Possible steer?

Jaguar_Skills

Hi all,

A little background before I start. I have just returned from travelling. No house and living with my gf's brother.

My current savings are as follows:

£22k in Santander 123 Acc (will be moving 2k of it to TSB once I get down there to open account)

£17k in Fixed ISA due for release in a few months

£16k in HL in a random set of S&S which I didn't really know a huge amount about trading when I bought.

Now my question is this:

I am saving for a house deposit with the gf. We are looking to put in about £35k each for a 20% deposit on the house.

I will be earning £2,770 a month after tax hence Higher rate tax payer.

Of the above, £1,200 by me and £1,200 by the gf is going in our Santander joint acc (£0 in there currently). I am going to aim to save a total of 2k per month so I will have another £800 to stick somewhere.

Is it too early to be saving into a SIPP as I want to be buying this house in the next year or so (the deposit is less of an issue than the mortgage as my gf is self employed and doesn't yet have 2 years accounts), should I save it in a cash ISA or another bank account? Alternatively could I put a higher deposit into the house to get us a better mortgage rate (and protect my added share?)

I want to start saving for my pension but I wonder whether it is worth getting the house bought first.

Another thing I questioned is whether it is worth involving an IFA with the sort of numbers I am talking about above?

Sorry for all the questions, I would really appreciate your thoughts.

bowlhead99

I would say it's not worth involving an IFA given you're able to research the options yourself and a big slice of your assets is going to get dumped into a house and not need a long term financial plan. So, you would need to pay a relatively large amount of IFA fee for a relatively small amount of gain from investment /tax optimisation. With the fact that you've made almost 100 posts on a moneysaving forum you are probably more than capable of using the internet or buying books to understand the basics of investments and tax.

When you're earning your ~£45k a year you're a bit over the 40% tax band. So for every £1k a year you drop into a pension you'll only miss out on £50 a month of net pay. That makes it quite a useful tool, at least for several £50s a month until you drop into lower rate tax. Whether or not you have a pension already, you need to be thinking about your retirement because if you take a year off paying in, you need to pay in the same amount for a lot more than a year to make up for it later.

In retirement you will need a roof over your head and money coming in the door, maybe for 40 years. If you focus on just buying the roof over your head, you are missing out on the other critical bit. So with your salary, pay yourself and also pay your future self, by using some salary to set up the pension. Also, if you're employed rather than self employed like your gf, you may find your employer will put money into a pension to match or partially match your contributions, and you're giving up free money if you don't take it by making pension contributions.

If you have enough money to buy the house at roughly the same time as your gf is ready to buy the house then you don't need to avoid making pension contributions to get the money together faster. You're right that you might get a better mortgage rate with more money down, but you would have to do the maths on that to see how much money you personally would save on interest versus how much money you would make from your tax relieved pension contributions or ISA wrapped S&S investments.

If your S&S investments are in a random set of investments that you don't understand, take steps to understand them, or sell them and buy them back later when you know what you are doing after doing some reading.

If you don't know or understand much about investments or want to learn about them, then setting up a SIPP (self invested personal pension) is going to be the worst type of pension to get because you have to select all your own holdings and you are paying for the flexibility of being able to invest in a very wide and complex and risky set of investments. If you only want to invest in a few standard broad mixed asset funds then there is no point having a Self Invested Personal Pension, just get a normal Personal Pension.

Jaguar_Skills

Thanks Bowlhead, I can always rely on you for a solid reply :j

My comments are underneath yours.

I would say it's not worth involving an IFA given you're able to research the options yourself and a big slice of your assets is going to get dumped into a house and not need a long term financial plan. So, you would need to pay a relatively large amount of IFA fee for a relatively small amount of gain from investment /tax optimisation. With the fact that you've made almost 100 posts on a moneysaving forum you are probably more than capable of using the internet or buying books to understand the basics of investments and tax.

Thanks, I think I just needed that confirming, I have bought Smarter Investing by Tim Hale and plan to go through the Monevator site in more detail.

When you're earning your ~£45k a year you're a bit over the 40% tax band. So for every £1k a year you drop into a pension you'll only miss out on £50 a month of net pay. That makes it quite a useful tool, at least for several £50s a month until you drop into lower rate tax. Whether or not you have a pension already, you need to be thinking about your retirement because if you take a year off paying in, you need to pay in the same amount for a lot more than a year to make up for it later. In retirement you will need a roof over your head and money coming in the door, maybe for 40 years. If you focus on just buying the roof over your head, you are missing out on the other critical bit. So with your salary, pay yourself and also pay your future self, by using some salary to set up the pension. Also, if you're employed rather than self employed like your gf, you may find your employer will put money into a pension to match or partially match your contributions, and you're giving up free money if you don't take it by making pension contributions.

I agree I need to think about my pension and I don't have one with my current employer, although I understand the laws are likely to change that they have to provide them? If I understand it correctly you are saying worth investing asap? See below for my comments on which one...

If you have enough money to buy the house at roughly the same time as your gf is ready to buy the house then you don't need to avoid making pension contributions to get the money together faster. You're right that you might get a better mortgage rate with more money down, but you would have to do the maths on that to see how much money you personally would save on interest versus how much money you would make from your tax relieved pension contributions or ISA wrapped S&S investments.

I think this is key. I will have to play the maths on it. Is there a way of protecting a bigger deposit that I put in vs her? I mean we are very serious just in case something went wrong I would be gutted!

If your S&S investments are in a random set of investments that you don't understand, take steps to understand them, or sell them and buy them back later when you know what you are doing after doing some reading

I posted before about them and the ones I bought more recently had more logic behind them.

