3 Mortgage Mistakes That Will Keep You Paying Higher Rates
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- เผยแพร่เมื่อ 26 มิ.ย. 2024
- With mortgage rates rising every week you need to act quickly. These strategies will help you get the lowest rates available.
Big thanks to my colleague Ben, who helped me put together this video. Top bloke and broker!
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0:00 Intro
1:16 Mistake 1
5:22 Mistake 2
8:16 Mistake 3
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Do you have any questions about rates rising or mortgages in general?
Do banks ever look unfavourably on someone going for interest only on a past mortgage?
How come you’re only looking at a 2 year fixed and not a longer term ?
No
Plan to move house soonish and get a new mortgage with my wife.
Can you offset entire principle with offset mortgage or just certain percentage of that principle?
"Mortgages rates don't immediately rise with interest rates." Dude, literally the day after the announcement this week, while filling out the paperwork for my broker (bank statements, authorization etc) to get me the Nationwide 3-odd % rate at £750 a month, they upped their rate and it became £795 a month. Halifax were then cheaper at £760 a month, and 2 days after the paperwork went over to Halifax, THEY upped their rates too so I got lucky. Mortgages are absolutely rising within days of interest rates rising.
Not even days, hours! I literally been going through the same process and have had to get my broker to research the market all over again.
what James is saying is the mortgages out there for new customers do not go up on day 1. Only the variable rates or tracker's would. but most fixed rates are issued until a certain amount sell then they will create a new rate. So rates can go up then it could be days or weeks before the product changes. there is no hard or fast rule how this works though.
Oh, and Amex hike rates straight away. None of my other credit cards have increased rates.
@@leodspprince2184 👌🏻
Mortgages rates can rise rapidly, as you are experiencing. However the point I make is that they don't necessarily rise as soon as the BOE announces a rate rise.
Some lenders may wait a few weeks until they adjust or others may even raise them before an announcement.
This was really interesting and informative. Thank you!
We've got a remortgage in 7 months, I'm so glad you posted this when you did, thanks
Video in a nutshell..... der. The sky is blue and the grass is green. Bravo!
Some fantastic points (as always). Something else worth considering is paying an early exit fee to access lower rates on a new mortgage. I did this 6 months ago secured a decent rate ahead of the very recent interest rises rather than waiting for the term to end.
Hi Simon, that's an interesting one where you're making a bet on the future direction of the markets.
But some times it definitely makes sense. Most repayment charges are 1% per year, so if you're stuck in a 5 year fixed at X% and the market rate drops below X%-1% then it might make sense to take the hit and get the lower ongoing rate.
Definitely a video worth making. All the fees etc. via mortgage brokers and lenders and how to assess short term vs long term cashflow saving. A lot of people come unstuck with the fees and terminology, and it's very confusing/misleading for first time buyers.
I did the same , contacted my lender, knew the % i would have to pay to exit early but the savings were substantial, dropped mortgage rate by nearly 1% but more importantly the new loan amount was a lot lower reflecting all the overpayments we had made so the new payment was £350 a month cheaper. we also extended the term back to the original term length.
The other thing to point out is overpayments, either reducing the term length or payments. i have been able to make sum lump sum payments to drop the monthly amount ( as the amount owing has dropped) meaning the mortgage id still running in 3 years when i retire will be even more manageable
Nicely explained 👍
Great advice!
Possibly one more thing I would say on the theme of applying for a mortgage elsewhere 6 months before the end of the fixed term - one may also consider applying 6 months before a step change in penalty.
Many lenders have an early redemption charge of 1% per year left of fix, or part thereof. I was on a 2% penalty last autumn, and knew the super low rates would soon shoot up. So I applied for a mortgage elsewhere for a low rate 5-year-fix, and deferred the move until my existing penalty reduced to 1%.
This move certainly paid off!
I did the same, now have a deal 1.29% for 5 years
Yes this can be handy too.
You just taking out an option of a mortgage at x% with no cost (other than a hard search on your credit file - you don't want too many of these). If rates go up in that time then it may be worth taking the hit of an early repayment charge.
Love the transparency, thankyou James
You've welcome!
Great advice james 👍
Best mortgage I had was an offset mortgage - after two years of saving and some with pay rises, I wasn't paying a penny of interest and the rest was growing nicely.
Nice David. Offset mortgages help eliminate the Liquidity problem, as you can access borrow if you need to. It also helps for people with lumpy incomes as a place to house cash for a better short term rate (or relief from rate).
What did you invest the rest in?
We found an offset mortgage offered us great flexibility - especially allowing over payments to reduce the LTV.
Fabulous video
Just want to say that applying for a new mortgage six months before the current fixed rate expires is fantastic advice and thank you very much
Agree but when i was doing this due to issues with income and amount owed, affordability tests i missed the sub 1% deal on offer when initially contacted my lender. still paying 1.29 for next 5 years which is a bargain
Hello from Canada, I know your content is geared towards UK residents but the principals are universal! :)
Keep making amazing content, I love the approach and explanation of fundamentals in your videos.
Wishing I could hit the like button three times, not just once.
