Saving for a Mortgage - Tips ?

jondavis30

I'm now starting to save for a mortgage, as well as go on holiday next October. I went to uni late (when I was 24) and so now is the right time to start.

I've done a lot of research into this, the best accounts, the best interest rates and the best purpose to be served, and I have to say in terms of interest rates there's not much competition, I have to say.

I had an account with first direct, which was excellent, what drew me to it was the incentive (£125) to join and switch. There was also then the eligibility to save £300 per month and earn 4% Gross interest. The drawback was no withdrawals permitted. I used this to save for my Holiday to the United States.

Then I decided to switch to HSBC because first direct stopped their regular saver product. They were offering the same thing, but you can only save £250 a month instead, and get 4% Gross.

I then started looking into accounts to start building a mortgage deposit onto, and the best rates I could find (other than the regular saver account) was the nationwide save to buy ISA at a Gross / Net rate of 2%.

Of course you want to maximise the interest earned on your money, so I continue paying £250 a month into the Regular Saver with HSBC (this expires after 12 months - due to become available end of October 2015), and in addition to that, I pay in around £400 - £700 a month into the 'save to buy' ISA with nationwide.

Not only does opening this account mean that you're eligible for a 5% deposit mortgage with Nationwide (but at sub-prime cost - this is something to consider if it's worth it), but it allows you to earn £1000 cash back on prodcut fee with Nationwide and earns you a little preferential treatment while you're building your deposit amount, mortgage advice, advice on fees, property values, figures to aim for etc.

Once the Regular Saver account runs out with HSBC, it might be worth while looking at the Santander 1|2|3 account. With Interest on any balance over £1000 and cashback on mortgages with Santander, as well as cash back on council tax, household bills and more, although there's a £2 a month account fee, It works out that I'd get £100 cashback per year.

Transferring the entire balance of the Regular Saver from HSBC to Santander 123 would encourage and attract 3% interest. That's £3000 earning £9 a month interest, net value.

Current accounts are more difficult to hold balances on, simply because of money in and out continuously and it means you're able to spend what you want when you want. Self restraint is required to take advantage of the higher interest rates.

This is where it's an idea to set up a budget Calculator. I have built one for a month by month expenditure list, planning my money well in advance by working out how much I have, how much I can spend, and how much I can save and essentially leave alone.

It also calculates how much I've saved and keeps a record of my current savings accounts which serves as a purpose for forecasting the amount of money I have actually saved.

I do have debt, but it's not debt that I would say I'm desperate to pay off, and certainly wouldn't be achievable to pay it off before getting a mortgage in order to gain a 25 year offer.

The only considered priority debt that I do have is £167 a month for a £10,000 loan that I got to remove all of my credit cards (loan = less interest). Which now means I have more disposable income and it also means I am able to save at the same time.

I realise that this is uneconomical, and I would agree, if there was no purpose to saving a lot of money within the next 10 months.

My other half will also be contributing to the mortgage (eventually) and he's opening a save to buy ISA. This is just a review and an idea that I had in relation to saving for a mortgage / making the most out of it once you have a mortgage and how to make the most of available offers.

colsten

Some observations:

• the FD Regular Saver is paying 6% AER
• the FD Regular Saver has not been withdrawn. You can open another one when the existing one has matured
• HSBC also allow you to open another regular saver when the old one has matured
• HSBC also have a 6% Regular Saver
• there are many other current accounts that pay better interest than the 123 (though the 123 can be good for cashback). Have a read round the forum, they are al discussed in detail.
• saving when you have debt makes little sense - try to pay that loan back as a priority to save on interest charges
• Nationwide mortgages may or may not be the best deal in the market when you need your mortgage. Same applies to any other "save for mortgage" deal
• ISAs generally pay much worse interest than a lot of current accounts

Eco_Miser

jondavis30 wrote: »

Current accounts are more difficult to hold balances on, simply because of money in and out continuously and it means you're able to spend what you want when you want. Self restraint is required to take advantage of the higher interest rates.

Really?
Most of my current accounts don't have money going in and out continuously, just one in and one out each month.
If I wanted to actually spend the money in them I'd need to transfer it to the real current account first - just like a savings account - or find the debit card and pin.

robatwork

Eco_Miser wrote: »

Really?
Most of my current accounts don't have money going in and out continuously, just one in and one out each month.
If I wanted to actually spend the money in them I'd need to transfer it to the real current account first - just like a savings account - or find the debit card and pin.

That's exactly how I manage my accounts. I have opened a few to take advantage of the switching offers, but then they just sit there silently accepting a round-robin monthly payment and sending it out the next day.

Debit cards were signed and put away as soon as received. I only use 1 active current account to do "real" transactions.

jondavis30

colsten wrote: »

Some observations:

• the FD Regular Saver is paying 6% AER
• the FD Regular Saver has not been withdrawn. You can open another one when the existing one has matured
• HSBC also allow you to open another regular saver when the old one has matured
• HSBC also have a 6% Regular Saver
• there are many other current accounts that pay better interest than the 123 (though the 123 can be good for cashback). Have a read round the forum, they are al discussed in detail.
• saving when you have debt makes little sense - try to pay that loan back as a priority to save on interest charges
• Nationwide mortgages may or may not be the best deal in the market when you need your mortgage. Same applies to any other "save for mortgage" deal
• ISAs generally pay much worse interest than a lot of current accounts

I switched to HSBC Which no longer made me eligible for 'free banking' with First direct - an account fee of £10 is applicable if you don't pay a regular sum in over £1000.

By the time the HSBC Regular saver matures I'll have enough money for a mortgage deposit (is the theory)

HSBC 6% only if you're a premier customer. After tax, I don't have £1750 per month take home. I sometimes get around £1720 depending on what shifts I've worked and if I've covered any overtime, but this is too variable and few between.

