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Homeowners use mortgages to invest in Bitcoin and fine wines

Paloma Kubiak
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Paloma Kubiak

Well-off homeowners are taking advantage of record low mortgage rates by borrowing against their property to invest in riskier assets such as equities and even Bitcoin, according to a report.

Simon Gammon, director at mortgage broker Knight Frank Finance, outlined that the low cost of debt, with mortgages at less than 2% on two-and five-year loans, was tempting homeowners to leverage their homes in a bid to profit from riskier investments.

In an article in the Financial Times, Gammon said: “We’re a specialist lender at the top end but we’re seeing up to a dozen of these deals a month.

“This is something that has come about because of the current environment of low rates.”

Mark Pattanshetti, mortgage manager at broker Largemortgageloans.com suggested this trend had risen by roughly 50% since 2009.

He said debt-free homeowners used to raise cash to reinvest in property and expand portfolios, but since the tax changes and with slowing house price rises, investors were looking elsewhere.

Brokers said borrowers were investing in everything from classic cars and private equity to commercial property, Bitcoin and fine wines.

‘More akin to gambling than the act of a rational investor’

Adrian Lowcock, investment director at Architas, said this isn’t surprising as the maths behind it makes sense, though he cautions this strategy.

He said: “The interest rates being paid on mortgages are so low it is cheap money to borrow and if you had invested it instead you would have got much higher returns. However, what is interesting is that the assets aren’t just stock markets or bonds, but include risker ideas such as Bitcoin and fine wine; a niche investment.

“Borrowing money to invest is a dangerous business as when an investor gets caught out they frequently panic and take on more risk, which usually involves getting into more debt. Investors should always keep in mind that investments can fall as well as rise and markets are not always rational; indeed they can stay irrational far longer than one can stay solvent.

“For most of us, the key thing to remember is owning our own home is one of the best investments we will ever make and risking the family home is not particularly smart as we have worked hard to be financially stable. Borrowing money against it to invest in something as risky as Bitcoin is for me more akin to gambling than it is an act of a rational investor.”