You don’t need to be paid-up member of the Monevator mafia to recognize the pain of rising interest rates.

All you need is a mortgage.

Rates soared in 2022. And anyone coming off a fixed-rate mortgage they’d bagged in the near-zero era found they were on the queasiest roller-coaster ride since a post-beers jaunt at Munich’s Oktoberfest.

That includes me. I got my mortgage in 2018. The rate was 2%, interest-only, fixed for five years. Due to my unusual income and asset profile I had to literally write to the CEO of a bank to secure it.

Thankfully, the CEO immediately saw the sense. But please do keep this in mind with what follows.

If you’re a vanilla mortgage customer, then you’ve far more options for dealing with rate volatility than me.

I wrote about stress testing your mortgage in June 2022. We also ran through a mortgage risks checklist. After doing your sums, you might well have concluded an early repayment charge was worth paying to lock in a new deal before rates rose further.

But I was too nervous to prod my bank. In fact, I wasn’t 100% sure what would happen when my deal expired. The CEO had left. The bank seemed more risk averse. Would it do something mad like ask me to repay in full? (On the face of it against the 25-year term, but you never know.)

A few inquiries established that other banks still didn’t want my custom – not any more than five years ago. Shopping around like most people wasn’t an option for me.

So I waited for my automatic three-month ‘remortgaging window’ to open. I hoped to snag a new rate with a few clicks via my bank’s online platform. All without a human staffer raising an eyebrow.

But then came Liz Truss.

Budget bazooka

The Tories have given me many reasons to regret my rare vote for them in 2010.

The Referendum. The hard Brexit interpretation of the close result. Boris Johnson.

“Hold my pint,” said Liz Truss, before unleashing her Mini Budget.

Already climbing, bond yields and swap rates soared just as my remortgage window opened. Every time Kwasi Kwarteng spoke, I needed to find another £100 a month for the next five years.

Can you spot the Mini Budget below?

Truss and Kwarteng weren’t responsible for all that climb. And yields remained elevated even after they got their marching orders.

But that extreme spike, with no signs of stopping? Lenders slashing their mortgage ranges and hiking rates on what was left? Pension funds on the point of blowing-up?

The worry felt by ordinary people having to make a huge long-term decision with the serenity of an engineer using a slide rule on the dodgems?

That was made in Whitehall.

Up, up, and away

Even before my remortgage window opened, I was watching swap rates and daily visiting my bank’s (admirably transparent) mortgage website page.

For a good while its relatively low rates didn’t budge.

I wondered why.

Were customers truly being offered these rates? Did it have some tranche of cheap funding to work through? Was it desperate for market share?

All very interesting. But what I should have been doing was grabbing its five-year fixed-rate – then under 4% – with both hands.

Sure enough, one day I refreshed the rates tab to find all its mortgages had jumped up by more than a full percentage point.

Indeed at its worst, a five-year fixed rate for my loan-to-value rose to well over 5%. That compared to the 3.5% I was modeling in summer, and of course the (now fantasy land) 2% I was coming off.

The rate hike would pump-up payments on my chunky interest-only mortgage overnight from much less than £1,000 a month to more than £2,300.

Now, it’s worth reminding readers – especially if you haven’t read my mortgage origin story above – that at all times I had far more than sufficient assets in my ISAs and elsewhere to pay off the mortgage completely. I could use my assets to pay the monthly repayments too.

So this wasn’t an existential threat.

It was, however, a sucker punch.

Like most stockpickers I’d gone from giddy markets and a frothy portfolio in summer 2021 to a seriously battered warchest. Now I faced a squeeze on my cash flow too.

To compound things, I’d eased off freelance work in those heady 2021 days. So I had less cash coming in to call upon. Maybe I’d end up drawing down my portfolio years ahead of schedule.

Thankfully, while I fretted about all this Truss was ousted and swap rates finally eased. That implied mortgage rates would soon come down, too.