Aww thank you! I'm glad you've found it useful. I will certainly keep at it!
Fantastic advice James, great video.
You’re welcome!
Thanks so much James. I did this very thing at the start of the year so it is great to hear you comment and reassured me I’m not as daft as others said when I did so. Fixed for 5 years int only at 1.5ish percent so making money with inflation effect. I am then splitting the capital I am not paying off the loan into higher pension contributions as a complete tax shelter and a vanguard isa that so long as it grows more than the 1.5% interest over the five years is also eroding the debt faster than just a repayment basis.
same here moved from 2.14 % to 1.29 % had to make some lump sum payments as i earn less than when took the mortgage out but was saving £350 month on lower deal.
James, great video. A few things 1. People should not get too many offers from different lenders, each offer leaves a “hard” history mark on your credit file. Having worked in UK retail banking I have seen clients declined an offer as there have been very recently had to offers from others lenders. 2. Sort out your personal credit file, preferably about 12 months before a new mortgage application. Do you have credit cards you no longer use (left in a draw may be) that still have an open credit limit on your file. Cancel these cards with the lender and check a couple of months later the case has been closed on your credit file. 3. Inflation and lending was well explained, I found this was hard for clients to get their head around, especially as inflation has not been an issue really in the UK for a number of years. 4. Mortgage rate fees, if you have a small mortgage a rate fee has a bigger impact on the cost of borrowing, especially if added to the mortgage. A broker or bank mortgage adviser will take this into consideration when making their recommendation.
Excellent comments Jonathan. Thank you for you contribution.
The hard credit check is a great point. You need to be wary of that.
Great video - learnt a lot and, with hindsight, I could have saved a bit of money. No matter - been mortgage free on my properties for 3 years now - so no point on dwelling on things 😎.
Hi James, thank you for this video. It provides a good insight. I have managed to go through Experian and found a mortgage broker from L&C. I don't know why I never knew about this. Thanks again
Interesting video James. Thanks. I initially took out a 3 year fixed mortgage and then went on to a standard variable rate at which point I made as many overpayments as I could making quite a lot of sacrifices in the process. Managed to pay it all off in 10 years and with the extra cash available each month started a UK dividend portfolio which I’ve been growing for over a decade. I feel I’ve reversed the tables, instead of money flowing out to the mortgage company, passive income is flowing in.
That's a hell of an effort to pay it off in 10 years!
10 years? I did in 5 years! I survived on sawdust sandwiches. 🤣🤣🤣
@@tancreddehauteville764 5 years!? I did it in 6 months. You kids don't know hard work!
@@davyhoogy 6 months?! I did it in 9 days
Why work hard when you can work smart
9 seconds? I was born into a paid mortgage.
Great strategy for those who can access interest only loans. I used this to good effect in Ausralia. I was only allowed to pay part 50% as an interest only and this for a max of 5 years.
Made a huge difference to FCF (Free cash flow). Like a buisness FCF is key.
Can you put link to the videos you reference in the comments section rather than on the video itself. Where I liv, they don't offer interest only loans, either full or part. James, your mortgage, how many years is it over and do you plan to pay it back sooner ? Is paying 100% the goal, or sell later.
Good video James, only slight critique was that the inflation devaluation of the liability doesn’t consider what is happening on the asset side.
Great video as always, Thank you. But why is the intro music always so loud (not just your videos but EVERY youtube Video?)
5 months ago locked in 1.78% with 17months left on my current deal. Paid penalty fee £2700 with 11months left and on rate rises saved me 250-300 a month alone. Sometimes really worth paying the fees to get out if you save over the next 5 years term.
Yes this is another good point! Works on the way up and the way down, if the market rate gets more than 1% below what you're paying, and you ERC is 1% per year, then you're quids in.
@@JamesShack sadly don’t think rates will be dropping any time in next couple of years
Hi James, great channel, subbed. ECB rates can you see them dropping significantly in next 2 to 3 years?
I think the argument about inflating away debt is 'tbc'. In pure financial theory terms, it's correct. But we need to see either 1) inflation in wages, or 2) house prices to keep pace with inflation, otherwise people are just plain worse off...
Also when you repay the principal your future interest payments decrease. If you can make big repayments early you can save a lot in interest over the life of the loan. Then again other investments compound too so can still be worth it. Inflation applies to those investments you make so the real value of those returns is lower. Plus even if salaries rise as fast as inflation there is tax on top. In NZ that tax is progressive up to 39%. Not always a straightforward decision.
Thank you for this! So glad I subscribe :) My LTV amount is 45% and my mortgage is up in January… I’ve just found a rate at 2.30% for a lifetime mortgage.
Glad you found it useful. less than 50% LTV will give you the best rates.
I'm lucky to have a fixed 1,8% on the full 30 year mortgage
Wow you have got it good. In NZ we get at most 2 months to accept an offer and rates are currently up at 5.4% for 2 years. Granted it was down at 2% 1.5 years ago. Break fees are horrendous. Only one threshold of 80% too. High inflation with sky rocketing build costs but falling average house prices. Crazy times.
Thanks for the info. I went for the safety and paid my mortgage off ten years early. My age featured in my decision tbh
Well done on being debt free!
