I've been busier reading other people's journals than writing in my own ... but @1taskaday pointed me at the Simple Living in Suffolk blog
http://simple-living-in-suffolk.co.uk/ and so I've also been reading posts by someone called Ermine. I can find quite a bit to like about his attitude. He, like us, lives in a nice spot but for the past 20 years has been sleepwalking around in it because of work commitments. He refers to this quote by Henry Thoreau which is definitely one to keep in mind for my own retirement:
“I went to the woods because I wished to live deliberately
I wanted to live deep and suck out all the marrow of life
to put to rout all that was not life,
and not, when I had come to die, discover that I had not lived.”
In recent posts Ermine talks about house prices, obsession with getting onto the house-buying ladder and interest rates. He mentions that he got caught out when he bought his house in 1989 and one of the things that caused significant woe was his opting for an Endowment Mortgage
http://en.wikipedia.org/wiki/Endowment_mortgage. In this plan you paid interest only and bought an insurance policy which when it matured would pay for the house. And give you some extra. This rings a bell with me as DH and I bought our first home in 1982 and the Endowment was the mortgage that was being pushed. Most people we knew opted for this. The potential to not only pay off your home but to have a little punt so that (as they made it sound) you would come out with a bonus at the end sounded too good to be true. To us anyway and we went for the predictable repayment mortgage instead.
We also did not remortgage for a new long term when we moved house in 1992 preferring to continue with the c.10 year balance on the existing mortgage term. This was also pretty counter to what others did (i.e. not taking advantage of the captital that was 'locked up' in our home). Not a decision informed by any thought about retiring in our 50s, but because we liked the idea of no mortgage by our 50s. It has meant that since we paid off (or were within a few years of paying off) I have been able to change job to one I wanted to do (but paid far less), and when DH was made redundant (both times) we did not have to worry about meeting the mortgage payment from a single salary.
Now we are in the Buy To Let game as newbie landlords and we are flouting advice again. We've noticed something that disturbs us in the current advice, as with the Endowment deal in the 1980s. We have no mortgage on our rental property, which means that we can't claim back tax relief on the interest paid on that mortgage. Which is pretty significant, as most BTL landloards bank on a significant gain in claiming back the maximum amount of tax relief on interest. They do this by arranging interest-only mortgages where 0% of their payment is directed at actually buying the house.
Like leasing a car I suppose. You pay for the cost of borrowing the money to buy the house (effectively you pay for the cost of using the house, but are not paying off the capital). At the end of the term you don't own the house yet, but as long as its worth more than it was when you took out the loan you can simply sell, pay the bank and pocket the difference. Or remortgage. If we were high tax payers in work then I suppose that we might be tempted to do the maths and see whether we could come out ahead. But as we are low-income (aka frugal) retirees its not so tempting. We are also well aware that a) governments can change the tax relief arrangements on mortgages, b) interest rates can go up - in fact as they currently stand they cannot go down!, c) house prices can fall. This is pushed to extremes by also being able to 'afford' a more expensive property if you are on an interest-only mortgage (lower monthly payments) than you would be if you were paying down the capital. It also raises a query on whether you will be a high-rate taxpayer for the whole of the term of the mortgage (by my calculations the extra interest just about equals the extra amount that you can claim back from tax by going interest-only). 25 years is a long time and this mortgage looks like a set of handcuffs that anyone looking at retirement early will not want to put on. See also a) above.
Once again we are not following the advice that our peers are suggesting is the sensible option. It just does not _feel_ right. Its worrying that so many BTL landlords we know find it a tempting and sensible approach. Are we missing something here?
(Yes, that was a bit cheesy wasn't it).