ASK526: Should I overpay my mortgage? PLUS: Can I bet on house price movements?

0:02Rob B:Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Hey everyone, welcome to Ask Rob and Rob, the show where you give us your questions, most of the time property related, and we do our very best to answer them well. Let's do that again this week. But before we do, let's give you a very, very quick reminder of how you can get your question onto the show.

0:23Rob D:Yes, you just have to go to propertyhub.net slash ask. It really is that simple. That one link will let you submit a written question for our Sunday Times column, or you can get your beautiful voice on the podcast by leaving us a voicemail. We love it when people do that. And the first person who's done that today is Amy. Hi, Rob and Rob, Amy here. I'm just looking at your most recent newsletter, which is talking about how 59 % of buy-to-let purchases last year didn't use a mortgage. The newsletter is obviously talking about whether or not property without leverage is even worth it. And I just wanted to pick your brains really on what your thoughts are on having in a property portfolio one or two properties which are without a mortgage and having the other ones obviously mortgaged.

1:09I've got a small portfolio and I'm looking currently at paying down on just one of the buy to let properties, the one with the highest interest rate, which at the moment is 5.4%. So that's making quite a big dent at the moment for me. And I wonder what your thoughts were on this. I can make capital overpayments of 10 % every year without charges. So my initial plan for this one property was to every year pay that down so that I've got one property less in my portfolio where I have to go through the time consuming task of obviously working with my mortgage broker to remortgage, evaluate all the different rates, and also might give me that little bit more financial security.

1:51However, I totally hear about the benefits of leverage. So I'm in two minds of this and wanted to hear your thoughts. I think that one of you has paid down a mortgage on one of your properties. I think I've heard you talk about it before. So I'd just like to hear your perspective.

2:07Rob D:Thank you. Amy, thank you for your question. And I really feel you're here because this is a tension between what you know to be logically true, which is that having a mortgage is massively advantageous and we've even gone so far as to say is the point of property investing compared to investing in anything else, versus the very real hassle of having to arrange mortgages and the fact that some rates are uncomfortably high at the moment. So what should you do? Well, I think you're doing the right thing by targeting one particular property. So only you can decide what level of leverage you want to have within your portfolio.

2:38Rob D:But generally speaking, it can be advantageous to target a particular property and just put your payments towards that one rather than spreading them equally across your portfolio. The reason being that if you've got one property with no leverage or very low leverage it then becomes very easy to borrow against that one property. If you imagine it's mortgage free then you can raise bridging finance against it. If you want to buy a property at auction for example then you can borrow partly against the auction property, partly against your mortgage free property and effectively finance 100 % of the purchase.

3:07Rob D:You're not necessarily going to want to do those things but I'm just explaining the theory of why it's good to have the flexibility of having one property where it's very easy to borrow and potentially cheaper to borrow because your loan to value is lower. The exception to that of course is if you've got properties that are teetering on the edge of being in a certain band. So 75 % is the point at which if you go above it you've got very limited mortgage options. 70 % is another threshold. 60 % is another where it starts to get meaningfully cheaper to borrow. So if you've got a property that's around the 75 % mark and you're worried about what your next refinance is going to look like, then it might make more sense to target that one.

3:44Rob D:But anyway, the point is you can do it and your level of leverage doesn't have to be static. If it makes sense for you, then you can have a period of overpaying. Then you can always refinance against something in your portfolio again in future to get some of that cash back out. So let's make it extreme and say that you've got one horrible standard variable rate of 7 % and you can't do anything about it. And you've also got a big pile of cash sitting around that's making you 3-3.5 % in the bank. Logically you can see the case for paying down a chunk of that mortgage. Even if longer term you plan to keep expanding and you can see yourself raising funds and taking equity out again.

