Steven Bartlett, known for his role in Dragons’ Den, posed a query about mortgages to money gurus Raoul Pal, Jaspreet Singh, and Humphrey Yang on an episode of The Diary Of A CEO podcast
Steven Bartlett, known for his role in Dragons’ Den and his popular podcast, The Diary of a CEO, recently sparked a surprising response from three top financial experts when he questioned whether getting a mortgage to build wealth was a “terrible idea.” The Plymouth-raised entrepreneur referred to an article he’d read which stated that more millionaires were choosing to rent rather than buy in the US, with the number reportedly tripling between 2019 and 2023.
He asked the finance gurus—Raoul Pal, Jaspreet Singh, and Humphrey Yang—to shed light on this trend. This led to a discussion about the pros and cons of renting versus buying.
Humphrey suggested that some people opt to live on the US coast due to high-paying jobs or frequent investments, but it could still be “slightly unaffordable” to purchase property in places like New York or Los Angeles, even with a good income.
Steven mentioned that the article suggested these individuals are prioritising “flexibility and liquidity” over property ownership, avoiding the “inconveniences” that come with it. He later queried if purchasing a property as a means to accumulate wealth was a “terrible idea”.
He shared that during his upbringing, he was always told that the path to follow was to get a job, save money, and then secure a mortgage—a route that seemed almost obligatory.
Jaspreet retorted that it was “one of the worst” pieces of advice you can give someone, to which Steven countered that it’s what everyone is doing and continues to do.
Steven observed that his mates also follow this path: “The first thing they do when they get a bit of money is they go and get a mortgage because that’s what their parents did and that’s what everyone’s always done. Is that a good idea?”
Raoul’s answer was a “yes and no,” highlighting that the economy is different now than when he was 25 and buying his first flat in London. He pointed out that back then, he would have had to pay 3.5 times his income for a property in the capital, but now an equivalent would cost 12 times as much, so renting “makes much more sense now.”
He further stated that a person’s main house isn’t an investment, as you tend not to sell it once you own it, though it can be considered an investment in “your future.”
Steven described the concept as an “optical illusion,” where you believe any money spent on rent will never be seen again, while paying into a house you own is akin to depositing your cash into a piggy bank.
Jaspreet argued that this isn’t “exactly true.” He went on to provide an example of buying a $500,000 (£367,000) house, putting down 20 per cent ($100,000, around £73,000), financing $400,000 (£294,000), and securing a 6.5 per cent mortgage over 30 years.
He said he’d pay $2,500 (£2,836) a month and build equity in his property (the amount of the property you own), but banks “understand the same game” and “frontload” your mortgage.
Jaspreet explained that when he pays his $2,500, it’s not $1,250 (£918) “going to principal” (buying it back) to build equity in his home and £1,250 towards interest—it’s “almost all” interest.
Looking back at his theoretical house purchase, he pointed out that during the initial 20 years, more than half the payment will go straight to the banker through interest, and only in year 21 does half the payment go towards equity.
However, over the years, many people will see fluctuations in interest rates, so they may opt to refinance, at which point the amortisation (payoff) process starts again, meaning they have to pay interest once more, and the “real equity” they’ve been building is simply “not there.”
Jaspreet continued: “This is why I say it’s not bad to buy a house. I think it’s great if you buy a house, but don’t treat your house like—like you said—don’t treat your house like an investment. Treat it like an expense.
“Buy it because you can afford it, because you want it, because you’re ready, but not because you’re going to build wealth.”
