Part 249: Interest Only Mortgages, Probation, and Everybody Needs Good Neighbours.

Hello and welcome back to Mortgage Advisor on FIRE.  This week I discuss interest-only mortgages, probationary periods at work, the Olympics, and a few other bits and pieces.

Weekly Update

It’s time to ask the question again… What the fuck is wrong with people?

I’ve mostly stopped watching or reading the news because it’s just depressing.  I dip into scientific and financial news, but current events I avoid.  I’ve read multiple sources claiming that the easiest thing you can do to improve your mental health is to stop consuming news from the mainstream media.  It’s a good suggestion.  There’s just so much horrific stuff going on, whether it’s young girls being killed by a guy with a knife, or whole cities being reduced to rubble in war.  

The problem with the media is that they don’t just report the news; they spin it with their agenda.  Some sources are more blatant than others, and for this reason, I refuse to watch Sky News or GB News.  The BBC isn’t immune either.  When you watch the news, you are opening yourself up to propaganda, and the more you watch, the further into an echo chamber you go.  

People are generally poor at thinking critically.  It takes practice.  We operate using heuristics, mental shortcuts, that allow us to get through daily life without being paralysed through indecision.  The drawback to this is we sometimes sacrifice quality of processing for speed.

Crime

One example is crime.  This is anecdotal, but many people seem to think crime is on the rise.  It’s not. Crime has been steadily falling for many years.  What has increased is the media’s reporting of crime.  In the late 1900s, we had just a handful of TV stations and few 24-hour sources of news.  A quarter of the way into the 21st century and we have multiple 24-hour news channels, and websites constantly being updated with “Breaking News” banners.  

There’s a saying in the media; “if it bleeds, it leads”.  The idea is that stories involving violence, injury, or death, are often the most read or viewed.  The big news organisations are so obsessed with viewing figures and hits on their websites because this generates money for them.  If you have more people reading your website, you get more money from advertising.  Violent crime leads to more people viewing the story which leads to profit.  Horrific events are being pumped for money.  It’s gross.  

It should not be surprising then, that many people believe crime is increasing because that’s all they see on the news; if it bleeds, it leads.

Neighbours

It’s always nice when you have good neighbours.  In the twelve or so years we’ve lived in our apartment, the apartment on the right, as you stand on our balcony, has had many tenants.  With only a couple of exceptions, they’ve mostly been assholes who make lots of noise and have little consideration for other residents.  

On the left side, we’ve had the same neighbours for the past six years, and they’ve been nice and chill.  We never really spoke with them much apart from the usual greetings and small talk, but they told us they’re moving to Manchester for work, and it sucks we’ll be losing them.  They were renting so it looks like we’ll be getting new tenants on that side.  

I’m always anxious when we get new neighbours, especially on the right side as their living room shares a wall with our bedroom.  So if they are noisy, it impacts our sleep.  I had to have strong words with the last set of tenants and things did eventually calm down, but it shouldn’t be necessary to have to ask people to stop shouting after midnight in the week.

Olympics

I can’t let this week pass without mentioning the absolute legend that is Yusuf Dikec.  For those who don’t know, this 51-year-old man turned up to the 10-meter air pistol shooting event with almost no equipment, where his competitors were fully kitted up.  He nonchalantly put his left hand in his pocket and fired off a few rounds with his right hand.  He won silver.

I love this sort of confidence, and I love the resulting memes even more. 

In a not-so-positive incident, the Olympics have been in the spotlight for issues of sex and gender, even though much of what is being said is either wrong or misguided.  I’m a live-and-let-live guy, and I think people should be able to follow their own path concerning their gender identity and sexual preferences.  

In a society where gender is increasingly fluid, is it time to rethink the traditional male and female split in sport?  I wrote about this a few years ago and don’t think my views have changed too much; for some sports, I think we should look at other ways of splitting competitors into balanced and fair brackets.  

We already do this with weight classes in combat sports.  Further splitting into groups based on some underlying physical difference or based on past performance may be the way to go.  It’s a complicated issue and we have to be careful that we don’t discriminate against one group by being inclusive of another.

