FIRE v London

I’ve used portfolio leverage to help me buy two properties in the last 10 years.

To recap the most recent episode, very briefly, it goes as follows:

1. In December 2021, I borrowed about 25% of my portfolio’s value to buy my Coastal Folly. I targeted reducing this to a 20% ‘loan-to-value’ (LTV) as soon as practicable.
2. Only a few weeks later, Russia launched its full-scale invasion of the Ukraine. This disrupted the stock market, and energy markets. The energy market disruption led to a spike in inflation, which caused central banks to hike base rates. It also caused my LTV to go up, not down.
3. I steadily paid off a bit of the loan, but the higher rates meant that my interest expenses went up 2.5x over the following 20 months.
4. Since then however my portfolio has gained in value, and my loan has reduced, leaving it today at about 13% of the portfolio value. My interest costs are about 1.5x the January 2022 starting point, which is mildly annoying but very manageable.
5. I’m left feeling firmly under control, with a relatively low level of risk. The two key risks that I need to consider are
   1. a hike in interest rates – which feels very unlikely
   2. a plummeting stock market – this feels a lot more likely, particularly in October 2025. But with my loan being only 12.5% of the portfolio value, even if the portfolio suddenly halved in value (a very rare and unlikely scenario) the loan would still amount to only 20% of the reduced portfolio value.

This leaves me wondering what the long term idealised level of leverage is for my portfolio.