What do you do when you get a large sum of money?
First class ticket to a Covid free beach?
Illegal shit I can’t even begin to write?
Spoiler alert: if you’re me, pay down mortgages.
Yes, dial back and clock that: pay down mortgages. Not a sexy fast car. Not a first-class ticket to a Covid-free bliss. Not a fancy anything that shows I just made a mint from selling properties?
Am I mental?
I wondered the same.
Rates are low and I’ve got some amazing tracker rates linked at just above BBR from the early noughties. I know, I’m lucky.
But that’s the thing: luck doesn’t last. I know that.
I’ve been wondering a lot when they’ll start to increase bank rates. And I know some of my landlord friends have become a bit, shall we say, complacent. Me, I’m not that way inclined. Trust me, my life would be way easier if I could just go with the flow, but I’ve accepted: I. Am. Not. One. Of. Those. People.
I am a planner.
I like to look ahead, rub my crystal ball, and try and decipher a future which looks fun. Now, given the ongoing shitshow which is this country and lurching from crisis to crisis, I’ve been trying to figure out what I think will happen.
Let me tell you this: Raising the interest rates quite so aggressively didn’t figure as one of the options. I knew they’d raise them at some point, but inflation, I thought, was more fleeting, more transitory, pushed up by global shortages and as such, I thought (wrongly) the Bank of England wouldn’t be so knee jerky.
Apart from, I think, I’m wrong.
Interest rates look set to raise faster than my crystal ball had anticipated and so that’s made me think again about my situation and that fun future I was hoping for.
So, I favour the snowball method of debt repayment. This means I pay down the highest rate first and then move onto the next. In theory this is fine. More tricky when you’re a portfolio landlord owing a rather hefty amount.
I therefore opted for a different approach. I worked out those tracker rate mortgages which I could switch onto a fixed rate (five years) for a low fee, and which (in my plan) made sense for me to keep. I then looked at the remaining trackers and said: which do I plan to keep for the next five years, and which will be sold?
This exercise was rather involved and considered the condition of the property (e.g. when was last refurbed), what may be required in the future, what was the impact of potential new EPC rules, how was the local area holding up and what other specific factors may impact on the future value of the property.
You could call it a ‘property health check’. It spanned both now and future scenarios and looked at both rental and sales values. It was my way of checking which properties will stay the course. For those that will stay the course, I then made capital overpayments to the key priority ones.
And then in a twist even I didn’t see coming, I paid off a low-rate fixed rate mortgage AND paid a £9k redemption fee (Surprisingly I would still save on the interest even after paying that fat fee!)
It was my own home.
And it may be boring and it may not make financial sense, but let me tell you, it certainly helps me sleep at night.
You see the thing to this property investing lark is that stuff goes wrong. Shit happens all the time. Who knows where interest rates are going to be in four years’ time? (when my fix comes to an end).
And before I did this, I will let you into a little secret: I went to see two new potential projects. One was a behemoth of a place I thought I could turn into a boutique hotel (when I got inside, I decided that was a rash idea and exited the thought process early on), the other was a bungalow I thought might work a treat as a do-up-and-dash (aka flip to sell).
But the thing that got me, and maybe it’s a stage of life thing, I don’t want the extra risk right now. Being a property investor already has inherent risks and so I’ve decided, for now, I’ll play it safe.
I paid off my mortgage.
And at this juncture I’m reminded of a saying: Make your investments boring so the rest of your life can be fun.
I think that just about nails it!