Avi777 wrote:Hi,
Don’t know that much about finance. I have a couple of mortgages which includes a buy to let and moderate amounts of cash in various U.K. banks.
I am worried about what is happening with regard to potential inflation. Does anyone have any strategies to safe guard inflation wiping out my savings or in fact banks failing?
Am I better paying more into the mortgages? But then that erodes my pot of cash for a rainy day. Or buying gold as is a popular belief?
Any tips would be appreciated.
As others have pointed out, inflation might work for you. Debt effectively gets less, rents go up. You should also find that savings rates rise too. Your concern would be affordability. Can you manage mortgage increases and to what level? You might be on fixed rates so not an issue for a couple or 5 years maybe. Its about maintaining a differential between incoming and outgoing spending.
Investments generally do better over the long term, can you invest the rent to cover the mortgages. Investments paying 4% and growing annually, on a 2% fixed mortgage should work out over the long term. If you are currently just managing to cover the mortgages including the rents then you are pretty close to the edge. Effectively you are leveraging, which can work for you but also against when thing turn. If you are in that position then you need to take action. Pay off some mortgage and or increase savings but maintaining a float (6 months outgoings).
Banks should be less likely to fail as they have been required to build up reserves and currently have reduced dividends. Most have spare capacity rather than not enough although thank can always change. An increase in rates would actually help the banks!
Personally I would be investing all the rent to produce an income, unless your mortgage rates are higher. That should provide a reservoir, a growing income over time and the potential for capital growth and keep an eye on savings rates. Generally even if shares fall the income remains much more stable. Then inflation worries should reduce over time.