Help from someone financially clever

Money_saving_maniac

I really need some help as I don't know what to do. Please bear with me as I go through my circumstances.

I was made redundant a couple of months ago and luckily I have found another job and not had to touch my redundancy money. When I combine it with my savings I have 24k which is an awful lot of money, i never thought I'd see that much in my life :j

It's currently sitting in an account earning 0.01% which is clearly not a great idea.

I reach state retirement age in 10 years. I don't have a pension currently, cos 10k in a pension pot is not going to get me anything, but my new job is in the NHS so if I will be building one up from now on.

We would really like to move as we hate the area we live in and a different area is going to need another 100k or so. We currently owe 32k on the mortgage. The house was bought for 74k and is worth about 150k. My OH is a lot younger than me. My new job will pay 25k and will be pretty static pay apart from some cost of living increases hopefully, OH is also on 25k, I hope in the next 2 years he will reach 32k. We have no kids. The mortgage is currently in my name alone. We have no debt or credit card.

So my questions are:

What is the best home for my 24k, bearing in mind we will probably need to use this if we buy a more expensive house.

What would be a reasonable amount to look to borrow in light of our circumstances and what lenders would be likely to give us?

Is there a way to get a house we would like, or is that totally out of reach?

I'm sorry if this seems absolutely silly questions. It all seems so confusing to me because I've only ever bought this house, and that was straightforward, I bought it on my own, I was younger, and the lending rules were different!

enthusiasticsaver

The best home for your 24k is high interest current accounts where you can get up to 5% gross but you will have to open a few as most have a maximum. Look at Tsb classic plus, nationwide flex direct, santander 123 and tesco. You get instant access so if you need it for a house you can get it at short notice.

On your income you would normally be able to borrow up to 3 or 4 times your joint income so an extra £100k is achievable but the issue is affordability. Can you afford the monthly payments as you will have a shorter time to pay it over than someone younger. Normally lenders will allow you to repay a mortgage up to the age of 70 so if your partner is younger they may work it out on his age. Ask for quotes over various different terms ie 10 years until you retire and maybe 15 depending on how much younger your OH is. A rough guide is you should not be spending more than 33% total income on housing costs so if your monthly gross income is £3000 you should be looking at a mortgage of no more than £1000 per month. Bear in mind interest rates may go up so you need some leeway on this.

Your pension is a priority. The NHS pension scheme is a good one so I would be looking to overpay on that as a way of building up pension entitlement. Will you be entitled to a full state pension? You can request a statement online so you should do that as the rules have recently changed and SS2 done away with. The pensions board may be more helpful.

Well done on getting a new job.

xylophone

You could open a TSB sole each (total £6000 and a joint, (£6000@5%)) ditto Nationwide Flexdirect, ( total £7500 @5%), a sole Lloyds Club each (total £10,000 @4%) and a Tesco joint current account (up to £3000 @3%).

Each of the Lloyds Club accounts requires 2 monthly paying DDs - if you are short of these, you could each open one Tesco Instant Access Saver and one Internet Saver which will permit you to pull money from a bank account by DD.

The TSB accounts will service each other if you set up SOs for £500 for the same day between them - A to B, B to C, C to A.

You can set up SO's for £1500 there and back between Nationwide and Lloyds for the same day.

The Tesco current account would start with only £500 in it, so you transfer out the interest from the other accounts and into Tesco every month.

Remember that your NI on your NHS salary will increase with the end of contracting out next April.

The Flexdirect offer ends after a year so you then set up a joint Lloyds Club, with the remaining £2500 filling the joint Tesco current/going into an additional Tesco current account and so on.

What is the "£10,000 in a pension pot" that you mention above?

MarkBargain

It depends on your risk appetite. You might prefer to invest it in a shares or property based investment fund (£15,240 of which can be an ISA).

For simplicity I might be tempted to invest the maximum £20,000 in Santander 123 (3% interest plus bills cashback less a £5 a month fee) and the remaining £4,000 in a shares or property ISA with someone like Charles Stanley Direct.