If you don't know or understand much about investments or want to learn about them, then setting up a SIPP (self invested personal pension) is going to be the worst type of pension to get because you have to select all your own holdings and you are paying for the flexibility of being able to invest in a very wide and complex and risky set of investments. If you only want to invest in a few standard broad mixed asset funds then there is no point having a Self Invested Personal Pension, just get a normal Personal Pension.

I wanted a simple method of investing for both my ISA and SIPP so I was thinking of one of the funds that cover all, something like the Vanguard 80%? Is that a mixed asset fund? Is a personal pension something that is run by another company?

Thanks as ever, you are a star...

bowlhead99

Jaguar_Skills wrote: »

Is there a way of protecting a bigger deposit that I put in vs her? I mean we are very serious just in case something went wrong I would be gutted!

Yes, when you buy the house you can just have a simple (or complex) deed of trust which sets out the ownership shares.

- So for example you might say you want to share the mortgage bill 50:50 and will take the property valuation gains / losses 50:50 once you have first taken out your £10k (or whatever) extra contribution.
You might want that figure to grow over time for inflation or with the interest rate on the house that you're both saving by having a mortgage that's £10k lower.

- Or you might want to say that as you put in 56% of the £80k deposit you want to take out 56% of all the proceeds and will contribute 56% to the mortgage, but obviously if the house goes down in value you are exposed to losses on your £10k just like you both are on your £35ks

- Or you might want to say that your equity plus your 50% of the mortgage paid off over time is 52% of the overall purchase price and so you want to split all the eventual proceeds on that ratio, or some other ratio that you come up with a logical basis for.

You can pretty much do what you like to either protect your deposit or change the eventual split of the proceeds. If the house goes up in value 20% maybe you both take 20% on your deposits and split the rest down the middle. But if the house went down in value would you be happy to lose your £10k just like you lose your £35k? Different people have different approaches, you just need to be able to sell it as a logical and fair idea to the other person. And then emotions come into it because any basic split that isn't 50:50 can cause strife about how much the house really belongs to both of you. So the easiest way to handle that is the first method of protecting the deposit and maybe allowing an interest rate on it.

I wanted a simple method of investing for both my ISA and SIPP so I was thinking of one of the funds that cover all, something like the Vanguard 80%? Is that a mixed asset fund? Is a personal pension something that is run by another company?

You can have the exact same holdings in an ISA as a SIPP. However if your timescales are different in what you're investing for, you might not want the exact same holdings.

The Vanguard 80% is a mixed asset fund, it holds shares in a mix of global large companies and it holds a mix of bonds. There are other funds, passively or actively managed, which have a different mix and might include a broader set of company types, a broader set of bond types and other asset classes like property. But yes the Lifestrategy 80 is one type of mixed asset fund.

A personal pension is run by a life or insurance company. They will have some standard funds set up themselves and a variety of other funds managed by the big name third party fund managers. You can go direct to the pension provider but usually through an IFA or introducer gets access to lower prices. You end up paying a management fee for the particular fund or set of funds you're invested in and don't pay a specific separate fee for the 'platform' like you would with a fund supermarket. If you use a personal pension, you'll be restricted to the funds they offer and not be able to hold individual self selected shares, bonds, direct commercial property, structured products etc like you could with a SIPP.

Some example pricing at http://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/

Jaguar_Skills

Thanks again Bowlhead. So for now until I get the house you would suggest either putting the excess money into my pension or building up a greater deposit for the house based on the calculations.

If the latter, where is a good place to be saving it? A spread across the best current accounts?

I will respond in detail tonight.

Are you sure you dont want to be my IFA?

bowlhead99

haha, not really looking to change jobs!

Yes a spread across all the top paying current accounts and regular savers is a good way to go if you're staying in cash to make an investment in the house.

An extra bit of equity in a half-owned house, particularly if it's only 'protected' rather than earning potential capital gains or saving you loads of monthly rent or interest cost in its own right, is not something that ought to take precedence over having a retirement plan.

Also, the house doesn't come with 40% tax relief, while you could put money into a pension and literally stop the tax man slicing out a piece of your wages on the way from your employer to your bank account. If you're old enough for a house you're old enough for a pension so make sure you're doing that with at least part of your income.

If you want to get this board's opinion on different investment funds, different cash accounts, or the housebuying boards' opinions on buying property or getting mortgages, there are loads and loads of existing threads to read through or chip in on. Everyone thinks they have unique circumstances but actually they just have a particular mix of circumstances which are themselves each extremely common and have standard advice and solutions. You can certainly ask an IFA for their combined experience across your whole life plan, but when your goal is what to do with £10-£20k or income of £x a month across some standard competing choices, there is not going to be anything that hasn't already been seen and answered before.

Porcupine

One comment is to watch the mortgage stepping. Eg if you're putting in a 20% deposit on a house, that's 80% LTV. If you can stretch that up to 25% deposit, so that means 75% LTV, it might drop you into a cheaper loan bracket. So it's worth pushing the numbers to see what happens.

patientperson

An extra thought might be to save with a Building Society which offers cashback incentives if one takes out a mortgage with them. Newcastle BS .. Big Home Saver as an example where a monthly amount is saved (In or out of a cash ISA). I am sure there are others too.

Jaguar_Skills

Bowlhead I had a look at some pensions by googling personal pension but to me it looks the same as investing yourself?

Jaguar_Skills

http://www.cavendishonline.co.uk/pensions/

I looked at this. I'm assuming this is the type of pension you meant?

What I'm unclear of is it still says there is funds to invest in 2300 or something. How does this not differ from a SIPP? As you are picking yourself?

guymo

I think what you are looking at is the new Cavendish SIPP product. Try this:

http://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/

There you will find personal pensions with Aviva, Aegon and Friends Life which have a more restricted funds range -- you can still choose your own -- but you can end up with a very low-cost plan.