Probationary Periods

I’m writing this with Oana’s permission as she’s increasingly frustrated at work.  She started with a new company just over three months ago and had a three-month probationary period.  During this time there have been no complaints about her work but there have been many instances where she’s had nothing to do because she’s not been given the required training.  They’re too busy to train the person they hired because they were short-staffed.  You can’t make this up.  

Anyway, they’ve extended her probation by a further three months because they need to train her.  It seems wholly unfair to do this, but as I have repeatedly told people, life isn’t fair.  This is not just a matter of pride.  There are some things Oana is missing out on whilst being in a probationary period, such as pension contributions and sick pay.  Here’s hoping they actually train her so she can crack on with the work.

This led to me telling Oana the story of the time an employer wanted to extend my probation, and she thought I should repeat it here.

Natwest – The Dumpster Fire Bank

Back in 2005, I left university halfway through the second year.  I took a job at Natwest who, and I’m being generous here, are shit.  Their processes, policies, and attitude sucked.  I worked in a branch as a cashier and it was just horrible.  

Each morning the branch managers would gather the staff and get them to “bid” on how much business they would do that day.  You see, each product had a number of points attached to it and the branch had to hit a daily, weekly, and monthly target.  Signing someone up to a credit card might get 200 points, and a mortgage might get 5,000 points, for example.  

The whole exercise is just bullshit.  You can’t control who is going to come into the bank that day, and you can’t control what business they want to conduct.  Some of the dysfunctional behaviour I saw was appalling, like slipping in a credit card form to be signed in the middle of a load of other documents relating to a bank account or loan. As Super Hans would say, “The secret ingredient is crime”.

I completed my training in a city centre flagship branch.  The staff were generally decent people (at least those not engaging in fucked up practices like telling people a credit card was compulsory when signing up for a bank account) but it was just relentless bullshit from 9-5.  After a few weeks, I was assigned to a branch in an affluent area where people generally had a bit more money, and it was a more pleasant environment except for the absolute dipshittery of the branch manager and area manager.

Dipshit Central

This small branch had the branch manager, the assistant branch manager, the assistant’s sister working as a cashier, an older guy working as an advisor for loans and mortgages, and a couple of young women one of whom I liked as she was friendly and chill, and the other one was like a black hole for drama.

Anyway, one day I was pulled into a meeting with the branch manager.  A cheque had been found unprocessed on the row of desks cashiers used.  It was a few weeks old.  The branch manager claimed she remembered handing this specific cheque to me, yet it was found on someone else’s desk hidden out of sight.  

I had no idea what this was all about.  I can’t say with 100% certainty that I didn’t handle it, but the fact it was found wedged between a load of other stuff on a desk three spaces down from the desk I used seemed a bit weird.  My desk was near the door to the back office and I had no reason to go as far down the row of desks where this cheque was discovered because it was a dead end at that side.

The Duchess of Dipshitston

The manager insisted it was my fault.  I explained all the reasons why it was 99.9% certainly not my fault.  We had her memory on one side of the argument, and lots of circumstantial evidence on the other, as well as my complete lack of memory of this cheque.  

As the meeting dragged on, and the manager became increasingly belligerent, I told her to back off and apologise for how she was speaking to me.  She refused.  I got up and walked out.

I am, to this day, convinced that I was stitched up.  The staff in that branch had been working together for years.  I was the new guy.  The manager could either pin this on her assistant’s sister, or the nice young woman she had taken under her wing.  Neither of those things was going to happen, so by elimination, I was the scapegoat.

The Wrong Side of the Tracks

I was then assigned to another location by the area manager which was an hour’s travel away and in a rough area.  When I say rough, I’m talking about people being mugged outside the branch.  I already knew at this point I would be leaving, but I had just a few weeks until a two-week holiday from work, which was also around the time my probationary period ended.

