£200k in savings – how much to put into house deposit?

In_For_A_Penny_2

Apologies if this would be better placed elsewhere.

Just looking for views/options. As my wife and I have always had to move around for work, we have never bought a property. However we are now in a position to “settle down”. We are both in our early 30’s and both have good final salary pensions with maximum contributions. No debts.

We are looking at spending approx. 400k on a house to meet our needs.

From a lot of hard work and some decent returns from my S&S ISA over the years, I am in the fortunate position to now have about 200k most of which is now in cash.

I am unsure how much to put into a house deposit and would be keen to hear what others would do. Obviously we plan to leave about 3-6months wages as an emergency fund but beyond that I am unsure.

Does it make sense to put as much as possible into a house deposit or with rates being so low or to reinvest a proportion of this going forward?

What would others do?

Monkey_

Tough one. I would be inclined to use 40% of the houses value as a deposit to secure a lower rate (which I would fix). This would leave you with approx 40k. Then depending on your amount of disposal income after the mortgage I would be inclined to re-invest the rest, as I think over the long term this will achieve higher returns then the mortgage.

I suppose the real question is what will happen to interest rates and how the global economy will fare but you would need a crystal ball for that

kidmugsy

Monkey's comment seems wise to me. As an alternative consider an offset mortgage, then you could have almost the whole £200k split between deposit and offset account if you wished. Or, if one of you is not a higher rate taxpayer, you could have him/her bang some cash into interest-bearing current accounts: you can get a gross 5% p.a. at Nationwide and TSB, and 4% at Lloyds, for example. That might be more remunerative than an offset account, and would be less risky than making long term investments. There's a bit to be said for staying pretty liquid while you adjust to being house-owners. Things sometime happen, you know.

colsten

How are you funding the fees (estate agent, solicitor, stamp duty), furniture, white goods and fittings?

In_For_A_Penny_2

Thanks for all the replies, will probably see if I can get to the 40% LTV threshold and leave it there. Probably not in the position to buy for a few months yet so can get some more savings behind me.

colsten wrote: »

How are you funding the fees (estate agent, solicitor, stamp duty), furniture, white goods and fittings?

I was hoping £200k would go some way towards that unless these fees have risen much more than I thought

(But I take your point that, yes, we will budget for all that).

kangoora

kidmugsy wrote: »

Monkey's comment seems wise to me. As an alternative consider an offset mortgage, then you could have almost the whole £200k split between deposit and offset account if you wished. Or, if one of you is not a higher rate taxpayer, you could have him/her bang some cash into interest-bearing current accounts: you can get a gross 5% p.a. at Nationwide and TSB, and 4% at Lloyds, for example. That might be more remunerative than an offset account, and would be less risky than making long term investments. There's a bit to be said for staying pretty liquid while you adjust to being house-owners. Things sometime happen, you know.

Just a query, wouldn't this mean only £85k of your offset mortgage pot would be covered by the FSCS compensation scheme? Wouldn't that represent a big risk?


Or is there something different about offsets I'm not aware of?

kidmugsy

kangoora wrote: »

Just a query, wouldn't this mean only £85k of your offset mortgage pot would be covered by the FSCS compensation scheme? Wouldn't that represent a big risk?


Or is there something different about offsets I'm not aware of?

(i) It had not occurred to me that they'd go for as big a sum as £85k in an offset: I was assuming that monkey's suggestion of a 60% LTV would be desirable, to keep their interest rate low.

(ii) I have an impression (open to correction) that if a bank tries to welch on a debt to you you are allowed to counter-welch on your debt to it i.e. you could balance off their failure to repay your deposited funds against a reduction in your outstanding loan.

Archi_Bald

kidmugsy wrote: »

(ii) I have an impression (open to correction) that if a bank tries to welch on a debt to you you are allowed to counter-welch on your debt to it i.e. you could balance off their failure to repay your deposited funds against a reduction in your outstanding loan.

FSCS have defined how it works: http://www.fscs.org.uk/industry/sub-schemes/accepting-deposits/payout-arrangements-from-1-january-2011/

Perfect2

kangoora wrote: »

Just a query, wouldn't this mean only £85k of your offset mortgage pot would be covered by the FSCS compensation scheme? Wouldn't that represent a big risk?

Big risk? When has a regular a UK saver ever lost money as result of UK banking failure?

Of course that doesn't mean it can't happen in the future however, the chances of it happening seem incredibly small a far bigger worry would be inflation.

Archi_Bald

Anyone choosing to ignore the "£85K", as well as the "£50K", warnings that people keep being told about is just a big fool.