Borrowing on my house to invest - am I crazy?

dunstonh

Serious investors with experience will do something like you suggest. However, they would never even dream of using such an awful product as a GEB to do it.

People have mentioned that investments may not make sufficient returns. In the short term of 5 years, they havent but 10 years they have. You also have to remember that property can be just as volatile as the stockmarket. One of the things that continues to be overlooked by the media and individuals nowadays with this "must invest in property" boom we have had.

You may find your investments go one way and your property goes the other. The worst could happen and both go the wrong way.

tomstickland

They're not bad enough to be called "awful" though?

carnet

dunstonh wrote:

Serious investors with experience will do something like you suggest. However, they would never even dream of using such an awful product as a GEB to do it.

I have remortgaged to release a little equity and have also never paid off my mortgage, which I could have done many years ago.

Prefer to invest the money - but think I know what I'm doing - so could not really recommend this route for inexperienced investors - and certainly not for anyone considering GEB's .

System

My mother has a fair few thousand deposited in GEB's and she has gained very little interest wise since she invested in them - in fact when we complained about how badly they were performing they then told us if she drew money out - she may lose money.

carnet

Judi wrote:

My mother has a fair few thousand deposited in GEB's and she has gained very little interest wise since she invested in them

As these are equity based products (allegedly ), don't think "interest" is the correct term - especially as they don't even pay out any dividend income (see post 11).

Capital gain ?

System

carnet wrote:

As these are equity based products, don't think "interest" is the correct term.

Capital gain ?

Yes your probably right, it was 3 years ago and am not well up on them i am afraid - dont intend to be either.:mad:

My mother could have done so much more with her money with a little guidance. Unfortunately, at that time i only knew how to spend money not save it,:o and she was well into her 70s and beleived everything she was told.

tomstickland

Are you sure it wasn't some godawful savings scheme that has such large fees that it doesn't make a gain until year 8? I had a mailshot for such a scheme from big name mutual society recently.

cheerfulcat

carnet wrote:

As these are equity based products (allegedly ), don't think "interest" is the correct term - especially as they don't even pay out any dividend income (see post 11).

Capital gain ?

No, that's one of the problems with these benighted plans; most of them pay interest, not capital gains - it's just that the rate of interest is "based on stock market returns" ( erm...up to a point, Lord Copper ).

tomstickland wrote:

They're not bad enough to be called "awful" though?

Oh, they are, they're truly dreadful products. I'm sorry to see MSE pushing them.

al_yrpal

Borrowing from your 'home' equity is just what many Buy to Let investors are doing, only they are investing in a property or holiday homes, hoping for some capital appreciation. This made sense in the very early noughties, but it doesn't in UK property just now. I think Martins dictum says it all "have 6 months savings in the bank before making any investment."
Facing a stockmarket meltdown knowing that the roof over your head is at risk is a nightmare scenario, but a small amount of home equity that you can afford to pay back from scratch might make sense, if you are prepared to gamble.

Tim_L

Judi wrote:

My mother has a fair few thousand deposited in GEB's and she has gained very little interest wise since she invested in them - in fact when we complained about how badly they were performing they then told us if she drew money out - she may lose money.

This is the timing problem: these products are absolutely inflexible. If she bought them as the stockmarket was descending just after the market peak in 2000, then there won't be any return even on the back of the current rebound. At the date the investment ends, she gets the capital back and has lost 5 years interest. She can't leave the investment rolling to benefit from any future rallies, and she can't cash it out early to do something more profitable with the cash. So really the only gain is that the loss has been floored at the capital amount less 5 years interest.

For someone with an open ended investment (for example a tracker, but there are lower risk investment products) they could choose to bail out or leave the investment running longer term. They could also choose to add to it when the market looks depressed. There's no guarantee that anyone will take optimum decisions, but there's much more flexibility.

I often make attempts to persuade people at MSE to visit us on the gambling board and make a bit (or in fact a lot) of money from risk free betting. Most people react with utter horror that anyone would suggest gambling as an investment strategy. Yet by taking out a GEB you are doing nothing more than betting on the level of an index at a particular point in time. Your stake is about 20% of the final value of the money you allocate to the bet, and your potential winnings are capped. It's really not a good bet.

There is no simple way of getting rich through investments, sadly. Generally reward comes through risk, but having professional advice will mitigate the risk to a greater or lesser degree, depending on the expertise of the person offering advice. GEBs are atrocious half way houses - they are marketed as simple products for the "man in the street", suspicious of the motives of actual experts, apparently removing any need for advice or specialised knowledge, and being painted as no-risk products when they're nothing of the sort.