How homeowners are using other people’s money to boost their savings
The strategy of using “Other People´s Money” to make money for yourself is for the super rich isn´t it? For the Gordon Geckos, Jordan Belforts or Richard Bransons? Not in 2018. Nor for the next 20 years, according to the Bank of England.
One of the most aggrieved groups of people since 2008 are the responsible. The orderly. The financially secure. Those who did what governments, their grandmothers and the banks told them to do – save a little for a rainy day. They have been suffering a negative return on the money that they saved – receiving 0.2% a year from the banks while inflation eats away at their capital at the rate of 2.8% per annum. And any hope they had of getting back to the heady days of 5% per annum interest appear to be gone for a couple of decades. Given that the majority of liquid wealth in the UK is held by those aged between 60 and 90 years of age that translates as a lifetime.
The banks, of course, are still making money. Whilst paying a derisory 0.15% to many of their ageing savers they are still charging many businesses much higher rates of interest. And that is where the ability to use a bank´s money to make money presents itself. Because……..
- I can re-mortgage my property on an interest-only basis and fix the interest rate at 1.94% for five years
- I can lend the money that I borrow to a business that offers me 100% security against the loan
- I can fix the interest I receive from them at between 9.9% and 12% per annum – and even fully insure the debt within this return
If I borrow £100,000 then the total cost of the loan over 5 years will be £10,809 (including fees). Over the same period, even at the lowest interest rate above, I will receive £49,500. Clearly, if I wasn´t borrowing to make the investment then the full £49,500 would be mine to do with as I wished.
Many of our clients tell me they are about to buy an additional property or a holiday home with their cash savings because there´s no point in keeping it in the bank. I always beg them to finance at least part of the purchase and invest the amount they mortgage because in today´s economy they can always make the money they invest work much harder than the cost of the money they borrow.
And, post-banking crisis, there´s a certain thrill in making money from the banks rather than bailing them out. Isn´t there?!
We´re happy to explain better how this works if you´d like us to………