032 - Property Market Updates & Why You Should Reconsider Paying off Your Mortgage Early

Ever wondered why some investors choose swimming in debt over a mortgage-free life? Our latest episode peels back the layers of real estate investment, guided by the wisdom of a seasoned investor with nearly two decades in the game. We confront the alluring yet dangerous myths of quick riches in property markets and dissect the sophisticated workings of economic influences on your investment portfolio, all through the vivid metaphor of a champagne flute pyramid.

Taking a closer look at the mortgage conundrum, we debate whether to eradicate your debt or multiply your properties. With an analytical lens, we discuss the implications of sinking £80,000 into your mortgage versus funneling it into more real estate for passive income generation. The conversation pivots to the broader economic landscape, reflecting on how personal financial strategies can ripple out to affect entire industries, exemplified by the current turmoil in the car market due to rising interest rates.

As we wrap up, our discussion turns to the crystal ball of interest rates – will they dip or dive in 2024? Our expert unpacks the intricate dance of central banks, pandemic aftershocks, and the economic reasoning behind interest rate adjustments. Plus, don't miss the chance to learn about the rich conversations happening across our social media platforms, where you can engage with fellow investors and access a treasure trove of resources aimed at your financial empowerment.

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Transcript

Speaker 1: 0:00

Hello and welcome to another episode of Conversations with an Investor. This week we've been asked a few questions that are hot topics in the world of investing and, moreover, the property market. So it's off the back of me doing a marathon recording on the property investment course. So one of the things that I see a lot of is I see a lot of signs of people that have been missold a property investment dream. They don't have a seven-figure portfolio, they don't have a six-figure income, but they have purchased many websites and marketing strategies and they are 30, 40, 50,000 pounds down on Google Ads.

Speaker 1: 0:47

So, rather than moaning from the sidelines about how difficult that that is, I've taken the step to build a course that is everything you ever wish. You knew, everything that you wish you knew before you started off in your property investment crusade. So, whether you're new, you've been in the game, whether you gave it a try and it's not worked, there's going to be puzzle pieces that you know and there's going to be some that we're missing, and those are the things that are missing that this course is going to cover off. Through my nearly 20 years of investing, understanding everything from the micro-level detail all the way through to macroeconomics, it's. One of the things that I've been able to pick up is that you've maybe seen, if you haven't seen, my episode on the three myths about property investing. I explained that the whole economy is made up like a pyramid of champagne flutes and the champagne flutes are shaped into a pyramid and in the top comes a flow and that flow distributes down the pyramid into each of the champagne flutes, and the property market represents one of those champagne flutes. Within the pyramid itself and based on what's going on, the conditions within the flow, it can shift. The conditions can change and one day your champagne flutes filling up and the other day it stops. Does it fill halfway? Does it keep going up to the top? Does it fill at the same rate? What's going on? And that represents a change in house values, mortgage rates.

Speaker 1: 2:31

Is it a good time to invest? When's a good time to buy? What's the correct strategy? What do you do, given that most people go into it with a two-dimensional understanding, based on the things that they're taught, the things that they're shown, the things that they're essentially sold by, people who believe that this is how it works and maybe it's a bit of naivety, maybe they made a mistake or, however it is that they came about, but my understanding of how it works is through the years of wisdom and I've made all the mistakes and all the errors and every conceivable mess up possible, so I know what it's like when you're starting out. I remember how difficult it was. I remember trying to find information. I remember thinking certain ways and then realizing that they were incorrect, and it was a constant evolution of adapting, changing, adapting, switching up, learning, seeking out advice, and it could be really tricky.

Speaker 1: 3:38

The thing that we have now is we have the technology to be able to plug into people and when I started out, you would have never in your wildest dreams been able to connect with them and we also have the technology where there's ways that we can get education from people that have been there, done it, got the t-shirt, been at seeing it, done it, got the t-shirt. So I think that it's an amazing opportunity to be able to arm people with the tools so that they can, if they still want to go into the market knowing how it works, knowing how it operates, knowing how it shifts, that they can spot it, that they can see how it shifts and they can then make the decision if they want to get involved, and if they do, then they can go and get supercharged results. So that's the key thing about what has spurred me on to do this, because in this day and age there is lots of things like people on the internet, people that are advertising lots of information on YouTube, even mainstream TV Homes Under the Hammer and shows similar to that. A lot of the stuff that's out there is misguided, it's not applicable to most and it gives people a sense or a false sense of surety or that this is the way it's going to be, and that can be dangerous.