Hi James, great video. Any advice on choosing a mortgage broker?
I recently moved and taken additional borrowing to secure a bigger house. These 2 rates end June/November next year, when should I start the process of remortgaging for best rates?
Thanks!!!
great and interesting video. (though might want to check the 263% calculation)
mistake 4: using a mortgage broker that charges a fee (and takes money from the bank). I did that on my first mortgage and the offer they had for me was the same I could have gotten straight from the bank.
This could be your best video yet James! Would you be open to doing a video on your journey of getting on the property ladder, how you saved and your process etc?
Sure, I'll get around to it eventually!
Your point 3 is mostly wrong. Whilst inflation it uniform degrades the net value of your loan(a boon for the borrower) this isn't actually true in the real world. In reality your wage rise minus the new increase in the prices of things you actually buy(including mortgage) is your new spending power. Which for most people will be a negative number at the moment unless their wages kept up or beat inflation. Also investment returns are taxed so the actual return for the investment needs to about 30-40% larger then the interest rate you are charged for your mortgage to be a positive yield vs just paying off your mortgage. The view on liquidity and diversification is true though and you might be happy taking a small loss for those benefits.
I am coming from a place where interest only mortgage is just not a thing. If you could do a video of that it would be great. Cheers
Fantastic video James.
I think you've done similar to me. I maxed out on part and part, to free up capital to invest elsewhere.
It's better to have the lenders money tied up, eroding away for me personally.
Sitting on an asset which is mortgage free doesn't work for me. It's no use having all my cash tied up. May as well tie up the lender's and spend their cash on other investments.
Keep up the good work 👏
Exactly, if you understand debt and the risks then it makes rational sense!
All sounds good as long as your not too stretched if things go wrong in a big way. When Covid was first announced and lockdowns etc my anticipation was that the housing market would dive as more and more people potentially would lose jobs / income greatly reduced. The Government help stopped this happening, or has it been postponed? With inflation as it is and the base rate starting to be raised almost monthly we could see interest rates rise dramatically with a knock on effect. Personally I would rather run with a minimal amount of debt
Fantastic video James. This has little relevance to my current situation but I have used these mortgage strategies successfully in the past.. I watch other great financial channels like ‘minority mindset’ but all the others channels push the TH-camrs personality over the message. James simplifies thing like no other TH-camr, his enthusiasm and knowledge really come through, he avoids jargon, financial terminology and communicates perfectly to the end user. I feel like I’m sat across the desk in his office nodding as the ‘penny drops’. Please do some more pension strategies in a volatile market videos.
Mark! Thank you so much for you kind comment. I will certainly be coving that area is more videos.
It's really extremely painful.....
Sad times to have worked to get well below the 60% LTV rate because the gap to higher LTV was huge, only to see the graph on here where the % difference in best rates has now closed to barely any difference...
Interesting point about the 6-month pre-booked new fixed, will look in to that as I hit that milestone, thank you.
An easy look at historical rates, would have shown that. You got suckled in by the low covid rates.
I would say a two year tracker product may be beneficial right now, the rates are quite competitive and better than some fixed deals. Interest rates will have to come down if we go into a recession and that’s the way we’re heading right now. My fixed rate ends next oct.
Also there were some really good 10 year fixed deals at the start of 2022 shows the banks are not predicting huge interest rate rises of much above 4/5%
But they have gone UP!
It is also worth considering an offset mortgage if you have a large amount of cash savings.
Yes, for people with large emergency funds or lumpy incomes.
On my own home I don’t have a mortgage. On a BTL I have 10 years left. I’ve just fixed at 3.4% for the next 5.
Higher yes than a normal mortgage. But it’s a BTL and I don’t want to be paying massive amounts if it jumps up. Offer is locked in and starts Jan 2023.
Interesting video James, picked up a few tips, thanks. Noted you mentioned how the future value of your mortgage reduced effectively by the value of inflation. While this is effectively true, need to bear in mind that if your income only increases by 2% and your income is your only method to pay off the mortgage, then effectively you will only feel the benefit of the 2%, (inflation minus pay rise) different story if you get a 9% plus rise, then the mortgage really is cheaper in real terms... Goodness knows what pay rises will be offered this year, hopefully more than 4%!
So far this year total pay growth had been positive in real terms. Of course that's an average with some jobs well ahead of inflation and others behind.
Either way it's frustrating to have to negotiate a pay rise just to be paid the same as last year in real terms!
But, even if your salary does not rise inline with inflation over the long term - and that would only happen if the economy started to value your skills/job less compared with others - then you can still benefit from the value of your house increasing in value.
Of course, you could be doubly unlucky and see that stagnate too. Which is another argument for investment diversification.
www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/may2022#:~:text=The%20rate%20of%20annual%20pay,pay%20growth%20was%20very%20strong.
It is interesting to see how things are done in different countries. I'm in the US, and my fixed rate on my loan is fixed at 2.75% for the entirety of the 30-year loan. I know there are variable rate loans available in the US, but I've never seen a fixed rate mortgage that was only fixed for a few years.
