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Weekend reading: Where to stash the cash in a crazy world

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What caught my eye this week.

I sold a six-figure shareholding last week for a phenomenal capital gain – over 1,000%.

For historical reasons the shares were held outside of an ISA. This means I’ve got a big capital gains tax bill coming, despite years of defusing.

The sheer size and hence risk of this single position – and the awkwardness of trading it outside an ISA – meant something had to be done. Rumours that Rishi Sunak might raise capital gains tax rates tipped me over the edge.

Like most taxpayers I remind myself I support an accessible health service and a welfare safety net. My sister is a nurse.

Thank you NHS.

But not to the tune of a mooted 45%!

To stash or not to stash the cash

The lessons of this investment – and of getting rid of it – will be fodder for a future post. As will be my specific findings from what happened next.

Which was deciding what to do with it.

Remember, I’m running a big interest-only mortgage, which through one lens is borrowing to invest. So somewhat risky.

Euphoria abounds in the stock market today – and elsewhere. Bitcoin just breached $56,000. Bulletin boards are blowing up hedge funds. Growth stocks seem unstoppable.

Even with nominal yields on government bonds sneakily rising, real yields remain very low and confidently predicting an imminent bust is folly. But it hardly seems imprudent to take some money off the table.

The trouble is where to put it?

I knew, of course, that rates were very low. I sort of assumed if I dug around I’d eek out something decent across multiple savings accounts.

But no, not to the extent it’s worth the hassle.

Long story short, Premium Bonds seem about as good a place as any for the maximum I can put in them.

I will keep a further chunk in cash, despite inflation eroding its value. I’ve felt too light on cash ever since I bought my flat, and I love Jamie Dimon’s description1 of having a fortress balance sheet. It’s time to rebuild my walls.

Otherwise, I’m thinking I might actually throw a few pennies at that big interest-only mortgage that half of you hate so much!

I’d presumed I’d run my mortgage full tilt for a decade, at least. But it is looking like some of my expected investment gains have probably been front-loaded.

What’s more, my bank’s rates have already floated off the floor. I have two years left of my very low five-year fixed rate to run. Given the odd way I got this mortgage, the end of this term could be a non-trivial event.

It’s still tempting to stash the cash rather than lock it away forever by paying down some of my mortgage. Even at a cost of lower returns from savings. The set aside cash could cover several years of monthly mortgage payments in a pinch. Sunk into the mortgage, it only reduces monthly payments by less than £100.

Also it’s entirely possible I’ll never be able to get a mortgage of this size again. Not without buckling down and ramping up my earnings, and even that hasn’t helped in the past. (I’m self-employed, one way or another.)

On the other hand, repaying debt charged at 2% looks sweet in a world that barely pays you for lending it cash and expects every share to go to the moon.

Lucky bastard

I’m aware this problem is plucked from the box marked Nice Problems To Have. Despite vast State support, many people and businesses have been hit hard by the pandemic – including several unlisted companies I’ve invested in.

How they’d love to have the headache of where to stash thousands of pounds in cash.

All I can say is I planted the seed of this windfall many years ago, when times were good and most people were spending freely. Now my investment has matured and blossomed. We all have to manage our own finances as best we can, whatever is going on in the world.

Luck won’t always go my way. That’s why I – like you – save and invest for the future. I fully expect to be hit by future tax rises, too, to pay for furlough and other breaks I didn’t get a penny of (but nonetheless supported).

But that’s more article fodder, I guess. Another dividend from reshuffling my assets!

Where would you stash the cash – or would you just save it for the mother-of-all post-lockdown parties? Let us know in the comments below.

Otherwise have a great weekend.

From Monevator

Our updated guide to help you find the best broker – Monevator

Capital gains tax on shares – Monevator

From the archive-ator: Currency risk – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

Neil Woodford relaunch plans spark call for inquiry – BBC

UK house prices rose by 8.5% last year amid stamp duty holiday – Guardian

London landlords feel the burden of buy-to-lets [Search result]FT

Viral or vicious? Financial advice blows up on TikTokInvestment News

How could Sir Keir Starmer’s British Recovery Bonds work? – ThisIsMoney

Citibank’s $500 million lesson in the importance of UI design – ArsTechnica

How the pandemic has affected global wages [Interactive]Visual Capitalist

[Click to enlarge the returns!]

FANMAG stock fans beware. Nothing lasts forever in investing – TEBI

Products and services

Five big energy firms hike prices by £96 a year from April, in line with price cap – ThisIsMoney

MoneyBox: a long-term review – Much More With Less

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

Goldman Sachs launches a Marcus-branded robo advisor [US for now]Fast Company

Mortgages for 10% deposits have made a comeback in 2021 – ThisIsMoney

Homes for sale in the super suburbs, in pictures – Guardian

Comment and opinion

Remembering Dirk Cotton – Oblivious Investor

Respect the base rate – Of Dollars and Data

Why markets are still efficient even with Tesla’s gains [Search result]FT

[Some] US government bonds are getting crushed – The Irrelevant Investor

Remarry by all means, but don’t forget the pre-nup [Search result]FT

My financial origin story – Cent by Cent

How to value equities in a post-pandemic economic boom – Abnormal Returns

Frozen – Indeedably

One day at a time – Humble Dollar

Naughty corner: Active antics

The beach bum who beat Wall Street and made millions on GameStop – TheRinger

Maybe you’re overbought – All Star Charts

10 years of Lindsell Train Global Equity – IT Investor

Digging into ARK Innovation’s portfolio – Morningstar

Crowdfunding: why its returns suck – FireVLondon

How to donate small unwanted holdings to charity with ShareGift – ThisIsMoney

Economies of scale in banking? Negative – Klement on Investing

Fraud and deception detection: text-based analysis – CFA Institute

Howard Marks & Joel Greenblatt: Is it different this time? [Video interview]RealVision

Covid corner

Whitty at odds with Johnson over ‘big bang’ reopening of schools in England – Guardian

Escaping lockdown: when will life go back to normal? [Search result]FT

The UK is infecting people with Covid-19, for science – Wired

Why are US Covid cases falling so dramatically? – The Atlantic

Kindle book bargains

Total Competition: Lessons in Strategy from Formula One by Ross Brawn – £0.99 on Kindle

Black Edge: The Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatjar – £1.99 on Kindle

Quit Like A Millionaire by Kristy Shen and Bryce Leung – £0.99 on Kindle

The Six Conversations of a Brilliant Manager by Alan J. Sears – £0.99 on Kindle

Get a Kindle and fill your shelves with framed Monevator quotes instead.

Environmental factors

I let an eco warrior loose in my home… and he slashed £700 off my energy bills – ThisIsMoney

Heating Arctic may be to blame for snowstorms in Texas – Guardian

Workers clear ‘huge, disgusting’ fatberg from London sewer – Guardian

The snowy countries losing their identity – BBC

Million-year-old mammoth genomes shatter record for oldest ancient DNA – Nature

Off our beat

Best story wins – Morgan Housel

Planet Money: We buy a superhero [Podcast]Part One and Part Two

Publishers, curation, and algorithms – Seth’s Blog

Why do we even have dogs? – Slate

And finally…

“You will become way less concerned with what other people think of you when you realize how seldom they do.”
– David Foster Wallace, Infinite Jest

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{ 96 comments… add one }
  • 1 Whettam February 20, 2021, 12:27 pm

    I don’t understand why any reader would have strong feeling about YOUR interest only mortgage either way @TI, after all we are not having to pay it 😉

    Personally I have a bit of an aversion to debt (at whatever rate) I watched my parents as a kid, get in a bit of a mess and maybe that’s made me very anti. I was fortunate enough to be able to pay off my mortgage before 40. I would say though that owning your own home gives a good feeling.

    Can’t be bothered switching between cash accounts, so I also prefer premium bonds for cash, just wish I could hold those in a SIPP.

  • 2 ZXSpectrum48k February 20, 2021, 1:00 pm

    @TI. You say you invested a six-figure amount and it went up 1000%. So let’s say it was $100k and it’s now $1mm. So don’t pay off the mortgage. It’s clearly time to get involved in some leverage.

    Take that $1mm and stick it in a margin account. With SPX at 3907, the Dec future (SPZ1) is 3869. Use that margin to buy risk-reversals on SPZ1. Buy 4300 strike call (SPX+10%) at 104 ticks. Sell 3500 puts (SPX-10%) at 203 ticks. Takes in premium of 99 ticks (2.5% of notional or $25k on $1mm).

    If the market explodes higher by Dec, you’d get some participation in the move higher with the calls, unless with cash where you’d miss out completely. If the market drops 10%+, you’d get long down 10% so you’ve averaged in to some degree. If nothing happens, you earn 2.5% on the cash. What’s not to like?

    This is so easy. What could possibly go wrong!

  • 3 Harmlos February 20, 2021, 1:03 pm

    Buy everything to get closer to a fossil free life style : Electric car, electric bikes, solar panels on any roof you own, heat pump heating, new most efficient freezer.
    That is what I am doing right now with excess cash.

  • 4 The Investor February 20, 2021, 1:53 pm

    @TI. You say you invested a six-figure amount and it went up 1000%. So let’s say it was $100k and it’s now $1mm. So don’t pay off the mortgage. It’s clearly time to get involved in some leverage.

    I wasn’t clear. It was a very small five-figure investment that became a six-figure shareholding.

    Due mostly to my ruinously un-renumerative career choices over the years I’m afraid I’m still playing in the little leagues! 🙂

    That aside, interesting suggestion. I probably do need to add options to my arsenal sooner or later. The nearest I’ve got is spread betting (much riskier) and subscription shares (very obscure asset class, but occasional illiquid opportunities in times of ‘yore’.)

  • 5 G February 20, 2021, 2:02 pm

    Agree on premium bonds. It’s always handy to have some cash on tap, and the interest rate is no worse than many others. Also agree on bill minimisation through solar, insulation, LED lighting etc, if appropriate. IIRC, you already have a small position in crypto so that’s not an option. Personally, being mortgage-free at 40 was great for me as I could reduce working hours, explore new things – but if your windfall is only going to make a £100/month dent in it, maybe it’s not worth it. I have sometimes used a tiny portion of windfalls to do or buy something memorable – perhaps there’s a first edition, you’d like to own or a trip to take?

  • 6 Steve February 20, 2021, 2:10 pm

    Have you considered an interest only flexi mortgages (if they are still available)? I’ve had one for many years. Instead of paying it off, I use it as a cash back-up (especially as the interest rate is so low its almost worth using it for investment funds). Unfortunately, only two more years left on its term – I’d love to find a replacement that I can continue to use as a cash emergency fund in retirement.

  • 7 Barn Owl February 20, 2021, 2:14 pm

    ZXSpectrum’s margin loan idea reminded me of a recent post by MMM – https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/. If you can’t get a mortgage because you are self employed or retired, but you do have a lot of unsheltered shares in relation to the size of your mortgage, then a margin loan (without any options etc) is an interesting idea. A quick google, tells me that Interactive Brokers are offering a lending rate of 0.75%.