I decided to wait a while longer. I even gamed out paying my bank’s Standard Variable Rate (then well north of 7%) for a few months if it looked like rates would fall rapidly – though going on to the SVR would be heinously expensive, at more than £3,000 a month.

Mortgages and emotions

Despite seeing light at the end of the tunnel, I had to concede all this was stressing me out.

Which surprised me. I’ve many years experience of juggling my net worth and more recently running a portfolio an order of magnitude (and then some) bigger than my best-ever annual earnings.

One time I liquidated half my tax-sheltered portfolio in a morning – and then headed out for a jog.

I’m not saying this as a flex. It’s just to highlight that I’ve done my shift in the trenches with big financial decisions – and I’m usually pretty rational about finances and investing.

But this mortgage rate volatility had given me the willies.

I even called The Accumulator. His sage advice was to pay off some of the mortgage while I waited to see where rates went. And to pay attention to how it made me feel.

Maybe I could pay down some more if I felt an overwhelming sense of relief?

Or maybe not, if I didn’t.

Fortunately, I still had a big chunk of cash lying around from my sale of unsheltered shares in Spring 2021 – especially from dumping a massively over-sized Amazon position.

I had done this selling partly fearing a capital gains tax hike, and regretted it when CGT rates were left unchanged.

That regret was eased when tech shares plummeted later in the year.

Now I was actually grateful to my former self.

I paid off 10% of my mortgage balance and sat back to enjoy the endorphin rush.

But there was none.

The projected monthly mortgage payment amount dropped by a couple of hundred quid or so, but to me it still looked like I would be paying out the equivalent of a foreign holiday a month out of sheer bad luck, given how I’d unwittingly anchored to my previous lower rate.

Also, I missed having all that cash to hand. It had stood ready to help with those higher bills, for one thing.

And there were other dramas on my way to remortgaging.

For instance, the bank’s online platform borked, and for a few days I thought my account had perhaps been flagged for investigation. I’d discovered I could ‘bank’ a mortgage offer and then wait to see if rates fell further, but these technical issues complicated even that.

I ended up talking with staff after all. At least they reassured me that I was definitely going to be able to remortgage.

Finally – after just a month on that ball-breaking Standard Variable Rate – I refreshed the mortgage page to saw a new five-year fix at just under 4.5%. I’d pay a little over £1,600 a month.

I checked the URL and reloaded. It was still there. So I did the necessary, and finally felt some relief.

Of course a few weeks later my bank was offering well below 4% for the same fix! Which is entirely on-brand for this saga.

But at least the 10% I’d paid off wasn’t a wasted experiment.

Only by making this payment had I put myself into the bank’s best loan-to-value band. Which was what had enabled me to bag its best five-year fixed rate.

Small victories.

Late to the party

I’ve gone into all this biographical detail because some of you have been reading about my mortgage adventures for many years now. A few of you asked about my remortgaging, too.

In fact I’ve previously had to explain in Monevator comments why I wasn’t remortgaging in Summer 2022.

While we do always need to beware hindsight bias – almost no-one predicted what rates did last year – I believe if I hadn’t been nervous about rattling my bank, I would have remortgaged early in June or July.

After all I was writing those stress-test articles (linked to above), and I’d warned about the regime change to higher rates several months before that.

Remortgaging in summer would have secured 3.5% fixed for five years – and maybe more sleep.

And it’s that sleep point which is motivating my slightly self-flagellating tone today.

A mortgage is still a debt

To be clear, I have never been against paying off a mortgage. My articles on investing instead have invariably noted that paying down the mortgage is usually a sensible decision for most people.

That’s true even when the mathematics say otherwise – inspiring more risk-hungry souls like myself to see mortgage debt as cheap funding for investment.

And I knew a big reason to pay off early was the emotional dividend. Not being stressed about being on the hook for a mountain of debt – nor even worrying about the monthly repayments.

However it’s one thing to know something and another to live it.

