Mis-sold PPI?

A couple of months ago, I unexpectedly received a letter from an insurance company on behalf of Halifax Building Society.
Unexpected because I’m not a Halifax customer (haven’t been for over 10 years) and unexpected, because the letter was addressed to both to me and my ex.
The letter was with reference to a mortgage protection plan that we paid into a long time ago and claimed that we could be due a premium refund on the policy! Really?

Mis-sold PPI blah blah blah

The past couple of years, I’ve been plagued by phone calls, email spam, spam letters, spam texts, all wanting to help me claim money back on mis-sold PPI (Payment Protection Insurance). I’ve tended to ignore them (occasionally was a bit rude to the people on the phone as I hate cold callers…)


The only such plan that I’d paid into was the mortgage protection plan and I didn’t believe it was mis-sold because I knew what we were paying for and it ‘did what it said on the tin’, in that when the ex was made redundant, we made a claim and the policy covered the mortgage in full for over 12 months, which totalled several thousands of pounds, a lot more than what we paid in premiums.
Anyway, I duly provided proof of identity in response to the letter and received a cheque for…
£33.37
Ah well, just as well I was more intrigued than excited about what I was going to get, haha!
And just as well that I still have access to an old joint bank account so I can bank the cheque and then put it towards my savings!

Keep calm and keep investing!

[image from claimspower.co.uk]

Borrowing to Invest

[Image from clker.com]

Borrowing to invest is probably most commonly seen when people have a mortgage on a buy to let property, ie, they’ve borrowed from the bank/building society to invest in property for capital growth or rental income.

They win when the property increases in value or they receive high rental income returns.
They lose when the property prices drop and they’re in negative equity or the rental income doesn’t cover the mortgage payments. Consider how imminent interest rate increases will affect buy-to-let investors with big mortgages…
It’s a risky business that not all would want to get into as there are no guarantees but many do to reap the benefits.
But what about borrowing to invest in shares/equities?
Whilst there are tons of articles and info online about borrowing to invest in property, I couldn’t find anything recent about borrowing to invest in equities. Why is this? Too risky because markets can be volatile? Isn’t it still a form of leverage/gearing?

Or just a stupid idea that no one in their right mind should even consider?  Ahem….

Consider this…
  1. I get a small fixed interest loan.
  2. I use the loan to purchase equities/funds via my SIPP.
  3. As a lower tax rate payer, I get 20% tax relief, which I will use to purchase more equities/funds in my SIPP.
  4. I pay back the loan over 3 or 5 years (ie 36 or 60 x fixed payments)
  5. Over the 3 / 5 years, my funds grow, including compound interest, time in the market and all that.
Ok, point 5 is the big ‘maybe’ – investments can go down as well as up. And granted that there’s more benefit if you’re a higher tax rate payer (40%+ tax relief) but perhaps still worth looking at?

As someone who invests making small regular monthly payments, this is also a chance to make a lump sum investment for a change, Monevator’s just made a timely post about lump sum investing here.

So, where to get a low, fixed interest loan?
Cheap Loan
A quick check at various banks (including my own bank) and I see that I could get a £7,000 loan, 4% APR for 5 years (rate is ‘representative’ so I might get that, or it could be higher, depending on my credit rating, I guess).
60 x £128.81 payments = total to pay £7,728.60
So the loan will cost me £728.60 over 5 years, or £145.72 per year.
20% tax relief via my SIPP on £7,000 works out at £1,750 so I’m up by £1,021.14 from the start.

My £7,000 + £1,750 will be invested in index trackers, ETFs or shares.

Too Simple?
Am I missing something really obvious here, or is this too simple to work?
Apart from getting into debt and the big risk that whatever I use the loan to invest in may not see any gains, is this a viable idea?
If I were to invest money from my own pocket, wouldn’t there still be the same risk, ie my investment not performing? (Except of course, in the above example, if the £7,000 was from my own pocket, I would get the full £1,750 tax benefit, instead of just £1,021.84).
So if I invested in the wrong fund (or at the wrong time), I could lose money, regardless of whether the money was from a loan or not, although with the loan, I’ll have to pay £728.60 for  the cost of borrowing.
Embracing Debt
Many of the blogs/websites I read these days talk about paying off debts/loans/mortgages so that you can becoming debt free and on the road to financially independence.
Here I am thinking about getting into debt but using the debt/loan to work for me. There’s no guarantee that fund/equity prices will grow but isn’t that just investment risk anyway?
Anyway, I’m just mulling over this – perhaps it’ll take an adjustment of the markets for me to make a move, so I’ll wait and see what happens.