Speaker 1: 5:08

So what we're hoping to do in this episode was there's been a few questions that have recently come up and what they're based around is what's likely to happen in the property market, and a good thing is that these questions actually line up with being very fresh in my memory of me going over these in the property course videos. So the first one that was asked was why wouldn't you want to pay off your mortgage sooner? So the easy way to start with this question, with why you want to pay off why wouldn't you want to pay off your mortgage sooner is if you ask most people why they want to pay off their mortgage. What is the end result of that? What's the outcome of doing that? And most people would say, well, I wouldn't have the mortgage to pay. Now I think the assumption is in their part is that they believe that they become bill free, as in, their monthly outgoings go to zero. And when you look at the bigger picture, that isn't exactly true, because what happens when you pay your mortgage off is your mortgage payment goes away, but the rest of your bills still remain, things like broadband gas, electricity, council tax, maintenance on the house and other household costs. So these are the things that you may think that you're reducing your monthly amount by a huge difference, but in reality it's not always the case, and particularly through an investor's lens.

Speaker 1: 6:43

I had a conversation recently and the conversation was around should I pay off the mortgage? The mortgage is in the ballpark of £80,000 and should I pay it off because I'm paying roughly £500 a month for this £80,000 a month mortgage? If I clear it off, then that's just less hassle. I said well, for me that wouldn't be how I would see it, but you think that's a good use of the money and it's up to you. So the discussion went on further. I said, well, why wouldn't you do it? And I said, well, based on if I had £80,000 available to me in cash and I had a £500 outlay for that £80,000, I would deploy the £80,000 into a couple of investment properties. I would buy two investment properties. With the strategies that I use, they would be generating, on a ballpark, £2,000 per month each, so that would be a totally £4,000 gross income on the two investment properties. And then I would subtract the £500 that I was paying, which would leave me £3,500 in profit, and that would cover more than cover all the other associated household costs mortgage, broadband, gas, electricity, council tax. It's going to cover them all and you're still going to have some left over and you have these investment properties that you can use to bring in passive income.

Speaker 1: 8:14

I say, furthermore to that a lot of the people that I've spoken to that have done this type of thing, they don't appreciate the unintended consequences and one of the driving factors for people that are looking to pay off their mortgage is usually they're approaching retirement age. So they have this huge drive to pay off the mortgage because they think if they pay off the mortgage excuse me, if they pay off the mortgage, then they will be able to feel a bit more financially comfortable. Typically, what happens is people put a big lump sum into making that payment and when they put that lump sum in, they'll generally empty the coffers, they'll pay off the mortgage and they'll have this mortgage-free house. That is an excellent asset if they sell it. But what if they want to remain in the house? So they would say they want to remain in the house. They've got this big, huge asset, no mortgage on it, and they decide they want to build an extension, or they want to have some big capital outlay, buy a new car, or they want to go accrue, or they want to buy an investment property, for instance. Because they realise that retirement wasn't all it was cracked up to be, they are looking to increase their income. Their retirement isn't paying them the lifestyle they're accustomed to. So what do they do? Well, they might want to take some lending against their big asset that they've paid off.

Speaker 1: 9:45

But what will happen is what we're seeing now is a tightening of lending criteria, and that tightening of lending criteria is made up of many things. So one of the things that is a big issue at the moment is, with the sharp increases in interest rates, those affordability has been massively affected, and that is a domino effect in the rest of the industries that primarily use credit as a means for their services or their products. One of the big ones is car manufacturers. So you might say, well, what's paying off your mortgage got to do with, like, what's that got to do with people not being able to afford the cars that they financed? It's a great question because on the face of it, you wouldn't think they were connected, but there's something that called contagion. That happens when you get financially globalised industries that are all interconnected.

Speaker 1: 10:40

And what happens is, if you have went through a period of time, which we just have, over the last decade, with artificially low interest rates, people have got into the condition that these interest rates are now the new normal. And when these interest rates are now the new normal, what happens is they will generally take more and more lending. And the reason that they'll take more and more lending is that the cost to borrow is extremely low. So the amount of cash that they have available can get more and more loans. Because the loans are cheap, because the interest rates are low. So that's why we've seen a rapid increase in house prices. That's why we've seen a rapid increase in the stock market. That's why we've seen a rapid increase in the cost of new cars. If you look at the price in new vehicles, they're insanely expensive relative to what they were 10 or 15 years ago. So it shows that there's this high drive, high ticket prices fuelled by low interest rate, credit fuelled spending, and what we've seen now with this change in interest rate is that that's caused a lot of delinquencies or a lot of defaults, and those defaults have showed up in the car industry.

