Best investment/savings to run with interest only mortgage?

lightspeed

Hi

I am a 24 year old FTB and am looking to by a property in the next few months but due to high house prices (for the type of house i would like in a decent area) my initial step is to take out an interest only mortgage to enable me to manage my finances more effectively while making the transition.

Currently i save monthly in a normal savings account (4.5%,i think!) with Direct Line and have noticed my money grow steadily over the past 4 years from approx. 2K to 11K, I plan to continue saving as soon as the mortgage starts and then after about 5 years either move to a repayment mortgage or start saving in some other form of investment vehicle. By this point I should (fingers crossed) have received 5 years of pay rises and possible promotions, therefore, i will have an increased salary and capacity to save/repay.

Although i am a bit of a gambler, some of the stories i have heard regarding investment vehicles concern me and i was wondering, due to my age, would i be able to save (in a standard/high interest rate savings account) up a large some of money (approx 120 - 130K) in a 25 - 30 year period to cover my future mortgage?

My calculations (using an online savings calculator) roughly add upto £250 per month for 25 years at 4.5-5% to reach that figure. Surely i am missing something here, or have i actually got time on my side?

Thanks in advance.

arrowsmith

If you haven't got one yet, set up an ISA as 20% of your interest is going in tax and you are losing out on the extra compound interest this would bring.

It would be a good idea to setup an ISA before the 5th April so that you can benefit from this years allowance of 3k, on the 6th April transfer another 3k and you will have 6k protected from tax. You should really be looking for 5% or slightly higher interest.