Interest rates

[Lambeth Cali]

Charitable status is generally crazy.

The Institute of Economic Affairs is a charity. It’s the think tank that steered Liz Truss to tank the economy. Bonkers!

 

[Vagophile]

The preceeding posts brought to mind this:

O.K. it's off topic, but so is this thread now.

 

[Vagophile]

O.K. it's off topic, but so is this thread now.

But to me makes more interesting reading than the saga of the bent roof or torn canvas, which, quite rightly have their place as the "bread and butter" of the forum.

 

[Wannabecamperman]

We have a lot of private schools in the area where we live. The main criteria is not who can afford the fees, as there are plenty of people in the queue.
If your child has any barrier to learning e.g. dyslexia, you won’t get them into most private schools even if they have siblings already there.
We know this is fact, as friends experienced it.

Generally speaking, grammar or selective schools require entrance exams (11+) or certain academic results in addition to any fees for entry. Naturally, those with the pennies often hire private tutoring to help with this, but yes, if a child has learning difficulties, they will often struggle in any learning environment.

That doesn't mean the brightest and best shouldn't be able to access those selective schools renowned for delivering academic excellence, in my view.

 

[soulstyledevon]

I did have a little chuckle at this video.

We have a generation that have never witnessed a recession. I didn’t realise there was such a thing as, tik tok investors…

 

[Amarillo]

I did have a little chuckle at this video.

We have a generation that have never witnessed a recession. I didn’t realise there was such a thing as, tik tok investors…

What a blithering idiot that investor was…

We have £225,000 of buy-to-let mortgages (down from a peak of £544,000 in February 2014).

Our current mortgage interest payments are £411 per month, and would be rising to £1077 per month when our current 2.19% rises to 5.74% later this year. But we will have had over a year to prepare for the rise (and knew back in February 2014 that the good times would be coming to an end sooner or later).

So since the Kami-Quasi budget we have given ourselves the ability to repay up to a third of our BTL mortgage debt, bringing our BTL monthly interest payments down to £718 per month once we remortgage. An easily manageable £307 increase on what we are currently paying. (Our gross rental income is £5,815 per month).

But even if our mortgage rate had soared to 5.74% back in February 2014 (£2,602 per month), we would have coped. We just wouldn’t have been able to overpay by so much for the next nine years to reduce the debt.

 

[soulstyledevon]

What a blithering idiot that investor was…

We have £225,000 of buy-to-let mortgages (down from a peak of £544,000 in February 2014).

Our current mortgage interest payments are £411 per month, and would be rising to £1077 per month when our current 2.19% rises to 5.74% later this year. But we will have had over a year to prepare for the rise (and knew back in February 2014 that the good times would be coming to an end sooner or later).

So since the Kami-Quasi budget we have given ourselves the ability to repay up to a third of our BTL mortgage debt, bringing our BTL monthly interest payments down to £718 per month once we remortgage. An easily manageable £307 increase on what we are currently paying. (Our gross rental income is £5,815 per month).

But even if our mortgage rate had soared to 5.74% back in February 2014 (£2,602 per month), we would have coped. We just wouldn’t have been able to overpay by so much for the next nine years to reduce the debt.

The difference with this guy is, he’s trying to grow the BTL business. Unfortunately, he didn’t account for the fast changes in the market.
A generation duped into believing in perpetual growth…

 

[Mansfieldman750]

What a blithering idiot that investor was…

We have £225,000 of buy-to-let mortgages (down from a peak of £544,000 in February 2014).

Our current mortgage interest payments are £411 per month, and would be rising to £1077 per month when our current 2.19% rises to 5.74% later this year. But we will have had over a year to prepare for the rise (and knew back in February 2014 that the good times would be coming to an end sooner or later).

So since the Kami-Quasi budget we have given ourselves the ability to repay up to a third of our BTL mortgage debt, bringing our BTL monthly interest payments down to £718 per month once we remortgage. An easily manageable £307 increase on what we are currently paying. (Our gross rental income is £5,815 per month).

But even if our mortgage rate had soared to 5.74% back in February 2014 (£2,602 per month), we would have coped. We just wouldn’t have been able to overpay by so much for the next nine years to reduce the debt.

