Interest rates

[GrumpyGranddad]

No pockets in a shroud.
Just saying

 

[andyinluton]

If you are keeping them till the day you die then:

Sale £295,000 (estimate)
Inheritance Tax £120,000 (estimate)
But no capital gains I think.

and of course, the kids get nothing until they pay the tax. So they have to pay the tax, then sell the flats, then repay the massive bridging loan they took out to pay the tax.

No - HMRC will just charge interest on any IH not paid within 6 months of death, they are happy to wait until the house is sold before they get their cut.

Important thing to note is if you leave 2 flats to 2 children giving them 50% of each they end up paying stamp duty if they want to keep the flats & buy each other out.
If you leave them 100% of a flat each there is no stamp duty.

 

[Amarillo]

If you are keeping them till the day you die then:

Sale £295,000 (estimate)
Inheritance Tax £120,000 (estimate)
But no capital gains I think.

and of course, the kids get nothing until they pay the tax. So they have to pay the tax, then sell the flats, then repay the massive bridging loan they took out to pay the tax.

Personally, I'd look at protecting all of those clever investment decisions you are making for the long term.

My parents sold the last of their BTLs eight or nine years ago and distributed the proceeds to their four children and twelve grandchildren. Perhaps that is what I will do sometime in the future. But until then I will live on the income.

They still have a second home which they, my brothers and I use regularly. Unless they give it to us, pay the CGT, and then live for another seven years, it will attract 40% IHT.

 

[Amarillo]

Sorry folks, I’m just going off topic for a few seconds then we can get back to that concept of how borrowing large sums of money at high interest rates will result in great riches.

A base rate of 4.25% is about average over the last 20 years and low over the last 50 years.

It only becomes high if you only consider the period since the 2008 financial crisis.

Great gains can be made if you get the right investment strategy as the financial environment changes. And the financial environment has definitely changed since the Kami-Kwasi budget.

The previous big change was in 2008. Then we sold our ISAs and bought five flats.

 

[Velma's Dad]

Sorry folks, I’m just going off topic for a few seconds then we can get back to that concept of how borrowing large sums of money at high interest rates will result in great riches.

That quotation. I almost never bothered to check who said it as I thought it was bound to be Dr Johnson. Upton Sinclair. An American to boot.
You are clearly a literary man with a gift for a well placed quote.
How about starting a new thread called “ Good Reads “ or something like that with your recommendations. I’m often stuck for a good book when I’m away in the van.

You flatter my presumed literary leanings, sadly mistakenly. It's fair bet though that most of the best quotes were by Samuel Johnson, or Sun Tzu, or Winston Churchill.

 

[Amarillo]

Sorry folks, I’m just going off topic for a few seconds then we can get back to that concept of how borrowing large sums of money at high interest rates will result in great riches.

You flatter my presumed literary leanings, sadly mistakenly. It's fair bet though that most of the best quotes were by Samuel Johnson, or Sun Tzu, or Winston Churchill.

Annual mortgage rate five percent, annual investment return five point ought one percent, result happiness.
Annual mortgage rate five percent, annual investment return four point nine nine percent, result misery.
Apologies to Charles Dickens, David Copperfield

 

[Mansfieldman750]

I’m an Ayrshire man so we have to have one from Rabbie
” The best laid schemes of mice and men gang aft agley “

 

[willwander]

People can argue all day long about which is best, property or equities.
The big advantage equities have is liquidity.
If you need to raise money in a hurry for whatever reason, selling shares takes a fraction of a second. Selling a house takes a bit longer and a lot of expense.

Equities, while having advantages mentioned, have more price volatility, as demonstrated recently.

Don't write off pensions, tax breaks on the way in, with compounding, can outweigh the tax you pay on the way out, compared to an isa. There are also some tax benefits on death.

I expect it will still be cheaper to borrow say £100,000 against property than against shares.

You can buy on margin and leverage pretty easy, too easy, with rates around 3.5%, but prepare for the margin call, a fool and his money.

Cash in the bank, at the moment you can get 5% risk free return, many would take that right now.

 

[pjm-84]

Good year.......... one number California Ocean to my pension (including carry forward from 2019/2020)

 

[Velma's Dad]

Cash in the bank, at the moment you can get 5% risk free return, many would take that right now.

Risk-free yes and hence attractive for some situations but of course with sterling inflation likely to remain above that 5% level for the time being, those folks will still be losing money in real terms. Sorry if I'm stating the obvious, ie that real returns on cash are always mediocre.

