Article from the Telegraph July 2003 - If you had done what they proposed, reccession would not be knocking on your door. Today, the market conditions are even better than in 2003: cheaper loans and low share prices. Does the same principle apply today? You might want to wait 5 years again to realize you should have done something more than just read this silly blog post.

Wanna cheap mortgage? Wadya mean you already have a house, and you don’t need to borrow? Who said anything about housebuying?
These days, the house is the security, but lenders consider it rather impertinent to ask why you actually want the money. They call it “equity release”, but what they mean is that if they reckon you’re good for the repayments, and the property is worth comfortably more than the loan, what you do with the dosh is your own affair.

Britannia Building Society - 3.94% Fixed Rate Loan
Now we’ve got that straight, let’s go back to the original question. The Britannia Building Society is offering mortgage money at 3.94 per cent. In these days of discounted loans and special promotions, where every lender on the high street is offering a better deal than the bank next door, it may not sound an irresistible offer, but this one’s different.
Most mortgages are at variable rates, which means that the cost will rise (after you’ve taken out the loan) if interest rates go up. The Britannia money, by contrast, is fixed at 3.94 per cent for five whole years, after which you can pay it back without penalty.
There’s never been an offer like it. This is a finer rate than big, rich companies must pay. Indeed, it’s less than it costs the British government itself to borrow five-year money. It is, in short, an offer that is unlikely to last long, and may never be seen again. It’s almost a sin not to take the money.
Of course, there’s no point in borrowing to put the money in the bank - although you could put it in the Halifax at four per cent while you decided what to do with it. You won’t make money borrowing at 3.94 per cent and lending it at 4 per cent because the taxman won’t let you offset the income against the outgoings.
Borrowing to buy shares is often considered a terrible gamble that is bound to reduce you to penury. This is odd, since we think nothing of borrowing 95 per cent of the purchase price of a house, even though the misery of negative equity is little more than a decade in the past. Indeed, the Northern Rock is offering to put you straight into negative equity today, by lending you 120 per cent of the value of your property.
The need for somewhere to live is rather more fundamental than the need for a share portfolio, but compared with borrowing to spend, borrowing to invest is the height of financial responsibility. Surely even the worst set of shares is likely to have outperformed the formerly fashionable clothes, the holiday snaps and the five-year-old car?
Oddly enough, the answer’s yes and no. In the past five years, they’ve all plunged. Five years ago, you would have had to pay nearly eight per cent on the money you borrowed, the income on your shares wouldn’t have gone halfway to covering the outgoings, and you’d have lost a thick slice of your capital too. Even worse, your neighbour who had borrowed to buy a fancier house would be insufferably smug.
Such grim experience has made people scared of shares today, which is why there’s the opportunity. The fall in stock markets and interest rates has produced a combination that may never be seen again, in that you can find decent shares which yield enough to cover most of the cost of your loan.
Shares in Yell, as the parent company is disconcertingly called, are going to yield about 2.5 per cent after higher-rate tax. This won’t cover the 3.94 per cent cost of your Britannia loan, but that cost is fixed, and the Yell dividend is going to grow, probably quite fast. By the end of year four, it should be high enough to cover the loan interest with a bit left over. More to the point, by then Yell shares should be higher than they are today, thus making you some serious money.
The sensible investor would never put everything into a single share, however attractive it looked; the Yell example merely shows that after the plunge in the stock market there are plenty of good shares which return more than 3.94 per cent after all tax, looking a year or two out (and quite a few which already do).
This is a bet that the great swing to low inflation, low interest rates and low share prices has come to an end. It’s not fanciful to suggest that you could make a third of what you borrow over five years, at low cost and comparatively little risk.
So would I recommend you apply to the Britannia for a socking great loan, sink the proceeds into Yell and sit back to get rich five years hence? Ah well, ahem, the answer is: under the Financial Services Act, I’m not allowed to give individual investment advice. You’re on your own.

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