Paying the loan back will only delay buying a house. I find it manageable, and although it seems non-sensical to most, I'm happy to let that just run as it is. If I had £20,000 then yes, makes sense paying £10k of it to loan and other £10k of it to keep, but I don't. Plus, in the meantime all the money I'm saving can be used for emergency funds if for any reason I lose my job (doubt it - there's a national shortfall).

Main attraction to the 123 Current account is the 1% interest over £1k, 2% over 2K and 3% over 3K, and the cashback on santander mortgages; they seemed to do the best rates and the best sums when I looked the other day. I'm just trying to excercise what savings I can, and max out the interest on the savings I do have, but I appreciate your point about the loan. The method I'm using is the most acceptable for me though. Planning on having a spare £5k by doing some overtime, and with my work with the Territorial Army not being counted as part of my wage, I can tuck that away too over time.

What I may do is set up a couple of basic direct debits and fund the Santander account with what I would be putting in the flex save deposit account with HSBC. (plus a bit extra to make it £500 per month) then make monthly transfers back to HSBC. Perhaps these can count as extra money into HSBC to boost the payments in to premier banking. But I read somewhere that they charge for payments in on HSBC premier banking.

Although ISA's pay less interest, a comparison via this site showed the nationwide save to buy 2% account to be the next best thing.

I don't really like using current accounts to earn interest on / store money because of the simple fact that they're current accounts and usually come with funding requirements e.g. £500 per month and keeping that going is tough when you don't necesarilly have that to spare (most of it goes straight across to my Nationwide Saver now).

With that said, I should earn around £2500 next month - that puts me 2 x £500 payments in advance with the Santander account. Which has the most benefit with my telephone bill and earns more interest than the flex save account, and minus the account fee, earns me around £10 per month.

Once I have a house, there will be more like £200 worth of benefits into the account because of the bills etc coming out of it (my eventual plan is a switch to Santander, but whilst the HSBC Regular saver is running, you have to keep your banking with the current account with HSBC as part of the terms and conditions. I can open the 123 account and just gain the interest and bills benefits from it, if the payment doesn't HAVE to come from your employer.

fiesta04

You can use the same money to transfer from one account to another to another and so on.


You can avoid FD account charge by just having a savings account with them holding just £1 in it.


HSBC Reg Saver 4% only needs account with no fees.


As with most Reg Savers, when it closes after a year just open another.


Hope this helps,


F4

colsten

jondavis30 wrote: »

I switched to HSBC Which no longer made me eligible for 'free banking' with First direct - an account fee of £10 is applicable if you don't pay a regular sum in over £1000.

This is incorrect. Check the FD website, there is an easy way to avoid the monthly fee. Or you could just swap £1,000 a month with another account, e.g. your HSBC one.

colsten

fiesta04 wrote: »

HSBC Reg Saver 4% only needs account with no fees.

So does the HSBC 6% Reg Saver now.

colsten

jondavis30 wrote: »

HSBC 6% only if you're a premier customer.

This is also incorrect as you are entitled to the 6% if you hold an Advance account (which is different to Premier).

jondavis30 wrote: »

After tax, I don't have £1750 per month take home.

This doesn't matter. The only requirement for the Advance is:

You must pay at least £1,750 into your Account each month other than by internal transfer from another personal HSBC Account.

. This is easy enough to achieve by one or more transfers from a non HSBC account.

jondavis30 wrote: »

If I had £20,000 then yes, makes sense paying £10k of it to loan and other £10k of it to keep, but I don't. Plus, in the meantime all the money I'm saving can be used for emergency funds if for any reason I lose my job (doubt it - there's a national shortfall).

Saving whilst you still have a loan makes no sense as the interest on your loan will be way higher than the interest you get on your savings. For this to be true it doesn't matter whether you are employed or unemployed.

jondavis30 wrote: »

The method I'm using is the most acceptable for me though.

Fair enough, if you are happier kidding yourself you should kid yourself.

jondavis30 wrote: »

with my work with the Territorial Army not being counted as part of my wage, I can tuck that away too over time.

it still counts as taxable income

jondavis30 wrote: »

But I read somewhere that they charge for payments in on HSBC premier banking.

where did you read that? And why are you worrying about Premier?

jondavis30 wrote: »

I don't really like using current accounts to earn interest on / store money because of the simple fact that they're current accounts and usually come with funding requirements e.g. £500 per month and keeping that going is tough when you don't necesarilly have that to spare

you don't need spare money for this, you can just recycle existing money. Trust me, lots of people have been doing this for years - plenty of evidence for this on the forum.

jondavis30 wrote: »

whilst the HSBC Regular saver is running, you have to keep your banking with the current account with HSBC as part of the terms and conditions.

All you need to have is an HSBC Bank account (for 4%) or HSBC Advance (for 6%). Neither of these require that you do any more than pay in £500/£1,750 respectively a month from a non HSBC account. Don't make things more complicated for yourself than they are.

jondavis30

Here's what I've decided to do.

Nationwide Current Account - Main bank account (switch) - keep balance just below £2.5k to earn the 5% interest on £2.5k Balance.

Santander 123 Account - Use this to get the 3% interest on balances over £3k.

Keep HSBC Regular Saver Acc / HSBC Current Acc

Send money from Nationwide, to HSBC, to Santander, back to Nationwide to keep accounts 'active' and to keep the benefits on the relevant accounts.

No point in bothering with HSBC Advance - as the 4% regular saver is already almost 4 months in.

I'm keeping the Save to Buy ISA but only paying minimum amount in to maximise balances on other accounts with higher interest.