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Maximise mortgage borrowings when you're young

Mortgage borrowing advice


Borrow as much as possible! You won't see me writing that very often. Let me caveat this...a lot.

I want you to borrow as much as you possible can for your first mortgage limited only by what you can physically afford to pay back. You should only do this if you've got at least a couple of decades until retirement.

You want me to borrow as much as possible - are you mad?


On my blog I have long advocated being very careful when it comes to debt. In a very short summary I have always argued that you should avoid it like the plague. Even with a mortgage I used to argue that if you have to have one (and let's be honest 99% of us will require one) then at least make sure that you try to pay it off as quickly as possible. Over the years I have since refined my understanding of debt and now would encourage large mortgage borrowing under the right circumstances.

Good debt and bad debt


A really quick lesson in wealth: the poor man uses his own money to invest and grow his wealth; the rich man uses other peoples'. Buying a property that will grow in value over time with someone else's money is how to grow wealth quickly.

Case study: Growing wealth with borrowed money 


Let's say that you have £100,000 to buy a house with. There are two scenarios:
Scenario 1: you buy a small property outright. Over the next 30 years the property grows in value tenfold. You now have an asset worth £1,000,000. Well done.
Scenario 2: you but a larger property worth £300,000 by putting down a £100,000 deposit and getting a £200,000 mortgage for the rest. Over the next 30 years the property grows in value tenfold. Additionally ou end up paying £400,000 back to bank in terms of debt borrowed and interest. However, you now own  an asset worth £3,000,000. Minus the £400,000 and you're net assets/ overall benefit is £2,600,000. This is a 260% better outcome than in scenario 1.

Borrow until you can borrow no more


I hope that you can see from the case study above that the sensible thing to do is use other people's money to invest and buy assets. It's dangerous to purchase things on credit that aren't assets such as cars or holiday. However, if by borrowing you are able to purchase a fat appreciating asset and you have the time and the funds in order to afford the repayments over the mortgage term then you should try to borrow as much as possible.

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