Speaker 1: 11:51

So the car industry is feeling the pinch, and it's feeling the pinch because there's lots of people that are now not able to make their car payments. Why are they not able to make their car payments? Well, the interest rates have been increased on their mortgage. So when their interest rates go up in their mortgage, their credit cards and their loans, what happens is the cost to make those payments go up. Well, something's got to give, and one of the things that we can see in the data is the car loans are not being paid.

Speaker 1: 12:18

So the people that have got the two-rain drovers and the French Bulldog called Luna and their house looks like the city of ITV2, they've taken the biggest house that they can possibly buy. You know, it's a couple of French Bulldog two-rain drovers and they've got a six-bedroom house with four en suites. Because money was cheap, we could afford it and we thought that the interest rates were going to be low. Well, the interest rates have went up and their mortgage renewals came over. Now they've got to decide. Something's got to give. So one of the rain drovers is not getting paid, or one of them can't make the payments, so they're in our ears, or it's been handed back to the lender and that's then causing that is happening over and over and over again with people that had this spending fueled by the low interest rates, and that's caused contagion into the bigger market of credit. So these institutions and banks who lend money are now saying, hey, look, we need to tighten this up, we need to consider who we're lending to, because this interest rate is now causing us pain. And it's causing us pain because these people that were paying their loans are now not able to pay their loans and it's causing stress in the system and what happens is you'll see second-hand values and cars dropping. That'll be the next thing. Then you'll see prices dropping in property and you'll see tightening and lending. So let's go back round.

Speaker 1: 13:40

Let's circle back round to where this started. So you've got someone there who's approaching retirement age that has this asset, and they decide, hey look, the best course of action is to pay this off and then, if I ever need any more money, I can go to the bank and I can get a mortgage. But in this situation, in this environment, all this collateral fallout that's happening with the tightening and lending, when you know, the retired Joe goes to the bank and says can I? I missed a bank manager looking to get a loan and the bank manager says I'm not able to give you a loan. So why? Well, because you're retired now, how are you going to? You know you're not, you're not eligible for us to lend you money. And we said, well, that's never happened before.

Speaker 1: 14:21

The manager goes on to explain well, lots of stuff happened in the market, lots of changes, lots of tightening and lending conditions. And this is what happens with contagion. And this is why you need to be very careful about how you deploy your hard-earned money. And if you want to pay off your mortgage early, then at least know what you're doing when you're getting into that. And what I would say is if you can find a vehicle, that and this is my job as an investor, this is my profession, this is what I've done my entire adult life I'm looking for the best opportunity to deploy that capital into something that would be better than the alternative, the normal alternative.

Speaker 1: 15:01

So if I was paying off a mortgage, would it be best to use that money to pay off that mortgage or can I place it somewhere where I'll get a higher performance for that same money? Will it put me in a better position? Will it give me more cashflow? Will I get more equity? Will I have more investment opportunity? Is there a better time horizon? Does it give me more flexibility? These are the things that I'm considering with how to do it.

Speaker 1: 15:25

So I would say to anyone out there who's considering paying off their mortgage early at least do it with these considerations. Top things to consider, as I said, is does it give you the flexibility? Are you emptying your entire savings to pay off that mortgage? Have you considered any other strategies to maximize the cash that you would use to pay off your mortgage and to other vehicles, to see if there is a better alternative that can put you in a better position. What's your time horizon? Are you terminally ill? Have you got a year to live?

Speaker 1: 15:57

Then, yeah, maybe paying off your mortgage is the right thing to do Because you've got an imminent situation. You might be like, look, I want to get my fares in order. So there's absolutely merit for that type of thing to say, hey, look, the best course of action I can take right now is to settle this mortgage out, because then it just gives me a peace of mind. So it's not to say that it's wrong, but, with that in mind, consider all your possible options so you can make a balanced decision. So that's what I would say about people who rush in to pay this mortgage off early is it's not going to give you the bill free that you might expect and it might put you in a position where you have this huge asset that you can't do anything with unless you sell it. So just be really mindful of that. And that would be the things that I would consider when paying off your mortgage.

Speaker 1: 16:46

And if you want to find out more about what other possibilities they are, check out my website at geomagnécom. You can head over there and you can hit me up via email, contact me on socials and we can even do a video where I can explore some of the options with you. I can show you some examples because, again, I was doing this in the middle of a cafe day after riding my bike in subzero temperatures and my face was as numb as if I'd went to the dentist and had a filling on both sides of my face, with the head out the window all the way there. So doing it in a nice studio would be a good idea, where I've got a laptop and a camera and it's above zero. So if you'd like to see some more of the examples and more of how I see different situations play out, let me know. Hit me up in the comments, dm me on the social media or you can email me at my website.

