5 ms·

Can’t they borrow on margin in the UK? Maybe also risky (or riskier) than an interest only loan?

rwmj 7y ago
I'm fairly sure that ordinary investors can't borrow for investment in the UK, or at least if they can it's not as easy as getting a mortgage. Getting a mortgage is a mountain of paperwork but for most people it isn't difficult even with the new rules. Interestingly though 30% of people buying houses now in the UK are not getting mortgages (in some areas much more than that [1]) and I assume most of these will be the types of investors who are looking to buy a second home to rent out. [1] https://www.thisismoney.co.uk/money/mortgageshome/article-6300061/Number-property-cash-purchases-slumps-lowest-proportion-decade.html https://www.thisismoney.co.uk/money/mortgageshome/article-63...
- retiredcoder 7y ago
  That is something different than USA. There even my laundry guy was day trading with margin, believe me or not.
  - repsilat 7y ago
    Mortgage rates are substantially lower than margin lending rates though. Borrowing to buy a house at 4.5% you might think, "Not much risk, will likely appreciate faster." Borrowing to buy stocks at 10% and you're almost certainly not going to come out ahead. (Maybe my broker has terrible rates, others could be more reasonable.)
    - cosmoharrigan 7y ago
      IB margin rates are currently 3.92%, for example: https://www.interactivebrokers.com/en/index.php?f=1595 https://www.interactivebrokers.com/en/index.php?f=1595
      - repsilat 7y ago
        Wow, I'll have to consider changing. I'd probably borrow to invest at those rates, after running a model to figure out how much risk to take. Though maybe LEAPS (and for indexes, futures) are a still cheaper way to get leverage. Edit: goodness, the rates on some of those currencies is less than the dividend yield of those countries' indexes... If I don't expect New Zealand to sink into the sea, is it stupid not to borrow NZD and invest in the NZ top 50?
        retiredcoder 7y ago
        Crazy, huh? Capital cost are all time low. IIRC, last time I looked at margin out of curiosity with my brokerage firm (schwabs/2014), I also remember to be around 10%. I can’t help but think we are living in a unattainable economic environment...
    - retiredcoder 7y ago
      I’d guess from the 4.5%, you are in the USA? Just asking to check we share the same context here, no need to answer.. My subjetive experience in the USA (Seattle and NYC) is that you can get 4-5% with a steady job and 20% down for primary residence. Anything out of ordinary, like 2nd mortgage (since we are talking about real state as investment), the interest rate goes up (6-7% last time I applied for one). Also, while the margin rates can be higher, there is more liquidity, smaller transaction costs, and much smaller fees.
      - repsilat 7y ago
        Yeah, in the US at the moment. Transaction costs are a big one. In some countries there's stamp duty, in the US there are unusually high closing costs (6%?). That said, the bigger the investment the longer I want to hold it, and those transaction fees aren't as steep when amortised over the home-onwership term.
- tonyedgecombe 7y ago
  I suspect most of those cash buyers are retirees downsizing or moving away from London.

rwmj 7y ago

I'm fairly sure that ordinary investors can't borrow for investment in the UK, or at least if they can it's not as easy as getting a mortgage. Getting a mortgage is a mountain of paperwork but for most people it isn't difficult even with the new rules. Interestingly though 30% of people buying houses now in the UK are not getting mortgages (in some areas much more than that [1]) and I assume most of these will be the types of investors who are looking to buy a second home to rent out. [1] https://www.thisismoney.co.uk/money/mortgageshome/article-6300061/Number-property-cash-purchases-slumps-lowest-proportion-decade.html https://www.thisismoney.co.uk/money/mortgageshome/article-63...

retiredcoder 7y ago
That is something different than USA. There even my laundry guy was day trading with margin, believe me or not.
- repsilat 7y ago
  Mortgage rates are substantially lower than margin lending rates though. Borrowing to buy a house at 4.5% you might think, "Not much risk, will likely appreciate faster." Borrowing to buy stocks at 10% and you're almost certainly not going to come out ahead. (Maybe my broker has terrible rates, others could be more reasonable.)
  - cosmoharrigan 7y ago
    IB margin rates are currently 3.92%, for example: https://www.interactivebrokers.com/en/index.php?f=1595 https://www.interactivebrokers.com/en/index.php?f=1595
    - repsilat 7y ago
      Wow, I'll have to consider changing. I'd probably borrow to invest at those rates, after running a model to figure out how much risk to take. Though maybe LEAPS (and for indexes, futures) are a still cheaper way to get leverage. Edit: goodness, the rates on some of those currencies is less than the dividend yield of those countries' indexes... If I don't expect New Zealand to sink into the sea, is it stupid not to borrow NZD and invest in the NZ top 50?
      - retiredcoder 7y ago
        Crazy, huh? Capital cost are all time low. IIRC, last time I looked at margin out of curiosity with my brokerage firm (schwabs/2014), I also remember to be around 10%. I can’t help but think we are living in a unattainable economic environment...
  - retiredcoder 7y ago
    I’d guess from the 4.5%, you are in the USA? Just asking to check we share the same context here, no need to answer.. My subjetive experience in the USA (Seattle and NYC) is that you can get 4-5% with a steady job and 20% down for primary residence. Anything out of ordinary, like 2nd mortgage (since we are talking about real state as investment), the interest rate goes up (6-7% last time I applied for one). Also, while the margin rates can be higher, there is more liquidity, smaller transaction costs, and much smaller fees.
    - repsilat 7y ago
      Yeah, in the US at the moment. Transaction costs are a big one. In some countries there's stamp duty, in the US there are unusually high closing costs (6%?). That said, the bigger the investment the longer I want to hold it, and those transaction fees aren't as steep when amortised over the home-onwership term.
tonyedgecombe 7y ago
I suspect most of those cash buyers are retirees downsizing or moving away from London.