I don’t know about blithering idiot, he did exactly what you were advising people to do earlier in the thread. See your post #405

 

[Amarillo]

I don’t know about blithering idiot, he did exactly what you were advising people to do earlier in the thread. See your post #405

You have to take that in context of earlier posts.

I was suggesting of a sum of money investing 40% in BTL and 60% in global equities.

If things go tits up, such as a sharp rise in interest rates near the end of a fixed term, you could sell the equities to redeem the mortgage.

That is exactly what that guy should have been doing. Once he’d built his property portfolio he should have been working to diversify his assets.

Instead he got greedy.

It is not what I did either, but I wish I had. What I did, while borrowing at a little over 2%, I repaid debt. Instead I should have been squirrelling money into a stocks and shares ISA and making ~8.5% on money costing me a little over 2%.

If we still had mortgage debt of £544,000 and put £35,000 each year into an ISA since February 2014, I estimate we’d have ISAs worth £484,000 now: a net debt of £60,000. Instead we have a net debt of £150,000.

So, yes. Maybe we are blithering idiots too. But for a very different reason (and less of blithering idiots) than the blithering idiot in the video.

 

[Mansfieldman750]

If things go tits up, such as a sharp rise in interest rates near the end of a fixed term, you could sell the equities to redeem the mortgage.

You could, if your stock market investment was in profit at the time you needed the money.
On the other hand, if your stock market investment is down at the time, and you have to remortgage at a much higher rate, and house prices have fallen, you are in big big trouble.
Better advice would have been :
You are mortgage free. Why don’t you take some of your rental income and have a dabble in the stock market, but remember that if your timescale is 1 year, there is a good chance that you will lose money.
If your timescale is 10 years, there is a 90% chance that you won’t lose money.
If your timescale is 30 years, well no one has ever lost money over that time period in history, even if they invested on the day before the Wall Street Crash or before declaration of a World War, whatever.
My advice, and you can accuse me of being boring and unambitious, is never, ever, borrow money to invest in the stock market. If you do it’s not investment. It’s gambling.

 

[Elmo3]

You could, if your stock market investment was in profit at the time you needed the money.
On the other hand, if your stock market investment is down at the time, and you have to remortgage at a much higher rate, and house prices have fallen, you are in big big trouble.
Better advice would have been :
You are mortgage free. Why don’t you take some of your rental income and have a dabble in the stock market, but remember that if your timescale is 1 year, there is a good chance that you will lose money.
If your timescale is 10 years, there is a 90% chance that you won’t lose money.
If your timescale is 30 years, well no one has ever lost money over that time period in history, even if they invested on the day before the Wall Street Crash or before declaration of a World War, whatever.
My advice, and you can accuse me of being boring and unambitious, is never, ever, borrow money to invest in the stock market. If you do it’s not investment. It’s gambling.

Indeed. Trouble with saying ‘I’ll just sell the equities’ is the same as those who say about rising mortgages ‘I’ll just sell the house‘. Chances are, when you want / need to sell, the market will be depressed.

 

[Mansfieldman750]

Indeed. Trouble with saying ‘I’ll just sell the equities’ is the same as those who say about rising mortgages ‘I’ll just sell the house‘. Chances are, when you want / need to sell, the market will be depressed.

Yes, remember endowment mortgages. The endowment will pay off your mortgage and there will be enough left over to buy you a car. Oh good, give me one of them then.

 

[Velma's Dad]

...My advice, and you can accuse me of being boring and unambitious, is never, ever, borrow money to invest in the stock market. If you do it’s not investment. It’s gambling.

Yes I've said the same myself but yelling into a hurricane of financial services marketing that has persuaded ordinary people that putting money into equities, even short term, is always "investing".

Still, there are always yet more spectacularly stupid people out there:

Bored Ape owners sent broke after NFT price collapse

The cartoon apes that became a status symbol during the NFT boom of 2021 have become a financial albatross for some of their once proud owners, who have plunged into debt.

www.afr.com

 

[Elmo3]

Yes, remember endowment mortgages. The endowment will pay off your mortgage and there will be enough left over to buy you a car. Oh good, give me one of them then.

Quite. In choppy times such as these, folk need insurance. That means cash to ensure you’re not a forced seller of assets. Of course you need long term investments but don’t bank on those for cash required in a 3 or even 5 year timeframe IMHO.

