mv
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Post by mv on Oct 27, 2015 12:55:04 GMT
We are upsizing due to starting a family, porting the existing repayment mortgage and borrowing an additional 240k.
The safe option would be to take a five year fix (2.19%) capital repayment mortgage for the additional borrowing. This would cost £1044/month on a 25 year term.
So far (....) my experience with P2P has been very positive. I have around 50K invested (SS>>MT>FC) and have had no losses over the past 6 months, although I am aware of the inherent risks of significant losses, industry or platform failure etc.
It is tempting to consider taking the additional borrowing as interest only. For the same monthly cost I could invest £600/month in P2P (or split with others e.g vanguard LS within an ISA).
Does anybody have any experience of using P2P in this way? I fully accept that alot can happen over 25 years although I would obviously try be flexible.
Matt
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sam i am
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Post by sam i am on Oct 27, 2015 13:10:58 GMT
I took out a mortgage 25 years ago and did a similar thing except I invested in a wider range of assets. I think it was called an endowment...
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adrianc
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Post by adrianc on Oct 27, 2015 13:11:51 GMT
Basically, it's an endowment mortgage you're talking about, of course. Interest-only borrowing, with an investment product alongside as a repayment vehicle.
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bigfoot12
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Post by bigfoot12 on Oct 27, 2015 13:20:39 GMT
There have been quite a few discussions about this sort of thing. One thing to watch out for is tax. If you are a taxpayer you will pay tax on your P2P income, but not be able to offset it. Doesn't matter too much with the 2.19% initial rate, but it might if rates increase after five years. If you can make use of ISAs, and your partner's single person's allowance it might make sense.
Might be worth making sure that you can make some early repayments and then if something catches you out you can recreate the original repayment mortgage.
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mv
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Post by mv on Oct 27, 2015 13:21:32 GMT
I'm aware that it is very similar to an endowment mortgage. Endowments got a bad a name and many failed to achieve their goal of repaying the full debt at the end of term. I am interested in peoples opinions or experiences of using P2P as an endowment vehicle.
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bigfoot12
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Post by bigfoot12 on Oct 27, 2015 13:37:32 GMT
I'm aware that it is very similar to an endowment mortgage. Endowments got a bad a name and many failed to achieve their goal of repaying the full debt at the end of term. I am interested in peoples opinions or experiences of using P2P as an endowment vehicle. No one really has - the time frame has been too short. Only Zopa was going through the 2008 'crash', most of the rest are less than 5 years old. As a platform expands rates (for investors) tend to fall, if we extrapolate this further it won't be great. At least you would be borrowing long and lending short, so you would have liquidity on your side, and if rates fell too far you could repay some of you loan.
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jimbob
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Post by jimbob on Oct 27, 2015 13:57:14 GMT
I'm aware that it is very similar to an endowment mortgage. Endowments got a bad a name and many failed to achieve their goal of repaying the full debt at the end of term. I am interested in peoples opinions or experiences of using P2P as an endowment vehicle. I think many here are doing the same thing... personally I'm on an offset of 65k and have an exposure of p2p of ~6.5k total. I'm borrowing at 2.39 to hopefully make 8+ on the p2p side of things... As others have pointed out you'll need to factor in your own tax situation as its deductable from p2p but the mortgage interest is "tax free" so to speak. Also at the end of 5 years you can recreate a capital repayment scenario if you need to present a 'good set of books' to a future broker  In effect you're leveraging yourself quite highly on p2p which is inherently riskier than just repaying the capital... no risk, no reward though !
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registerme
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Post by registerme on Oct 27, 2015 14:14:46 GMT
One of, if not the best, single financial decisions I ever took was taking a standard capital repayment mortgage with no overpayment / early repayment penalties and burning it down as fast as I could. I've been mortgage free for about eight years now. That equates to a sizeable monthly sum you have available for spending / investment and without the risks inherent in going the interest only route.
Of course, this will vary depending on your circumstances etc, but I think it's hard to get away from the fact that your home is at risk.
