pension options

[SimonMac]

Lets say you want to buy a property for £250k and have £150k in the bank.

In theory you need to borrow £100k from the bank. So you could put down £150k and take out a mortgage for £100k, giving you a LTV of 60%.

Or you could put down £25k and borrow £225k(LTV 10%), placing £125k into your current account. In terms of the offset, the interest payments are the same in both cases. But, you could then invest the £125k elsewhere at a higher interest rate then you are paying for the £225k and effectively make money out of the whole deal.

Piece of mathematical pish.

And then you come to the real world, firstly try and find somewhere that will give you a 90% LTV, most banks will not entertain you with a deposit that low, secondly the rates would be in excess of 5-5.5% so repayments of about £1400 a month, or £16,800 compared to £500 or £6,000 a year on a 60% LTV which on an investment of £125k would mean an annual return require of in excess of 8% just to break even and if you can guarantee to beat that after paying any tax on the investment you are a better man than I sir.

[MarillionFan]

And then you come to the real world, firstly try and find somewhere that will give you a 90% LTV, most banks will not entertain you with a deposit that low, secondly the rates would be in excess of 5-5.5% so repayments of about £1400 a month, or £16,800 compared to £500 or £6,000 a year on a 60% LTV which on an investment of £125k would mean an annual return require of in excess of 8% just to break even and if you can guarantee to beat that after paying any tax on the investment you are a better man than I sir.

If you're starting from scratch today then you are partially correct.

(1) and find somewhere that will give you a 90% LTV - Agree, you can't get them at the moment. You could a few years ago.
(2) rates would be in excess of 5-5.5% - No. Incorrect. Good rates at the moment of 1.98% + Base. Offset mortgages | Compare UK Offset Mortgage Rates Online
(3) to beat that after paying any tax on the investment - Can be spread over ISAs(build up), 5 Year Bonds using an R85 and your partner and RPI + 0.5% government tax free bonds + some share dealing.
(4) you are a better man than I sir - Yes. Yes I am.

[mrdonuts]

Lets say you want to buy a property for £250k and have £150k in the bank.

In theory you need to borrow £100k from the bank. So you could put down £150k and take out a mortgage for £100k, giving you a LTV of 60%.

Or you could put down £25k and borrow £225k(LTV 10%), placing £125k into your current account. In terms of the offset, the interest payments are the same in both cases. But, you could then invest the £125k elsewhere at a higher interest rate then you are paying for the £225k and effectively make money out of the whole deal.

Piece of mathematical pish.

ok i see what you did , borrowed your offset from someone else in the belief you can get a better return elsewhere henceforth to be known as the MF carry trade

[SimonMac]

ok i see what you did , borrowed your offset from someone else in the belief you can get a better return elsewhere henceforth to be known as the MF carry trade

I think its technically a really badly constructed Ponzi scheme more than anything else

[milanbenes]

(3) to beat that after paying any tax on the investment - [B]Can be spread over ISAs(build up), 5 Year Bonds using an R85 and your partner and RPI + 0.5% government tax free bonds + some share dealing

MF,

you always look clever, until....

you mention that the overhang is overcome by some....

'share dealing'

and then you look like Delboy,

because for most of us, share dealing means throwing money into the stock market and not getting it back

the figures and explanation looked scientific until you described plugging the hole with share dealing

oh dear

next it'll be....

and some Christmas Trees and Sledges




Milan.

[milanbenes]

I think its technically a really badly constructed Ponzi scheme more than anything else

you got it

dodgy dodgy dodgy

Milan.

[MarillionFan]

I think its technically a really badly constructed Ponzi scheme more than anything else

How is it a Ponzi scheme?

All you do is invest the equity you have in your property elsewhere at higher rates by not putting down a large deposit on your primary residence.

And the idea of investing is to spread that equity over numerous investments from low risk to high risk to achieve the highest return versus your own risk taking.

And as my mortgage is the lowest interest rate at 0.98% then I aint paying it off.

[SimonMac]

If you're starting from scratch today then you are partially correct.

(1) and find somewhere that will give you a 90% LTV - Agree, you can't get them at the moment. You could a few years ago.
(2) rates would be in excess of 5-5.5% - No. Incorrect. Good rates at the moment of 1.98% + Base. Offset mortgages | Compare UK Offset Mortgage Rates Online
(3) to beat that after paying any tax on the investment - Can be spread over ISAs(build up), 5 Year Bonds using an R85 and your partner and RPI + 0.5% government tax free bonds + some share dealing.
(4) you are a better man than I sir - Yes. Yes I am.

Your sums still don't add up, those 1.98% + Base are only for 2-3 years, but your plan relies on using 5 years bonds etc? Also if you look at the LTV applicable on those rates they are still only around 65-70% so you would need a perfect storm of ideal situations to make this work, which in reality will not likely happen, so although yes it can be done as you say, odds are I wouldn't feel safe relying on so many uncertainness. If you can get very good returns why not use invest your £150k to begin with, why add the additional complexities of buying a property too. Why not get the mortgage at 60% LTV and then rent out the property making a solid 4% return on the rental income after paying the mortgage and getting a £250,000 house out of it for £150,000 after the rent pays the mortgage

[milanbenes]

Simon,

it does work,

you're overlooking the key ingredient.....


'+ some share dealing'


That is MF's holy grail


Milan.

[milanbenes]

Why not get the mortgage at 60% LTV and then rent out the property making a solid 4% return on the rental income after paying the mortgage and getting a £250,000 house out of it for £150,000 after the rent pays the mortgage

Question, can you buy a house for £250,000 ?

Milan.