Sam_J12

I would put it all into your pension fund, because of the tax relief you receive. Overpay into your NHS as much as you can, and also consider paying into a private pension scheme. This is because as a basic rate tax payer for every 80p you pay (up to the maximum of you annual income) into your pension scheme you will receive an additional 20p - effectively a 20p gift from the government in your case since you will not have paid tax on your redundancy payment in the first place. When you reach retirement age you can withdraw 25% of the pot instantly tax free, and the rest is taxed at your income tax rate. As you do not have a pension already, I imagine your income will fall well below the tax free annual allowance when you do retire, so you can withdraw the difference between your income and this personal allowance and pay no tax on it.

I would recommend getting some financial advice on your situation and likely retirement income before you decide.

jennifernil

Bank of Scotland also offer a 3% current account, I believe it is called Classic Vantage, you can have up to 3 sole accounts. To get 3% you need to have £3k-£5k in the account. No DDs needed, no fee, but a minimum £1000 deposit per month. This can be done by swapping £1000 between accounts.

Simpler and better than Santander if you cannot get enough cashback on DDs to cover the £5 monthly fee.

moneyfoolish

Sam_J12 wrote: »

I would put it all into your pension fund, because of the tax relief you receive. Overpay into your NHS as much as you can, and also consider paying into a private pension scheme. This is because as a basic rate tax payer for every 80p you pay (up to the maximum of you annual income) into your pension scheme you will receive an additional 20p - effectively a 20p gift from the government in your case since you will not have paid tax on your redundancy payment in the first place. When you reach retirement age you can withdraw 25% of the pot instantly tax free, and the rest is taxed at your income tax rate. As you do not have a pension already, I imagine your income will fall well below the tax free annual allowance when you do retire, so you can withdraw the difference between your income and this personal allowance and pay no tax on it.

I would recommend getting some financial advice on your situation and likely retirement income before you decide.

I agree. A 20% start via your pension is a fantastic investment. Putting money into a pension is the best financial decision I ever made even though because I had a final salary pension I didn't use the option of adding to it until much later than I should have done.

Money_saving_maniac

My goodness thank you all very much for your input!

The 10k is what I have in my current pension pot.

In terms of affordability, I suppose that's the question really. My OH is 17 years younger than me so he will be carrying on working for a long time to come. In my mind I was wondering if there were any mortgage products which would allow us a higher initial set of payments, dropping once I had retired, rather than a lender only going up to my retirement age, as I understand anything past that can be an issue.

I would only put the 24k into a pension pot if we could definitely not move, I understand the point about being tax free but if we could move rather than have the money waiting to be used I would prefer that.

Is there a problem with opening lots of current accounts in terms of credit footprint if looking for a bigger mortgage?

To make matters more complex I have the option of taking a better paid job but with a pants pension...am I right in believing that a NHS pension would pay out roughly 4.5k if I worked in the NHS for 10 years?

I have asked for a NI statement to find out how many years of contributions I have as I had a long period without making any.

And final question, are all my questions on the right board?

xylophone

Re new state pension

https://www.gov.uk/new-state-pension/overview

A statement will give you your "foundation amount"



You could explore the possibility of a transfer in of the old pension into the NHS Scheme? Or perhaps what remains after taking the tax free lump sum to help with the house purchase?

http://www.nhsbsa.nhs.uk/Pensions/4017.aspx 2015 Scheme calculator available here.

If you are sure that you want to move, you need to keep your savings in cash and earn the most you can in interest.

With regard to setting up bank accounts, perhaps you could open accounts gradually.

If you started with a couple of Tesco Current accounts each say, and each opened an Internet Saver and an Instant Access Saver?

You would have £12000 earning 3% in four current accounts and you could put £12000 in one or two of the internet savers and a few pounds in the Instant Access Savers.

After a couple of months you could get started on adding new accounts and you would have the DD options covered.

jennifernil

I would start with the accounts that give the best return.

Between you, 3 x TSB Classic Plus (5%) will take £6k.

Then 3 x Club Lloyds (4%) will take £15k.

And for the rest, 3% accounts with Tesco, BOS, Nationwide or Santander.

atush

I reach state retirement age in 10 years. I don't have a pension currently, cos 10k in a pension pot is not going to get me anything

Nonsense talk. Nothing into your pension means youc ant afford to retire, even with 10 years int he NHS pension. which you wont get until you are 65-67.

So why not put some of your 24K into a pension? 8K into a personal pension will get grossed up t 10K with tax relief. That is 2K extra. is that nothing to you?

Then save your 16 that is lft into the highest interest acct you can get, while looking for a better place to live.