US is the best in this regard
Thanks James, always look forward to your videos and my mortgage is due for renewal in about 8 months so perfect timing for me to start looking to see whats next. Personally I am not confident enough to invest the money I currently use for over payments as paying off has a known outcome whilst investing could go either way short term and stress me out to much.
I still invest a small amount but not as much as I could if I didn't make over-payments, hopefully whatever the new higher rates will be, they will be manageable due to my previous overpayments.
My biggest worry currently is when my GAS/ELEC bill exceeds my mortgage payments, which seems like it might happen at some point.
Yes, as you're doing you can always do a bit of both. Overpay and invest.
It's a tough time right now with interest rates rising, food bills increasing and energy. Hence why it's so important to do everything you can to get the best rate available.
Offset?
if you can invest the savings into your pension and get 25% boost,
@@guyr7351 yeah good point but then not to pay mortgage off until I retire seems too far away for me personally.
Having a few different pots / methods I think is probably the best way to go.
@@nothingtoseehere3493 I am still paying off my mortgage, but due to age 62, spare money goes into pension / ISA where the return is much better than the interest I’m paying on the mortgage.
Due to a few factors in the last 5 years I am in the fortunate position that when I retire tax free sums will be more than double any mortgage debt but the monthly repayment will be more than manageable with income when retired
Great timing I’m almost 6 months out from RM - can you reco a broker?
As first time buyers our mortgage is fixed for 5 years at 2.14% so the plan is to try and pay it off in those first 5 years
about to retire early and intend on keeping my interest only mortgage into my retirement years. I'm using capital I've built, inc pension lump sum to invest in various ways on the basis that I would rather have the money work for me and my future than pay off a loan with a bank. Admittedly I have a low LTV (approx 25%) so I'm in pretty safe space and of course if things do go awry I could probably liquidate investments to pay off the mortgage, though as I said I have no intention of doing this at any point in the future. Interest only mortgages into retirement can make a lot of sense for those lucky enough to have low LTV's and some investments....
Especially if you have IHT concerns. You pension falls outside of your estate but your property may be taxable if over £500k. So it can make sense to spend IHT taxable assets first.
And lots of people plan on downsizing at some point anyway!
I’m choosing between a 2, 3 and 5 year fixed at the moment both around 3.4%. Can’t make my mind up! Seems like interest rates are high compared to recent years but low compared to history.
I secured a 5yr fixed at 1.63% doing exactly what you said fixing earlier in the year. Well worth doing the leg work
Glad to hear it
Good video James. Just have to take into account the legal costs of moving the mortgage to another provider which can impact the savings.
Yes, indeed. Although a broker should compare these for you to get a true like for like cost basis.
Very good and helpful points as always. However I should say your last point about 'stress' from borrowing is a little counter intuitive - I would rather argue that educating clients so that they aren't affected by stress from borrowing would be a better narrative. You are really much safer from having a mortgage then by not having one!
Wouldn't extending the repayment term out on remortgage be an effective hybrid to get the wider-market availability of repayment, with some of the effective 'gains' of an interest only mortgage?
I want to know how I can find a mortgage broker ben 😂😅 Super helpful video thanks!
Great video and fair play in the current market conditions. I just asked my bank to re-value my property and resulting in 61% down to 56% so I can get a better rate in the 60% LTV bracket, and thats free!!!. Also worth nothing sometimes if you are paying a "fee" in order to get a "better" rate , do the math in 5 seconds will tell if it worth it or not.
Epic! This is exactly what we should all be trying to do!
So very true I had a 1% penalty to pay in last year of 5 year deal, initially was looking at a 5 year deal
Is it wise to pay off my house with a lump sum or do I invest that money elsewhere? Not a very big mortgage in comparison to the numbers mentioned in the vid.
I renewed my mortgage with nationwide, already with nationwide. Mine was due March 2022. Got in early, 6 month's early and fixed in October @ 1.19% for 5 years. It was applied 4 months early in December 2021. I got real lucky. It would now be more like 4%.
I got real lucky, after years of fixing my rate, I went for a 5 year fixed rate on 1.99% 2 years ago. I've got at least 3 years of breathing space to go so hopefully rates will drop when the time comes. First time I beat the banks in 8 years :P
Is it a good idea to pay more to a lower interest mortgage? Mine is 2.7 atm
3:20 - That's a very good tip about the mortgage offer being held for 6 months. I bet a tiny minority of people exercise that, let alone even know about it.
It hasn't been that important with rates flat or falling. But now...
As it happens, whilst editing this video my current lender emailed to offer 2.49%, better than Santander, and also better than anything that's been available since I got the Santander offer.
Having that option from Santander has given me time to wait. No risk, and it's worked out nicely!
Santander put me onto the 3 months but the redemption was 4K prior to that was weighing it up - thins changes things - TX
It is all great but what would you do if your fix was expiring in July 2023 and the ERC on the mortgage was about 2k, hmm 🤔 ?
Excellent video and advice.
I have been asked a few times from friends who don’t have long left on the mortgage (eg 5 years) and on an old tracker rate 1.8 % plus base.
They are looking to move house to somewhere bigger and will need to get a much bigger mortgage.