4:20Rob D:Borrowing is really powerful and being flexible about it makes sense and keeping that flexibility is way better than for example having capital repayment mortgages on your properties where you're locked into paying off a certain amount across your portfolio and there's not a lot you can do about it. What I would say though is make sure you're doing it strategically. You're not just reacting to something short term. So if you've got one property where the mortgage rate is higher than you'd like but it's not causing you any distress, you're still making a bit of profit and your portfolio as a whole is still profitable, then don't overreact to that.

4:53Rob D:Tie up capital in paying that down but then mean that when a great opportunity comes along you don't have any cash to act on it so do make sure you're not reacting to anything short term and also make sure that you're not just don't mean to be rude but being lazy you mentioned that it's one property that you don't have to go through the process of arranging a mortgage on and believe me i hate the process of going through and arranging mortgages but it is part of the game so while i can absolutely see the temptation to have one property where you don't have to do that i wouldn't count that as a good enough reason in itself.

5:25Rob D:So Amy, thank you for the question. Really interesting. I think it's allowed us to cover some really great ground that we probably haven't spoken about in a long time, if ever. And while I haven't been able to tell you what to do, I hope at least it gives you a framework that you can use to think about it. So good luck.

5:39Rob B:Good luck indeed. Right next up, we have a question in from Noel. Hey, Rob and Rob Noel here, long time listener. My question is, is there a way to profit from regional house price movements without having to borrow and commit tens or hundreds of thousands of pounds to physically buy property. I'm thinking, for example, could I use things like spread betting, options, REITs, or shares in regional house builders so I can make smaller investments and get in and out quickly? Your ideas would be welcome. Thank you. Thank you, Noel. Appreciate the question. It's a bit different to what we normally get as well.

6:12Rob B:Let's quickly whiz through some of the options because I think we can rule out quite a lot well i personally would rule out quite a lot as well you do you know but you have asked me so i'm going to give you an answer so spread betting betting another word for gambling you may as well just bet on horses like this it's just betting i wouldn't use spread betting unless you have the complete conviction i really stay away from that because you you are just gambling that's not investing options very difficult to do implement a source the the agreements people advertise courses on doing options but the reason why they do courses rather than implementing it is because it is so difficult hard to do but because it's complex they can make money selling courses on them and REITs a few years ago may have been an interesting option but actually they're not really around anymore over 50 percent of REITs in the UK have disappeared altogether ever since 2022 but most of them are commercial based in terms of residential REITs now I don't actually know of any left we've got our own story to tell on that at some point in the future but it's just unfortunately it's just not worked as a way of having exposure to property in the UK so that really just leaves you shares and it is absolutely possible and you talked about regional house builders well if you want more exposure to developers who have more of their portfolio or the majority of their portfolio of their land in the north then you'd probably be looking at listed companies like persimmon and bellway this is not investment advice i'm just answering your questions i'm not saying you could do that what is super interesting though is they are at the time of recording at 10 year lows and it's not just those developers there's plenty others as well who are really suffering the ones with more exposure to the self seem to be hurt the most for obvious reasons so that is one way of doing it but as Rob's talked about in his answer the real weapon when it comes to property investment is leverage and although technically you can leverage when investing in shares it's uncommon and it is risky so it's not something that you can really take advantage of even though it is technically possible whereas it's the norm to use mortgages where you buy a normal property but that is a way of doing it and maybe because there are such lows at the moment you may feel there's an opportunity there and that of all the options you've listed is the way I would go forward but not investment advice although we give a lot of information and investment guidance around property investment normal I think it's a very safe method of investing not easy requires capital absolutely but all the options you've listed tend to come with a bit more volatility some of them a lot more volatility so if I was going to choose one of what you've gone for it would be shares but if you can bring yourself to invest in property proper you can get yourself a great deal there too at the moment as we've discussed on a recent podcast so if you can do it you want to take advantage of the market that is the way I would go but whatever you do know i wish you the very best of luck all right well that is two more

9:29Rob D:questions answered which means our duty is done and we can leave you to get on with your day we will be back again with the property podcast on thursday so hopefully we'll see you there bye-bye

9:38Rob B:bye-bye