  • 8 Faustus February 20, 2021, 2:45 pm

    Interest-only residential mortgages have been like gold dust since the financial crisis unless you are a very high earner (and even then it helps to be employed). There are some signs that lenders are beginning to relax residential IO restrictions (Nationwide recently did so) so still possible that you’ll be able to renew on good terms in a couple of years.

    I wouldn’t pay off my IO mortgage unless absolutely forced to, especially with the prospect of higher inflation on the horizon and central banks obsessed with monetary easing. Perhaps keep a portion of the cash in liquid form as insurance if you’re worried about IO eligibility being a problem when it comes to renewal, and all being well you will have some firepower to use on whatever opportunities present themselves in 2023?

  • 9 Slow To Learn February 20, 2021, 2:59 pm

    There may be better things to do in pure financial terms with the money, than reducing your mortgage, but the gain doesn’t always have to be monetary. Really owning your home and the solid comfort that comes from it should not be under estimated.

  • 10 MrOptimistic February 20, 2021, 3:01 pm

    First, so sorry to hear about Dirk Cotton, his blogs on retirement were tremendous. Wondered why his posts had become infrequent. Rip mate.
    Cash? Yes it’s an issue and premium bonds have their attractions. Of course if you are getting on and have children you can always gift it. If it’s by way of covering near future upsets then is inflation really a big problem over say 3 years? My wife is set to inherit something like 400k and what to do with that will be this year’s problem, including whether it is worthwhile setting up an isa with a new provider just in case. On that score thanks for your update to the cheap broker analysis, unfortunately I’ve exhausted the flat fee ones.

  • 11 JimJim February 20, 2021, 3:34 pm

    To pay down the loan or not. Head, heart, or point of view. The question for me was not that sophisticated, I had an offset mortgage which effectively paid more than cash deposits and didn’t (in days gone by) attract tax on the interest that a savings account did. I was still not at a point in life where the money needed to work harder as it amounted to a sizable buffer but not with an excess that would have been economical to invest and a couple of endowments were doing some of the lifting for me albeit poorly, they were a requirement of the mortgage. I am openly debt averse due to a Yorkshire upbringing and seeing first hand what debt could do… So when the deposit exceeded debt by a buffer margin I went debt free and have slept soundly in my house since (rent free). I do not see it as an asset although I know it is, again it’s head or heart. Cash is a problem at the moment and Premium bonds is part of the answer, the rest spread thin as dry powder.
    JimJim

  • 12 PeterW February 20, 2021, 3:35 pm

    Is the reason you’re thinking of holding cash alongside your mortgage because you think it gives you a reserve of funds to spend from in a market crash or similar? But do you not already keep enough in things like government bonds to cover that?

    For me, using mortgage funds to cover expenses in a crash seems too risky, because if interest rates also became high then expenses could deplete your assets very quickly (and rising rates could cause a crash, which increases the chance of both occurring together). Do you have a strategy to deal with interest rates rising to, say, 8-9% (and asset valuations falling concurrently) and does this give a better expected long-term return than not having a mortgage? Sorry if you’ve dealt with this elsewhere already and I’ve not seen it.

  • 13 Gary February 20, 2021, 3:41 pm

    CG Absolute Return.

    Occam’s razor.

  • 14 Merlotman February 20, 2021, 3:49 pm

    Refinance the IO mortgage with an offset mortgage. This means you at least have a pot of emergency cash or cash to employ at low rates should the market crash. I’ve got FD to agree to extend my offset until I am 80 so I genuinely believe this is part of my pool of liquid resources.

  • 15 MarkR February 20, 2021, 3:53 pm

    @MrOptimistic, It was an inheritance and the research about what to do with it that led me to this site, and I was very glad to find it. It came at a time in life when I had already paid off my mortgage and debt free as, like @Whettam, I was ‘allergic’ to debt for similar reasons.
    After working out what I spent on average per year, I have been busy building the walls of my financial ‘fortress’:
    1 year’s spending in a Easy Access Savings Account (in the same bank as my current account which makes transfer seamless).
    1 year in Premium Bonds (given the recent issues with delays in customer withdrawals, I don’t want to be waiting when I need the money – hence the Easy Access Account).
    2 years in Gilts/Bonds across different providers and funds.
    And I am also building up another year in Gold/ETC just to have that ‘one shot weapon’ backup that The Accumulator recommended.(https://monevator.com/how-to-protect-your-portfolio-in-a-crisis/)
    This might all seem overkill to some, but it lets me sleep at night, and enjoy the thrill of some active fund hunting.

  • 16 Tony Pearson February 20, 2021, 4:35 pm

    Not liking that rumor about CGT. We are currently selling a property and will be liable for a modest amount of CGT but the timing is nail biting. Forecast to complete on 6th April give or take a few days. Cross your fingers for us please.

  • 17 AJ February 20, 2021, 4:37 pm

    I wasn’t aware of Dirk Cotton. His post “The Mystery Of Dividend Preference And The ‘Spend Dividends Only’ Strategy” and the comments are an interesting read:

    “When you receive a dividend, you have spent principal. You then have less invested in the stock. You have the same number of shares as before the dividend but they are worth less.” – Cotton

    As an investing minnow trading fees and tax free allowances mean I’m still happy to get the odd dividend. Dividends also put the decision of “how much should I sell” onto the shoulders of people with more knowledge than me. Anyway, RIP.

    FIRE v London’s “Crowdfunding: why its returns suck” and listening to Rob Murray Brown of ECF make me increasingly sure equity crowd funding is not for me. The ones where you pick a genius angel to follow don’t sound any better than picking a genius investor like Neil Woodford and I’m not going to see much benefit from availing of EIS.

    Congratulations on the gains @TI. Commiserations on the CGT.

  • 18 Steveark February 20, 2021, 5:41 pm

    Put me in the half that hate your mortgage, but only because I am scared it won’t work out well and you seem like a fine person. On the other hand you have buffers and great investing skills so it’s hard to imagine things going too badly. I’m a zero debt person with a large amount of cash, but not a large percentage of my portfolio in cash. But then again housing here is very low priced, there isn’t even enough equity in my paid for house to move the needle as an asset. It’s just walk away money. In a place with pricey housing I think mortgages become a more complex decision.

  • 19 MonkeysOnARock February 20, 2021, 5:49 pm

    Following on from the helpful discussion in the last weekend reading about the increase in pensions access age from 55 to 57 and the transitional protections proposed in the consultation, here are a few thoughts:

    For people who already had one or more pension pots on the date of the consultation (which I would assume is almost all of us), the transitional protections could create a bit of a ‘rules lottery’ depending on what your particular scheme rules say:

    a) if the trust deed and rules of your scheme expressly say that you can access your benefits from age 55, then you would seem to be within the protection, even for funds you build up in future. Possible ways to lose that protection would be if you took an individual transfer in future to another provider where the access age is higher, or if the rules of your scheme get changed to move your access age higher. Not transferring is within your control (although it does mean you could be stuck in a scheme with worse options/charges for drawing down your benefits than you might like if you want to take them at 55). Changing the scheme rules in future to increase the access age for existing members with a protected right would seem like a very odd/difficult for a provider to do given that it would be making its members worse off for no real benefit to the provider.

    b) if the trust deed and rules of your scheme say something like “you can access your benefits from age 55 with the employer/trustee’s consent” or “you can access your benefits from normal minimum pension age (as amended from time to time)”, then it seems like you’d be outside the scope of the protection and your access age would go up to 57 or further in future – perhaps the regulations or consultation response will make these details clearer.

    Things could get even more complex if you have pensions with multiple providers which have different access ages – if you transfer from a scheme without protection to a scheme with protection, does that mean the whole lot can then be accessed from age 55? Alternatively, if you leave things where they are then you could have different pension pots which can be accessed from different ages.

    It’s all still pretty unclear, but I suspect it will matter for those of us who are hoping to access pension pots as early as possible and are building an ISA bridge to get there – I’d assumed that my access age would be going up to at least 58 in due course, so if I can get my hands on my pension at 55 thanks to the transitional protections that could mean retiring/going part-time 3 years earlier.

    It should be possible for people to track down the trust deed and rules for their schemes – the big providers often put up the trust deed and rules online, or otherwise they have to provide a copy to scheme members on request (see the disclosure of information regulations 2013). Once you have a copy, it might then be worth saving it for future reference so it’s clear in future what your scheme’s rules said in February 2021.

    For those who want to read more, the consultation is here (https://www.gov.uk/government/consultations/increasing-the-normal-minimum-pension-age-consultation-on-implementation) and a short briefing from a pensions specialist law firm is here (https://www.sackers.com/publication/7-days-15-february-2021/#link5). This is all just based on my brief reading of the consultation, shouldn’t be relied upon and is not advice of any sort!

    I would be very interested to know what others think or if you read the consultation differently.

  • 20 MarcoPolo February 20, 2021, 5:50 pm

    I took an interest only loan in Spain many moons ago. 1.25% over 12month Eurobor. It’s currently costing an unbelievable €200/month to service a $300k loan. Unimaginable 20 years ago.

  • 21 MonkeysOnARock February 20, 2021, 6:10 pm

    P.S. Willis Towers Watson have put out a briefing on the normal minimum pension age changes which flags a tricky point about transfers – seems like access age could rise in some circumstances where members are being bulk transferred to a different scheme without their consent, which seems problematic: https://www.willistowerswatson.com/en-GB/Insights/2021/02/consultation-on-raising-normal-minimum-pension-age

  • 22 EcoMiser February 20, 2021, 6:10 pm

    My preference for dividends is psychological, but not the way Dirk Cotton ascribes. Dividends arrive in my bank account regularly, and will either get spent or build up. If they build up that’s an incentive to spend more on little luxuries, or maybe home improvements. If the returns were there as growth, still in the ISA, well I don’t need those luxuries, or even the home improvements, so I wouldn’t be selling the investments, and they’d just be building up pointlessly.

  • 23 far_wide February 20, 2021, 6:12 pm

    Really enjoyed Nick Maggiulli’s piece (of dollars and data). He has quickly become one on my must-reads. He tends to find a new angle on a well-worn theme, that leaves you thinking “that was so obvious, why didn’t I think of that?”.

  • 24 Al Cam February 20, 2021, 6:19 pm

    @TI:
    Dirk was one of the good guys and a true gent. I never met him face-to-face but did correspond with him. Taken far too soon! Other memorials are available at:
    http://rivershedge.blogspot.com/2021/02/in-memoriam-dirk-cotton-195-2021.html and http://howmuchcaniaffordtospendinretirement.blogspot.com/2021/02/building-your-floor-portfolio.html

    It is absolutely none of my business, but re your apparent cash dilemma: do not pass/go, do not hesitate, pay off your mortgage. JFDI!

  • 25 Andrew February 20, 2021, 6:40 pm

    The answer for me is a no brainer. Pay off as much mortgage as you can. All of it if you can.Why wouldn’t you?

