House deposit saving - good plan?

bobobski

Thanks for all the help everyone - since this post contained a lot of personal information I have decided to delete its contents.

lippy1923

Well done on the huge pay rise and good salary

Personally I would decline the friends offer for a loan/ equity to your house. Who knows, in 5 years you may have a girlfriend/fiance and won't need his help as she will have her own share.

Firstly have you got a pension in place? what % are you paying? Does your employer match it?

Sort out where you're going to save the money each month. S&S I would personally ignore as 5 years isn't long enough. Try looking at current accounts, Santander 123 account 3% for example can fit a fairly large chunk of a deposit. Regular savings accounts are prob next, maybe look at help to buy ISA's after. Plenty on info on this site for best rates.

Great that you are using cashback credit cards, as long as you pay back each month in full it doesn't matter you are always 1 month behind.

Your plan for a £60k deposit is a good one. Good luck with your journey and keep lurking the boards for motivation.

Lippy

bobobski

Thank you, and thanks for the quick reply! To respond to your points:

Pension: No I don't have one. Partly this is due to wanting to be settled at a job before joining an occupational scheme, and partly because I feel I need to put every penny saved towards the deposit. Once the house is bought, I intend to join up to a pension right away. If I'm (say) 32 by the time that happens, I don't think that's so bad.

Where money is going: Currently £300 into the 6% FD regular saver, and the rest into a 1.3% Virgin easy access ISA. I do need it to be easy access for now, and since there's so little money in there I'm not too bothered about the rate (it's not much lower than the top paying easy access ISA). Once I get a little more in there after the salary hike, I'll move to a better paying ISA. Re: current accounts, I have looked into this but I like my FD RS (just moved to FD a few months ago to get it and the £125 bonus!) so I'd worry about losing that if I switch current account again? And impact on credit score.

Credit cards: Yes always paying back in full, even if a struggle to do so! Doing my best not to go down that slippery path...

I'm glad you agree about the friend's offer, that's reassuring!

bobobski

I forgot the HTB ISA: if the cap is £250,000, it is literally useless in Cambridge. Rightmove if you don't believe me

lippy1923

My advice would be start a pension NOW. Get used to a % leaving every month (before tax) and you won't notice is when you have your house.

If your employer will pay a % then you are basically declining free money every month by putting it off. The earlier you start, the less you will have to part with each month and the easier it will be for you to benefit from compounding over the years.
Anyone on this site will most likely tell you to start one now.

Re current accounts, you don't have to switch. You can have more than 1. I have 6 myself

Maybe start a spreadsheet with all your income/ outgoings and work out where you can make some savings on your everyday spending/bills. I do love a good spreadsheet and find it very easy and motivating to stick to a budget.

jamesd

Your key plan appears to be putting lots of money into low return savings accounts. Not the best of ideas. For some alternatives see Options: 10% tax free, 7% tax free, 11% taxable, 6% taxable.

Given your apparent commitment to at least five years I suggest that you consider starting this year with the VCT option because those have a real minimum five year holding period that you must not breach or you lose the 30% income tax relief you get when you buy them. Meanwhile you'll probably make around 10-11% a year tax free on the amount you buy after the effect of the tax relief on the purchase price is allowed for.

Following that there are P2P options for term of four or less years and some of those are likely to pay around 10-12% taxable, probably changing to tax free after next year's budget, assuming P2P ISAs are finally introduced then.

The five year horizon for investing is to allow time for a market recovery, thinking mainly of equities. The bond fund mentioned doesn't use equities so it could be suitable for your purpose and timeline.

As time gets shorter there are regular savings accounts and as you approach your target you should start to change from the investing options to pure saving options, notably within the final year of reaching your target.

bobobski

Thank you jamesd, all very interesting but as I mentioned I don't yet have an emergency fund, so I'm choosing to forgo higher interest for easy access right now. However, your link has now become a favourite in my internet browser for c. 12 months' time It's annoyingly difficult to save/invest for a high return when you have nobody to fall back on if it doesn't work out.

bobobski

lippy1923 wrote: »

My advice would be start a pension NOW.

Lippy: my concern is that if I put away, say, £100 per month into my pension then that leaves me around £6.5k lighter in 5 years' time in terms of the deposit. I do see the benefits in having a pension and I am aware that I'm basically taking a lower salary from my employer for not having one, but it being the smartest move in 45 years' time doesn't mean it's the smartest move in 5 years' time. I've thought quite a lot about that and I don't think an occupational pension is the be all and end all for everyone in every situation. But thank you for highlighting it for me, I really need a "life to-do list"!

lippy1923

I see what you are saying, but you paying the £100 per month is only costing you £60 (as you benefit from the tax exemption) I think that's right anyway as a 40% tax payer???. Someone point out if this is wrong!!! And then you employer matches that... so for the cost of £60 to you, you could have a £200 investment per month in a pension. no-brainer really

You could be £6k lighter in 5 years (even though it won't cost you that much) but you will have £12k in a pension thanks to your employer. A chance to double your money.

It's your choice though but really do think about it.

Lippy

kidmugsy

You're in Cambridge: what do you need a car for? On yer bike.

jamesd

bobobski wrote: »

I don't yet have an emergency fund, so I'm choosing to forgo higher interest for easy access right now.

The 7% option there has access within about a week. Not suitable for the first part of an emergency fund but potentially useful for some after you've accumulated at least say three months worth.

bobobski wrote: »

However, your link has now become a favourite in my internet browser for c. 12 months' time It's annoyingly difficult to save/invest for a high return when you have nobody to fall back on if it doesn't work out.

Yes, it is. Increases the overall risk level significantly and makes larger emergency fund levels very desirable, though not all has to be in easy access accounts.

I didn't start to feel really comfortable until I had well over a year's worth of emergency fund money and I've kept at least that much or available credit available since then. Not an issue for me now since over the last ten years I've accumulated enouh to live on indefinitely.