I’d already learned that carrying a big mortgage potentially affected my investing. (I partly blame my huge Tesla investing misstep on getting used to being a borrower.)

But that dread I felt during the remortgage process, of being at the mercy of chance – and political ideologues – was far more unpleasant than I expected.

As a lifelong debt hater, I’d highlighted to a skeptical friend when I took out my mortgage in 2018 that for the first time I’d opened up a path to going bankrupt (however unlikely). The potential was now there for my mortgage to outweigh my assets in a 1930s-style crash, putting me underwater.

So I was alive to my aversion even to mortgage debt, which is by far the most palatable kind of borrowing.

Yet when things got hairy, I’d discovered I felt threatened by the mortgage in a way that I’ve never been worried by, say, a bear market.

Admittedly, paying down £50,000 didn’t do much to alleviate things. I’m guessing there’s something binary going on between having any debt and none.

But that was a lesson too.

Again, I’ve long known retaining a big cash cushion was reassuring, even if it’s theoretically sub-optimal.

But I missed it more than I anticipated once it was gone.

So I’ve changed my mind about some things

Despite this rather emotional journey, I’ll keep running my mortgage for the foreseeable.

However the episode did result in some changes to my portfolio – I now maintain an explicit buffer of lower-risk assets, partitioned from my usual investing antics – and also to my long-term thinking.

I can’t now imagine going into true retirement with the mortgage, for example. Before I’d wondered whether I’d ever pay it off, versus letting it dwindle into inflation-adjusted insignificance if I could.

So let this be a moment for you pay-off-the-mortgage militants to enjoy a bit of schadenfreude.

Like I said, I never thought paying it off was the wrong decision for anyone.

But I do now feel it’s a bit more right than I did before.

Why I stayed invested and kept the mortgage

Given the finer margins of investment returns versus the higher cost of debt – not to mention my remortgaging drama in the midst of market chaos – why didn’t I just get shot of the thing?

Again, paying it off would be perfectly sane.

However for various reasons I didn’t.

It’ll probably still be more profitable to invest. Even on standard expected returns, my portfolio should still outperform over the next 20 years if tax-sheltered. However it’s a far closer call – and paying off a mortgage is a sure thing, versus uncertain investment returns. So it’s my own active track record I’m looking to, personally. This is holding well into double-digits per annum even after a terrible 2022. Fingers crossed. (Try our spreadsheet to explore the maths for yourself.)

Retaining tax shelters (ISAs). This has always been a prime motivation for my having a mortgage. If my portfolio couldn’t be tax sheltered in ISAs, I’d probably ditch the debt. I’d also consider doing so if annual ISA allowances were unlimited, on the grounds I could rebuild the shelter later. But the ISA allowance is a use-it-or-lose-it affair. Who knows where my finances will be in a decade or two? If I’m lucky though and I continue along the same track, I’ll be pleased to have built up a seven-figure tax-shielding ISA fortress. (See Finumus’ article on borrowing just to fill your ISA each year.)

It’s a hedge against hyper-inflation. We need to do a proper article on this, because you can tie yourself in knots. High inflation quickly erodes the ‘real’ value of debt in today’s terms. Hurrah! But what if whatever you spent the mortgage on languishes? If house prices fall or are stagnant, was it still a hedge? (I think so…) But I’m invested, too – so what about market returns? Or what if incomes rise fast, making it easier to pay off? Where do taxes fit in? (Inflation ‘gains’ on eroding debt aren’t taxed…) Broadly, I see my big mortgage as a hedge against high inflation. It aligns me too with the government, which also has a debt problem. The cost is extra risk – though inflation does diversify my need to achieve high investment returns. (Everyone with debt ‘earns’ when higher inflation erodes its real value, regardless of skill.)

