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Mortgages. Plural. I know what you’re thinking. The writer of Rich People’s Problems has not one, but two mortgages? Off to the Tower! Yep, it’s true. And with good reason.
While interest rates were low, with sufficient earnings they made good financial sense. I’ve never shied away from recognising that life isn’t a rehearsal and sometimes you need to borrow your way out of personal recession. I’m happy to take advantage of a market opportunity. Or simply push my finances to the limit, living the way I want to live today, rather than in the future.
I’d be mortgage free, if I owned just one home. And my costs of living would be drastically reduced, too. But where’s the fun in that? Even though inflation is coming off the boil, higher interest rates are likely to last longer than many of us hoped. How should I prepare for the inevitable financial shock at the reckoning of refinancing?
Like many in my generation, I’m asset-rich and cash-poor, with a propensity to spend. I’m always impressed by those who can live within their means, manage their finances so there’s always cash in the bank, even for a replacement boiler-sized emergency. I am not that person.
Fortunately, the loans I have in place were fixed at the early stages of the interest rate hikes. The mortgages are less than a fifth of the property values, so relatively low. Remember when you could get five- or seven-year fixed-rate deals for just a few per cent? Happy days! They led to what I define as “good debt” — that which you can afford to service.
Thankfully, those deals will be in place for a few years and are affordable. The planning for when they expire, however, starts now. If interest rates come down between now and the time I must refinance, I could kick the can down the road with another loan.
Of course, I could sell assets, reduce the number of homes I own, sell off art or some of my tat to live a simpler life. But what’s the point in picking up a takeaway from the chippy if you can’t use a lovely Rolls for the job? Or having walls painted in a wild shade of Elephant’s Breath or Snugglepuss without some classy art to adorn them?
A repayment mortgage is obviously the most sensible product to have. Except I’m not going to do that. Who needs sensible when it would take too much cash flow away from the important things I need to fund — staff, dog, holidays, fizz and all the unnecessary frippery one purchases on a weekend away in Norfolk? Not to mention the excess number of vehicles in the fleet and a flurry of Deliveroos. I am a good cook but have yet to master the art of sushi. So, interest-only it is.
I’m 53 now and will be 55 when I have to reorganise my finances. So is that a wise strategy? I’ve never been this old and won’t be this young again. Surely repaying the mortgages before I retire has to be the goal?
For previous generations, a mortgage was something younger people had. Being frugal and paying it off by retirement was the done thing. However, I detect a shift in managing finances. For many, leaving large sums when they die no longer seems the objective. Is that selfish? Perhaps. But to “ski” — spend the kids’ inheritance — is something the previous generation has also done with aplomb.
The key part of my plan is to downsize the city-based housing stock to pay off any outstanding balance, once I hang up my headphones and leave my advisory roles. I’m happy to ride the London housing market while I need to be there, but increasingly it’s a young person’s city that many of us olds find alienating and only useful for the odd visit to a decent restaurant and a show. Even shopping in the capital has lost its allure. I prefer high-end shopping while on holiday. Abroad.
Resolving the type of mortgage is one thing. The dilemma as to when to fix is another. Interest rate speculation is rife. If I were refinancing today, it’s about 4.5 per cent for a five-year deal, 5.5 per cent for a 10-year fix and 6.5 per cent for a mortgage lifetime fix.
But I would not sign up for any of those, because most mortgage brokers expect interest rates to fall to 4 per cent or just under — and that was before last week’s news on lower inflation. So what’s the point in paying over the odds for a false security? Today, I’d be a floater — on a tracker or discounted variable rate — waiting for the right time to pounce. And that seems to be an obvious choice.
As with any financial decision, it’s not just the cost of the debt but the opportunity cost. Sure, investing in stocks or bonds could provide a cash return. Arguably, during a period of low interest rates that opportunity cost is easy to disregard. Particularly if you end up with a larger kitchen, a bathroom you could get lost in, or a wine cellar with glass doors and recessed lighting. All of these, you’ll convince yourself, add value to your property.
Unless you have a stack of cash, a mortgage is still a sensible way to manage your finances. And when the time comes to fix that mortgage again, perhaps I’ll have to bite the bullet. But for now? There’s a festive season ahead and a January escape to the sun to be paid for. And who wants to worry about a mortgage when you’re lying on a beach? I’m more worried about what’s for lunch.
James Max is a broadcaster on TV and radio and a property expert. The views expressed are personal. X, Instagram & Threads @thejamesmax
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