Oh but wait, isn’t that trying to time the market…?

Decisions, decisions…

My Cars

Wade over at Destination Financial Wisdom posted about the 15 cars (yes, 15!) he’s driven and owned, and it gave me the idea to write my own post about cars.

Many FI and PF blogs warn readers of the perils of leasing vehicles or getting car loans, advising people to avoid them at all costs. Leasing is a common way in the UK for most people to buy their cars, but that’s not to say it’s always a good idea, particularly for people who have debts or who can’t afford the repayments.

Throughout my adult life, apart from when I was a student and cycled to my lectures, I’ve never lived anywhere where not having a car was a viable option. Even if I wasn’t driving all the way to work, eg taking the tram, I would still have to drive part of the journey.

New Cars

I’ve always liked the idea of owning new cars (apart from my first car of course); it didn’t have to be anything particularly flash or sporty – I just liked new and preferred my motoring to be hassle-free (I don’t know anything about cars, except how to check the oil, tyre pressure and replace the windscreen wash).

My cars are usually financed on 3 or 4 year leases and I’ve always purchased them at the end of the lease. Looking back however, I know now that leasing cars wasn’t always a good idea while I had other debt, that I could have gone for cheaper new (or nearly new) cars but I guess I was a bit of a car snob!

Anyway, here are the cars I’ve owned and driven – there aren’t many:

1984 Mini Mayfair
 
 

Engine size 1.1 – my first car, purchased second hand during my work placement year at uni, with a loan from my Mum. I loved it but owned it for only 4 months. The last time I saw it, I was being cut out of it by firemen after a head-on collision with a lorry (not my fault and yes, I was ok). I repaid my Mum’s loan with my insurance payout., which in those days, wasn’t a lot of money.

1993 Peugeot 106 Key West

 

 

Engine size 1.0 – I felt like I was a ‘grown-up’ with my first car lease (how little I knew then…) Car was great, really nippy around the city but not so great for motorway driving or long distances. After 5 years, mechanical costs became so much (and so regular) that I was putting repair costs on my credit cards…

1999 Renault Clio

 

 

Engine size 1.4 – With increasing credit card debt and a mortgage, I probably shouldn’t have gone for this lease but I needed a reliable car and to ‘cheer myself up’ after having to deal with the mechanical repairs for my last car, I ended up buying my ‘fastest’ car. I think I paid for the final payment with my credit card… After 6 years, servicing got very expensive, with continuous problems with the catalytic converter.

 

2005 Renault Clio Dynamique 

 

 

Engine size 1.2 – I was shopping around for a good deal but Renault gave me the best part-exchange quote for my old car so I ended up getting another Clio.  My first car with air conditioning! Sadly, in the last year I had it, the car broke down twice, both times on a busy motorway…not nice at all.

 

2012 Mazda 2 Venture

 

 

Engine size 1.3 – my current car and my first with 5 doors.  Seeing my old Dad try to squeeze into the back of my 3-door Clio brought home the fact that I needed to get a ‘grown-up’ car! The good news is that by the time I bought this car, I had cleared all my credit card debts.

 

I have one year to go on the lease and once I pay off the final payment, the car belongs to me.  The other bonus will be that suddenly, I will have an extra £148 per month to invest – woo hoo! In the past, I guess I just spent the extra funds I had following the end of each lease – now, I know better!

As with all my previous cars, I’ll keep it until it starts costing too much to maintain.

Lifestyle Inflation

I’d never heard of this term before I became part of the PF blogging community but I now see that each car lease I’ve gotten has progressively increased. Perhaps that’s just because cars in general are more expensive but there were certain cheaper makes of cars that I didn’t even consider – now that I’ve changed my view on my finances, I must get over my car snobbiness!

Still, the good thing I guess is that I was never into sporty cars and didn’t aspire to get top of the range. So while I was driving my little 1.0 Peugeot 106, my friends were zooming around in their sporty GTI hatches – I was never a ‘girl racer’! I have no idea how they were able to afford to buy such cars.

 

At some point in the future when I’m older, I may wish to switch to an automatic car (apparently easier to drive, but more expensive than manual and cost more to service). By this time though, I may be able to purchase this vehicle with cash, so perhaps overall, cost will even itself out.

So will my current lease to be my last lease? I’d like to think so!