I personally would not gear up on residential property at this stage in the mortgage market. I can well imagine that interest rates would go higher (by how much I don't know), causing greater cost or lower rental profit, while if rates rise, house prices tend to fall because houses become less affordable if mortgage rates rise.

A second home will incur the 3% extra stamp duty.
It will also reduce flexibility of moving cash around swiftly if needed.
The second home will almost certainly be subject to CGT if it does go up, whereas the money in the ISA is exempt.

The time to buy houses is at or near the bottom of a slump in demand for them, not after a prolonged rise in demand and price.

But that's just my opinion.

Bungalows are not the obvious purchase for buy to let - 2 bed flats in centres of university cities or terraced /semis most popular.Changes to tax relief & extra legal demands on Landlords for Buy to let are kicking in now so profits are falling and getting none paying tenants out legally is also taking many months (my case 6 months). When mortgage rates rise as they will over next 10 years values will fall and profits from buy to let will fall too. Income from my buy to let pushes me into higher tax bracket reducing profit and tax relief on its way out for BTL mortgages. Hence need to offset by increasing money into my SIPP to offset tax increase. If you pay cash you will lose any tax free growth could have had in ISA and replace it with taxable unknown and uncertain growth in bungalow's value. Choice is finely balanced depends on your view of where the stock market will be over 10 years and where mortgage rates and political climate will be in 10 years (Corbyn?) . If you want the bungalow to retire in and not just to make money then all you need for next 10 years is enough income to cover expenses and mortgage so go with BTL mortgage and hold on to your ISAs - if everything goes wrong you could always sell bungalow and you'd not be any worse off than now.

My 2 cents....

Financial life is all about leveraging your human capital (in financial terms) in early life (20s or 30s typically by bying a property on leverage) and then paying it off to generate actual capital in lieu of the lost human capital.

Irrespective of the market cycles etc. I would stick to my personal financial life cycle and not leverage up, just as I am in the latter half of spending my human capital. As most ppl with experience far exceeding mine will tell you, leveraging up in old age is extremely dangerous as, unlike when young, there is not much human capital left to depend on i.e. working 2 or indeed 1 job to make up for the money lost.

Hence, I would not risk my ISA money (60%!!) to buy bunglow. I would keep it invested tax free and enjoy the income/growth via reinvestment, untill i need to draw upon it. Given that you are looking to switch a mortgage free home for a mortgage free home (house to bunglow), assuming both are at same price or the bunglow is cheaper than your current residence, it really doesnt matter if the rates go up or down, or if the housing market goes ballistic or tits up, both properties will move in sync, which means you can always make the move when required (and save yourself 3% stamp duty and hassel of finding tenants and maintaining two properties)

I would like to hear views of ppl, especailly with differeing opninon to mine as this is a subject that I need to tackle in my life and hence any debate going fwd on this forum will be great learning experience for me.

regards,
Rishi

Taking un taxable funds (isa) to buy an asset to pay tax seems a little bonkers to me.

Thanks for all of the replies.I agree with the most of the comments. Another question how do I tell my wife?.