Wacky idea - what do you think?

Mental_Mentor

Hi money savers

Have had a light bulb moment but not sure whether it works out. What do you think?

I have 2 endowment policies and with Abbey as follows:

Plan 1
Guaranteed sum assured £59,741
Target amount: £59,741
Projected growth 5.75% = £42,200 (I doubt this)
Monthly premium: £91.87
Maturity date: 1 March 2023
Surrender value: £7230.84
Plan 2: £2058.65

Plan 2
Sum assured: £17,539
Target amount: £17,539
Projected growth: 5.75% = £14,000 (I doubt this)
Monthly premium: £33.96
Maturity Date: 14 May 2023
Surrender Value: £2058.65

So here's the deal!

If I surrender and put the £9,300 as a deposit on a buy-to-let I then get a mortgage for £63000 (at £280 pm - interest only) I gain a return income on rent of £360. This represents a profit of £80 p/m

When I take the projected value of endowments at maturity (£56,200) and deduct the payments I will have made £37,750 and divide by 300 months. The profit is £61.50 per month.

I will earn more in a buy-to-let and I get to keep the monthly premium of £125 per month for the next 17 years.

This also doesn't take into account the future value of a £62k house will be worth in 17 years time!

Do I get an MSE award or am I a complete nutter?

Many thanks
Mental Mentor

nmiah786

Mental_Mentor wrote:

Do I get an MSE award or am I a complete nutter?

Many thanks
Mental Mentor

WACKY IDEA AND A COMPLETE NUTTER!!!!

You have not factored in the total cost of renting out the property, the £80 per month profit is not accurate as there are other cost such as agent fee, tax on rental income, void periods, landlord insurance etc.

dunstonh

They appear to be unit linked endowments so using 5.75% would be around the cautious side of what is likely. 6-8% pa. average on a balanced managed fund (assuming that is what you chose) is a likely long term average.

Going with buy to let at this time is little different to sticking with the endowment. Indeed, the endowment could potentially outperform the buy to let when all things are considered.

Mental_Mentor

dunstonh wrote:

6-8% pa. average on a balanced managed fund (assuming that is what you chose) is a likely long term average.

Excuse me for being rude but I think it was those sorts of projected growth figures that got the rip-off endowment industry into so much trouble in the first place!

Mental_Mentor

nmiah786 wrote:

You have not factored in the total cost of renting out the property, the £80 per month profit is not accurate as there are other cost such as agent fee, tax on rental income, void periods, landlord insurance etc.

Buildings insurance about £20 per month. Won't the anticipated saving of £125 premium costs cover this?

Live in north east and think property prices will grow at a faster rate than endowment.

what do you think?