It’s been another uncertain year for a lot of people when it comes to their finances, and the cost of living crisis feels as though it’s really only just getting started
So, let’s share some positive finance stories from this past tax year!
Maybe you’ve reached a specific goal, made your first investment or you’ve managed to take greater control of your finances, here’s the place to ring the bell and let your fellow community members know
I’ve nearly maxed out my help to buy ISA but that goes back some years!
I’ve made a bit from investments & bonds with Dozens. Nothing major but good for minimal effort or risk. I’ve been too busy to invest actively this year.
In the last few weeks of the tax year I’ve heard a chain may be completing on a house I’ve had on offer in for, for months. The financial model behind it is intended to have us rent/mortgage free in 5-10 years based on overpayments relative to what is paid on rent/savings presently - let’s hope it comes off.
Everything crossed for you @Rexx - sounds really interesting. Maybe you could start a new thread under Buying a Property - Dozens Community and let us know how you get on?
Certainly! A few bits to do this week - so once the ball is out of my court
Is this your own financial model, or something that’s offered in the purchase of the house?
It’s our own numbers/excel sheet via a standard mortgage product. Model may be an overstatement, but it’s certainly a plan!
The only financial institution offering much different from what I’ve seen are “Generation Home”.
I managed to get a 20% pay rise through performance and negotiation, resulting in my ability to put away 13% of my pension to get back on track with retirement savings (an obsession of mine).
The biggest pain has been trying to work out how to both build a home and start a family in the next year, but through countless spreadsheets, financial apps, budget reviews, open banking analysis, etc… we finally think we can afford a baby and our home.
@jase - I’ve set up a couple of IFTTT rules & all 3 of Dozens rules! Feel since I like my ‘chai’ a bit too much, rounding up to the nearest £ will definitely help automate saving.
Also, I analyse my spending on the ‘Track’ window and save whatever is left in the weekly budget.
I love saving the budget underspend as it gamifies your spending. I’m 18 days without coffee and starting to fall into the “hot chocolate” trap spending almost the same.
I’m now thinking about using IFTTT to collect my weekly spending total and add an extra minute of exercise for each pound I spend.
I’ll soon be rid of my lockdown blubber and hopefully encourage me to save a few pounds!
Keep up the hard work @SaurabhRastogi
Talking about properties, in the last tax year I have also bought my first home. It was more of a lifestyle driven decision than a financial decision. But since I was going to buy anyway, I wanted to make the most of it.
After exhausting calculations and careful consideration, contrary to what Rexx is planning to do (overpayments), I decided to keep the mortgage for as long as I can, and borrow as much as I can from it. Why? Because mortgage is the cheapest loan most people will ever have access to, and it’s not only cheap, but also not marked to the market. I couldn’t find anything better than this for an investor who isn’t a millionaire and doesn’t have access to the exclusive loans at their private bank.
Poor people want to pay off their loans and mortgage as soon as they can, and rich people want to borrow as much as they can and never plan to pay them off. The result is the poor gets poorer and the rich gets richer. I’m not rich, but I choose to play the rich people’s game.
So, how was my 2021-22 tax year? It was quite different than I what I thought it would be back in the 2020. TBH I will still be renting today if I have not had to spent months with bad housemates, or if the market hadn’t recovered so quickly after the coronavirus crash. I knew renting a room was (and still is) a better financial decision than buying a property, and I totally did not see myself buying so soon. But in real life, things rarely go exactly as planned.
For me - it all boils down to the ability to in 5-7 years to say “stuff this job” or “I’m going on holiday for a year” with no rent or mortgage that I’m liable for. That or switch it to the bare minimum once the hard work is out the way. With my model, I’ll still be saving on the side & not every penny shall be thrown at the overpayment.
That said, I’m buying with 40pc equity and the mortgage is cheaper than my existing rent (let alone factoring in what we save on top presently), so I’ve got a good incentive to overpay and get it paid off within a reasonable time period.
If the chain falls over again, we will apply it to another property, but I really hope it comes off as the price hasn’t bumped up along with the market over the last 12 months!
It really depends on how do you see the mortgage. If I’m not wrong, you are seeing the mortgage as a liability. I’m seeing it as a part of my cash flow, which means I don’t see the cost of servicing a mortgage any different than the cost of living, such as food, energy and utility. Regardless the state of the mortgage, I will still need sufficient income to cover the essential expenditures. Having a mortgage only means higher expenditures and requires higher income. Servicing a repayment mortgage with passive income is very expensive, and I wouldn’t want to go down that path. However, the interest-only mortgage is very handy and perfectly suitable for this purpose.