  • 26 John February 20, 2021, 7:42 pm

    You can get 5% on GBP with Binance at the moment. Yes, it is a crypto exchange so there are risks associated with that but 5% in the current climate is obviously attractive. Binance offer their cryptobro “SAFU” “insurance” and they generally seem to be executing at a phenomenal rate without any major issues but… the complexity of the rapidly growing Defi system they are deeply involved in across multiple tokens, chains and products must give some enormous level of exposure to complete system failure like 2008 in the mainstream financial world. I am justifying keeping GBP there as I have trimmed it from gains in what I see as riskier tokens and products. Would I move cash there from my bank savings account? Not so sure. Certainly haven’t yet anyway.

  • 27 Naeclue February 20, 2021, 8:24 pm

    “Take that $1mm and stick it in a margin account. With SPX at 3907, the Dec future (SPZ1) is 3869. Use that margin to buy risk-reversals on SPZ1. Buy 4300 strike call (SPX+10%) at 104 ticks. Sell 3500 puts (SPX-10%) at 203 ticks. Takes in premium of 99 ticks (2.5% of notional or $25k on $1mm).”

    What could possibly go wrong? Quite a lot really. How about the market being down 15% at expiry, say at 3300? The 2.5% gain has turned into 2.5% loss. And that’s just down 15%. Down to 3100 (about 20%) and the loss becomes 7.7%.

    I thought the idea was for @TI not to take on market risk, but if ok with that another option (pun intended) might be to sell at a strike of about 3000, for a premium around 100 and forget the calls. He would make the same 2.5%, but with no upside opportunity from the long calls. Losses would only materialise if the market was down more than 26% at expiry.

    That’s all pre -tax though. Selling Dec puts and holding into the next financial year would mean the entire option premium on those puts being subject to CGT at 20%. 20% of 203 would knock the after tax profit down to 1.5%, assuming expiry between 3500 and 4300. It might be possible to offset the loss on the calls at some point though, just not this year (unless closed out this year). Selling puts at the 3000 strike for a premium of 100 would knock the after tax profit down to 80, or to about 2% net on notional.

  • 28 ermine February 20, 2021, 8:34 pm

    > I’ll never be able to get a mortgage of this size again.

    You need protection against that call, which it seems to be in a couple of years time. You need the cash in case computer says no. Who knows what the world will be like in two years’ time.

    A mortgage is a large liability on a single asset, and the fad for strings of short fixes means you get requalified frequently.

    Housing market cycles are slow relative to stock market cycles. I was nearly a forced seller into the housing market in the early 1990s. I saw people who were. It didn’t end well for forced sellers.

    Premium bonds may be boring, but their liquidity is pretty good. Though I’m surprised that they are any useful amount in terms of London property. There’s a limit of 50k, which you may be able to double with a trust arrangement. 100k isn’t going to shift the needle on the dial much with London prices?

  • 29 Naeclue February 20, 2021, 8:35 pm

    @TI, “That aside, interesting suggestion. I probably do need to add options to my arsenal sooner or later. The nearest I’ve got is spread betting (much riskier) and subscription shares (very obscure asset class, but occasional illiquid opportunities in times of ‘yore’.)”.

    I am sure you already know this, but it is not the spread betting that is risky, just the leverage! You can actually spread bet options. It may sound totally nuts, but I have a friend who trades options that way. According to him, the benefits of not paying CGT on gains outweighs the higher costs. If you wanted to dabble, that might be a place to start as you can keep the bets small and not be bothered by the CGT intricacies. You can probably practice in a fantasy account as well.

  • 30 The Investor February 20, 2021, 8:47 pm

    Thanks for all the thoughts and comments so far. As so often too many for me to address individually in any depth, but just a general response via this question from @Andrew:

    The answer for me is a no brainer. Pay off as much mortgage as you can. All of it if you can.Why wouldn’t you?

    Well, some of the clues were in the article as to why *I* wouldn’t. 🙂

    Sheesh, it’s like readers don’t even bother to read all my articles, keep copious notes over all my moves over 5-10 years, and update themselves with every link I insert into the piece for more information. 😉

    Just briefly, there’s a fair chance as things are looking that this is the only residential mortgage I’ll ever (be able to) get.

    It took a long time to get it (more than a decade).

    For those who’ve forgotten or never read (link is in the piece) I literally had to pitch my case to the CEO of a major bank. As in a bank that is worth billions with shareholders and a board. I gave a sort of presentation to the Head of Risk before finally being passed to a private banker as a sort of favour. It was obviously all very novel and unusual and to their credit they quickly expedited everything, but I don’t expect to be lucky enough again to have everyone get out of the right side of bed.

    There’s even as I say I expect a bit of refinancing risk, which adds an extra pressure to how I manage my wider portfolio (because if/when time comes I want to show them assets growing nicely, rather than saying “you’ve caught me in a drawdown, they happen” because bankers struggle with the cyclical markets they operate in…) but I am assuming existing possession of a mortgage and good record will help a lot.

    My situation is really weird. I’m not like most of you (i.e. high earners, in the main though not exclusively, or else FI/retired on some clear and definitely plan). True, by the way it’s measured around here, I’m sort of financial independent. “Sort of” because obviously I have the mortgage, and also I don’t really think I am the way I measure it – or want to live, anyway. Which is why (among other reasons) I’ve never written the big “I’m FI” piece that @TA did.

    I’ve occasionally earned an okay London annual income (i.e. into higher rate tax, before I SIPP-ed away a bunch of it) but I’m definitely not in the high-earning FIRE-because-I-went-without-a-Tesla tech bro camp.

    On the other hand, I’m (relatively) asset rich, entirely as a result of saving and investing for nearly 30 years now.

    This was how I got the mortgage, this is what has enabled me to continue to grow my wealth despite rubbish (relatively) earnings, and this is why I wouldn’t just throw every spare penny on repayments without serious consideration.

    Someone asked what this liberated cash has to do — don’t I have bonds for reacting in a market correction?

    Well you’d think so (and I do have a few percent in government bonds for a change right now) but all my cash and assets have to do a few things.

    There are active investors, and then there is me!

    I am way off the reservation — I’m not one of those 95% passive but I own a few cheeky Barclays shares types — and you’d blanche to see my portfolio turnover (suffice it to say my stamp duty tax bill last year dwarfs this upcoming CGT bill).

    My capital is effectively the water I swim in. It’s kind of how I make my living. Yet it also has to pay the bills! It’s all in one big pot, and the components are often in motion.

    Seriously, don’t do this at home. Invest in index funds, automatically, and have another hobby. 😉

    I’d of course love an interest-only offset mortgage, but the chances of me getting one are approximately diddly squat.

    I am not the kind of customer who goes to the bank and they spread out all their bumf like so many tempting menus of the day. I’m the kind of customer they tilt their head and try and decide if I’m joking, serious, unemployed, or mad. While raising an eyebrow at security.

    So this chunk of cash is mostly to shore up my reserves against multiple rainy days. Lets say my I/O mortgage payments are £1K a month. (They’re not, but it’s close enough). If I reserve say £50,000 in cash, that’s more than four years of monthly repayments in reserve. A lot of rain! On the other hand, if I pay it into the mortgage, the monthly repayment comes down a little bit but I’ve lost all that liquidity and I could be a forced seller. I also have very little chance of getting the cash back except of course through asset sales.

    Regular readers may remember this was a big part of the motivation for getting the mortgage — I don’t want to take a penny out of ISAs until I absolutely have to.

    People who’ve seen their wealth compound tax-free in their own home, pensions, and maybe ISAs with what’s left would be shocked at the effort you have to go through if you rent and save hard and try to keep up that way instead. It’s been a little easier in the past few years with the higher ISA limits but for many years it was £7K (or less) and that was your lot.

    Which was how this CGT bill came about in the first place. I had to invest outside of ISAs, too, until they changed the pension rules and I could bear to invest in a SIPP.

    I especially don’t want to lose the ISAs given the tax-axe man is likely going to come a swinging soon. I’d probably pay an interest rate more than twice today’s before I withdrew from ISAs to pay down the mortgage. Maybe even higher! They are that valuable to me.

    Obviously all this only works if I am confident I can beat the mortgage rate by a good margin over time. I was very confident of that when I took out the mortgage, but given the mania in some of the areas of the market where I have historically tended to fish, I have to be humble and reduce my expectations.

    I’ve been shifting assets around and out of the hottest areas for more than six months (I was originally a UK value investor, way back in the day) so it’s not a lost cause, but it certainly seems more prudent to me to keep some cash handy and potentially dial the mortgage down a tad as opposed to, say, re-investing all the proceeds from this sale back into a basket of SaaS shares! (Perhaps that sentence will look dumb in five years… we’ll see. 🙂 )

    It would really help if I was earning a lot of money but I’m currently bringing in the least I’ve earned in c. 15 years. This was partly by design, and partly for some other less pleasant reasons I have alluded to previously but we needn’t go into here. Anyway it obviously ups the ante.

    So cash and cash-like it is, but not too much into the mortgage. Even with these derisory 0.5% if you’re lucky accounts. Maybe just a bit off the mortgage to show willing, and to get me below one of those psychological ‘big numbers’ — for me and for any future mortgage assessment officer type!

    (Thanks for the Binance suggestion, and I’m vaguely aware of that space. But any money into that would definitely come out of an equity-like risk budget for me, not fortress balance sheet cash! 🙂 )

    Edit: I tweaked the bit about “I was a value investor” because it originally sounded like I’d been making my investment gains in recent years in value stocks. Obviously the opposite is true. I’ve been mad for tech/growth, where I tend to do well when ruled by my head, even though my heart is a curmudgeonly, cynical value guy. What I am saying is it’s not the end of the world for me that I’m going back to value, I do have some form. 🙂

  • 31 Peter Duffy February 20, 2021, 8:50 pm

    Definitely a good problem to have. But I would reconsider Premium Bonds. I had a large amount in PB and in 7 years, earned less than 0.5%. Personally, I would pay some off the mortgage. Or alternatively, consider a BTL so that you can benefit from cash flow and potential capital appreciation. Love the Monevator Blog and will be spreading the word!

  • 32 The Investor February 20, 2021, 8:52 pm

    @Naeclue — Yes, a long time ago before ISA allocations were ramped up and I felt comfortable putting money into a SIPP, I did used to run a small spreadbet portfolio that was backed by an instant access cash account earning 5% or something like that, for exactly that reason. There’s an article about it in the archives somewhere I believe.

    I do like the idea of options though for their capped risk.

    As, I expect, will more hedge funds in the coming years after the recent shenanigans! 😉

  • 33 The Investor February 20, 2021, 8:56 pm

    @ermine — Yeah, I have no chance of creating a pseudo-offset mortgage in premium bonds, or in anything else given the low rates and limited savings allowance. As elaborated in my subsequent comment, the cash is to try to make sure I can get through a reasonably rough market to at least a halfway decent sale if push comes to shove.

    Remember though, I have tons of assets in ISAs. They plenty more than cover the outstanding mortgage. I just don’t want to touch them.

    Of course this could change with a big bear market, and I might not be able to sidestep much of the downdraft.

    Which is why investing is definitely more stressful since I bought this flat, even though my actual material quality of life is much nicer! 😉

  • 34 The Investor February 20, 2021, 9:00 pm

    @Peter — Thanks for the kind words and publicity!