Their concern is should they fixed their current mortgage and save a little bit of money on any future rate rises or stay on their old tracker. ?
Then, when they find the right house and move then look at the market for the best rate for the new mortgage. ?
I think every quarter percent cost them around £150 extra a year.
I said locking a new rate now, May cost you more in exit fees if you can’t port the mortgage and get a second mortgage with the same lender.
Any advice on staying put on an old tracker or fix now as who know when they move?
You can port a mortgage from one property to the next, some lenders do that. That should solve the problem.
Otherwise you're just betting on whether rates will rise or fall!
I went for a 2 year fixed because i want to move soon, and will then be getting a new mortgage with my wife. So has to be short.
(I also think that rates will fall quickly - but that's just my opinion)
@@JamesShack ok that’s good.
So I assume you planning to port if you can or pay any exit fee or move at the end of two years. Which ever works out cheapest at the time ?
@@JamesShack hi James I am not so sure rates will fall quickly given recent warning from Bank of England and how they aim to tackle inflation. Of course it depends what you call quickly, 2-3 years is small when thinking of 25-30 year mortgages
I got super lucky with my remortgage, had issues with my existing lender, and had to wait 2 weeks for an appointment with an advisor. I went to my bank and they had a fantastic offer 1.66% fixed for 10 years + £750 cashback, rather than 2.3%, and got it sorted within days. Seems i got the timing right as 2 days later the rate went up to 1.86% and if i had waited until then end of my term to fix the cheapest rate was much higher than that.
Ah that's so good
And the way things are going a lot of people need to look at getting best deal
They can and move away from SVR
@@guyr7351 that's pretty much what I've tried to do by fixing for 10 years. Who know how much I'll have saved by the end of the 10 years but it will be substantial
Hiya. what bank did you get the rate with and what was your LTV?
@@AbenaAsamoa 65% LTV with Lloyds, managed to shave 4 years off my term also for the same price that Barclays were offering.
Would be great if people could share UK mortgage providers that guarantee an offer for 6 months, as had a look today and they top deals were only guaranteed for 3-4 months.
Best thing is to speak to a broker, it should can cost you nothing.
Glad to see you covering (in effect) the opportunity cost of home equity with mistake 3. Counter intuitive to view having a mortgage as a "good thing" but this covered the upsides, along with the risks, well.
I intend to purchase a property in 2023 but with the rate rise it's making me question how I should proceed. I should have approximately £18k for a deposit to make the purchase. This would traditionally represent just over 10% LTV so a relatively high bracket for interest. I'm exploring the possibility of buying into a shared ownership property instead as the rent including the mortgage payment (+20% LTV) would be significantly more affordable then buying the entire house. The downside to this strategy is that I'd not be buying the entire property from the get go but would significantly help with the cost of living
Can you share details of your mortgage broker? I used Habito and they were very disappointing.
We aren’t currently on a fixed ( working on it now) and our mortgage has gone us 6 times this year! Fingers crossed our new one goes through very soon
🤞🏻
James have you ever done a video about the other end mortgages, when your less than 10k left to pay? Are there any knowledge bombs here to be had?
I've not done a video on that. I imagine you're set to pay that off shortly?
Hi, I have similar question. 25.2K mortgage balance and 4 years, 11 months to go. STD variable rate of 3%. Was 2.1%. Nearly 60. Work full time, 30K. Do I Overpay a chunk each month or continue to save or both with my spare £500 each month? Wanted to go part time in a couple of years but can’t with a mortgage. Have an emergency fund of 7.5K and two pension pots total 45K currently. One has 14% contribution each month. Reliant on state pension at 67. I live simple, frugal life. Thanks for any thoughts. Ps, single, no dependants.
I'm not sure if this has been raised in the past or not, some people are encouraged to overpay to be debt free in the shorter period while I perfer to extend the longest mortgate as much as possible so i can free up cash flow and can invest (partially echo your interest free option for investment can pay quicker compare repayment)
Yes.
It's interesting how people view money and debt with different lenses. Often from past personal experience or experience of friends and family.
There are many similarities between current economic conditions and the seventies. Here in the UK mortgage rates went up to around 9%. Don't be surprised if that repeats here and elsewhere. Maybe you could do a video on how best to manage such a scenario?
Yes we’re in almost identical position and the same arguments about how best to control inflation. Nigel Lawson wrote a piece in the press the other day saying a mistake was made in 70’s trying to boost the economy via low tax levels, encouraging spending and investments to bring inflation down. The reverse happened and led to Maggie Thatcher and high interest rates to control the economy. Anyone who lived through 80’s and interest rates, taxes etc knows they were not easy times. We are at the crossroads at the moment, one thing is for sure regardless of anything else the Covid bill has to be paid so expect tax rates to rise, never mind interest rates for Ioans etc. my advice would be to clear asap any expensive credit card debt and forget the keeping up with Jones’s expensive PCP car deals. Time to really tighten up on personal finances
@@guyr7351 Yes, so logically the best option would be to raise taxes significantly, to cool spending/inflation, thus minimising interest rate rises and supporting mortgage and CC debts. In turn this protects bank balance sheets and everything seems nice and robust. Except, of course, everyone will complain: taxpayers will hate the tax rises, even though many will gain more through the reduced interest rate rises, companies will complain about the lack of retail demand, and banks will complain about their lack of margins. It would take a very brave politician indeed to follow this route. I wish there was a better option.
