Mortgage Rate Rises

[413x]

Some serious calculations needs to be done..

Like the post before me is saying, your doubling your risks and costs in certain areas.

what are your short terms and long terms goal? It may be worth speaking to a financial advisor.

The interest payments of paying a property with a mortgage is a killer. The percentage is calculated at the start of each month and divided by 12 and added to the amount owned. The cheapest way of buying is to put down as much deposit as possible and pay off the mortgage as soon as possible with over payments.

Some people believe it’s better to invest in the stock market than to use the money to pay off the mortgage. Which is true in the past as mortgage rates was around 2.5% and the stock markets return around an average 9%. But there’s no guarantee what the stock market returns in a given year or a period of years and with higher mortgage rates, it may be better and certainly more satisfying to pay of the house sooner. Also after paying off the mortgage, there’s the opportunity to use the funds of the mortgage to buy a second property or to take higher risks for better returns in the stock market.

One thing is for certain, if you just leave the cash in a normal account, inflation will eat away at it.

One of my friends was telling me that there are buy to lease schemes; Where you buy a property then lease it out to someone to rent, they the ones that takes the risk on in regards of the management of the property.

And lease to rent schemes, where you lease a property from someone and take on the risk of managing the property.. in terms of its maintenance and finding someone to rent it. This sounds crazy.

What I’m doing at the moment is putting my eggs into serval baskets.. a percentage into the stock market and a percentage into paying off my house sooner. And the returns from my managed accounts; my pension and vanguard has returned higher than the interest from my mortgage. But the account that I manage/mess about with myself is lower than my mortgage.

The other thing that I’m doing is investing in REITs, which is buying share into real estate companies that rents/leases out properties to companies and people. So basically I’m buying a percentage of a property portfolio and getting a percentage of those companies profits. They do all the buying/selling of properties and the management. It’s far more liquid than buying a property but you don’t get the advantage of leveraging and like all shares can go down if a load of shares are dumped.

In 2023 I bought a lot of REITs too.

Historical dividends were running at 10pc for many. Plus a halving of share price.

If (and it's a dangerous assumption) they went back to before this you'd double (at least) your money and be hitting a 10pc YoY yield.


If..

 

[413x]

I've noticed savings rates have started to drop. The best fixed rate ISA being offered with Cov BS is now 4.65% whereas I fixed one for 5.27% in Sept, wish I had done a 2 yr fix now!

Yeah the peak is over.

 

[slinxy]

Thanks Slinxy for your post. Very informative and helpful.

I may just get a 2bed flat in London then. Take in a lodger (900-1k a month) extra and put savings back into the stock market and find relative safe companies that pay dividends and keep reinvesting them

The government has a rent a room scheme that allows a gross income of £7500 per year from renting a room to be tax free. Anything more and it’s taxable at the rate of your income tax.

You will also be responsible for council tax and all the bills..

As a suggestion, you may want to consider a male student lodger.. they would only need a place for a certain period of the year and you would get a discount on your council tax. But then you will have to put up with a student.. messy, partying.. funky smell coming from the room lol

The reason why I’m suggesting a male and not a female as they (the females) are more likely to want the heating on all the time and from my experience, female student digs can be far messy than male digs..

 

[200sols]

In 2023 I bought a lot of REITs too.

Historical dividends were running at 10pc for many. Plus a halving of share price.

If (and it's a dangerous assumption) they went back to before this you'd double (at least) your money and be hitting a 10pc YoY yield.


If..

Not going to happen unless rates go to zero again.

 

[Mercenary Keyboard Warrior]

My mortgage provider Britannia via Co-op is still monthly, I believe unless people are making anything else than monthly payments, monthly payments is slightly cheaper.

I am 99% sure my 2001 mortgage I had with Britannia was daily interest.
I wonder, are you confusing the fact that they add interest to your account monthly, with the actual calculation (which is as I said, and has been for most lenders now for a long time) of daily interest.

My mortgage with Nationwide was normal in that it had interest added monthly, but it was calculated daily.

 

[MatsyLR]

Just paid my 10% overpayment for the year (£3246.77) my wallet feels lighter

 

[M1k3H]

Just paid my 10% overpayment for the year (£3246.77) my wallet feels lighter

I also overpaid (not up to 10% though, we usually overpay by roughly 40% per month, but had skipped a few months and calculated how much I'd need to go back up to that, and paid in roughly £2,000 last week).

Feel the pain but our future wallets should be heavier as a result.