    I had premium bonds before I bought the flat and I loved them. I did okay — not quite the expected rate, IIRC, but not far enough away to worry. It’s all down to luck, and as you know having enough to have a good shot at average luck working out for you.

    Funnily enough I did consider a BTL briefly, much to the disgust of my ghostly younger self. The numbers were totally unworkable in London anywhere near where I live, which is the way I’d want to do it right now. If I was perhaps 10x richer I’d consider a holiday style BTL, which seem more attractive, or at least did before pandemic pushed up pretty coastal property prices.

    Another thing I briefly considered is buying somewhere, doing it up, and flipping it. I have a handy mate, I’ve long wanted to give it a crack, and I’ve got a good eye. But the general uncertainty around London post-Brexit, stamp duty, the virus, and everything else means that’s a no-go for me, too.

    Cash-ish assets it is. 🙂

  • 35 Will February 20, 2021, 9:03 pm

    Crystallised both our GIAs fully for a significant lump of CGT this week in anticipation of a rise in rate, and also taking the opportunity to move them to IB as cash and then have margin available as an ‘emergency fund’ to cover certain things up to a notional limit of 10% leverage, which I think is fairly safe long term (FvL, Finumus etc do similar I think.) IB can be a tough one to understand in detail at first, but appeals to me as there is potential benefit if used wisely (and having a large enough GIA to make it worthwhile…) I know a UK blogger is working on a ‘beginner’s guide’ at the moment… Certain things to watch out for like IB making assets ‘unmarginable’ so requires some flexibility, research and backup.

  • 36 The Investor February 20, 2021, 9:14 pm

    @Will — You’ve reminded me what I forgot to mention, which is in the tradition of financial institutions hating me, I was turned down by IB a few years ago. I have no idea why, they wouldn’t say. I was renting at the time, which maybe didn’t help, but from memory my credit score was literally full marks, for example. (I’d done various things to build it up – and a record of borrowing and repaying – as part of that mortgage quest). Maybe I had the same name as some evaluator’s least favourite teacher. 🙂

    Maybe I should give them another go, although more for the low FX rates. For me “margin loan”, “emergency fund”, and “fortress balance sheet” don’t live in the same sentence. But others’ mileage may well vary. 🙂

  • 37 Will February 20, 2021, 9:49 pm

    @TI I will admit, the application process was a bit odd (or maybe just ‘good’?)… I reported my source of fund as earnings/salary, and as I’m a director they wanted to know a huge amount of detail about the business; products sold, turnover, key customers etc. All seemed extremely nosey for a personal account…
    I read a good summary recently (probably linked from a weekend reading) that summarised adeptly why borrowing varies on a scale from credit cards, through cars and mortgages, and finally down to margin based on how easily the lender can get back the funds. You do of course leave yourself totally open to liquidation by IB, but it does feel like another one of those things where additional knowledge (and in this case assets) can give you an edge compared to the ‘average’ investor. Using a very low level (10% or less) of margin available to buy more of the same passive funds at roughly 1% borrowing cost is (subjectively) extrememly, extremely low risk and will have a positive (albeit not large) benefit to long term returns. The alternative (as MMM alluded to recently) is just having the margin there for ‘backup’ if needed. Need an unexpected £50k tomorrow? Your normal options take anywhere from days-months to get. Got a £500k GIA? You can have it in hours… Who needs an emergency fund? (You could also get your £50k if you had a £100k GIA, but that’s a whole different story) 😉 I guess ‘margin’ as a product is yet another one of those mysterious (often US-centric) things that gets a bad name because of poor usage.

  • 38 Naeclue February 20, 2021, 10:18 pm

    @TI, for margin accounts you might like to take a look at DEGIRO. I had an account with them for a while which I used to hold some ETFs. Low trading costs and more importantly very low FX charges to convert dividends. Anyway, I remember them offering very reasonable margin rates, comparable to IB, although I never used the facility. Easy to open, although the platform was strange compared to other brokers I have used.

  • 39 Martin February 21, 2021, 12:12 am

    I also have a low income relative to my ISA/SIPP/unwrapped assets.

    In order to get a mortgage on a large residential property in the future I am going down the BTL route. Buying cash, then taking out a mortgage based mainly on rental income after 12 months. Then repeating this process a few times. Having a few properties adds slight diversification and the income from the properties can be used to meet income requirements on a large resi mortgage. It should end up being around 6-7% ROCI + any capital growth.

    Thoughts?

    P.S. What price are you selling ARB at? Taken any profits yet? If a NASDAQ listing comes and bitcoin doesn’t drop there will presumably be good returns yet to come.

  • 40 HariSeldon February 21, 2021, 12:26 am

    Borrowing money without a job or low income is tricky these days, even when asset rich….

    In 2014 I got such a mortgage with just a phone call, a second mortgage in 2015 required a lot of paperwork… sold the related properties in 2017 and in 2019 went to take out another loan… this time I was offered less than 1% of my liquid assets… That put me in my place !!

    (The loan was only to avoid tapping ISA’a , didn’t bother proceeding with the property, which proved to a blessing in disguise )

    A pile of cash is always useful, it can be reassuring or can provide opportunities.

  • 41 Al Cam February 21, 2021, 1:21 am

    @TI:
    I cannot claim to fully understand your circumstances, but ERNS’s take on why mortgages and early retirement do not usually go together is pretty persuasive, see: https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

    I would summarise his analysis as saying [if you keep your mortgage] on average things will probably work out OK. However, like a lot of things in life, you only get one chance at this and can you rely, in advance, on your path being at least average?
    Or alternatively, is the potential upside that important versus the possible downside.
    Finally, you can only ever take “money off the table” whilst it exists!

  • 42 WhiteSheep February 21, 2021, 1:22 am

    @Naeclue. However, DEGIRO were acquired by flatex AG last year. Flatex is a former flat-free broker who (aside from acquiring DEGIRO) have been very busy raising their own fees in the last two years, and their loan facility currently charges close to 5% interest, so there is a good chance that the DEGIRO rates may not remain competitive with IB forever.

  • 43 The Investor February 21, 2021, 2:13 am

    @NaeClue — Thanks for the FX tip, that does seem very cheap. (@WhiteSheep’s thoughts notwithstanding).

    @Al Cam — I appreciate the concern but this sort of thinking doesn’t apply much to me, at least while I’m so active in the markets. Not because I’m some superior being but because I’m playing an entirely different game.

    I’m not calculating SWRs and then notching them up by 0.439858345% if inflation deviates from what I budgeted 36 months ago, or any of that. I have never tracked my spending outside of my head or run a household budget in my life.

    My investing and trading is way off-piste. For example, at one point in February 2020 I sold something like 40% of my entire equity portfolio to cash over two trading sessions days on a hunch. I’m just not operating the way these models and thinkers are anticipating. They can’t have anything to say about that kind of behaviour.

    This is not to say (obviously) that I don’t have other points of failure or it won’t end in a vainglorious fireball. If I don’t generate alpha on average over time then I’m wildly over-trading, racking up costs, and destroying wealth. If I’m engaging in what some would call market timing then I could miss meaningful rallies if I fail to re-participate and so on. I believe I have an edge in stock picking in the face of decades of academic research that says it’s roughly-speaking futile. Etc etc etc.

    Obviously I have reasons to believe I am on the right track (returns-wise, I mean — I happen to think I’m probably on the wrong track “meaning of life” wise) but I’m ever-wary of going into any of that here. This isn’t really the blog for it.

    Also, I’m not really “early retired” in the sense that I think you and ERNS mean it. I suppose you might call my current state a sabbatical if you’re generous. Others might call it a mid-life crisis.

    Anyway, the point being I have a strong sense of how I’m juggling my holistic risk exposure, my various asset exposures, my feeling about the current state of the market, my endless reading about what everyone else thinks (including waxing and waning confidence of blog readers, incidentally, which has been a useful guide over the years), my own confidence that any of my judgements are close to being right (I work hard to keep my confidence low!) and this all overlaid on to my ‘good old-fashioned buy a company because you like its widgets and it has a spin-off coming’ stock picking that I’ve been practicing literally daily for approaching two decades.

    If I thought things were going off the rails I’d dial back. If I couldn’t get back on-course, I’d shut up shop and pay off the mortgage. If I felt it was too late to do that because the market fell 50% in two days and I was on holiday and had been taking an Internet break then, well, we’d all have problems. I’d probably have to get a job haha.

    Also I could probably sell the flat to clear the mortgage. There’s plenty of equity in the place already.

    This may all seem very risky and cavalier to some. However it’s the way I’ve lived for a long time, and it’s parlayed a relatively small income into more or less financial freedom. Personally I see people (not commenting on present company in particular) working at a 9-6 for 40 years and saving 10% of their income into products they barely know the names of let alone understand — and getting married along the way, and kids and two cars and racking up liability after liability — as taking a bigger risk. Each to their own. 🙂

    My point in raising the cash question wasn’t really an asset allocation question, it was a “where to get the best cash-like return, because to me it looks like it’s repaying the mortgage?” question. 🙂

    To conclude, you’ll note there are approaching zero articles on Monevator about running your investments the way I run my investments (there’s a couple if you really dig deep). There’s a reason I recruited The Accumulator to cover all that for us. Do what he says and does, not what I do.

    I know and break most of the rules. On my head be it.

  • 44 The Investor February 21, 2021, 2:15 am

    @Whettam:

    I don’t understand why any reader would have strong feeling about YOUR interest only mortgage either way @TI, after all we are not having to pay it

    I know my audience. 😉

  • 45 Matthew February 21, 2021, 7:20 am

    Really depends on your plans, sounds more like market timing, if it wasnt and you’re not retired I would reinvest after realising the capital gains, if you are retired you need a plan for how you’d spend. Note that mortgage rates are low now but subject to potentially rise, but I see safety in cash on hand and leveraging general investment in a way that doesn’t involve margin calls

  • 46 Playing with Fire February 21, 2021, 9:23 am

    Agreed that mortgages are more and more difficult to get. The First Direct offset is a lovely product but they had no interest in me last time around (annual income higher than borrowing). There aren’t a lot of obvious contenders to avoid repeated applications after giving up a salary.

    I’ve been enjoying Quit Like a Millionaire, it strikes the right tone, not whiny, positive but not overly upbeat. Probably more useful for North American audiences but plenty for me too.

    I was disappointed with Total Competition. The structure seemed odd and it seemed like the transcript of an interview before the edit to make it readable. It was more work than benefit and one of the few books I’ve abandoned part way through.

    The ripple of origin stories is great. Thanks to everyone for sharing.

  • 47 Warren Bogle February 21, 2021, 9:40 am

    If you don’t pay off the money and invest instead, even if you only make 2% pa, if this is reinvested the return is compounded and you will be better off. 2% being a low hurdle that should be the better option. However, even with a globally diversified portfolio you will have volatility, which if negative may lead to some sleepless nights.

  • 48 Al Cam February 21, 2021, 10:21 am

    @TI:
    Thank you for your detailed reply.
    You possibly inadvertently overlooked “usually” in my first sentence.
    I know you are an adult and as you said: “each to their own”, do “not [do] what I do” and “On my head be it”.