I might not ever be able to get another mortgage in size. This won’t apply to most. But unless I decide to ramp up my income massively, I’ll never be able to replace this mortgage. (Recall: I had to go to a CEO for it.) Even if I was earning the six-figures required, I’d more likely put most of my earnings into my SIPP – at least while the lifetime allowance is in abeyance.

I’m not running a fund professionally. Very personal. A few years ago I threw in the towel on the idea of running money professionally. A story for another day. Anyway, I sort of see the mortgage as my nod to running Other People’s Money. My bank’s money! It’s my small way of using external assets to grow my wealth.

More than a feeling

I don’t fault anyone whose response to 2022 was to pay down their mortgage, pronto.

Even more power to you if you saw this coming and did the deed earlier.

For now I soldier on – though this may change if and when the facts and my finances do.

Or if Liz Truss somehow gets back into office. (I think I’d sell my flat and emigrate.)

Having dealt with the emotional and personal side, I’ll look at the numbers more generally in a fortnight or so. Subscribe to our free email updates to ensure you see it!

What caught my eye this week.

Today marks a new era for the somewhat United Kingdom. Long live the King. Or at least let nobody begrudge Charles III the 13 years the ONS reckons he’s due.

Likewise, it’s also time for something new at Monevator.

Because today we’re launching a Substack-style membership tier. For a small recurring fee, you can be the proud(ish) recipient of either one or two members-only emails a month. With on-site benefits too.

And by signing up you’ll help keep Monevator going for… perhaps another couple of decades?

More below, or else jump over to our sign-up page to be an early adopter. (With our thanks!)

I’ll level with you. These member emails won’t suddenly transform your life. They’re not going to make you a millionaire in a year or rule your retirement or supercharge your salary.

But if you already know and like what we’re doing around here, then you’ll enjoy them. We’re certainly not embarking on a divergent path as Internet influencers or anything like that.

So why are we doing it? And why do I hope you’ll consider joining?

A bit of background.

Tiny violin orchestra

Monevator has never been a big money spinner, to put it mildly. Cultivating an audience keen on cutting costs and saving for financial freedom is not very compatible with minting the readies.

I began posting in 2007 and for the first five or so years the site was entirely a passion project. Which, given the hours I (and soon enough my co-blogger) put in made Monevator what dating coaches call a high maintenance relationship.

Things did pick up. Advertising and some affiliate sales grew with traffic. But I turned down lucrative requests every day to do paid-for posts or links, and we’ve never gone down the ‘Make Money Online’ path that so many do.

Still, we were edging onwards and upwards.

Indeed by summer 2021, if you squinted, we almost looked like a real business. On leaving the workforce, my co-blogger The Accumulator was able to devote himself more to the site – having written his articles during his weekends for a decade – and there was a budget for it too.

I began to daydream about a Monevator site design makeover – so my younger friends would no longer laugh at it.

But these halcyon days didn’t last.

I won’t belabour the story: basically a one-two-three punch of the end of lockdowns, a Google algorithm thwack, and the collapse in ad rates hitting everyone from Facebook to, well, us, slashed our inbound search traffic (the transient visitors who actually click on ads) and crashed our income.

Back down the snake we slid, after only just climbing that ladder.

The Accumulator was dialed back again. We’d been making good progress updating the articles that needed it, but that also went on hold.

And the mooted design revamp? Well this is why Monevator still looks like you’ve just woken up the day after Lehman Brothers failed in 2008…

Subscribe and save

You may have noticed many big media sites – let alone indie blogs – shutting down or else getting covered with clickbait in recent years… What This Woman Learned When She Gave Up Wearing Her Bra. How Nigel Farage Keeps Slim Thanks To This One Simple Trick.

The social media platforms long ago gutted most of the alternative online media. YouTube, Instagram, and TikTok have done a number on what was left.

Fair enough, I suppose. We get who we vote for and what we pay for. Perhaps most people can live without verbose wonky articles, and prefer a 20-second video of somebody raving about the FTSE while standing in a bucket of iced water wearing a Superman cape.

Who am I to judge?