Thanks James, I've just locked in a new fixed rate for 5 years, paid an ERC to move to this but I'm confident the small ERC will be far outweighed by locking in this rate now. A question not related to this video: ISA vs SIPP, how should I balance what I pay in to each, I'm 40, I earn approx £120k salary, am I right in thinking that by paying in to SIPP I will not only get tax relief on the 40% but also get some of my tax free allowance back? Should I even bother paying in to the ISA assumming I'm not hitting any pension limits?
Atom, how much you pay into a pension is limited annually at £40K or 100% of salary if lower than that.
Look at salary sacrifice if paying into a company pension.
ISA is tax free in taking the money not as it goes in, with £20K a year limit. It can also be taken at any time where pension is tied up until 57 currently.
Hi - for each £2 you earn over £100k we lose £1 of our personal income tax allowance. So you’re effectively being taxed 60% on that money. Therefor if you salary sacrifice £20k into a pending you’re getting 60% tax relief - which is enormous.
However, you do need to consider that this money will be tied up until 57 at the earliest.
In almost all circumstances pensions are more tax efficient than ISAs. But if you need access to the money before 57 then they can be a good choice. Having a balance between the two can be healthy.
Very useful tips! Thanks, James. How can we contact Ben btw?
Unfortunately Ben is at max capacity at the moment - the mortgage market is going mental!
Hi James, many thanks for your great content, it has been super helpful! In your opinion which Vanguard is better? The general account or the Vanguard Isa? If you sell stocks on the Isa can you still invest your £20,000 per year?
Well the ISA is tax free, the general account is taxable. No one likes tax.
You can our £20k a year into an ISA. You can then buy and sell within the account as much as you like.
@@JamesShack brilliant, thanks so much for replying! Great, sound advice.
I’ve a interest only mortgage, completed 13 years early
Hi James, great content. So me and my wife live in a housing association house and have been waiting and saving for the right to buy scheme, where in principle we could buy the house we rent at a reduced rate. It was originally announced 7 years ago and after several pilots seemed to have fizzled out. We’ve now saved enough for a mortgage deposit and finally decided to give up on the idea of buying the housing association house we’re in. Then Boris announced Right to buy was happening again (as if it was a completely new idea) with his last act as PM. We’ve got another house lined up with 2.49% 5 year fixed rate. We’re now in the tricky situation where I’m wondering with mortgage rates going up and the uncertainty around whether RTB will actually happen whether to go ahead with the move or wait it out and see what happens. Appreciate this might not be an area you’re too deeply involved in but any thoughts you have would be greatly appreciated. Thanks
That's a tough one. You should lay out each of the different scenarios and try and weight up the difference both in cost and qualitative outcome.
A) We get new house but RTB goes through
B) We wait but RTB falls through
C) We wait and RTB work
Like that, so you can try and think about how bad it would be if x or y did not happen. I know it's hard to put a probability on RTB but you can try to.
Thanks very much for the input James. I think that makes a lot of sense. We’ll give it some thought. I’ll let you know how we get on. Thanks again mate
Hi James. Great info again. We have an interest only mortgage and we save the equivalent amount to make a lump sum payment once the deal is up. You mention that you do the same but invest that amount rather than just put it in an account. Any advice on this Thank you
Hmm - so you put it into a cash account and when you re-fix you pay off a chunk of the mortgage?
That’s exactly what I thought and what we are doing but was hoping that could earn its own money as will be around 16k a year just sat there. Thanks for taking the time to reply really do appreciate it 🙏🏻
@@neilsmith8187 If your goal is to pay off the mortgage in a secure way then yes that is a strategy that would be better than paying it off straight away.
Investing involves more risk, but over 15-20 years it’s very likely to beat over paying a mortgage by a lot. But over shorter periods it’s much more uncertain.
Thanks for the advice James. Really appreciate you taking the time. Keep up the great work with the channel 🙏🏻👌🏻
What do you predict will happen with interest rates Sept/Oct next year....that's when my 5 Yr fix ends 😫
Work like a dog, live like a hermit, pay off mortgage, live like a king for the rest of your life - debt free.
Question: how can you leverage the equity in your home at 60+ without downsizing (moving is ok)? Renting? Move it to a Ltd. company? Gifting it to a child?
Lifetime mortgages
www.legalandgeneral.com/retirement/lifetime-mortgages/
Two year fix? What do you think the market will be like in 18 months? Could be horrendous. Maybe better to have a longer fix..?
Mortgages seem more complicated in the UK versus the US. Mine in the US is a simple 30 year fixed at 2.9%. I spent much less than my income allowed which has allowed me to pay more into mortgage principal each month to build more equity and value while also leaving me more money to invest each month. I just kept it small and simple.
Yes, our mortgage system involves continually remortgaging every few years. Great for financial intermediaries. Bad for consumers!