  • 49 Stonebridge Kestrel February 21, 2021, 10:27 am

    @Playing with Fire

    Yes, I love my FD offset mortgage, which I really took out on a sort of whim about 15 years ago (my partner is self-employed and so racks up a fair bit of cash in anticipation of the annual tax bill; I had almost no spare cash myself at the time !). The mortgage balance has been zero for a while now, but it has a 30 year term, and the interest tracks the base rate, which makes it a great, inexpensive and substantial loan facility. One of these days we might decide to use to pay for home improvements, rather than having to bust open the ISAs.

  • 50 Petepool February 21, 2021, 10:42 am

    I credit the FD offset mortgage with getting me a big step of the way to FI. I took one out when they launched around 20 years ago and being able to model the impact of delaying spend, savings etc. on the mortgage free date was very motivating. I did decide to fully offset the mortgage asap which in hindsight lost me opportunities to invest funded by the mortgage but, as I’m sure has been discussed on these pages before, don’t underestimate the benefit of a mortgage free easy nights sleep. I still run the mortgage as it gives me easy access to a pot of cash that allows me to manage timings of maturing products, tax year ends etc.

    On the original question of what to do with a cash sum. I’ve just had to deal with this from my SIPP lump sum and sadly will be topping this up with an unexpected inheritance.
    My decision was;
    1) Premium bonds, the first draw this month yielded above average prizes for me but nothing for my better half, dog house for me! I do like the little app that reveals if you’ve won or not more exciting than looking at monthly interest, but I’m easily pleased.
    2) Various fixed term and easy access accounts. I’ve been using the HL Active saving service as it cuts down on the hassle of having to apply to difference institutions.
    3) Once the cash balances are at the right level I put the remainder in VRWL EFTs and investment trusts outside of ISAs which I plan to transfer in ISAs when allowed.
    Interesting discussion as usual.

  • 51 The Investor February 21, 2021, 10:55 am

    @Al Cam — Yes, cheers, I didn’t mean to imply I was offended or anything. I do appreciate all the constructive feedback and thoughts.

    The other thing I somehow wasn’t explicit about in my waffling reply is that for me, keeping back multiple years of cash to cover mortgage payments rather than put it into paying down the mortgage *now* is a risk-reduction measure. There are many different types of risks, as we all know. Comparing the certain returns from repaying some of the mortgage with the uncertain returns of putting the same into the stock market doesn’t cover all the risk spectrum. 🙂

    I’ve also got other risk reducing optionality in-place. For example, this is a two-bed flat (2.5 bed sort of, has a box room) with two en-suites and I could easily rent out a room for *something* if I had to.

    Do I want to? Not at all. But it’s another way of tackling some of the tail risks.

    Big ERN’s site is *very* good by the way. Re-reading my comment (which was written in the wee hours, in a lockdown, where I haven’t spoken to anyone face-to-face outside of shop staff for nearly a week 😉 ) I sound a tad more dismissive of that approach than I meant to.

    I’m the editor/founder of Monevator and all our focus is on the @TA route because I fully believe it will be best for most people. I helped nudge @TA towards repaying his mortgage (well offsetting it fully) rather than investing a few years ago. And I still think that was the best decision for him, despite the gains he’d have made on paper if he’d carried extra risk. I think (hope!) he’d say the same:

    https://monevator.com/investing-versus-mortgage-risk/

    So I totally understand where people are coming from. 🙂

  • 52 The Investor February 21, 2021, 10:59 am

    @Petepool — Interesting you mention HL Active Savings, that’s on my To Do list to apply to and investigate properly. How competitive are the rates you’re seeing in there, and how much do you estimate you’re giving up to HL for saving through their universe?

    Cutting down the paperwork is immensely attractive to me. I did the stoozing/savings account thing pre-the financial crisis and it was very helpful in those days but the paperwork is not worth the hassle personally at sub one percent interest rates. 🙂

  • 53 nelvus February 21, 2021, 11:13 am

    TI, how about using a chunk of this cash to buy an annuity? I imagine a regular, monthly income would appeal? It could act as a buffer when/if your earnings are low and any surplus could always be drip-fed back in to your ISA.

  • 54 Al Cam February 21, 2021, 11:25 am

    @TI:
    No worries.
    FWIW, I too am a fan of pots of cash for not entirely dissimilar reasons. Most people would view my cash holdings as Barking++. I still get decent but dwindling rates. I have been a long-term holder of [approx. laddered] fixed term savings (or CD’s as our US cousins call them), and I still have some that pay OK interest too. However, such rates are now rarer than hens teeth and accessibility/reversibility is becoming problematic too.

    In a straight trade-off of true liquidity vs opportunity cost the former always wins for me!

    This approach also means I can stomach an equities heavy upside.

  • 55 Matthew February 21, 2021, 11:31 am

    One thing I like about premium bonds is that the rate will always be relatively competitive, ie as much as active savings – not always a table topper but not going to go to zero unless everything else is. On the subject of active savings its a nice idea but I imagine most people familiar with the brokers that provide them would also be quite on it anyway about the best savings rate.

    The 1m premium bond prize isnt in my opionion what we should dream of as a prize – more like 1000 – both would be very nice but for many 1m doesnt mean instant retirement anymore, pensions considered, so I think on the whole most people should have only what cash they carry in premium bonds but no more – invest the rest conventionally

    By the way @ti thank you for changes to the site that now let it run on my iphone 4 (2013 model!) its physically bulletproof but before it couldnt get past the cookie popup, its what i take to work

  • 56 The Investor February 21, 2021, 12:27 pm

    @Matthew — Yes, not banking on the £1m prize but I’d be overwhelmingly happy to receive it! Only so I could increase my Funds Under Management, of course. (Okay team, I promise I will pay off at least half of the mortgage if I win £1m in Premium Bonds. Deal? 😉 ) As for Active Savings, the benefit as @Petepool mentioned is as I understand it you only do the paperwork once, with HL. After that you can switch between / across the accounts without having to repeatedly re-apply etc. Going to set up an account soon to confirm, maybe later today.

    @nelvus — Hmm, must admit I hadn’t considered that at all. I’m still under 50, and I’d obviously want it to be inflation-linked. Can’t imagine it’d be very competitive versus other fixed-rate offers given those parameters. Plus zero liquidity. I am not against annuities in general as part of a retirement mix though, and can easily imagine myself annuitizing say 30% of my pot in my mid-to-late 60s.

    @Al Cam — Yes, the cash buffer does enable one to better psychologically ride out equity market volatility. I’ve been more stressed by my lack of cash than the presence of the (to me) huge mortgage over the past three years, though I’m sure @ermine would remind us that could change fast with negative equity and/or high mortgage rates! 🙂

  • 57 Getting Minted February 21, 2021, 12:50 pm

    Assuming we are looking at £60,000 available, and a £600,000 mortgage at 2% interest then you could repay 10% of the mortgage, or buy equities that pay a 5% dividend that would cover 25% of the mortgage. A dividend hero investment trust with a record of dividend increases to maintain and on a yield of 5.30% could be suitable.

  • 58 Matthew February 21, 2021, 12:54 pm

    @TI – me too, itd hugely propel our plans along to win that prize – the reason I say about what prize we target is that if you purely wanted the best chance of winning 1m from sacrificed savings interest, youd have higher odds using a savings account and buying lottery tickets woth the interest – although of course in doing that you’d expect a lower average return. Reason being that premium bonds are heavily skewed towards the lower prizes to make it more like a savings account alternative – but ypu could in theory still so that and buy lottery tickets with the lower prizes. other banks like nationwide had other options like a 10k prize but nothing high or low.
    I have won the 500 once!
    So when I did my spreadsheet on it you really have to ascertain how much a prize would impact your life – when young you have the most to gain from a big prize, when older you want the mortgage gone

  • 59 Naeclue February 21, 2021, 1:35 pm

    @TI “Cutting down the paperwork is immensely attractive to me. I did the stoozing/savings account thing pre-the financial crisis and it was very helpful in those days but the paperwork is not worth the hassle personally at sub one percent interest rates.”

    Those were good days with amazing arbitrage opportunities thanks to the collective stupidity of credit card issuers, but I have never stopped and will move my cash for a 0.1% gain, provided I remain in FSCS limits. I have an IO flexible mortgage at BOB base + 0.5%, currently 0.6%, which is the best I can do right now. As daft as it may seem I have been exploring option trading since yesterday to see what extra I could get for taking on low levels of market risk. My conclusion is that there is some mileage here due to the current elevated level of implied volatility. It turns out that DEGIRO offer options, eg S&P minis, but it is unclear to me what the margin requirements are. I could just load the account with cash, but I would prefer not to go too far over FSCS limits if I could avoid it. I also have an account at IG, where I kept some ETFs before IG started jacking their prices up. I also have a spread bet account with them, which I have never used but looked into a few years ago when I signed up for my broker account. According to my friend IG offer short option trades with very low initial margin. 0.9% of underlying for him, but he is a professional trader. If I am reading it right I think I can short S&P 500 options with initial margin of only 5%, which is still astonishingly low (and dangerous) for a retail account.

    IG don’t offer expiries for S&P 500 beyond September, but that is as far forward as I would want anyway. The out of hours spread for Sep puts are 1.65 (15.7/17.35) for the 2000 strike, rising to 2.8 (73.9/76.7) for the 3000 strike. I understand that these spreads narrow during trading hours. So for an ungeared position, the 2000 strike would deliver 15.7/2000 = 0.785% by September expiry, provided the S&P 500 future was above 2000 at expiry. The 3000 strike would give 2.46% provided the S&P 500 future was above 2000 at expiry.

    I need to verify all of this in trading hours, but it looks to me as though the IG route might be worth doing while implied volatility is high – IG report 49.94 for the SEP 2000 strike and 34.42 for the 3000. Minimum bet size is £1 per point with initial margin (IG call this “deposit”) of 5% of the underlying future, currently 3877, so only about £194. A £100 bet then would only cost £19,400, so depositing £85,000 cash would leave £65,600 for variation margin. I need to do some more calculations, but that seems ok for a strike below 3000. A 10% fall in the S&P 500 would push the premium on the 3000s up by 40 points if implied volatility remained unchanged (it would not of course), which would mean a £4k loss on a £100 per point bet. Even if that tripled due to a volatility spike, the loss would be well within the £65k cash margin, which could then be topped up to absorb future movements. £100 per point is a lot of exposure, equivalent to about £300k ungeared on the 3000 strike, £200k on the 2000 strike.

    I would not want to encourage anyone into trading options or spread betting as it can seriously damage wealth if greed and emotion takes over, but I shall ponder this some more. It looks to me as though a 2% tax free return is viable with very little market risk.

  • 60 Al Cam February 21, 2021, 2:27 pm

    @Naeclue:
    You really need to change you handle!
    On the other hand, I suspect it is a good indicator of your country of birth – possibly along with the 0.1% differential?