As I was finishing up for the day and about to go on leave the area manager called me into a meeting and said they were extending my probation.  I refused.  He looked confused.  This is what the conversation went like.

AM: We are extending your probation because you had to be moved from one branch to another.  We need to evaluate your performance over a longer time frame.

Me: No.

AM: What do you mean?

Me: I am rejecting your offer of an extended probation.

I swear at this point his brain encountered the blue screen of death.  It’s almost like his eyes greyed out the same way a window that’s not responding does.  After what felt like an eternity, but was probably only a few seconds, I asked if we were done.

The first thing I did on holiday was to start ramping up my job search.  I found a cool-sounding job working for a health insurance company as a claims assessor.  My application was successful and I was called in for an interview with the recruitment agency, which I nailed.  I then went to an interview with the employer, Aviva (Norwich Union as it was then) and nailed that interview.  I was offered the job the same day.

Petty? Yes. Satisfying? Also yes.

When I returned from holiday I resigned from Natwest.  They asked for my uniform back, so I returned it to the branch in a bin bag and tipped it out on the reception desk.  Yeah, petty but satisfying.  

They were a shit company to work for, and I’ve refused to have anything to do with them since.  

On the other hand, Aviva was great to work for.  Even though it’s been almost two decades since I quit to go back to university, I still look back on my time there fondly.  They had a great culture, and some amazing people, and the work was fascinating.  The business was engaged with its staff, and performance and promotions were handled transparently and were based on merit.  To this day, it’s the happiest I’ve been working for another company.  

I’ve never had a problem standing up for myself in the workplace when I see bullshit behaviour.  I worked briefly at BT through an agency and that was almost as bad as Natwest.  I’ve also rejected job offers because I felt my worth was greater than what was being offered.  Each time they came back with a better offer.  

When I work for a company I view it as a simple business relationship.  I have a list of duties and if I complete them to an acceptable standard I am paid as per my contract.  It’s not about being friends, although you can become friends with those you work with.  It’s not about loyalty either, although you can develop working relationships based on mutual respect, and reciprocity.  An employer paying your wage is basically subscribing to the skills you offer.  That subscription entitles them to the product of your work, but it doesn’t entitle them to your thoughts, feelings, or beliefs.  

This has caused me a few problems over the years because some employers can’t understand the difference between agreeing with something and agreeing to do something.

Diabetes UK Step Challenge

From July 1st until September 30th Diabetes UK are running a step challenge to raise money for their cause.  There are three step targets to choose from; 500k, 1m, or 1.7m.  I’ve gone for the 1.7m target.  It’s a tough target but I’d rather set an ambitious goal.  Also, I have some time off work during those three months to hammer out the steps.

If you’d like to follow my progress or make a donation, it can be done here.

Letters to Oana

If you missed it, Part 2 of the series Letters to Oana is now live.

Looking Back

**NEW** Part 14 of the Looking Back series is also live.

What I’m Doing

Listening: Silent Sun by Brandon Q. Morris (audible).

Watching: Invasion (Apple TV).

We’ve just finished the second season of Invasion.  It’s entertaining enough and easy to binge.  When we finished the last episode I went online to read about the show and I was surprised by how many people seem to hate the show.  It’s not a masterpiece, for sure, but it’s hardly the worst thing ever made as some people suggest.  

My main complaint about it is that it falls back on the laziest approach to creating drama; an annoying kid who doesn’t do what they’re told.  It’s such a lazy crutch to fall back on.  

When did you last watch a show or film with a child character that was well-rounded, believable, and not an annoying crotch goblin designed solely to create drama?

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Financial Update

Assets

Premium Bonds: £14,000.00.

Stocks and Shares ISA: £76,704.80.

Fuck It Fund: £346.75.

Pensions: £82,100.16.

Residential Property Value: £234,044.00. 

BTL Property Value: £151,029.00.

Total Assets: £558,224.71.

Debts

Residential Mortgage: £185,958.33. 

BTL Mortgage: £104,787.85.

Total Debts: £290,746.18.

Total Wealth: £267,478.53.

