I am battling away at doing a presentation on 'which is better to invest in, a mortgage or a pension?'
I have calculated the return for the pension, plus tax relief, adjusted for inflation, to give a pension pot after 25 years in today's money.

How do I demonstrate the returns on a mortgage? Inflation is good for borrowers, but not for savers.

Help me Noel, help me.
(dozers, do fuck off ur a nob m8, Mon 17 Oct 2011, 21:10, 3 replies, latest was 14 years ago)

Look up forecasted house prices in a similar period
deduct the cost of the mortgage, insurance and the running costs of a house.

If you're thinking that the mortgage is buy to let, then add in the expected rental value and then done.
(PsychoChomp, Mon 17 Oct 2011, 21:12, Reply)

This sounds alright.
What is a reasonable expectation of costs etc?

I read somewhere that you should expect to pay about 1% of the house value a year in upkeep ans maintenance.
(dozers, do fuck off ur a nob m8, Mon 17 Oct 2011, 21:17, Reply)

Fucking hell!
We could all be dead in ten years.
( girlinthehole, Mon 17 Oct 2011, 21:18, Reply)

I'd recommend renting and brilliant parenting.
I wholeheartedly rely on renting until I'm too old, or meet a massively successful woman, and relying on my massively successful daughter to look after me into old age. Either that or I'll spunk my last pay packet on a rickety motorbike and disappear somewhere on the Road of Bones.
(NoeI «:::P:::» «:::E:::» «:::R:::» «:::V:::» «:::E:::», Mon 17 Oct 2011, 21:13, Reply)

Basically, you're asking the wrong person for financial advice.

(NoeI «:::P:::» «:::E:::» «:::R:::» «:::V:::» «:::E:::», Mon 17 Oct 2011, 21:13, Reply)

How old is too old?

( The Mock TurtIe ™ --- Thinks you are a cunt, on, Mon 17 Oct 2011, 22:10, Reply)

It's absolutely impossible to predict the returns on a mortgage
There are so many external factors, not least that property does not appreciate in a straight line.

Sorry if that isn't the answer you wanted but if you need practical examples from the buy to let sector gaz me.
( The Disappointed Caravanner of the year, Mon 17 Oct 2011, 21:18, Reply)

I realise that.
So I am working under assumptions.

5% investment growth on the stakeholder pension, and on the property. £1000 a month into each (meaning that the pension gets £1250 due to tax relief), with the proper AMC for the pension applied at the end of each year, after the investment growth and the payments in. That is no bother, just a straight compound interest calc, with 2.75% inflation adjustment each year to offset the growth.

What I need to do now is lay out the same kind of calculation for the mortgage. £1000 a month will get you about £168k on a 90% mortgage.

I just want to show returns first, then later in the presentation talk about risk and exposure.

Any ideas?
(dozers, do fuck off ur a nob m8, Mon 17 Oct 2011, 21:41, Reply)

Perhaps the most pertinent question
Would be who are you doing this presentation for?

I'm guessing a pensions company and you've got that side sown up.

So - assume a straight line appreciation of a mortgage and establish a theoretical interest rate holding steady across the mortgage term.

Traditionally property was assumed to appreciate by roughly 2.55% pa. Any improvements, external expenses etc. can't be factored into your calculations because they're not mortgageable.

This gets us back to the impossibility. Improve the property and the result may be different but it's outside the calculation.

All I can suggest is the basic calculation - which you've got - set against an assumed 2.55% straight line pa appreciation.

The primary factor which fucks this up is local economy. If you want the textbook example, it's an area of Newcastle called West End. There are studies on this which I'm sure can be looked up, but essentially West End began to be respectable in the early 90's, until a local regeneration scheme failed.
( The Disappointed Caravanner of the year, Mon 17 Oct 2011, 22:01, Reply)

For a Life & Pensions company.
The brief is just to do a presentation on which is best for an individual to invest in, a pension or a mortgage?

Hence a straight comparson with 5% pa growth for each. Obviously neither of these take place in a vacuum in the real world, but I need to compare and contrast. You can't predict investment growth either, so for the sake of the question I've made them both behave in the same way. Where the outcome becomes different is with tax relief and inflation. I want to do a basic illustration first, followed by then going through the pros and cons of both (taking into account a property's legal fees etc when buying and selling, maintenance costs etc) and hopefully end up demonstrating that pensions are better for people to invest in.

I assume that is what they want to hear.
(dozers, do fuck off ur a nob m8, Mon 17 Oct 2011, 22:10, Reply)

I'm sure that's what they want to hear
So surely you need to keep it to a basic calculation.

Again, property maintainence isn't part of the investment - it's an external increment which isn't analogous with pension contributions.

You're probably right in your approach. The pension is an investment impacted only by economic factors. The mortgage is an investment subject to erosion by any number of economic, socio-ecomic and geographic factors.

If you want - the pension is a rock in the Yorkshire Dales. The mortgage is a rock on the Yorkshire Coast.

(Try that line, or something like it. I've come out with worse in the past and got work!)
( The Disappointed Caravanner of the year, Mon 17 Oct 2011, 22:28, Reply)

Property maintenance may not be part of the investment but surely it needs to be factored in
in the same way as the annual management charge, amirite?
(dozers, do fuck off ur a nob m8, Mon 17 Oct 2011, 22:34, Reply)

Fixed v variable cost
No
( The Disappointed Caravanner of the year, Mon 17 Oct 2011, 22:36, Reply)

www.b3ta.com/questions/offtopic/post1394372
(NoeI «:::P:::» «:::E:::» «:::R:::» «:::V:::» «:::E:::», Mon 17 Oct 2011, 23:11, Reply)