On the other hand the FTSE 100 on a total return basis has I think averaged 7.75% pa since its inception in 1984, which is more than 5% pa after inflation. The MSCI World index, converted to sterling, has done even better, at around 7% pa after inflation since 1987 IIRC. (A fairly well diversified basket of multinational trackers such as the one Amarillo created for his kids will emulate that reasonably faithfully).

I'm defo not advocating borrowing cash to invest in equities, just making the point that equities have historically way out-performed any other reasonably liquid asset class over the long term. You just need the circumstances, and guts, to be able to leave your money there even during the drawdown periods.

 

[Mansfieldman750]

Risk-free yes and hence attractive for some situations but of course with sterling inflation likely to remain above that 5% level for the time being, those folks will still be losing money in real terms. Sorry if I'm stating the obvious, ie that real returns on cash are always mediocre.

On the other hand the FTSE 100 on a total return basis has I think averaged 7.75% pa since its inception in 1984, which is more than 5% pa after inflation. The MSCI World index, converted to sterling, has done even better, at around 7% pa after inflation since 1987 IIRC. (A fairly well diversified basket of multinational trackers such as the one Amarillo created for his kids will emulate that reasonably faithfully).

I'm defo not advocating borrowing cash to invest in equities, just making the point that equities have historically way out-performed any other reasonably liquid asset class over the long term. You just need the circumstances, and guts, to be able to leave your money there even during the drawdown periods.

Great work. Now we have the full picture.
According to Land Registry figures the average house price UK in 1984 was £27,416 in January 1984 and £290,000 in January 2023.
If you had put the £27,416 in equities in 1984 you would be sitting on over £400,000.
So as you rightly say equities comes out on top in the long run.
But then again we all need a roof over our heads and as John Maynard Keynes said in the long run we’re all dead.
So you pays your money and you takes your choice.

 

[Amarillo]

As well as each having a JISA, each of my boys has an investment account. Each April I do a bed and JISA, to transfer funds from their investment account to their JISA. Their investment accounts have performed remarkably well.

 

[Mansfieldman750]

As well as each having a JISA, each of my boys has an investment account. Each April I do a bed and JISA, to transfer funds from their investment account to their JISA. Their investment accounts have performed remarkably well.

Like I said we all need one house to live in but if equities outperform property in the long run, why hold on to another 5 houses and borrow on them ?
It wasn’t me who said don’t invest on margin by the way. That was Warren Buffet, he’s done ok.

 

[Amarillo]

Like I said we all need one house to live in but if equities outperform property in the long run, why hold on to another 5 houses and borrow on them ?
It wasn’t me who said don’t invest on margin by the way. That was Warren Buffet, he’s done ok.

Because the taxman owns 28% of the gain. But while I still hang on to the flats I am making money from the taxman’s 28%.

Suppose I bought the five flats for £750,000 and they are now worth £1,500,000, and rental yield is 5%. I have an income of £75,000.

If I sold all five flats the taxman would want £210,000.

To make my £75,000 from £1,290,000 I’d need a yield of 5.8%

But if I could borrow that £1,290,000 at 4.79% it would cost me £61,791 and I’d be £13,209 better off.

The above is just a basic illustration, but it does show why I think I’d be better off borrowing to invest rather than selling to invest.

 

[Mansfieldman750]

Got you. Sort of. I am now going back to Congo Journey by Redmond O’Hanlon. I would have been 100 miles further up the river if I hadn’t started on this bl**dy forum.

 

[66tim99]

As well as each having a JISA, each of my boys has an investment account. Each April I do a bed and JISA, to transfer funds from their investment account to their JISA. Their investment accounts have performed remarkably well.

Great result! Much better than my daughters JISA. Which company do you use?

 

[willwander]

Risk-free yes and hence attractive for some situations but of course with sterling inflation likely to remain above that 5% level for the time being, those folks will still be losing money in real terms. Sorry if I'm stating the obvious, ie that real returns on cash are always mediocre.

On the other hand the FTSE 100 on a total return basis has I think averaged 7.75% pa since its inception in 1984, which is more than 5% pa after inflation. The MSCI World index, converted to sterling, has done even better, at around 7% pa after inflation since 1987 IIRC. (A fairly well diversified basket of multinational trackers such as the one Amarillo created for his kids will emulate that reasonably faithfully).

I'm defo not advocating borrowing cash to invest in equities, just making the point that equities have historically way out-performed any other reasonably liquid asset class over the long term. You just need the circumstances, and guts, to be able to leave your money there even during the drawdown periods.