  • 61 Petepool February 21, 2021, 2:51 pm

    @Investor
    To be clear I like HL for their customer service but moved my SIPP from them several years ago when they increased their charges to make larger pots more expensive.
    They claim to offer private offers but I’ve not seen anything really table topping from them.

    I’ve just had a quick look at what they are offering across the range compared to MSEs best buys and there’s a difference of around 0.005% to 0.1% on their rates. So say £43 – £85 p.a. on the maximum protected £85,000.

    For me with half a dozen providers that will mature at least once a year it worth voiding the hassle of form filling new passwords etc.
    Having also spent time sorting my Dads estate recently I wanted to make mine as simple as possible to administer should I unexpectedly pop my clogs.

  • 62 Passive Pete February 21, 2021, 8:35 pm

    I put the maximum permitted into premium bonds and Martin Lewis’ website states that for £50k the average prize over the year should approach 1%. Importantly for me this is tax free, as I have paid tax on interest received in previous years (perhaps not now with rates so low!).
    The way I’d frame your offsetting issue of cash and mortgage is to consider it on a balance sheet basis. Your mortgage is not a current liability, but a longer term one – perhaps two years or much longer. Whereas cash is a current asset, so you’re mismatched. Therefore I’d look for a longer term asset to notionally offset the mortgage. Perhaps an investment in something like Ruffer or BH Macro investment trusts could serve as a counter balance to your mid to long term liability. Obviously you won’t like the management fees, spread and variations on discounts and premiums, but consider it a ring fenced longer term investment to replicate in some way an offset mortgage.

  • 63 Matthew February 21, 2021, 8:51 pm

    @passivepete – youre right about mismatched duration, but I suppose in terms of guaranteed coverage of the capital the risk level is the same

    Zero duration is an advantage of cash – its one of the only things that protects you against potentially rising rates at some point in the future – add any duration to cash savings and you’re adding the risk of not being able to fix at a new higher rate – is that risk compensated vs premium bonds? is the lack of liquidity compensated? how much more than the 1% would you get?

    As well as for us the liquidity means rebalancing bonuses

  • 64 Passive Pete February 22, 2021, 11:55 am

    @Matthew I understand that premium bonds are reasonably liquid although I’ve never cashed any in. The NS&I website says 8 working days or perhaps 2 weeks if using the post, so better in my mind than any term deposit. My ‘dry powder’ is maintained at each broker in the form of 0-5 year government bonds such as IGLS.L which can be immediately deployed at times of market stress, such as last March.
    Cash is completely separate from investing, and I use Marcus and building society accounts paying less than 0.5% overall – so not even keeping pace with inflation 🙁

  • 65 Al Cam February 22, 2021, 11:58 am

    For anyone who may think that ERN’s view on carrying a mortgage through retirement is only applicable to a SWR framework (ie the mortgage payments could – albeit indirectly – act to increase the impact of sequence risk) this post about how carrying a mortgage through retirement in a Floor and Upside model may be of interest:
    http://howmuchcaniaffordtospendinretirement.blogspot.com/2021/02/borrowing-and-investing-proceeds-in-low.html
    The thrust of this argument is that the mortgage payments require you to have a higher Floor, and as Floors are relatively expensive this means your retirement costs increase disproportionally.

  • 66 Matthew February 22, 2021, 12:26 pm

    @passivepete – potentially 8 working days although when i have cashed out premium bonds online I have usually had it by bacs in 2/3 (wouldnt rely on it) – in any case I find it works quite well in conjuction with credit cards paying in full each month – if you were say doing home improvements or buying a holiday you have a monthish to prepare for an expected cost. – I treat it like an instant access

    In my mind cash is a zero duration gilt, the question then becomes how much duration should your dry powder have? More might work well in a crash although since yields are low theres a limit to how well that can work and its a risk if rates rise or QE unwound – is the cushioning effect worth the risk it brings? arguably cash would cushion you better if rates rise or qe unwinds – theres no painless way for bonds to tackle inflation if inflation does rise at some point

  • 67 Al Cam February 22, 2021, 12:33 pm

    @Matthew:
    Really down in the weeds now: but if you use the correct cashback credit card, you will earn more interest from your spending than your savings; albeit that the cashback might take some time to filter through to you!

  • 68 Algernond February 22, 2021, 12:58 pm

    Hadn’t realised Premium Bonds took a few days to transfer out.
    Doesn’t sound very useful in a currency crash.
    Will seriously consider moving mine out for real zero duration.
    (thanks for highlighting)

  • 69 NewInvestor February 22, 2021, 1:13 pm

    @Matthew, PassivePete, Algernond
    I cashed in some premium bonds last month, using my online NS&I account. The cash was transferred to current account by close of business the following day.

  • 70 ermine February 22, 2021, 1:57 pm

    I’m the kind of customer they tilt their head and try and decide if I’m joking, serious, unemployed, or mad. While raising an eyebrow at security.

    Welcome to the world of the non-or-unconvetionally-employed seeking any kind of lending 😉 You could drive up in a gold Mercedes and park it in the lobby and they’d still look funny at you and give you the bum’s rush if you can’t show a decent income. One of the most depressing financial conversations I had was talking to a mortgage broker, where I wanted a mortgage to buy a house before selling the old one (which I owned outright) and keeping my ISA intact. I said I have money enough to buy this new place outright but it’s nearly all in the ISA. Surely that sort of capital counts for something.

    “That’s all very well, but do you have a job and payslips?”
    Well, no, what part of financial independence do you not get? I didn’t have a job because I didn’t need one, I wasn’t unemployed. “Sorry, we can’t help you, Sir”. I heard that twice and packed it in. In the end I raised the loan privately, but more by luck than organisation. I was a good bet, the lender didn’t end up out of pocket, and my ISA was largely intact because the proceeds of the old house came through once I sold it.

    Lets say my I/O mortgage payments are £1K a month. (They’re not, but it’s close enough). If I reserve say £50,000 in cash, that’s more than four years of monthly repayments in reserve. A lot of rain! On the other hand, if I pay it into the mortgage, the monthly repayment comes down a little bit but I’ve lost all that liquidity and I could be a forced seller.

    I absolutely get this, and one of the great advantages to old-skool mortgages where you didn’t chase the latest fix every five years (usually paying arrangement fees which people never seemed to factor into the real interest rates they were paying, though I’m sure present company doesn’t make that error), was that this assumption held true. As long as you paid your repayments on time, every time it didn’t matter if you had a job or not, or you were doing time at Her Majesty’s Pleasure or were out of the country backpacking your way to spiritual nirvana. They didn’t know and didn’t care. Other than on moving, which is an elective choice under your control, you were never requalified for the mortgage until the term was up.

    Colleagues were always going on about how their mortgage broker got them on the latest and greatest fantastic five year fix. They never understood my incredulity that they were exposing themselves to the risk of being tested if they still had a job every five years, when the fix runs out and you have to qualify to the new latest and greatest deal. IMO there’s only one good time for a five year fix – and that’s when your a five years from discharging your mortgage. Any other time and you are choosing to become a hostage to fortune with what for most people is their biggest financial asset/liability.

    As I read it your term will fall due in two years’ time and you need another one. Two years is a short time, and you need security over and above a return on capital. That justifies accepting erosion of the value IMO to make it more likely you can swing the replacement/renewal of that mortgage. If you can’t, the downside is quite devastating. Not as in ‘TI is going to be under the railway arches’ devastating, but you lose shedloads of ISA allowance tax protection and may have to sell securities at a time not of your choosing.

    The whole game theory angle on this is to protect that ability to requalify pretty much above all considerations of return. FFS the stock market is up in the sky anyway, so expected future returns aren’t historically high. It’s only a couple of years.

    Stock pickers and market timers make their money in stock market lows, not periods of irrational exuberance. It’s not a terrible time to spin down the risk dial, particularly as the unknown different risk of not qualifying for that mortgage is there on the other side of the balance. I absolutely understand that having the cash is a very different thing from paying off the mortgage with that cash. I personally discharged my mortgage too early, and my ten-year younger self was poorer and more constrained because of it, and my older self is now richer because of it. My younger self probably slept better though than it would have done otherwise 😉

    I have no clever answers as to where to stash the cash. For myself, that’s premium bonds, then perhaps NS&I Direct saver. I have bank accounts with three different banks, but that’s not so much FSCS but against a different risk of getting an account frozen, because you seem to have no rights to due process if that happens. Then gold, which irrationally is in my ISA. I sympathise with your pain, which at the same time acknowledging it’s a nice first world problem to have. Cash is likely to depreciate faster in the next few years, they’re making a lot more of it. But it’s only two years to that mortgage renewal.

    My investing and trading is way off-piste. For example, at one point in February 2020 I sold something like 40% of my entire equity portfolio to cash over two trading sessions days on a hunch. I’m just not operating the way these models and thinkers are anticipating. They can’t have anything to say about that kind of behaviour.

    I miss those days many years ago when some of that story used to get out. It was inspiring in a different way from save in VWRL for 30 years and you’ll be right.

    And some of it worked well enough for me, I ballsed a few bits up and it took a while to realize I didn’t have much personal talent. But I am much better off now due to having acted on some of those crumbs of insight getting on for 10 years ago. I still indulge in the odd bit of timing, eg the last 12 months have been very kind to me, despite absolutely contravening TA’s Do Not Sell exhortation, but in the few years before my performance is entirely pedestrian and broadly = VWRL. Which is OK – I don’t need the edge because I have enough. To my eyes you have this under control, and good for you. But you are very much an outlier, and we all get more idiosyncratic and more different from others as we get older. You are a long way off the mean of readers, even on here.

  • 71 ZXSpectrum48k February 22, 2021, 2:06 pm

    @Naeclue. I was being ironic with the “what could possibly go wrong!” comment. I clearly understand what can go wrong. It’s pretty damn obvious. Anyway I won’t bother further since it seems you have a sense of humour bypass.

  • 72 The Investor February 22, 2021, 2:37 pm

    @ermine — Thanks for the long and thoughtful comment. It’s a busy day but I just have to reply/amplify this point here:

    “That’s all very well, but do you have a job and payslips?”
    Well, no, what part of financial independence do you not get? I didn’t have a job because I didn’t need one, I wasn’t unemployed. “Sorry, we can’t help you, Sir”. I heard that twice and packed it in.

    Yes, this was entirely my experience in the last round of trying to get a mortgage before I finally literally took it to the board.

    I did find one High Street name whose associated mortgage broker arm thought it could help me out. This was after I explained I had more assets than I needed in the ISAs, showed them the evidence, and detailed how I’d compounded all this wealth on the back of a fairly low income (implying decent returns and risk management capabilities, I felt).

    The broker was full of confidence, then said “yes, we can definitely help, of course you’d have to transfer all your funds over to our wealth manager to manage.”

    Um.

    To be fair I totally get why they do this. The world is full of hucksters and one-shot wonders. What’s the point in making a few tenners a month off a weirdo like me if it means lowering your bar and getting The Big Short’s strippers-with-ten-BTLs by the backdoor.

    Still, it was very frustrating and I can’t wait until our AI overlords take over mortgage assessment, backtest someone with more or less exactly my investing profile and assets, and says “yeah, that kind of person has literally never blown up.”