 

[The Tall Luthier]

Yes, remember endowment mortgages. The endowment will pay off your mortgage and there will be enough left over to buy you a car. Oh good, give me one of them then.

I remember these. Our mortgage advisor was duty bound to notify us of his commission for different deals, the endowments earned him a fortune.
Where there’s a scheme there’s a schemer we thought and ran a mile from those products

 

[Mansfieldman750]

Yes I've said the same myself but yelling into a hurricane of financial services marketing that has persuaded ordinary people that putting money into equities, even short term, is always "investing".

Still, there are always yet more spectacularly stupid people out there:

Bored Ape owners sent broke after NFT price collapse

The cartoon apes that became a status symbol during the NFT boom of 2021 have become a financial albatross for some of their once proud owners, who have plunged into debt.

www.afr.com

I can’t read it all without a subscription but I get the gist. They deserved it. As W.C. Fields put it - never give a sucker an even break.

 

[Amarillo]

Yes, remember endowment mortgages. The endowment will pay off your mortgage and there will be enough left over to buy you a car. Oh good, give me one of them then.

Hahaha. That is exactly what my mortgage advisor said to me in 1990 when I bought my flat.

The loan was £40,000 and in 2015 the endowment policy was worth £25,000. Fortunately, I’d already paid off the mortgage, so the £25,000 went towards buying Amarillo - so I did, at least, get half a car out of it (but not a penny towards the mortgage).

 

[Velma's Dad]

I can’t read it all without a subscription but I get the gist. They deserved it. As W.C. Fields put it - never give a sucker an even break.

Sorry, it wasn't paywalled somehow when I read it. Yes the crux was that people "invested" inthe Bored Ape NFTs, watched them soar in "value", and then used them as collateral to borrow to buy... more Bored Ape NFTs.

 

[Amarillo]

You could, if your stock market investment was in profit at the time you needed the money.
On the other hand, if your stock market investment is down at the time, and you have to remortgage at a much higher rate, and house prices have fallen, you are in big big trouble.
Better advice would have been :
You are mortgage free. Why don’t you take some of your rental income and have a dabble in the stock market, but remember that if your timescale is 1 year, there is a good chance that you will lose money.
If your timescale is 10 years, there is a 90% chance that you won’t lose money.
If your timescale is 30 years, well no one has ever lost money over that time period in history, even if they invested on the day before the Wall Street Crash or before declaration of a World War, whatever.
My advice, and you can accuse me of being boring and unambitious, is never, ever, borrow money to invest in the stock market. If you do it’s not investment. It’s gambling.

The timescale for a mortgage is usually 25 years.

£250,000 to spare (perhaps an inheritance).
£100,000 into a BTL valued at £250,000, and £150,000 into global equities seems like a sound strategy, even in these slightly more challenging times.

 

[Mansfieldman750]

The timescale for a mortgage is usually 25 years.

£250,000 to spare (perhaps an inheritance).
£100,000 into a BTL valued at £250,000, and £150,000 into global equities seems like a sound strategy, even in these slightly more challenging times.

No, you’re missing the point.
The advice you were giving was to @2into1. Sorry 2into1, I feel I am talking behind your back without your permission.
He had some rental properties and no mortgage. Your advice to him was to take out a 60% mortgage on his properties and use the proceeds to invest in the stock market.
I’m sorry but I think that was shocking advice. We can agree to disagree on that, maybe it’s a case of caution versus some fancy jiggery pokery.
Another thing is this idea you have that it has to be global equities. Don’t forget that the dollar was $1.03 to the pound in the Liz Truss days, now it’s $1.31, so although the S&P500 has been steaming ahead, you would have lost the gains if you had bought an S&P tracker with pounds. I suppose it evens out over time, just saying you are introducing currency exposure Into the mix.
At the end of the day you will do things your way and I wish you luck with it but I certainly wouldn’t want to be in the Buy to Let business at this time.
I like to sleep at night.

 

[Velma's Dad]

At the end of the day you will do things your way and I wish you luck with it but I certainly wouldn’t want to be in the Buy to Let business at this time.
I like to sleep at night.

The trouble is, a lot of people who find themselves with some cash to invest fail to understand the crucial importance of portfolio diversification in investing, and/or don't have a sufficiently large capital pot to diversify it even if they wanted to.

