to think savings will be worthless?

[HopelessLayout]

So governments are printing money hand over fist to cover all the Covid bailouts. Isn't this going to cause hyperinflation when it is all over?
I have modest savings put away for my retirement in a few years' time, but perhaps I should just blow the lot now.

Please tell me if I am misunderstanding the situation.

@Womanlywiles That’s precisely why interest rates would go up! To deleverage the economy. Higher interest rates are a tool to discourage the ever inflating debt bubble.

Tiddle if you are mid project it's a tricky one. Are you getting a loan or remortgaging at the end or paying 100% cash for the work? As prices could go up and it would be miserable to be half finished can you perhaps do the essentials, for example if it was an extension get the walls, roof and utilities in and wait on the interior finish? Or pay sub contractors and spread the work out on the interior over a longer period. When we built a house in 2007 we built as much space as possible but budgeted on finishes which can always be upgraded later. It's much harder to add another 5ft but easy to change tile to slab.

How far into the project are you? What still needs to be done? Will it add equity (in a normal market)? Do you plan to stay in the house long term?

thequanto but this is national banks we're talking about. Nations are heavily leveraged. Look how slowly the fed raised rates since 2008. Cutting rates is usually a tool that is used in a recession and the fed blew through that immediately and doesn't have any tools left except to print money. Why would they put rates up in the middle of an economic collapse?

DH is just really excited as he got a piece for his scooter delivered (he rehabs classic scooters for fun). He said the guy was selling all his stock off at 75% off. DH said "it was a once in a lifetime opportunity" This is why you need cash reserves. Cash is king in an emergency .

BTW for those of you wondering about paying down your mortgage see if you can split your mortgage payment and pay bi-weekly instead of monthly. You will make 26 payments which equals 13 monthly payments instead of 12. This can knock years off your mortgage. Play around with online repayment calculators. Even a relatively small amount or one extra payment a year (as above) can save you years of interest and you can pay down your mortgage faster. If you can afford to make an extra payment in one lump sum always ask the bank to apply the whole amount to the principal.

That only works if you have a big mortgage with a high interest rate, the advice about 'saving thousands by overpaying your mortgage' has been outdated for years, so shouldn't be given without caveat.

The monthly interest on our mortgage is £14 and the rate is less than half that paid by my lowest paying instant access account.

I'm not going to pay debt charging 0.5% when I can save at 1.2-5% although the 5% account is now closed to new applications.

I found the offset account on mortgage useful at the time. We had extra cash swimming around and it did reduce it. We always overpaid anyway.

This was obviously not now and not a huge mortgage but so good to see repayment and debt reducing each month

@Womanlywiles Interest rates are a tool used to deleverage the wider economy. It encourages people to save, pay off their loans etc. and prevents hyperinflation of goods and asset prices.

Let’s play this out with an extreme example:

If interest rates were at 0% (money was free to borrow) for long enough, then this would encourage everyone to borrow more and more money to a point where:

1. The asset prices would be so inflated that they have no choice to borrow significant amounts to buy them
2. the repayments on their borrowings now start to reach “equilibrium” with their earnings (i.e., they pay out their debts with all they earn) - encouraging “new” debt which will tip that equilibrium and cause the person/organisation to default.

In the midst of this, imagine that we now start printing money. We do this because those defaults mentioned above are now making lenders nervous about handing out more loans and resulting in reduced priced assets coming on the market (when someone defaults on their loan) that is increasing supply and driving prices down making assets less valuable. Printing money increases inflation and asset prices but in an economy where everyone is over leveraged, this is making the prices go up but not addressing the total amount of debt. This means people will need to borrow even more to buy these assets which brings us back to square one!

By printing money, the only thing we’re doing is deferring the deleveraging event (people defaulting on loans, asset prices falling etc), the “bursting of the bubble” to another day. This is a political choice rather than a sensible economic one as high asset prices make people “feel rich” but raising interest rates may cause people to default here and now but will also reduce the pain for the future.

It's not that I don't agree with you or understand what rising interest rates do, all I am saying is that the Fed and other banks are choosing to print money at this time. The current situation is helping people see how fragile the economy is, if they weren't aware of it already. We are clearly in a huge asset bubble. The USA has been kicking the can down the road for a very long time. Unfortunately all Trump did was continue to inflate it by tax cuts to the very rich. COVID-19 has just brought the day of reckoning closer. At the moment a large number of Americans are hanging on by their fingertips and there isn't any indication that there is the political will to raise interest rates yet. With 30 million people (officially) unemployed they are injecting cash so people can still buy food.