 

[gort]

I'm making overpayments mixed with adding to my managed S&S ISA.
The ISA return was slightly better than the mortgage overpayments but happy to keep as is.

 

[HangTime]

Are we hoping for rate drops in the Spring or is it likely we are going to have to wait longer. I understand no one can be sure but just looking for peoples thoughts.

I'm hoping for rate rises but I don't expect them. My prediction would be stability, rates largely unchanged unless there are any shocks to the economy.

 

[pc-guy]

The reason why I’m suggesting a male and not a female as they (the females) are more likely to want the heating on all the time and from my experience, female student digs can be far messy than male digs..

That is most definitely true.

 

[ninjabib]

The government has a rent a room scheme that allows a gross income of £7500 per year from renting a room to be tax free. Anything more and it’s taxable at the rate of your income tax.

You will also be responsible for council tax and all the bills..

As a suggestion, you may want to consider a male student lodger.. they would only need a place for a certain period of the year and you would get a discount on your council tax. But then you will have to put up with a student.. messy, partying.. funky smell coming from the room lol

The reason why I’m suggesting a male and not a female as they (the females) are more likely to want the heating on all the time and from my experience, female student digs can be far messy than male digs..

I've been a home owner with a live-in lodger before. Definitely no female room mate, messiest people i've ever lived with.

 

[mattyfez]

I don't think there will be any major crash..
There will be some stagnation and market correction as we are already seeing with interest rates dropping.
That said, they ain't gonna go back down to 1%..that was just crazy.. 3/5% will probably be the new normal.

 

[Participant]

The ISA return was slightly better than the mortgage overpayments but happy to keep as is.

Not everyone factors risk into the ISA investment vs. mortgage overpayment debate.

Since mortgage overpayment is basically a risk-free / guaranteed return (ignoring equity deflation), you'd expect ISA returns to be a lot higher than mortgage overpayments, as they are a lot more risky. This is not the case, so at the moment I'd always lean towards mortgage overpayment once I had a healthy rainy day fund in an ISA.

Pension vs. mortgage is more interesting as you obviously get tax relief on contributions, far more relief per annum than most people will ever get close to.

 

[NickK]

Just paid my 10% overpayment for the year (£3246.77) my wallet feels lighter

Yup we should be doing that soon as this weekend.

 

[NickK]

Not everyone factors risk into the ISA investment vs. mortgage overpayment debate.

Since mortgage overpayment is basically a risk-free / guaranteed return (ignoring equity deflation), you'd expect ISA returns to be a lot higher than mortgage overpayments, as they are a lot more risky. This is not the case, so at the moment I'd always lean towards mortgage overpayment once I had a healthy rainy day fund in an ISA.

Pension vs. mortgage is more interesting as you obviously get tax relief on contributions, far more relief per annum than most people will ever get close to.

The mrs calculated we needed 1.8M to live comfortably. The reality is we're not going to hit that figure without robbing a bank or a large change to the income.

 

[Bobmunkhouse]

The mrs calculated we needed 1.8M to live comfortably. The reality is we're not going to hit that figure without robbing a bank or a large change to the income.

1.8m for what? Retirement?

 

[delta0]

The mrs calculated we needed 1.8M to live comfortably. The reality is we're not going to hit that figure without robbing a bank or a large change to the income.

That’s quite a chunk. Invested properly you are looking at an income of £60k+ rising with inflation every year for the rest of your life.

 

[ci_newman]

1.8m for what? Retirement?

That’s quite a chunk. Invested properly you are looking at an income of £60k+ rising with inflation every year for the rest of your life.

I assume that's both of them though so a combined pot of £1.8m.

A couple on a reasonably high salary (£50-60k each) could hit that in their lifetimes quite easily with a matched contribution of 10% (so 20% with employer matched).

[Edit] That's not taking into account inflation either. £60k retirement income today != £60k retirement income in 30 years.

 

[delta0]

I assume that's both of them though so a combined pot of £1.8m.

A couple on a reasonably high salary (£50-60k each) could hit that in their lifetimes quite easily with a matched contribution of 10% (so 20% with employer matched).

[Edit] That's not taking into account inflation either. £60k retirement income today != £60k retirement income in 30 years.

It’s a big number for retirement. My calc is based on FIRE so allows the £60k+ drawdown to rise with inflation.

 

[adam cool dude]

I'm hoping for rate rises but I don't expect them. My prediction would be stability, rates largely unchanged unless there are any shocks to the economy.

Exactly rates dropping down to what they were is just bad news for everyone in the long run. Somewhere between 3-4% should be the normality really.