However not everybody does. Email subscription platform Substack has shown people will pay to support quality content. And this model is appealing to us, because it aligns with what we believe you prefer too. Authentic and trustworthy info – not us selling products, or writing top ten lists for the eyeballs.

One option then was to move Monevator to Substack. (It’d also solve the 2008 chic issue!)

However many of you add a lot of value to our articles via your own comments, and countless more benefit when you do so. That works best on blogs. Besides, I still believe in independent websites.

Hence we decided to instead add subscription and membership features to Monevator.

The perks of being a Monevator member

The result is a little clunky, but it works. You’ll see a sign-in link on the top-right of the Monevator website. When you log-in as a member, you also see a little box in the sidebar, from where you can take ownership of your commenting ‘nickname’ and your avatar displayed alongside comments.

Baby steps.

You’ll also notice Monevator has no ads when you’re logged in as a member. This is another benefit to signing up. While I’m grateful for the revenue that advertising does still bring in, it’s obviously a more peaceful experience without it.

(Yes, we all know you can use an ad blocker. But too many people do that and we – and other content creators – may have to shut up shop. There’s a cost to making everything free.)

Our membership and subscription emails are delivered with software from Memberful (owned by Patreon). The financial stuff is handled by the ubiquitous payments juggernaut Stripe.

Indeed we don’t process your credit card details at all. So don’t worry about that.

As for those member emails, I’m not going to over-hype them. (Why do I sense buzzers and lights going off, Take Me Out style? Where’s Paddy McGuinness when I need him?!)

The Accumulator’s monthly ‘Mavens’ email will be passive and FIRE-focused. Business as usual but maybe with a slight tilt more towards de-accumulation. (Hey, we oldies can better afford it.)

An additional monthly email – which you get if you sign up for ‘Moguls’ membership – will be by me, and it will be for like-minded active investors and market maniacs.

This is the stuff I first set the website up to share but I’ve stopped posting in recent years. In part because I haven’t wanted to dilute the key Monevator message that’s evolved – that most people should use index funds – but also because I grew tired of writing endless caveats and disclaimers.

So expect heretical emails flagging up interesting stocks and funds, others on market conditions or new strategies – the content will evolve as we find our feet, but it will be unapologetic in being for those who know better but who love the game.

Oh, and it is definitely NOT going to be personal investing advice. Nor will I guarantee Five Stocks To Beat The Market or the like. (If I could promise you that, I’d charge a lot more for it.)

However I will do my best to create a monthly email that subscribers actively look forward to, as we explore together the perplexing challenges of active investing.

Your investing website needs YOU

So that, in too many words, is what our new membership service entails. (Summary here).

But let’s be honest, this is also us asking you to help support the 80% of new content that will still be free – and the more than 2,000 articles we’ve published in the past and continue to update.

We hope you’ll see the monthly tariff as more reasonable in that light.

In fact over the past 17 years I’ve had literally hundreds of people ask me how they can give us a bit of money. This hasn’t happened with anything I’ve done before (except for being a grandchild).

You’ve suggested Patreon support, tip jars – even my Bitcoin address at the end of every post.

But I wanted to do it properly. Belatedly, this is our stab.

We probably need roughly 1,000 of you to become members – not all on the cheaper Mavens tariff – for us to become relatively safe from Google’s whims or the pressure to turn more articles into affiliate pitches or whatnot. (At least until the AIs rip-off all our content and kill us anyway.)

With enough members, we will be free to create more – and sometimes deeper – articles. As well as revamping more of the good stuff in the archives and making it more accessible.

Above all we can strive to make Monevator the only place the average person needs to visit to become a successful – and self-directed – investor, in control of their own financial destiny.

In short, we all win!

Will we achieve escape velocity? I have no idea. But it’s partly down to you.

So please do check out our sign-up page and consider becoming a Monevator Maven or Mogul.

And have a great coronation weekend!

[continue reading…]