Yellen tried to get interest rates back up to from 2016 but Jay Powell (under pressure from Trump) reduced them again and now has taken them to the floor. Of course both the European Central Bank and The Bank of Japan flirted with negative interest rates in recent years.

I am in the USA and not the UK so some of my thoughts such as on mortgages may be irrelevant to an individual's own financial situation. A question was asked so I gave an opinion. We all need to take responsibility for informing ourselves. We are clearly not going to see the large valuations in assets that we have seen in the recent past, there is going to be a (long overdue) major reset. Staying out of debt is the main strategy, but we are entering an economic period like nothing we have ever seen before. Hold on because it's likely to be a white knuckle ride.

That only works if you have a big mortgage with a high interest rate, the advice about 'saving thousands by overpaying your mortgage' has been outdated for years, so shouldn't be given without caveat.

That first sentence isn't quite true. You can still save into the thousands even if neither of those things is true. We have a sub 100k mortgage, so smaller than average and an interest rate of just over 2%, which I believe is slightly higher than average but not colossal. Overpaying only £100 a month would still save us several thousand over the remaining term, especially as the best savings rates have now been cut. I had 2.5% on £500 a month with Coventry for 12 months until the other week... not any more!

I think a better way to put it is that overpaying doesn't save everyone money, as it's often assumed to do. It will depend on circumstances.

If you had £150k in the bank and £150k left on mortgage what would you do . Hold on to money or pay mortgage off.

Usually I'd say that depends on how much psychological importance you place on being mortgage free. But at the moment, you'd have to take into account the economic situation and how likely you are to have a job in 3, 6, 12, 18 months. Also worth pointing out that if you had 150k in savings there'd be no entitlement to UC if you suddenly had zero income, but potentially there would be if you had a paid off mortgage and zero savings.

I don’t understand printing money. Do they actually print it? And who gets it then?!

Yes, they feed it into the monetary system by buying financial instruments such as Gilts

@womanlywiles
We are not doing anything structural but fully renovating all rooms and garden. Much of it DIY which we have been getting on with, but things like carpet fitting and bathroom refit have been necessarily delayed.
We had decided to pay for this in cash by saving up over a longer period, but I wonder if it might be more sensible to buy what we can now on credit (eg materials, bath furniture etc) and just use the cash for labour.

Tiddle it's a tricky one. This is where advice from people in your own country would be more helpful. What you need to look at is what if you and your partner lost your jobs, what would happen? Would you be entitled to social benefits such as unemployment? What would it cover and for how long? Would you be penalised if you were holding cash? That is how I would approach it. I would really discourage you from taking on any debt at all, especially for cosmetic updates. If the economy contracts (and it will) cash will be King and you may find you can get a great deal on a bathroom suite in 6 months. I would definitely aggressively shop around for materials such as carpeting. You may even find suppliers willing to let you pay over a few months with 0% interest. This is because they could have stock that they are not moving and need to shift.

If you haven't talked to suppliers and visited show rooms recently (noone has) you may find the situation has changed quite dramatically in the last 8 weeks and they are willing to work with you and give you some very good deals. This is how I would approach it. If you haven't picked out what you like first try and narrow down your choices i.e. look at Pinterest and save some photos of the look you want and the bathroom suite. Send those to local suppliers and ask them how much "something similar" would cost in a range of prices, high end version, versus a more "competitively priced" version. Ask them how much it would be with and without being fitted. Create an excel spreadsheet and make sure you are comparing like with like i.e. exactly the same suite at different locations. You can spend lots of time on research as I assume noone can come into your home any time soon. See if they have what they call here in the USA "closeouts" when they are phasing out or discontinuing a range of products and are if they can give you a deal, or a shop floor model (I imagine it's pretty hard to damage a loo that's been on display). I got a beautiful new side table recently that had been on display for 60% off. Of course it was not damaged. You have to check everything very carefully because usually those products can't be returned but you can save a ton of money. Be creative when negotiating, tell the salespeople you are looking for a really "competitive price". I used to sell and we were trained never to call anything "cheap"