The whole concept of asset classes, and the correlation between classes, has never been explained to them and consequently their choice of assets is too narrow, alongside often also being poorly matched to their risk appetite and investment horizon.

An additional gotcha is that a lot of people's core wealth - if they have any - consists of equity in their own home. So then investing cash in additional residential property concentrates rather than diversifies their asset class risks.

 

[Elmo3]

The trouble is, a lot of people who find themselves with some cash to invest fail to understand the crucial importance of portfolio diversification in investing, and/or don't have a sufficiently large capital pot to diversify it even if they wanted to.

The whole concept of asset classes, and the correlation between classes, has never been explained to them and consequently their choice of assets is too narrow, alongside often also being poorly matched to their risk appetite and investment horizon.

An additional gotcha is that a lot of people's core wealth - if they have any - consists of equity in their own home. So then investing cash in additional residential property concentrates rather than diversifies their asset class risks.

Indeed. Throw leverage into the mix (on BTL) and that lack of diversification is amplified further.

 

[Amarillo]

No, you’re missing the point.
The advice you were giving was to @2into1. Sorry 2into1, I feel I am talking behind your back without your permission.
He had some rental properties and no mortgage. Your advice to him was to take out a 60% mortgage on his properties and use the proceeds to invest in the stock market.
I’m sorry but I think that was shocking advice. We can agree to disagree on that, maybe it’s a case of caution versus some fancy jiggery pokery.
Another thing is this idea you have that it has to be global equities. Don’t forget that the dollar was $1.03 to the pound in the Liz Truss days, now it’s $1.31, so although the S&P500 has been steaming ahead, you would have lost the gains if you had bought an S&P tracker with pounds. I suppose it evens out over time, just saying you are introducing currency exposure Into the mix.
At the end of the day you will do things your way and I wish you luck with it but I certainly wouldn’t want to be in the Buy to Let business at this time.
I like to sleep at night.

I don’t see a difference in investment strategy between inheriting £250,000 cash, buying a £250,000 house with a £150,000 mortgage that goes into equities, and inheriting a £250,000 house, mortgaging it for £150,000 which goes into equities.

I’d be delighted if my investment portfolio was split 3:2 equitiesroperty with the value of my equities roughly equal to the value of my debt.

Currently my split is about 1:40 with the value of my equities about a sixth of my debt.

 

[Mansfieldman750]

I don’t see a difference in investment strategy between inheriting £250,000 cash, buying a £250,000 house with a £150,000 mortgage that goes into equities, and inheriting a £250,000 house, mortgaging it for £150,000 which goes into equities.

I’d be delighted if my investment portfolio was split 3:2 equitiesroperty with the value of my equities roughly equal to the value of my debt.

Currently my split is about 1:40 with the value of my equities about a sixth of my debt.

We need to be clear about what has happened over the past decade or so.
House prices increased. Everyone who owns a house has benefited. Their net worth has increased.
People who own 6 houses have benefited even more - sixfold. Their net worth has greatly increased. Hats off to them. Great timing.
If they were using borrowed money instead of their own, they benefited greatly from ultra low interest rates.
Now it’s all changed. Interest rates have gone up and servicing the debt is more costly.
If house prices fall, the people who own 6 houses will see their net worth fall by 6 times more than the people who only own 1 house.
That‘s how it goes. Now if you had only bought say 3 houses in the first place and put some money in a Stocks and Shares ISA every year instead, you would now have a more diversified portfolio, and the equity component would be tax sheltered, as you have alluded to yourself.
But you didn’t and now you have to sort it out as best you can. I don’t envy your task.

 

[Mansfieldman750]

The trouble is, a lot of people who find themselves with some cash to invest fail to understand the crucial importance of portfolio diversification in investing, and/or don't have a sufficiently large capital pot to diversify it even if they wanted to.

The whole concept of asset classes, and the correlation between classes, has never been explained to them and consequently their choice of assets is too narrow, alongside often also being poorly matched to their risk appetite and investment horizon.

An additional gotcha is that a lot of people's core wealth - if they have any - consists of equity in their own home. So then investing cash in additional residential property concentrates rather than diversifies their asset class risks.

There was a very good book on asset allocation, Smarter Investing by Tim Hale.