,940.
For now, let’s stick with the average and see how much is needed in an ISA to try and live, in effect, mortgage-free.
How do the numbers look?
The exact amount depends on the level of return achieved. For example, a portfolio of dividend shares paying 3% a year would need to be worth £636,800. At 4%, this drops to £477,600.
Fortunately, there are dozens of dividend stocks yielding 3% or more (no guarantees) so this seems achievable to me. However, building a chunky six-figure portfolio is likely to be more of a challenge.
An example
One stock that’s delivered an above-average dividend over the past five years — and seen its share price comfortably beat the market — has been Lloyds Banking Group (LSE:LLOY). Ironically, it’s also the UK’s largest mortgage lender.
Since June 2021, its share price has risen by an average of 15.2% a year.
In 2025, its dividend was 3.65p a share. That’s 221% more than it was in 2021. Admittedly, due to its share price taking off, its yield has tumbled over the past couple of years. However, at 3.65%, it’s still above the FTSE 100 average of 3.1%.
So what does this all mean?
Someone investing £175 a month at an annual return of 15.2% for 25 years, could build an investment post of £596,665. If this was then converted into dividend shares paying 3.65%, it would be more than enough (£1,815) to cover a monthly mortgage repayment of £1,592.
Of course, we must be cautious. Past performance isn’t necessarily a reliable guide to the future. Indeed, a 15%+ return is unlikely to be sustainable over the long term.
Also, an individual probably doesn’t want to wait 25 years before buying a home. But this shouldn’t detract from the idea that it’s possible to generate significant wealth by investing in the stock market.
Could things get better?
Those who bought Lloyds shares five years ago have done very well. And if the forecasts are to be believed, there could be more to come.
In 2025, earnings per share (EPS) was 7p. Analysts are expecting this to increase by 96% over the next three years:
- 2026 – 9.9p
- 2027 – 11.9p
- 2028 – 13.7p
It’s a similar story with the dividend:
- 2026 – 4.31p
- 2027 – 5.17p
- 2028 – 6.12p
This implies an amazing forward (2028) yield of 6.1%.
My view
Personally, I think the bank will struggle to meet these forecasts. It’s totally reliant on a UK economy that’s fragile and could be badly affected by the short-term consequences of the blockade of the Strait of Hormuz.
And with the highest price-to-earnings ratio of the FTSE 100’s five banks, I think investors have already priced in some of the forecast growth. That’s why I don’t want to invest. But it doesn’t stop me admiring the bank’s dividend-paying qualities. It’s just that I believe there are better opportunities to consider elsewhere.
Should you invest £5,000 in Lloyds Banking Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group Plc made the list?
James Beard does not hold any positions in the companies mentioned.