Speaker 1: 17:43

So the second question was do you think interest rates will come down in 2024? So why interest rates won't come down in 2024 and how should we consider what the Bank of England say? Are they telling the truth? In global central planners speak. The first casualty with dealing with any of the central planners central bankers, high level government the first casualty in any of these is common language or basic general language. So they start to talk in euthymisms and semantics and jargon that most people wouldn't understand, so they'll use terminology and measurements and metrics that, just unless you're ingrained within that industry or you're dealing with high level finance, it's probably about as far away from something you'd be interested in as you could imagine. So, based on what's going on, I don't think interest rates are going down at all in 2024. The case for it would be that there is.

Speaker 1: 18:51

If you look at the government data, the reason the interest rates went up was that there was inflation, and that inflation was consumer demand was getting too hot, so there was too much money chasing to fewer products, and that was causing the supply dynamics to be driven up. What does that mean? In plain English, it means that prices were going up and they needed to be seen to be doing something about it Now, before we got there. Why did prices go up? Well, as I said earlier, prices went up because there was ultra-artificial interest rates ultra-artificial lay low interest rates that were ran for such a long time and then there was massive lending created through the lockdown COVID period. That fuelled a situation that was a perfect storm for inflation. So what they done was they shut down all production and they increased the money supply dramatically via grants and loans and other vehicles of distributing money, and what happened was lots of money entered the system and lots of supply was reduced out of the system.

Speaker 1: 20:04

Supply dynamics are this if the supply goes down and the demand goes up, prices go up, and this is where it was farcical in terms of wood raising interest rates. Curve that and it won't curve it, because what was driving this was initially the flooding of the financial world with new money, which was done by the central banks at the behest of worldwide central bank level was saying hey look, distribute this money and at the same time, the same central planners reduced the supply. So even if you increase the cost of this money that you've just pushed out, what happens is the idea is that they believe that that will reduce the spending, but what's actually happened is it's not. It's not increased the supply side. So the supply side needs to come back to normal, and the way not to do it, the way that it would be against what you would consider the right move, is to charge more interest on the things that people you've just given to people, which is the credit, the lending, so something doesn't add up with what they're doing.

Speaker 1: 21:20

But in the property video that I've just recorded for the property course, the one of the things I discuss is how we can infer what the lenders the mortgage lenders out there consider is going to be the next move. So what I mean by that is you can make some inference on how the banks see what the likely future is. Do they see it going down and do they see it going up, or do they see it remain the same? And the way to work that out is you'll first of all, you need to get the property course if you want to see how it's done. I'll give you the basics. You can take the products that they have and you can see if they have a bias or a sway between one and the other.

Speaker 1: 22:06

Now what I would say is that one of the cheapest lenders out there their current rate that is, after your fixed rate period is 8.99%. That is insane. You imagine the mortgage renewals that are coming, where people are not offered a new mortgage rate. The property values have reduced. Now they're loaned to values out of whack, meaning that if they go and approach another lender, they don't have the equity in the house that the lender requires for them to be offered new terms, so they will be stuck with the existing lender. That's if the existing lender would be happy to put them on a new deal and if they would be offered a new deal and hopefully it will be reduced, but it will be reduced off the 9% rate. It will be nowhere near what the 1% and 2% rates that were kicking around only two years ago.

Speaker 1: 23:02

So what I would say is that it looks from what we can see and what we can infer from the bank's methodology is that they see that these interest rates at the moment are here to stay. So they don't see it going down and they don't see it going up dramatically. So they've covered themselves to the upside with a really high rate of 8.99%, but they're not driving the prices lower on because they think it's going to go down, because the reason that they would do that they would take the gamble that if they offer highly competitive rates, they would get a bigger portion of the market or bigger market share. So it shows that they are not entirely confident that that's going to happen, and what it looks like is things are more likely to stay the same, and what I was saying earlier, before I came on was that it appears that most people believe that interest rates are high. Right, but I've been investing since 2005. These interest rates are normal.

Speaker 1: 24:02

What's happened between 2009, 2010 to 2022 in that 12-year period, is being artificially unusual ultra-low interest rates, and what's happened is people have got used to that and it isn't the norm. So what's happening is we seem to be returning to normal conditions and the conditions appear to be stabilizing in terms of what the bank's perspective, what the lender's perspective is. However, on the other side of that, that's going to cause chaos for lots of people and what we'll see, as I mentioned earlier on, is people that have taken the 1% interest rate and now can't afford their mortgage at a 5, 7, 8, 9% interest rate and the best available rates out there are. When you work out all the fees, you work out what's added on, the best rates out there are currently around 5%. So it's going to be a bumpy road for a lot of people that were lured down with the cheap interest rates.

