Plans are Things that Change

Thus goes the quote by Fujio Cho, the honorary chairman of Toyota.

I’ve had a lot on my mind lately, not just the bubble of stress I’m beginning to feel, with my boss leaving next month but about something else.

It’s resulted in me sticking my head in the sand, procrastinating. Wanting to hide.

Me, lately.

It all started with various conversations with my Mum, the gist of which you will get in the below summary of said conversations:

Mum: “I’ve thought about it and I definitely want to sell the house asap.”

Me: “What house?”

Mum: “The house you’re living in. I told you about it earlier in the year.”

Me: “No, you didn’t tell me.”

Mum: “Oh, it wasn’t you then, it must have been your sister. Did she not tell you?”

Me: “No. She’s been really busy sorting out her own house.”

Mum: “Well I want it sold. You need to move out and get your own place.”

Me: “It’s not a great time now. I can’t sell my flat as the cladding issue hasn’t been sorted. How about next year?”

Mum: “I don’t want to wait that long, just get it done. Since you can’t sell your flat, do you need a loan then?”

As a reminder, I currently live on my own in our old family home. I pay nominal rent to my folks but have been responsible for the upkeep and repairs of the house. Over the years, the house has been a UK holiday home for close members of the family to stay in when they are over on holiday.

I always knew I would need to move out sooner or later – later rather than sooner though, according to my plan.

My FIRE plan has always accounted for the fact that I would either be renting or with a mortgage once I’d FIRE’d. Originally, I planned to continue to receive rental income from my BTL property upon retirement, but I came to realise that I would find it too much hassle, so I decided that, at some point, I would sell it and use the equity to buy somewhere to live.

Cladding Schmadding

As I wrote here, my flat is caught up in the cladding safety issue. It doesn’t actually have any dangerous cladding but building inspections have revealed that it doesn’t meet the new fire safety regulations. Until this is rectified, I (and the other leaseholders) must pay for a Waking Watch (fire wardens), which has nearly tripled the service charges we have to pay, and we will also have to pay for the building to be made safe, whereby a safety certificate shall be awarded.  I cannot sell my flat without such certificate.

Since I can’t sell it, I will have to borrow more against the BTL but am uneasy about this because I still don’t know what the final property bill will be yet. The rental income I’ve been getting over the years has been put aside for ‘property purposes’ but this is now earmarked to go towards the final as-yet-unknown cladding bill. I dread to think what that might be.

Because of these factors, it’s looking inevitable that I’m going to have to use part of my Future Fund to fund my house purchase.

The thought of it makes me feel sick and depressed.

Feeling Low

This has really been getting me down. My Future Fund is not meant to be used now.

Yes, I acknowledge this is a first world problem, not a ‘real one’. I have the funds to use, so what’s the problem? The problem is that it’s messed up my plans, and I feel like I’m starting to spiral out of control.

I need to get my head around everything, adjust my plans (and my thinking) so that I feel like I know what I’m doing again.

Why Now?

I’ve always known that at some point in the future, my folks would want to sell the house, but why now? With my Dad’s heart issues one year which resulted in a cancelled trip and with no travel being allowed in 2020, it’s now been over 4 years since they were last in the UK. They used to have regular holidays, lasting several months, enjoying the British summer (such that it is), and avoid the worst of the scorching and humid summer months in the far east.

Clearly, absence has not made the heart grow fonder, and for some reason, their friends were always telling them to sell up and transfer the funds to Hong Kong (though what business it is of theirs, I don’t know…).

I think the pandemic has accelerated the timeline of the house sale. I reckon had my folks been able to make their trip over to the UK last year, I don’t think they’d be wanting to sell so soon.

However, it’s probably now unlikely that my Dad would rush to make the trip over at his age now – the effects of lockdown have made him years older – perhaps one more trip, perhaps no more, I don’t know, so I guess it makes sense for them to get rid of their last asset in this country.

Would I not want to buy the family home? Much as I love the house, it’s too big and way out of my budget and if my folks were to sell it to me cheaply, it would cause sibling friction and that’s best to be avoided at all costs.

Bank of Mum and Dad

I tried explaining several times about the cladding issue with my flat and each time, my Mum’s answer was that the issue would be resolved with her giving me a loan.

The first (and last) time I borrowed from my parents, I was 20 years old and the loan was used to buy my first car.  This loan was paid back (as are all loans to family members).

I had used my own money to purchase my first property (the one I had with my ex), so it doesn’t quite sit well with me that in my 50s, I’m left with no alternative but to borrow from my folks to buy a house. I’m sure this might be normal for some people but it just doesn’t feel that way to me.

Perhaps it’s a bit of foolish pride – I would have much preferred to have done this all on my own.

Plan of Action

As already mentioned, I need to take action to bring some semblance of control back.

I don’t have a lot of cash in my Future Fund, just some in premium bonds.  A week ago, (randomly timed before the markets started to wobble all over the place), I cashed in on some profits in some of my ISA investments, in preparation for when I might have to use the cash. As a mainly buy and hold investor, it was hard to sell but needs must.

From this month, the chunk of money I normally invest in my ISA will instead be lumped into premium bonds to add to my cash pile. I can’t bring myself to stop investing entirely so I will leave the small standing orders that pay into my ISA (and my SIPP). I’ll also continue to invest any extra bits of cash from my side hustles and also carry on investing any dividends received.

So, when it comes to dipping into my Future Fund, the premium bonds will be used first, then uninvested cash sitting in the ISA, then finally as a last resort, sell more equities if required. Or should I sell the bonds? Not figured that out or looked into that yet.

Remortgage

I’ve contacted my BTL mortgage provider and have received confirmation of the amount extra I can borrow, which I’m (mostly) comfortable with. However, as this isn’t the full amount of equity I could have realised from my flat sale, it’s unlikely to be a big enough deposit I would want to put down on a house.  So it looks like a family loan will be required.

However, once I am able to sell my flat, I will be able to pay the loan back in full.

House Hunting

I’ve registered with various estate agents and looked online myself – houses are being snapped up really quickly and I’m finding that some appear on websites already Sold STC or Under Offer.

Due to social distancing, for houses I’ve wanted to view, I’ve been placed on a waiting list as I guess viewings have all been restricted.

I’m sure something will come up. I might not be able to stay in the area as house prices are mostly out of my budget but who knows, I may be lucky and the right property will come up and I’ll be quick enough to pounce.

Control

Despite how it all seemed at first, I do have an element of control as I’m the one who will need to put the house on sale and I won’t be moving out until I’ve found a place to buy. The ‘chain’ also only impacts the property sale, not on the property purchase, since the funds to purchase the latter are not reliant on the sale of the former.

I reckon I will need to reconsider my costs (and my lifestyle) as I may have to tighten things up, while I adjust to change. My anticipated mortgage will likely be marginally more than what I pay my folks for rent right now so no material change there – it’s the initial costs of a new home which are going to be the killer, plus any other house costs which might have to be sorted once I’ve moved in.

And once I’ve settled in, a kind of normality shall resume so that I can continue on my FIRE journey in earnest.

Phew!

I feel a bit better for writing that.  The uncertainty of it all still scares me but things will become clearer in time. I hope it will soon feel like it was my idea to move in the first place and at that point, I think I will feel a lot more comfortable.

Some heart-felt thanks go to @indeedably who reached out, provided me with a friendly soundboard and ear, and made me see some of the positives, where I could only see the negatives.

Onwards and upwards.

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 [edit – link no longer valid] 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, no broken bones but had to have stitches on my leg and face). 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!