So confused, now have more money than I ever thought I would. HELP!

princeofpounds

This is a wonderful gift, as it allows you to put in place a really effective financial strategy. Whilst you have received bits and pieces of suggestions, you really need to consider a financial strategy in realation to your entire life-circumstances, not just look at it in the context of this property transaction.

Sonastin has come up with some useful suggestions which I think are along the right track.

You want to have a contingency fund, normal advice is 3-6 months of expenses, which will be useful for emergencies.

You are likely to be able to benefit from much better mortgage deals by increasing your deposit from something like 10% LTV towards 40% LTV, with the 10% boundaries being critical. It is usually worth making this investment because even though the 'return' on not having to pay that proportion of the mortgage is not that great, there is the additional 'return' of making the cost of the remaining 60-70% of the mortgage that much cheaper.

Generally speaking it makes sense to pay off debts before making savings, but this is not always the case. Mortgage debt is very cheap at the moment - indeed artificially suppressed by the government/BoE, and if I were you I would be looking to use your high deposit to lock in low-cost long-term financing (say a 5 year fix if not longer).

This is more expensive than short fixes in the current environment, but with a big deposit it is not that much more and it will give you a lot of security.

Now, because interest rates are so low you might well find it is a better idea to keep some of your money out of the mortgage. If you are paying 3% on your mortgage, you might find that there are other investments out there that will deliver you a return (after taxes and fees) of more than 3%.

You might need to take a little risk, but this is not a high hurdle to beat. And you will be more diversified than investing all the money in property.

So if I were you, I would consider

- looking at a higher LTV fixed mortgage, putting some of your money into the house to secure that.
- putting some of the money aside for emergencies.
- perhaps spending a small proportion of the money on the property you buy (or furniture to put in it).
- putting some of the money into other investments that have the potential to beat the interest costs of your mortgage.

Be careful at the bank. They will only want to sell you an investment product and are not independent advisors. Almost certainly anything they pitch to you, you could re-create much more cheaply through a broker or an independent investment platform.

I applaud you by the way for not simply upscaling your ambitions and buying a bigger property. After a 20 year bull market in housing, people often think that buying a bigger house (with bigger associated debt) is the way to wealth. That was true for a long time, but it may not be now.

If you were near the limit of your affordability before the gift, then there is no point going back to the same danger point because if interest rates were to rise to their long-term average of ~7% after your 2 year fix, you would undoubtledly be sunk. And who knows how much of the equity gifted by your father will have evaporated in such a scenario?

JimmyTheWig

Ok, so on the basis that you want to buy the place you're looking at, this is what I would do...

1. Work out how much money I want in savings for an emergency fund (e.g. 3 months wages).
2. Use the rest as a deposit for the flat.
3. Go for a long term (e.g. 5 year) fixed rate deal, obviously at the lowest rate you can get. be aware that I've heard that First Direct are quite picky about their customers and as this is your first mortgage you may not have much credit history and so may struggle to get accepted. Though with the decent deposit you may be ok. A broker can help, here.
4. Work out how much you can afford to pay on the mortgage each month. Adjust the term of the mortgage so that your repayments match this. There is no need to pay a mortgage off for 25 years. With the figure's you've given you can be mortgage free in 11 years!

Tembo_2

Thank you all. I did miss that post re HSBC! Thanks so much Jimmy and Princeofpounds, your posts makes the most sense to me. Its all so daunting, and I really just want some reassurance is all. First Direct did seem very very longwinded I would hate to go 5 weeks into it and find out Im refused.


"Work out how much you can afford to pay on the mortgage each month. Adjust the term of the mortgage so that your repayments match this. There is no need to pay a mortgage off for 25 years. With the figure's you've given you can be mortgage free in 11 years! "

This is what I am doing, hence the lack of house buying. Why stretch myself, not only with mortgage payments but bills?

In the future when my situation changes I hope to either move to live in it full time, or rent it our and change to BTL.

Thanks again to you all, I feel a little more confident. Off to the HSBC website now!


I know that this is a forum Davyshadow (or whatever your name is, I really cant be arsed backpaging to find out) however if you would like to be more positive and helpful Im sure everyone would appreciate it.

As the saying goes, "If you dont have anything nice to say..."

Tembo_2

nollag2006 wrote: »

With a 40% deposit, HSBC have a 2.39% product. £999 booking fee, and no early redemption. Would mean you putting in £60,800 of your £65k windfall, but it still leaves you a small lump sum for contingencies.

Ahhhh, its the lifetime tracker. I dont really want a tracker tbh.

princeofpounds

"Work out how much you can afford to pay on the mortgage each month. Adjust the term of the mortgage so that your repayments match this. There is no need to pay a mortgage off for 25 years. With the figure's you've given you can be mortgage free in 11 years! "

Whilst the sentiment is right, it is not necessarily the right approach to take. If you are financially disciplined, far better to have a normal length mortgage with smaller minimum repayments, preferably with the facility to make overpayments.

You then should overpay/save at the higher rate, which will get you mortgage free sooner in the same way, but you will not run into trouble if you need to cut back in a crisis.

Aiming to make high payments is admirable, but you do not want to make a stick for your own back should your circumstances change in future.

sonastin

Tembo wrote: »

I know that this is a forum Davyshadow (or whatever your name is, I really cant be arsed backpaging to find out) however if you would like to be more positive and helpful Im sure everyone would appreciate it.

As the saying goes, "If you dont have anything nice to say..."

Dvardyshadow was being quite helpful. Your snippy responses were starting to get my back up too, and it is clear that you are looking to control the advice along a certain path. Whilst you might be trying not to get distracted by suggestions which don't fit your circumstances, remember that you've only shared part of those circumstances and we are trying to help with what we know - we aren't mind-readers.

BitterAndTwisted

Tembo wrote: »

I know that this is a forum Davyshadow (or whatever your name is, I really cant be arsed backpaging to find out) however if you would like to be more positive and helpful I'm sure everyone would appreciate it.

As the saying goes, "If you don't have anything nice to say..."

Do you have comprehension of just how bloody rude you have been to our lovely DVardysShadow?

After that, I really don't think you deserve to receive any help on this forum.

Go and see an independent financial advisor instead of wasting other people's time on here.

Shame on you!

Tembo_2

Bitterandtwisted - such an apt forum name.

JimmyTheWig

The thing is, Tembo, people on here like to help.
The way to help someone isn't always by answering their direct question.

swbrua

Maybe Tembo has a fear of living on the ground floor, or just really dislikes houses. Personally I would only ever be interested in living in an apartment, I don't see how whether or not Tembo chooses flat/house matters beyond the resale potential, which is not a concern right now (from what I gather from their posts anyway...)