Speaker 1: 25:04

Spend like there's no tomorrow. Let's get everything on credit because it's so cheap. You can understand the trap. I'm not beating up on them at all. I get how that's played out. That my Opia that short-sightedness is going to catch up with them.

Speaker 1: 25:18

Because you know, I was the. I was seeing this. A good friend of mine actually messaged me. I said last year, maybe a little longer, that I said Stuart Milne, the house builder, is going to go under and I was explaining how the business model works and I was explaining how little would need to change in terms of the bigger market environment, the macro environment, the pyramid, the champagne flutes, for that to cause severe stress that would be insurmountable. And they sent me a message last night check this link here and house builder Stuart Milne had filed for bankruptcy.

Speaker 1: 25:52

He's like I just don't know how you know all this stuff. And I was saying, look, you know, it's not that I've got a crystal ball and I'm a mystic, megan. Anyway, it's just a case of I understand how this thing goes together because I've studied it. I'm a student of it. It's not that I'm an expert, I'm a student, I pay attention, I learn and I've made mistakes, but I picked up. I get a feel for how it operates. And, getting back to the property market, I can see what's happening, I can see how it's going to play out and I can see the dangers that play out. So, in summary, what I would say to round off this episode is be very careful of your planet to pay off your mortgage and it's going to leave you with, if you're going to pay it off early and your plan is to be able to remortgage your house, because lending is tightening and it's tightening for the reasons I've explained. In terms of this overall situation, I'm explaining the bigger pyramid and getting back down to where it ends up in this champagne flute of the property market. Don't you just watch? You're not putting yourself in that situation.

Speaker 1: 27:01

The second thing is, if you're pinning your hopes on, interest rates are going back to what they were. I'm literally just finished recording a live, raw example where I analyze and explain how I've inferred that they're not going to change. So and what I mean by that is, people are hoping that they go back to the 1 and 2 percent interest rate which, for their lending which would mean the interest rates at that time were at 0.01 percent, so they were at a tenth of a percent was the current rate at the central banks. I don't see it going back there. It's not going there. So don't pin your hopes on it.

Speaker 1: 27:47

Make your moves If you still got time, shape up. If you can get a great deal for your lender, look at it. But I would suggest that it would be a great time to strategize how to restructure your books. If you've got no option and you need to sell this house because it's going to be around your neck, then consider selling it sooner rather than later. Don't wait till your mortgage renewal comes in. As I said, I speak to market experts and brokering, lending, mortgage experts, high level finance experts, top level lawyers, law firms so they have all the different clients that they deal with and the feel is all the same through the industry that there's cracks starting to form. So just make sure that you're mindful of that. Keep on top of it. Check out the three main myths about property investing. You'll see my prediction that was in there and you can look at the time of the recording and you can look at what's happened since then.

Speaker 1: 28:48

So if you want to keep up to date with what's going on, make sure you subscribe to the podcast Tune in every week we're back to the more serious end. You know that with podcasts there's got wild and wacky ways that we go. We've got phenomenal guests on. We'll be looking to get some more guests in to tell their stories about mindset so that we can extract the most out of ourselves. And also, the conspiracy theories episode was a major hit and we're a self and Mike are going to be doing a part two. If you do have any guest suggestions who you would like to come on, or you can nominate someone that you think would have a great mindset story, or even if it's yourself, get in touch and we would love to hear any of the great stories that are out there. And that's all from this week.

Speaker 1: 29:35

On conversations with an investor, you get me on all the social media channels conversations with an investor on Instagram, facebook, twitter, tiktok and YouTube, and I've got a website, cwipodcastcom. If you want to join a free coaching community, it's at GeoMcneecom. You can sign up in there. It's not for the faint hearted. If you have been lurking around wondering why you're not operating at your maximum potential and you've had enough and you want to find a proven way that extracts the best out of you and you are prepared to go and do what it takes and jump over there, sign up, fill in the questionnaires. These are going to be probing questions. They're going to be tough, but they will get you where you need to go.

Speaker 1: 30:19

And if you want to see what else we're up to over there, we're going to be opening the mindset community up pretty soon and there's going to be a lot of free information in there paid tiers for exclusive content and some coaching that is done directly on calls, if you like the sound of that, jump over there. There is a sign up. You can see what we're doing, you can keep track of it. Lots and lots of free content, whether it be on the podcast or over there or in the community itself, and there's some exclusive, higher tier stuff there as well. So come along, check it out and if you like what we're doing, make sure you like, comment and subscribe, make sure you share it with others as well, and for me this week that's a wrap.