When we moved in here in 2017 we painted the entire interior, got new carpet throughout, refinished the woods floors and got new lighting, mirrors and furniture. DH also took out a God-awful 7 ft high red brick 80s fireplace and put in dry wall and a built in cupboard in its place in the family room. We got some great (light colored) carpet which I absolutely love which deflects all dirt from kids and pets and is super soft. It is lovely to walk on with bare feet. We recently got a puppy and we have been able to get every stain out no problem. This was on the pricier side but was a great investment. At the carpet showrooms they had areas with huge offcuts, big enough to carpet a room. I would establish what you are looking for and again talk to the salespeople, ask if they have any large remnants that would be suitable (obviously measure your rooms before hand) and ask the price with and without fitting. You may find places willing to fit the carpet free and give you a discount right now. I would call every store within a pretty generous radius from you. Also if you know exactly what you want you can shop online and see if you can find that product at a better price. Send away for samples of carpet so you can check the quality and colour. If you already know some trustworthy local subcontractors (bath room fitters, carpet fitters) see if they are willing to give you a quote because they may have access to wholesale prices. Just always make sure you are comparing like with like so you don't get ripped off with a low quality product. We built a house and found a beautiful range with six burners that looked almost identical to fancy appliances such as Wolf for significantly less. I think DH found it at a catering supply store. Do all your due diligence before making the final decision. If you find something you like and prices are good between two suppliers, go back and negotiate, ask them if they can give you a better deal if you pay cash.

You probably have a very good chance of saving a lot of money at this time without taking on debt. DH and I always pay as we go for everything, including cars. We drove an old banger for years until we could pay cash for a better car, as cars depreciate it makes no sense borrowing to own them.

Salene what other financial goals do you have? How old are you? What is your job and in what industry? Are you close to retirement? What are your retirement plans? How much do you make a year? Are you sharing costs with a partner? Do you have dependents? 150k could be a huge amount for many people, on the other hand paying your house off is something many women in particular want to do for the financial security it gives them. It may not be an "either/or" you could pay down some of the mortgage and reduce your monthly payment substantially. You could put all the numbers into an online mortgage repayment calculator and see how much even paying 20k on the principal can affect your monthly payment and life of your loan.

Also, do you plan to live in your home forever or do you want to move in the future? Having a financial cushion is always wise, unemployment is likely to increase in the next 2 years.

Womanly totally agree giving is part of financial education.
Giving is also part of the wider education that being mean and tight with the money, and not being able to enjoy it, renders it pointless to have plenty of it.
. It's an aid, a buffer, a safety net, an opportunity to help others... It isn't a noose.

@womanlywiles thank you for your thoughtful reply. We are usually pretty good at negotiating and tend to get good deals! Our jobs would be pretty secure - even if the individual jobs fell through we are both in industries even more employable post-covid than before. However we aren't high earners so don't have lots of surplus cash each month (maybe £300-500 tops). We did get some carpet off cuts before lockdown - amazing 100% wool stuff at about 60% off - but fitting has been delayed now.
We found a decorator we liked a few months back who quoted for an interior job. We need windows painting on the outside and when I asked him at the time he said no, he only did interiors. Just contacted him and he's willing to do it now , clearly exterior work is going to be keeping them going for the moment.
I do think we could get some good deals. It's just having tradespeople in our homes will be difficult.
It's not that I want to take on debt either, but we are living in a half renovated house in a very cold and exposed spot - think big gaps in floorboards etc , and lots of maintenance needed before next winter. We had expected to need to borrow a little to do it, but I feel more cautious now but also not sure about whether we should buy before anticipated inflation in material / supply costs.

Tiddle I totally hear you regarding the frustration of having unfinished projects, which is always the worst outcome. Well cost it all out and see how much your small loan would be and how long you would carry it. At least you know what costs would be at the moment, none of us have a crystal ball and I am also of the mind that I would like to get the work we want to do done and then hunker down! We may be weathering an oncoming economic storm but at least we'd be in a lovely house doing it!

How much would you need to borrow? Because it obviously wouldn't be a wise to max out your income so you have no wiggle room. Would it be 2k paying off $100 a month for 20 months (plus interest)? Or a lot more? If you still have 3-4 hundred a month to save, you can keep building up your emergency fund. That's always what you should do as a first financial move. It gives you breathing room and the knowledge you have cash for emergencies. Once you have more in your emergency fund you could pay your loan off quicker. You are also investing in and adding value to your home.

Invest it! Property is a good investment. My partner and I are doing it, offering a friend a better interest than what the is getting from the bank, it's a no brainer really :) best invest it rather than leaving your money to essentially rot away. 😁😁

offering a friend a better interest than what the is getting from the bank

Jeepers, that’s about an 11 on a risk score of 1-10

Never of course buy any product recommended on line in my view. Same as my rule of not buying at the door and not buying in response to an ad or brochure. Always be the initiator and researcher.

I run a property acquisition company where we use property as an investment tool to provide a 6-12% return per annum to our clients

Yes and you’ll be taking the associated risk

Is this a regulated investment? Er, no.