Chuck your right, in the USA loans often fixed for the term of the mortgage, UK traditionally mortgage 25 years on a variable rate which would be linked to bank base rate plus 1.5 to 1.75%.
So in 70’s and 80’s where inflation was high and bank base rate 10% ( for a short time it hit 15%) it was bloody painful. When rates started to drop some clever people left payments as they were and were rapidly overpaying. Throw in property crash and negative equity plus high mortgage rates then for some it was tragic. Certainly impacted those who saw house buying as investments and not a home. In UK some areas are only now hitting property price levels of 2007/2008
@@guyr7351 Wow! One would think that the lawmakers in the UK would changes the system to benefit the homeowners and potential homeowners. It can make life really tough to have to refinance every few years. I suppose it's good if you are lucky to refinance in a low-interest window of time but not so much when rates are climbing.
@@chuckmurray1825 you dont have to refinance but of course it makes sense to, if it saves you money. If your with the same lender then non of the legal stuff needs doing its just about 30-60 mins of your time
When you get a repayment mortgage you pay off a lot of interest first before paying off the actual mortgage. If you remortgage, does this reset the calculation and make you pay off all the interest first again?
No.
I'm so glad I fixed for a 5 year rather than a 2 year
How do you decide whether to pay or add your fee to the mortgage when remortgaging every two to three years? Which way cost the least?
That depends on the opportunity costs, what else would you be doing with that £1,000?
So it should follow the same concept as the mortgage itself. Thank you for the great video!
I 'have got 2,4% 20 year fixed. Fine for me.
I learned from mistake 1 last month 😭I locked in an okayish deal (just under 3%) deal last month and spent about 4 hours on the weekend trying to see other deal via brokers and banks and all of them were higher, it was at this point I realised you could lock in a deal 6 months prior so I missed out and my broker wasn't decent enough to contact me earlier. That being said I guess I could wait it out and see what happens until renewal in Oct but it's painful knowing £100+ a month could've been avoided by just spending minimal amount of time a month prior.
Well you've learned this now and it won't happen again, that's worth something!
@@JamesShack Absolutely I've been telling everyone I know with a mortgage as a heads up. My colleague's broker got him to sort it out in Jan because he thought things will be rising so manage to fix at 1.5%!
Not to rub it in, but I locked in 1.27% for 5 yrs back in January- 6months away from my renewal in July. Deal of the century! 😂
It's funny but even if you do split mortgage repayment and fail to pay your outstanding balance at the end it would have still been cheaper than having had to rent a similar place for the duration.
Prefere my good night sleep with fixed rate for 25 years. This all is probably good advice, but it is same as with stock trading, at the end it is zero sum game (if you are lucky).
What is all this and remortgage ? I don’t get it. In my country. You buy a house and you get a fixed rate for whatever time you want up to 30years. Never heard of this.
I have a £230k mortgage on a house worth £600k. I am on 1.99% which expires December 2023. I'm a little worried now as i stand to get shafted mid next year, any suggestions?
It's out of your control so try not to worry about it. December 2023 is a long way off still and the market is currently pricing in central bank rate cuts from mid next year. So you may be in luck.
I'm in a bit of a quandary.. we're two years away from finishing our 5 year deal. I don't know whether to pay off the early repayment changes now and lock in for a 5 or 10 year deal whilst the interest rates are still relatively low or wait the two years and hope everything has settled down?
You’ll have a 3 or 2 percent ERC to pay, on top of the fact that you’re likely going onto a higher rate than what you’re on now. Work out the total of the ERC plus how much the new rate will cost you extra in interest over those 2 years. Is that worse than a 3.5-4% rate in 2 years time? There’s talk of rates hitting a ceiling or possibly coming back down once inflation’s under control. Either way, you’re taking a chance.
@@Laxton_Himself thanks for the reply! I'll look to break it down like you said so it's easier to digest
@@colincurtis633 it is a bit of a tricky situation. I supervise mortgage advisers and we’re hearing clients having this same dilemma. The main questions to ask yourself are if rate rises are an inconvenience or a disaster for you, plus, factor in that you might need that money you’re stumping up now to cover those ridiculous energy bills this winter. There’s no solid ‘right’ answer I’m afraid, it mostly depends on where your priorities lie, good luck!
Very good points. Thank you for contributing!
Okay, so what if your fixed term ends in 2 years...
Great video, thanks James, I recently started working with Joe @ Octopus and have been impressed with the service.
QQ please: if taking an (part) interest only mortgage, where would you suggest investing the free cash flow, if repaying the capital in the future is something you might want to do? SIPP or ISA? Thanks a lot
Hi Mark - That's great to hear!
The answer will depend on factors like when you'll need to repay the mortgage, your tax position and what other investments you already have.
Joe will be able to advise you on the best course of action, I've spoken with him and he'll be in touch shortly.
Genuine question on the inflation point. While is technically true that if you fix the cost of debt at 3% and inflation is at 9%, debt should deflate away, this only applies if your assets and income will positively benefit from high inflation. For most people income isn't rising with inflation, and in fact they feel it on the expenses side of things. No?