I did say… at the moment.
It depends on your timeframe, your attitude to risk and timing the markets. over the longer term equity tracker has a better return. Over the last 12 months S&P is still down -12%, has been down a lot further, and with a recession still possible is still very choppy. Growth stock have fared worse most are down -80%.
Right now, being in cash at 5% risk free might be a decent strategy.

 

[Mansfieldman750]

A

I did say… at the moment.
It depends on your timeframe, your attitude to risk and timing the markets. over the longer term equity tracker has a better return. Over the last 12 months S&P is still down -12%, has been down a lot further, and with a recession still possible is still very choppy. Growth stock have fared worse most are down -80%.
Right now, being in cash at 5% risk free might be a decent strategy.

Absolutely, if your timescale is 1 year you shouldn’t be anywhere near equities

 

[willwander]

A

Absolutely, if your timescale is 1 year you shouldn’t be anywhere near equities

Not quite what I was implying.

I’m an advocate of time in the market is better than timing the market, but managing my drawdown and moving some to cash has saved me a bit last 12-18 months.

 

[GrumpyGranddad]

FTSE100 5-year chart. Only a modest gain. 3-years is excellent. All about entry and exit point.

 

[Amarillo]

Great result! Much better than my daughters JISA. Which company do you use?

That was the investment account the JISAs have not performed so well.

At birth their granddad gifted them the same amount of money he had gifted their ten paternal cousins, plus £250 per month indefinitely.

The lump sum went into a Nationwide Building Society account, if I recall correctly, at 3%; £6,000 into a JISA plus £250 per month. Every April another £6000 into the JISA, plus a trickle totalling £3000.

At the start of the Pandemic Nationwide slashed the interest rate to near zero, and I withdrew the lump sum and placed it in an investment account catching worldwide stock markets in a big dip (I think the boys’ JISAs were then well into negative territory).

So while the JISAs have made modest gains overall, the investment accounts have done very well.

Overall performance is 7.87%.

I’m happy with that.

The JISAs are with Fidelity.
The funds are:
25% UK
15% Europe exc UK
15% US
15% Japan
15% Pacific exc Japan
15% Emerging Markets

The fund charges are:
0.06% UK & US
0.20% EM
0.10 to 0.13% others

 

[Amarillo]

FTSE100 5-year chart. Only a modest gain. 3-years is excellent. All about entry and exit point.

View attachment 106524

I have twice made big (for me) entries.

First was the day after the land invasion during the Second Gulf War. 13 February 2003. I sold in batches around 2006/7 to buy two flats in southern China, and then the remainder 2011 to 2013.

Second was on behalf of my boys soon after the first lockdown on 15 April 2020.

Both times I caught a big dip in the market.

It was not pure luck. It was something I read in The Economist years earlier. Markets fall during a period of uncertainty (waiting for a war to begin Feb 2003, waiting for Lockdown to be announced April 2020). Once that uncertainty is gone markets recover.

Timing a peak is harder. But I guess that if there has been a period of strong gains it is better to sell then than before the strong gains began. But I’m not going to try to time a peak. I’ll sell when I need the money.

 

[Drpps]

Got you. Sort of. I am now going back to Congo Journey by Redmond O’Hanlon. I would have been 100 miles further up the river if I hadn’t started on this bl**dy forum.

Loved that book.
My wife made me read it in another room as she couldn't stand the constant chuckling.

 

[Mansfieldman750]

Loved that book.
My wife made me read it in another room as she couldn't stand the constant chuckling.

Wouldn’t it be great if it’s lain dormant for years and suddenly starts selling again due to being reviewed on a thread about interest rates on a Campervan forum.
Old Redmond would love that. The American sidekick wouldn’t get it though. The enthusiasm sponge.
I’m not that far in due to being in a 12 round bout with Amarillo and ending up concussed. Now that I’ve picked myself up off the canvas I can crack on.
Onwards up the Congo ! And that’s the first time that’s been said on here.

 

[Velma's Dad]

Wouldn’t it be great if it’s lain dormant for years and suddenly starts selling again due to being reviewed on a thread about interest rates on a Campervan forum.
Old Redmond would love that. The American sidekick wouldn’t get it though. The enthusiasm sponge.
I’m not that far in due to being in a 12 round bout with Amarillo and ending up concussed. Now that I’ve picked myself up off the canvas I can crack on.
Onwards up the Congo ! And that’s the first time that’s been said on here.

Okay, just ordered the Kindle edition.

Looking forward to finding out what the chapter on the Capital Asset Pricing Model is like.