COVER STORY
Beating the house
Liz Truss ’ s short tenure in 10 Downing Street already feels like a bad dream – how was someone without a mandate to govern allowed to take an axe to the UK ’ s reputation for fiscal responsibility , causing billions of pounds ’ worth of damage to pension funds , then resign with a six-figure annual expenses package , all in less time than it takes for a guinea pig to gestate ? While borrowing costs have begun to fall since Truss was replaced by Rishi Sunak , and the Bank of England says interest rates are likely to peak below 5 %, the average two-year fixedterm mortgage rate still stands at about 6.5 %. This has put a new spin on a question that has been largely redundant for the past 13 years – should you invest any spare cash you have to hand , or use it to pay off your mortgage ? “ You ’ ll save thousands of pounds in interest by paying your debt down sooner ,” says Rob Morgan , chief investment analyst at Charles Stanley . “ Mortgage payments are made up of two components : interest on the loan and a ‘ principal ’ amount , which goes towards paying down the outstanding balance . The longer you have the mortgage and the higher the interest rate , the more you pay in interest .” Yet he points out that overpaying on your mortgage comes with an “ opportunity cost ”, or the amount you could have made had you invested the money instead . The reason why the question of whether to pay off your mortgage or invest has been redundant for so long is down to the enormous size of the opportunity cost since the financial crisis . Between 5 March 2009 and 4 May 2022 , interest rates peaked at 0.75 % – and were at less than 0.5 % for most of this time . This period coincided with a bull run in equities : putting a spare £ 1,000 into the MSCI World index at the start of this period would have given you a profit of £ 4,974.59 by the end . Even putting it in the
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