For example, to service a £150k interest-only mortgage at 2%, the borrower will only need to repay £250 monthly in interest, that’s less than most households spend on their groceries every month. To cover the £250 monthly repayment, the borrower will need to have at least £60k invested at 5% expected annual return. As you can see, that’s much less than the £150k mortgage balance. If the investor had £150k invested instead of paying off the mortgage, they would then enjoy an additional £4,500 annual income at their disposal. Imagine what you could have done with an extra £4,500 every year. Perhaps a few nice long holidays aboard? or put it aside and treat yourself with a new Tesla Model 3 every 10 years?
It’s also worth mentioning that as inflation erodes the real value of money over time, the real value of the mortgage balance goes down throughout the mortgage term, even though the nominal value of the mortgage balance remained the same.
Therefore, the borrower/investor will benefit not only from the difference between investment returns and mortgage interest, but also from inflation. It’s a win-win situation.
However, I should also note that this is not for everyone. You should NOT do this if you:
- haven’t done the maths
- have expensive debts elsewhere
- don’t have sufficient amount of emergency fund in cash
- are bad at budgeting or saving
- are very risk-averse or not comfortable with investing
- value the certainty more than the potential gains
- have concerns about your mental health related to debts
- know mortgage-free will make you worse off in the long run but still prefer it
- can’t get a cheap interest-only mortgage
- don’t expect to have sufficient passive income to cover the expenditures
- may panic sell after a market downturn
- are expecting a dystopian world in the future (e.g. severe and long lasting deflation)
I think it depends on the position you’re buying from - I could feasibly have the cash flow freed up entirely within a medium time period (based on my numbers) so net net I will be paying out a lower fixed proportion per month. This will most likely offset any inflationary concerns/free that monthly money up to pursue other ends.
I don’t see it as a liability but I see it as a route to higher disposable income before others even consider buying (based on my age). FYI - the amount I’d overpay is not far off what I/we pay in rent/save already. If I was purchasing with a smaller deposit I may have a different strategy That said, if I make a big dent I could happily taper it off and live off the bank for a few years. It’s not a race to the death!
Even if someone could afford to repay the mortgage in full in mid-term (5-10 years), they would still benefit from borrowing interest-only for much longer period.
Two examples with the help from mortgage and compound interest calculators:
- £80k repayment mortgage borrowing for 5 years at 2% monthly repayment is £1,402. In this scenario the total savings in the first 5 years is exactly £0, and then saving (investing) £1,402 per month starting from beginning of year 6. At 5% investment return, at the end of year 25 the investment will worth £576,269.
- If instead getting an interest-only mortgage for the same amount at the same interest rate for 25 years, the monthly repayment will be £133. The £1,269 difference is then invested monthly at the same rate of return. At the end of year 25, the investment will worth £755,701, and exactly £80k of that need to be used to repay the principal. The investor ends with £675,701 left after the interest-only mortgage is fully paid off.
As you can see, the investor in the second example will be nearly £100k (over 17%) better off than the investor in the first example.
In fact, if you treat the investment return as income instead of let it compounding, you will have a higher disposable income in year 3 (let it compound initially) or 4 (no compounding at all), after that the average monthly return from investment is expected to exceed the £133 monthly interest repayment.
I should also mention that mentally anchoring the mortgage repayment to your current rent is also not helpful. It’s like going to the airport on a train, then flying long haul to your destination. Comparing the speed of flying to the train doesn’t help, because the speed of the train is no longer relevant as soon as you got off that train at the airport. It’s the relative speed between the aircraft and the earth’s surface movement really matter. You need to forget about the rent (train speed), and only consider the mortgage interest (earth’s surface speed) and the expected investment return (aircraft speed). It makes sense to invest instead of repaying the mortgage as long as the expect investment return is materially higher than the mortgage interest.
Yeah - I get where you are coming from & thanks for the detailed reply. However, we will be in position to save/invest outside of this model & as such I am happy to pursue having no interest/tenure finance commitments within 5-10 years. It’s a hybrid model with not all financial resource allocated to overpayments & its relative to our age and personal circumstances. Fortunately due to our built up deposit & joint income - paying it off is unlikely to be an “even if” however it’ll be set up over 25 years and the overpayments could be axed should income be affected.
Also, this is a joint investment at a relatively young age (I’m not 18 but still…), as such we prefer to consider this over the medium term. This model has personal aspects as well as financial. Relative to our peers & based and our current context I can’t ignore the rental comparison, perhaps I’m set in my ways! That said, I’m confident that it’s going to result in a financially burden free period of life with no change to our current material circumstances (which are already pretty comfortable). Our next step after this, could plausibly be similar to what you are advocating.
Well - the word “Dozens” has caused a few metaphorical raised eyebrows during my telephony mortgage application. More not knowing the name than anything.
Only inconvenience in practice has been submitting manual statements opposed to submitting via open banking (to prove where my income credits)