I think it would help to imagine a simple example of a world in which the only things you can spend money on are mortgage payments and bananas. To further simplify, suppose you plan to pay-off your £200 mortgage over the next 2 years and it's fixed at an interest rate of 0%. A banana costs £1. Then in the first year you have to "give up" 100 bananas to pay off the first £100 of the mortgage.
Now imagine that at the end of the first year inflation means the price of a banana rises to £2. Then in the second year our £100 mortgage payment means we only have to give up 50 bananas. The cost of our mortgage measured in bananas has fallen with inflation! That last sentence might sound funny, but there's a serious point: since money is ultimately only valuable to the extent it can be exchanged for stuff, the real question is not how much money does the mortgage cost, but rather how much stuff does that mean giving up? When there's inflation, the answer is: less stuff.
Notice that none of what I wrote above depends in any way on your income or other assets. Of course, we do need to think about those things when we consider our overall financial position. And, of course, it's bad news if our salary rises less than inflation. But that would happen whether we had a mortgage or not, and so isn't relevant to evaluating the effective return from holding the mortgage.
@@UbiquitousBooks i think it is still very relevant. If your income or assets do not inflate, you have less money to pay such mortgage. You get squeezed in fact. As you say, you look at a lower number of bananas. Income inflated in the past, but really it isn't so automatic. If you hold shares though, inflation may play at your advantage.
Hey James, super interesting content as always :-) What do you think about offset mortgages? I took out a 3 year offset deal at 2.19% recently, and I've got about 50% of my outstanding mortgage balance saved in the linked offset savings account. During these uncertain times, it's given me peace of mind knowing that I can access the funds in the offset account at any time if something unexpected happens. Plus at the same time I'm reducing the interest payments every month.
I'm also on track to have saved the exact same amount in my offset savings as I owe on the mortgage by the time my current deal ends in 3 years time. At that point I could technically pay the mortgage off in full, but I'm thinking of just keeping it active and using the offset savings to slowly pay it off over the remainder of its natural term (20 years away). Since it would be 100% offset at that point, I'd be paying no interest, so it wouldn't matter if the rates go sky high in the future!
Sometimes I wonder though - would I be better off investing than paying off the mortgage? At least with the above I can change my mind at any time without having to remortgage.
Offset mortgages help the 'liquidity' problem of repayment mortgages. They're also good for people who have large emergency funds or lump incomes and have a lot of cash.
However, I often find people get addicted to reducing their monthly mortgage payments ,and pile cash into their offset, when there can be better places to allocate that capital.
Even without investing - As in that final example, if you had a £300k mortgage at 2.19% and inflation is at 8.2% you'd be making 6% per year in real terms having that debt. But because you also have £300k in cash, that is also getting eroded by inflation, it get's cancelled out.
Fix for 2 years, over pay by 10% where possible, reduce the term every 2 years. Too many people fixate on 0.0001 here or there, yes it does obviously help but do this where you can afford to and you will save tens of thousands and pay off your mortgages quickly.
The mortgage amount may be reducing in real terms due to inflation, but unless house prices are going up by at least the difference between the inflation rate and your mortgage rate, you are actually losing money.
Not all assets or income adjust to inflation immediately.
But they should do unless the property or job market has devalued that asset or role.
In 10 years of you need £1.50 to buy what £1 can today. And your house has not gone up roughly in line with this. It means it’s decreased in value for some other factor (all property has crashed, your area is no longer as desirable etc)
And these other factors would still persist and creat fluctuations in value even if inflation was at 0%.
The same is true if the job market.
But when you have inflation it’s much harder to delineate whether price changes are due to normal supply and demand factors or inflation.
If all else remained the same, and £1 = £1.50. Everything should now be worth 50% more.
But in reality that is hard to see because of the natural supply and demand push/pull blurring the lines of asset/job values.
And it takes time for Inflation to bed into the economy.
Does that make sense?
@@JamesShack as clear as mud James
Do you not need your salary to increase by the same rate as inflation to be realising the 'gains' of interest eroding debt on your mortgage?
That or your house price to inflate.
All jobs and asset prices will not adjust to inflation at the same time.
But given enough time they should do - unless your job/skill set genuinely becomes less ‘valued’ compared with others. But there is risk of that happening even when there is no inflation.
@@JamesShack good response sir thanks,, i think we might be waiting a while for nurse pay (to take one example) to catch up with recent inflation though. Especially with Empress Truss about to move in to number 10.
James, you say that having an outstanding mortgage is good in a rising interest rate environment because it makes you money i.e. the inflation reduces the outstanding amount in today's money, but isn't that only true if your income increases with inflation?
Income will increase with inflation but not in a lock step. And some people will see it before others.
In Q1 this year wage growth grew at an 8.2% annualised rate. Or a real growth rate of 1.4%.
www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/may2022
As an extreme example let’s say you had a 5 year fixed term, inflation was running higher than your mortgage rate and during that time your pay was static (but everyone else’s pay went up).
You would still benefit because your house would have gone up in value because everyone else can pay higher prices.
@@JamesShack thank you for the explanation. Really good content James.