Our further advance on our residential mortgage has been completed.  We’ve used the funds to clear the decks a little and pay for some upcoming expenses.  Rates are still fairly low for us, so it seemed like a good opportunity.  This will almost certainly be the last further advance we complete on this mortgage.  

When the BTL sale completes our finances will look even more streamlined.  It will be nice not having to worry about how long it’s all taking.  

I’m not that far from entering territory where my contributions to my investments are only having a minor impact, whereas compound growth does most of the heavy lifting.  I should be using up the last of this year’s ISA allowance in the coming months, and that should bring my balance within touching distance of £100k.  At that point, typical rates of growth should see the balance more than double by the time I’m fifty.

I’ll be adding to that ISA balance during that time, so the balance will probably be higher.  Like most FI followers I’m constantly running the numbers, but it seems the results are starting to come together and predict a FIRE date sometime around 46/47 years old.  This will not be full FI, but probably something like Barista FI where I do the odd bit of work here and there to provide some spending money.  I’d only need to work 8-10 hours a week at minimum wage to make this a reality.

Interest-Only

**The following sections, and the blog as a whole, are not advice or suggestions for how to manage your own mortgage and finances.  This is a rant.  Appropriate mortgage advice requires an understanding of your unique circumstances, beliefs, opinions, and finances.  Please do not act based on the information covered here.  If you want mortgage advice, seek a qualified professional.**

I overheard a conversation the other day that made me want to pull up a chair at the stranger’s table and set them straight.  The subject was interest-only mortgages and how he “wouldn’t touch that shit with a barge pole”.  The common perception of interest-only mortgages is that they are extremely risky and you will somehow end up worse off.  

While that can, and does, happen it’s not because of some underlying quality of IO.  Like with many things in life, IO is a tool that can be used for good or bad.  If you understand IO and are financially disciplined it can be an incredible force for financial stability.  In the wrong hands, it can lead to disaster.  

What is IO?

It’s a type of mortgage structure where you pay the interest accrued each month but you don’t make payments off the debt.  At the end of the mortgage term, the debt is repayable.  If you can’t pay the money back, the end result would be the sale of the property.  

The flip side of this coin is a repayment mortgage where you pay the debt back little by little over time.  The idea is that if you keep up with your contractual payments, you will clear the debt by the end of the mortgage term.

There is one major factor in all this that is ignored is inflation, which is the primary method of repaying an IO mortgage.  

How Inflation Repays a Mortgage

Let’s assume inflation is running at 2%, the BoE target.  You have a mortgage of £100,000 on interest only.  Inflation will not change your mortgage debt.  £100k in 2024 will still be £100k in 2044, but the power of that money will be diminished.  What you could buy with £100k in 2044 will be less than what you could buy in 2024.

If you follow this logic, you will see that accumulating £100k in a few decades will be much easier because of inflation.  As time ticks by, the value of that £100k will decrease.

I’m not saying that IO is right for everyone, or that it’s necessarily better than repayment in all situations.  The person claiming they “wouldn’t touch that shit with a barge pole” just got my back up.  

For owner-occupiers, and those with a family, it makes sense that the default mortgage would be on repayment.  Demonising IO is just ignoring a lot of context.

That’s all for this week.  I hope you have a great week ahead.  Please remember to like, share, comment, subscribe, and donate if you haven’t already done so.    

Disclaimer

The previous sections, and the blog as a whole, are not advice or suggestions for how to manage your own mortgage and finances.  This is a rant.  Appropriate mortgage advice requires an understanding of your unique circumstances, beliefs, opinions, and finances.  Please do not act based on the information covered here.  If you want mortgage advice, seek a qualified professional.  

The views and opinions in this blog are my own, and do not represent the views or opinions of my employer, nor should they be considered advice.  

If you want personalised financial advice, seek an appropriate professional.  If you are in financial difficulty, seek advice via the resources below:

StepChange

MoneyHelper

Biolink 

You can now find all my social media pages by checking out my Biolink:

bio.link/davidscothern.