    For now I’m confident of making that assessment about myself. So, while I hear you, I think I should be good.

    And if I’m not at least I’ll get a few more years of bare knuckle blog articles out of it! 🙂

    Thanks as ever for remembering the old days. 🙂 Besides the comments on Monevator, where I am more indiscreet on the grounds that 95% of readers don’t read them, I have been a little more active about being active on Twitter.

    E.g. https://twitter.com/Monevator/status/1241725190117171200

    Otherwise I need to roll out “The Investor’s Notebook” or some other kind of behind closed doors thing to get back to those days. There’s no point writing about active stuff to have 23 comments saying “no, buy a global tracker”, especially when for most people that’s quite right. 🙂

  • 73 Keith February 22, 2021, 4:09 pm

    @ermine – It’s rare for a 2- or 5-year fix to represent the full term of the mortgage, as opposed to the period of the discounted interest rate. At the end of the fix you would go onto the SVR, which of course could be costly to service, compared to say having fixed for the full 15, 20 or 25-year term, but could give you some breathing space to either find employment and then remortgage, or to realise other assets to pay off the principal.

  • 74 Al Cam February 22, 2021, 4:24 pm

    @Ermine:
    Re “to make it more likely you can swing the replacement/renewal of that mortgage. If you can’t, the downside is quite devastating.”

    I think the downside is probably limited – albeit probably more expensive than the special deal. I say this because when I had mortgages all specials automatically reverted to the lenders SVR at the end of the fixed term. You would then only need to requalify if you applied for another special.

    Does anyone know if this is still the case?

  • 75 The Investor February 22, 2021, 4:43 pm

    I can confirm that the term of my mortgage is for 25 years, and that it will revert to the Standard Variable Rate (SVR) after five years.

    And yes indeed, this is another reason why I am very interested in having lots of cash to hand rather than chucking every spare penny at the mortgage in advance.

    (Some) liquidity is king, even if a spreadsheet says it probably wasn’t in retrospect. 🙂

  • 76 The Rhino February 22, 2021, 4:53 pm

    I only went two year and it’s running out in sep. Absolutely kicking myself for not going 5 or 10. Unlikely to remortgage as originally hoped as covid unemployed. So I’m really not able to make full use of the leverage as I’ve had to de risk to PBs and cash. Lesson learnt I reckon – timeframes matter. I’ll probably offset down to nothing when teaser rate expires and hope for better times

  • 77 Naeclue February 22, 2021, 4:54 pm

    FWIW, I decided to go ahead with the spreadbet today. £88 per point bet, shorting the S&P 500 Sep put option with strike 2350. As expected, the initial margin requirement is 5% of the value of the underlying future, which is really barmy, it doesn’t even vary with the strike. That adds up to about £17,000, which fluctuates all the time as the price of the future changes. I have been warned that IG may suddenly increase this if the market becomes very volatile, or ahead of what they consider might cause a lot of volatility, so need to monitor margin carefully. I placed several bets just to sanity check what I was doing, with option premium averaging 26.52 per point and the spread at present is 2.4 points. Implied volatility at the time was 43.5 and the at the money implied volatility was 22.6%.

    Choosing 2350 means I should not lose money unless the S&P 500 is below 2323.48 at expiry, down about 41%. My ungeared exposure at £88 per point is just over £200k and my return if the option expires out of the money about 1.1%, 2.0% annualised. I paid £40k into my account, which I will increase tomorrow to £80k and may increase the bet as well.

    A kind of DIY structured product. I make 1.1% (2.0% AER) tax free return provided the S&P 500 is above 2350 on 17 September and assuming the issuer does not default, but lose £88 for every point the market is below 2323. Cost of the product was about 4.5% (half the spread), which is very reasonable for a structured product, but I also have the ability to close out at any time for whatever the option premium happens to be, but will have to pay the other half of the spread if I do.

  • 78 Naeclue February 22, 2021, 5:22 pm

    I also think Ermine’s description of the mortgage risk is a little exagerated. No-one is obliged to remortgage once their fix or discount period ends, you just fall onto their SVR. Admittedly that will not be a market leading rate, but the FCA will take a very dim view if that SVR is shark-like for no good reason.

    @TI’s difficulty is down to mortgage providers recklessness prior to the financial crisis (liar loans, etc.). The subsequent after the horse has bolted OTT regulations has made it so that most mortgage providers are not interested in anyone who does not fit the mold.

    These new arrangement fees seem to be gouging as well. The last time we remortgaged was in 2004. Flexible, IO at base rate (4.75% at the time) + 0.5%. There was no arrangement fee at all, just a legal fee of £238, paid for by the mortgage provider (Abbey), which I only had to pay if I paid off the mortgage within the first 2 years. I suspect we may also have had to pay a house valuation fee as well, but I have no record of that.

  • 79 Naeclue February 22, 2021, 5:34 pm

    @The Rhino, agree completely. When we last remortgaged we could have extended out to 30 years with no trouble at all, identical terms just a different end date. For some daft reason we went for 20 years, so we have to pay off in August 2024! I could kick myself over that stupidity.

  • 80 Naeclue February 22, 2021, 6:33 pm

    @ZXSpectrum48k, Nothing wrong with my sense of humour thank you. Sounds like there might be something up with your sensitivity circuits.

  • 81 BBlimp February 22, 2021, 6:48 pm

    If you’re asking whether having a 600k mortgage and 60k cash/ 50k premium bonds or 490k mortgage and no premium bonds/ cash or 550k mortgage and 50k premium bonds i can’t offer any help so stop reading if that’s the question 😉

    If you’re asking what to do with that 60k/ 110k depending how you look at it I’d say;

    – you could do anything, retrain and have a second career, take a proper sabbatical, start a new business, do commercial surrogacy ( where it is legal abroad)… and you can still play with the investments you have

    Saving 20k a year into ISAs out of a 50k salary after pension seems an awful lot. Too much to enjoy life if you ask me. This is a great investing site but no good at all at life priorities – meaningful money by Pete matthews is all about taking control of your money and your life … rather than letting hitting an arbitrary target of maximising isa limit control you

  • 82 ermine February 22, 2021, 6:54 pm

    @Keith, Naeclue, AlCam I redeemed my mortgage in 2010, so perhaps I am out of date. I had very bad experiences with housing – I watched both neighbours get repossessed in the early 1990s, and I have read perhaps too many articles about mortgage prisoners over the years. If it all goes well you may be able to save some money with a string of fixes but I have seen the big Ds of divorce, disease and death (of the second wage-earner) throw the best laid plans of enough people off the rails, though I personally have been relatively lucky over a working life. My mortgage was a capped and offset mortgage without a term (beyond the original 25 years from when I bought my first house) which seemed well suited to the FI aspirant with a minimum of futz, though perhaps not ideally matched to TI. I didn’t even know I was a FI aspirant when I took it out.

    The experience of how fast mortgage brokers wanted to get rid of me once they heard no income, without bothering to hear “owns one place outright and has assets enough to cover the new one” showed affordability is quite narrowly defined, and quite specifically in terms of income, preferably employed income. ISAs seem to be a particular issue, possible because a mortgage provider perhaps can’t take a charge against an ISA – the clue is maybe in the Individual part of individual savings account. OTOH it was possible once upon a time – I am old enough to remember there used to be PEP mortgages that use Personal Equity Plans as the capital savings part like endowments were supposed to work for endowment mortgages.

    Probably if you came in with a suitcase of banknotes enough to cover the house plus 10% and ask for an offset mortgage they’d still ask you for details of income. As a young pup of course I wanted a mortgage because I didn’t have enough money to buy a house but a decent job, once there is grey in the fur you there may be other reasons. Preserving the tax-free-ness of your ISA savings built up over years seems a pretty decent indicator of the fiscal probity of the grey-haired applicant in front of them. But computer says no…

    I am happy this is a game I don’t need to play any more, but if I did, the history I have seen would make me happy to pay more in interest to avoid the fix, fix, fix again merry-go round. But each to their own. I CBA to yomp cash from one so-called savings account to another. HL keep on pushing their Active Savings but life is too short IMO. There’s probably a better return to be had in pondering my equity to cash/gold ratio than Active Savings. And what I like about NS&I is you don’t have to worry so much about the 85k limit.

    I have been a little more active about being active on Twitter.

    Otherwise I need to roll out “The Investor’s Notebook” or some other kind of behind closed doors thing to get back to those days.

    Social media eh, that’s too rich for this grizzled mustelid. One of the things coronavirus showed me was that life is better without FaceAppTweet, and I wasn’t a big aficionado to start with. But the other idea sounds intriguing. Or perhaps I need to accept times have changed, and bear Warren Buffet’s thing about LTCM in mind.

    I expected to struggle after leaving work. But through the grace of good fortune, some of those crumbs of wisdom and a little bit of prudence I am a fair amount better off than when I left. Hence the fondness for the good old days, though I appreciate they were also associated with the GFC. A market crash is tremendously good for the expected future value of those who can make themselves buy into it. Like our good host here who yelled out at the top of his voice “Right folks, what are y’all waiting for? Git your ass into this market NOW“.

  • 83 The Investor February 22, 2021, 7:23 pm

    @BBlimp — It’s not quite as bad as that, because for years now I’ve mostly funded ISAs with money liberated from defusing ex-ISA positions pregnant with CGT (or just cleaning up crappier positions in the early years).

    Even after this big CGT sale I’ll still be partly funding ISAs with money liberated this way for years to come. (With the allowance being £12K-something and the remaining positions sporting big capital gains, I can’t take the full £20K out without generating a CGT bill. And I’m hoping this recent hit is my lot on that! 🙂 )

  • 84 Naeclue February 22, 2021, 7:49 pm

    @Ermine, we are all shaped by life experiences. The mortgage on our second place was paid off quickly (we were in the first for less than 2 years). That was back in the days of high mortgage rates and it seemed such an obvious thing to do at the time compared with investing. It was a great feeling to be free of the mortgage. Being free of debt is also a confidence booster. I started a consultancy business with some colleagues and it is likely I would not have done that if I was laden with mortgage debt at double digit interest rates. Being debt free means you can afford to make mistakes, especially if you were used to not spending much. Having youth on your side, making getting a job easier if it all goes tits up, helps a lot as well of course.

    With a cool head, it is trickier and not so obvious to me now that one should be free of mortgage debt at such low interest rates and I sympathise with @TI.

    We never had a fixed rate mortgage by the way, but moved it often on our third place before settling on the one we have now.

  • 85 Al Cam February 23, 2021, 12:16 am

    @ermine:
    We have discussed this mortgage subject at some length on your blog previously – you may recall?
    I cleared my main mortgage about sixteen years ago.
    During the time I had that loan I used a variety of arrangements including the little advertised part and part arrangement; with one part fixed rate and the other entirely flexible. At the time, this seemed to be a good hedging strategy – as the main fear was increasing interest rates. I never actually changed provider; just the product mix I used. I do not recall ever having to be re-qualified – in the sense of needing to prove my salary, etc – but I guess there were application forms that had to be completed.
    In those days clearing the mortgage was pretty much a no-brainer – as rates were somewhat higher than they are today.
    Clearing that mortgage was the main stimulus that pushed me on to the next obvious financial goals – including what is now known as FIRE. Personally, I just did not want to be a “wage slave” any longer than necessary. I had seen too many examples of how such a situation could compromise people who – in my opinion – should have known better.
    Turned out that FI offered me many more options too!