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stevio
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Post by stevio on Oct 27, 2015 14:38:26 GMT
One of, if not the best, single financial decisions I ever took was taking a standard capital repayment mortgage with no overpayment / early repayment penalties and burning it down as fast as I could. I've been mortgage free for about eight years now. That equates to a sizeable monthly sum you have available for spending / investment and without the risks inherent in going the interest only route. Of course, this will vary depending on your circumstances etc, but I think it's hard to get away from the fact that your home is at risk. Depends on what your risk level is - paying off a mortgage means there is no leveraging - by not paying it off and investing it in something with higher return than a normally low mortgage rate, you can effectively use other peoples money to turn a profit - depending on size of mortgage, this can many thousand pounds a year If you like, you can then pay off the mortgage from the profit you make - but if your making a profit from the mortgage, why bother paying off the mortgage till a point in time you are happy too People miss interpret mortgage free as being a good thing - I could be mortgage free now if I so wished, but I choose to turn a bigger profit from a) Investing the money I would have used to pay off the mortgage b) Investing the money the money the bank is willing to lend me based on the security of my house Effectively I am able to invest almost 2x what someone who pays off their mortgage would have been able to
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registerme
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Post by registerme on Oct 27, 2015 14:42:54 GMT
Yep, understood. Leverage has always bothered me and I've shied away from it wherever possible (too much proximity to the banking industry probably). When it's come to property I've always bought because I wanted to live there, not because I expected to make money out of it. That's an amazing hedge to downside risk. Having said that I've, so far, been lucky enough to have made a shed load......
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james
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Post by james on Oct 27, 2015 17:19:02 GMT
I have an interest only mortgage and am in effect doing this. In my case the primary repayment method is perhaps going to be the tax free lump sum from a pension. A few years after taking out the mortgage the value of the 25% of pension is now 97% of the value of the mortgage capital because my pension payments have been so large. It's combined mortgage and pension planning. Not a penny of that 25% is my own money. It's all employer matching contributions, tax relief at a rate higher than I'll pay or NI saving from salary sacrifice pension contributions. Even after the 25% I expect the after tax value of the remaining pension pot to be above the amount I've personally paid in. In effect, a pension with home thrown in free. Of course since I do invest a lot, the amount I have invested outside the pension is enough to pay off the mortgage around two and a half times. A small mortgage, much smaller than yours, and a very high savings ratio, above 60%, can produce some interesting results.
Some people feel secure with no mortgage. I feel secure knowing I can pay off the mortgage and all of my other daily expenses for life if I stopped working. Before that I felt secure knowing I could do it for years then decades, as the value of my investments grew. Not just the mortgage, but food, utilities and all of the other expenses provided for, so I wouldn't end up in a nice house but with benefit level income only and in effect pressured to sell to change that.
Your situation is not comparable to an endowment mortgage. The monthly payments for an endowment mortgage were set based on assumed growth rates that were too high plus a portion was deducted for insurance. The result was that the monthly payment for the endowment investments was well below the difference between the interest only and repayment levels. You're contemplating at least that difference and quite possibly more. The holders of endowment mortgages also generally did not review progress and make adjustments to the endowment portion, though many did switch to repayment and use the endowment as an investment.
Even with the lower payments and insurance cost deduction it turned out that most endowments have earned enough to repay the mortgage, though you'll mainly read about the ones that don't.
Investing to repay a mortgage is fine. Just be sure to monitor things so that you stay on target over the long term. And if it's not for you, that's fine also, people are different in what makes them feel secure.
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arbster
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Post by arbster on Oct 27, 2015 17:31:16 GMT
We're doing a similar thing, combining it with high-interest savings and a relatively highly diversified S&S ISA, and our 30-year offset BoE tracker mortgage's term, currently at 1.19%, is broadly coincident with my 55th birthday, which enables me to use the tax-efficiency of my pension lump sum to repay the mortgage. P2P represents less than 15% of our non-pension savings, and I don't envisage that rising above 25% for the foreseeable future.
As others have mentioned, the majority of our non-ISA investments are made by my wife, in order to utilise her personal allowance, tax-free savings allowance and in due course basic rate tax allowance.
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mv
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Post by mv on Oct 27, 2015 20:39:45 GMT
Thanks for your thoughts everybody. Food for thought...
I think my instinct is to stick with a capital repayment mortgage for now but whilst the interest rate is low use P2P and S&S ISA as an overpayments fund.
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