equity release

[Wilkes]

Clubman, I follow why he needs to outperform the net cost of borrowing and I'd add a margin of at least 3% pa to compensate for taking risk as a way of setting the hurdle rate to make this work - but why the net cost of borrowing + inflation?

Inflation erodes the real outstanding value of the debt - is it because he has increased the debt therefore he needs the interest rate + inflation. Can you teach me thanks.

 

[ClubMan]

This means that the interest on the loan is costing 3.75% before TRS is deducted - only 3% after TRS is deducted. Therefore, any return in excess of 3% would be profit.

Just to clarify you cannot claim TRS on any additional equity release/top-up if the money is used for anything other than purchasing or renovating your PPR. I'm not clear if what you're talking about assumes the opposite.

Maybe I'm wrong but, in this case, I don't think you'd need to factor inflation into it - the reason being that your mortgage balance is not rising with inflation, therefore anything you make over and above the 3% interest your being charged is profit.

My figures are just back of the envelope ones and don't represent a detailed analysis of the situation. It could well be that I haven't factored in inflation correctly. But I still reckon that you need a pretty generous return to make this borrow against PPR to invest in shares lark worthwhile.

 

[PMU]

I have just decided to release equity in my home to the value of 120k. I have been dealing in stocks for about ten years so I understand there will be slumps and I believe I can handle this.
Here is where I need help
How many stocks should I buy and how many industry sectors should I buy into.
Regards
Joesoap

joesoap: If you have been investing in stocks for 10 years why are you asking this question? You should know the answer from your own experiences. Has your investment experience to date been successful or less than successful? If less than successful perhaps you should question your strategy. But if you go this route it would be prudent to pick a few high dividend payers to cover your interest payments, a few trackers to provide stability and, as it's your money, the rest based on your success to date.
Alternatively, invest your savings and match the amount you invest with borrwings in a margin account from a broker.

 

[extopia]

To get back to the OP, it seems the potential investor doesn't have any real plan except to "release equity" to reinvest. I believe Clubman's guideline figures are fair enough, especially for a seemingly novice investor.