  • 86 Vanguardfan February 23, 2021, 9:22 am

    I’m glad a few posters mentioned the SVR. I thought my knowledge must be really out of date with all this talk about not being able to get a mortgage when the fix ran out….
    I was a mortgage holder from around 1995 to around 2011, and never had the enormous salary multiples in debt and consequent huge repayments that now commonplace (I also don’t live in the south east). I have never had a fixed rate mortgage – in those days they seemed to me guaranteed to be overall more expensive than variable rates, so I always went for a discounted variable rate. I then just slid onto the SVR at the end of whatever discount we’d got, and tbh it seemed fine, not worth paying fees and hassle to remortgage. So I’ve only looked for a mortgage deal on precisely three occasions. The last one was an offset, which I liked.

    I know the world is different now, but I presume SVRs must be pretty low these days given the low interest rates?? So the risk is not exactly catastrophic, and might even be cheaper than keeping the wodge of cash on hand ‘in case’.

    I do understand the argument for not paying off your mortgage (even if you can’t remortgage favourably) since yes, you won’t get one again. I’ll never buy property with a mortgage again in my life either, but at the time when I became mortgage free, that was kind of the point. And even though I now know things that never occurred to me then, I still consider that a goal achieved and have no desire to ever be in debt again.

  • 87 Boltt February 23, 2021, 12:51 pm

    Here is a link from December 2020 showing an average SVR 4.4%.

    I have have lifetime tracker at base plus .75% (£500k) – I’m sure as hell glad not to migrating onto a SVR as I fired a few years ago and no longer qualify for a good deal.

    A fivefold increase in interest payments would probably mean going back to work to qualify for a new mortgage.

    Incidentally, I’d like to move but Lloyds won’t let even if it’s to a lower LTV – computer says no.

    Get your ducks in a row before you take the leap…

    https://moneyfacts.co.uk/news/mortgages/2020-mortgage-interest-rates-review/

    B

  • 88 ermine February 23, 2021, 9:37 pm

    @AlCam hey, I’m just jealous of how TI’s head is stronger than his heart 😉 He is doing what analytically I should have done, but I didn’t have the balls, started in a weak headspace, and didn’t know then what I know now. But it’s human to run through the what if.

    I did experience the disadvantage of discharging the mortgage earlier inasmuch as I was more skint in my early fifties, with the corollary of having more money now. The area under the graph is about the same, but the squeeze in my early fifties is a lift now. I had to work much harder to save my ISA allowance, so I do feel TI’s pain. I have used it fully from 2007 to now, although some of that was shunting my old SIPP into the ISA over time. A big old mortgage would have helped me smooth my income. I am still young enough to use the money, I don’t think it will go to waste. But the ride was rougher than it needed to be.

    I bang on about this mortgage issue because while it is true you can go to the SVR (I don’t know if this applied in my day) you must not create an event where your non-income will be tested. Moving house is one of those events. It’s not unreasonable to want to move shortly (preferably at least a year to get clear of decompression) after retirement. What made the place you lived to go to work attractive may not be so great when the work requirement isn’t there. You might want to do something else, or want more space, or move closer to the kids. Get that mortgage while you still have a job, ‘cos my experience has been no income (or income about the personal allowance) = no loan. A FIRE retiree’s income is shockingly contrasty once they quit work, because you have to limbo dance around tax thresholds, particularly all the aggravation around 55 and SIPPs/ISAs. What the hell is income, anyway? I had no payslips from 2012 through to drawing my pension a year ago. I had capital, and I spent some. That’s not an income any mortgage company is going to recognise, because any fule kno everybody in Britain lives paycheck to paycheck. Seriously – they just plain don’t believe you! Why would you borrow money if you have the assets? You must be lying.

    There’s nothing quite so much for making you feel the financial bottom monkey than going to a mortgage broker, saying I own my old house outright, I have assets enough to buy the new one outright, but I would like to preserve the ISA allowance, can I borrow for about half the new house.

    “What’s your income?” well, whatever the divi is is on a house worth of ISA. Three years of payslips? Massive variation in what I drew from the SIPP, natch never above the personal allowance. I hadn’t had a monthly income for well over five years. Your tax return doesn’t show your pension commencement lump sum, ‘cos it’s tax-free, innit.

    “Sir, you are clearly a bum and full of shit. Get thee gone”

    The second time I heard roughly the same line, I figured I am not going to drink from this well again. It rubs the fur up the wrong way to get the bum’s rush like that.

    I am not a tremendously early retiree, maybe 10 years to 15 years early compared to the norm. Some of the guys on here have aspirations to leave the workforce in their 40s. Some of them will need mortgages, because you have to do well to buy out a house in 15-20 years of working.

    It’s an issue. Boltt has it to a T

    > Get your ducks in a row before you take the leap…

  • 89 Al Cam February 24, 2021, 12:19 am

    @ermine:
    Re: “There’s nothing quite so much for making you feel the financial bottom monkey than going … .”
    I kind of know what you mean, although I reacted rather differently. I will not bore you with the details but I too have had to deal with a ‘computer says no’ situation on a LTV of < 50% from several whole of market mortgage brokers. OOI, this occurred more than twenty years ago. So the situation is not new – but has perhaps become more common in the intervening period. We did ultimately find a solution, and whilst it was not as extreme as @TI's, it was pretty creative. This is why I remained loyal to that provider – ordinarily I would have probably changed.

    Whilst I understand the idea behind Boltt's advice, I do not think it would help in the event that you wish to move house after 'pulling the plug' because – as you correctly identify – such a move will lead to you having to be re-qualified.

    @Boltt:
    Maybe it is just me, but 4.4% does not seem like such a high mortgage interest rate; in the past, it was not unusual to pay double digit rates. Any learning surely should be around assuming very low rates will persist!

  • 90 Matthew February 24, 2021, 12:40 am

    4.4% guaranteed return with no capital risk (well i assume that svrs wont fall below that because banks need interest even more when the base rate is low) – I would say that youd have a hard time finding better in the bond market

    Then again the svr is optional like not switching your utilities – you could at least refix with the same provider without another check or if the mortgage gets too small to switch – so to me its more like a 1.59% return, and in the future it might be higher, yes, but less than the svr of the time

    You get what you dont pay for

  • 91 Vanguardfan February 24, 2021, 9:08 am

    @alcam.
    Yes I read of the horrors of SVRs of less than 5% with some bemusement!
    I’m not sure my mortgage rate was ever double figures, although it must have been close. Discounted rates were typically a couple per cent or so, so it would perhaps be the difference between 7% and 9% at the end of the offer. Clearly, going from 1% to 3% or 4.5% is a much different ratchet.
    But similarly I can’t imagine taking on a mortgage burden that would become unsustainable in those circumstances. It does make you wonder how interest rates are ever going to rise, and what will happen to mortgage holders if they do…

    Perhaps those of us conditioned during the 90s feel much more imperative to keep the mortgage low and pay it off quickly. (Although I’m sure differently wired folk simply kept borrowing their equity out of the home, because they could.). I have an aversion to the thought of using mortgage debt to finance risky investments, however rational it might look on paper.

    No doubt if I’d been trying to be a first time buyer in the mid 2000s we could have afforded much less and would have stretched our debt more. And if I’d been trying to live in the south east, might as well whistle….(but conversely, house prices here went absolutely nowhere in the decade after the GFC, and we have sold two properties at real terms losses. Not sure our property wealth would buy anything we could live in down there even now). Different times, different places, different worlds.

  • 92 The Investor February 24, 2021, 9:30 am

    @Vanguardfan and @others — Yes, very different world now considering even a 2% move in rates would double or more the rate of many fixes that were taken out in the past few years. The ‘payment shock’ is even more extreme with an I/O mortgage of course — moving to my lender’s SVR, which currently merely wiggles around the 3.5% range, would nearly double my monthly payments. Gulp! So it’s definitely a live issue even putting aside any question of re-mortgaging risk.

    I can assure you that myself and plenty of other borrowers in recent times in London and other expensive parts of the country would have been delighted to have borrowed a lot less money. 😉

  • 93 Al Cam February 24, 2021, 10:10 am

    @vanguardfan, @TI, etc:
    Sounds a little bit like “the sword of Damocles” to me!
    If you do not know the ending, I would suggest you google it.

  • 94 The Investor February 24, 2021, 10:18 am

    @Al Cam — It is what it is. 🙂

    I can pay it off tomorrow, lose more than 25 years of ISA tax shelter protection (effectively) and bank a known return of 2%.

    I can pay nothing off, hope to keep re-rolling the mortgage on good terms and that rates stay low-ish (my expectation for at least the next few years), and hope to enjoy a small fraction of my historical investing returns to make the mortgage pay.

    Or I can do what I’ve been doing, which is keep a large cash buffer, possibly pay 5-10% off to show willing to the bank, invest with an awareness that I may need to call upon it in an unexpected rate rise / refinancing issue (i.e. avoid YOLO investing!) and review that stance on a basically daily basis.

  • 95 Al Cam February 24, 2021, 10:39 am

    @TI:
    Indeed it is.
    A tricky situation – and I cannot help wonder how many in a not dissimilar situation are totally unawares?

    FWIW, IMO active risk management works if and only if you:
    a) monitor the correct indicators at an appropriate frequency;
    b) have a proven pre-planned get out strategy; and
    c) are fully prepared to act without hesitation should the need arise.

    I truly hope it works out well for you. From all I have read and my own very limited personal experience step c) above although appearing to be the simplest is actually the most tricky.

  • 96 Naeclue February 24, 2021, 5:30 pm

    @Vanguardfan, I remember our mortgage peaking at over 15%, so yes current SVRs don’t strike me as onerous, but inflation was much higher back then. Debt isn’t so much fun with inflation below 1%.

    I think we must have sold our second house for less in real terms than we paid for it. We sold it in 1992 for 3.5% more than we paid in about 1985, after installing central heating and putting in a new kitchen. But that was ok as it meant our current house was cheaper than it might have been had house inflation carried on as it had been in the “Lawson Boom”. The bust that followed was tough on a lot of people. Negative equity, so difficult to sell/move even if the relationship between joint owners broke down. Impossible to remortgage as well of course.

    Remortgaging every few years was as essential back then as it appears to be today, although discounted rates were more the thing then instead of fixed rates. I don’t recall remortgaging being at all difficult or costly either. There were no income checks on what you put on the forms and the self employed only needed to show 2 years of accounts. If people could not afford to pay, they just got repossessed. Personally I think that is a better approach than the box ticking hassle that @TI was faced with. I cannot see why someone’s income should matter if they have a low LTV.

    The mortgage market is like the energy or broadband market. Those who cannot be arsed to move between providers, or are unable to, subsidise those that do.

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