Jump to content
DOSBODS
  • Welcome to DOSBODS

     

    DOSBODS is free of any advertising.

    Ads are annoying, and - increasingly - advertising companies limit free speech online. DOSBODS Forums are completely free to use. Please create a free account to be able to access all the features of the DOSBODS community. It only takes 20 seconds!

     

IGNORED

Taking on debt ahead of the inflation


wherebee

Recommended Posts

So - we've had a couple of discussions around the coming inflation wave, and how to invest.  Many of us have gone into inflation-positive stocks such as oil/telecoms/commodities/etc and are very happy.

 

However, is another way to front run the inflation wave to run down cash savings and run up debt, ideally at low fixed rates?

As an example, I can borrow 50k fixed at 3% for 5 years.  I could use that to future proof my house with solar, full insulation, new fencing, etc etc.  In 5 years, will that 50k feel like 25k?

I'm trying to get myself into a 70's mindset.  It's hard after an entire working life of paying down debt as quick as I can and not taking on debt unless I really needed to.

Link to comment
Share on other sites

If i was you i'd sooner pay for refurbishments out of earnings, savings etc.. one thing at a time.

Thought of not owing the man helps you sleep easier. Better to be a tad poorer and a whole lot more relaxed.

Couldn't imagine living in this current world with a load of debt over my head, even though the plan is to inflate it away.

 

Link to comment
Share on other sites

Generally borrowing to invest is a bonkers thing to do as an individual because investment gains are taxed but there is no tax relief on debt interest. This means that your investments have to return substantially better than you are paying on your debts.

The exceptions IMO are buying a house - you aren't taxed on the rent saved or the capital gains - or home improvements as @wherebee sets out.

Primarily the tax aspect is the upside but also because of the long length of time that you will be borrowing the money which will allow inflation to do its work.

Link to comment
Share on other sites

If we can get moved this year, we've pretty much decided to also take on a mortgage as well, even if we don't specifically need it. We are still earning decent money through our business and can cope with a monthly repayment with no trouble. If the Barclays 1.61% 7 year fix is still available it seems to be a no brainer to me. We'd borrow say £150,000 and then use the money for improvements or maybe even to help our children buy their first house. 

Link to comment
Share on other sites

Do 'they' intend to generate inflation without raising interest rates?

If so how will that work, and if not how will that work when the world is hooked on affordable debt that is only affordable while interest rates are at rock bottom.

Will the solution be an extension of what we already have, personal interest rates (credit cards, loans) way higher than what the government has to pay on the national debt?

Seems the future is as unpredictable as ever so any trying to predict it is a gamble. All the charts and predictions are based on historical information, what if they devise a new game instead when the current one reaches breakdown?

 

Link to comment
Share on other sites

1 hour ago, BoSon said:

Do 'they' intend to generate inflation without raising interest rates?

If so how will that work, and if not how will that work when the world is hooked on affordable debt that is only affordable while interest rates are at rock bottom.

Will the solution be an extension of what we already have, personal interest rates (credit cards, loans) way higher than what the government has to pay on the national debt?

Seems the future is as unpredictable as ever so any trying to predict it is a gamble. All the charts and predictions are based on historical information, what if they devise a new game instead when the current one reaches breakdown?

 

Yes, by printing money in co-ordination with each other so that no single currency collapses.

And by "they" I refer primarily to the central banks of the UK, US, Eurozone and non-Euro EU countries.

You can at least see this happening in real time and react however the rush from cash into anything and everything this year - shares, gold, Bitcoin, property - means your cash is already seriously devalued if it was intended to purchase any of those investments.

I had good reason to increase my premium bond holdings to the maximum £50k - planned capital expenditure over the next few years - but even so it's an "ouch" moment compared to where it could have been sitting.  I will probably shift £20k into a S&S ISA this financial year simply to make it less painful.

Link to comment
Share on other sites

19 hours ago, wherebee said:

As an example, I can borrow 50k fixed at 3% for 5 years.  I could use that to future proof my house with solar, full insulation, new fencing, etc etc

this stuff is dirt cheap now ie a mate paid circa £15k for 4kw of solar panels about 10 years ago cos the government will pay him back a lot more BUT you can get 300watt panels now for about 100€ so 2kw plus inverter is about 1000€ now!

 

Link to comment
Share on other sites

17 hours ago, 5min OCD speculator said:

this stuff is dirt cheap now ie a mate paid circa £15k for 4kw of solar panels about 10 years ago cos the government will pay him back a lot more BUT you can get 300watt panels now for about 100€ so 2kw plus inverter is about 1000€ now!

 

Yes, they have been falling for ages.  My 4kW cost £6k in 2014 down from £12k in 2010.

The feed in tariff rate was set to give a consistent return so they guy paying £12k would have received double the rate I did. 

Link to comment
Share on other sites

On 06/01/2021 at 09:53, Frank Hovis said:

Generally borrowing to invest is a bonkers thing to do as an individual because investment gains are taxed but there is no tax relief on debt interest. This means that your investments have to return substantially better than you are paying on your debts.

The exceptions IMO are buying a house - you aren't taxed on the rent saved or the capital gains - or home improvements as @wherebee sets out.

Primarily the tax aspect is the upside but also because of the long length of time that you will be borrowing the money which will allow inflation to do its work.

Buying a house to live in.

OP is making wrong assumption that wage inflation will outrun price/cost I inflation.

That's been a bad call for 50%+ of ukpop in last 20 years.

Only overly generous n hpi tgat have kept people from scavenging in bins.

However I reckon hpi n generous bennies have been a major factor in subdued wage growth-  everyone expects ukgov or house to support them.

 

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...