Feel like I'm in "Savings Limbo"

woefulsaver

I'll cut to the chase

• 31 year old single man
• £52,000 a year salary
• Roughly £20,000 in pension
  • I contribute 6%, employer 7%
  • I'm going to up my contributions to 8% (employer 9%) very soon
• Roughly £64,000 in savings spread across
  • £20,300 Virgin Money Cash ISA (1.4% interest - matures this month)
  • £26,600 Virgin Money Double Take Savings (1.25% interest)
  • £6,400 Virgin Money Help To Buy ISA (3% interest)
  • £3,000 NS & I Investment Growth Bond (2.25% interest)
  • £3,000 Tesco Bank Current Account (3% interest)
  • £2,500 Nationwide Current Account (5% interest)
  • £2,000 Santandar Regular Saver (5% interest)
  • £2,000 Santander Current Account (used for daily stuf)
  • £900 in Vanguard S+S ISA (..current valuation, but contribute £200 a month)
• Debts
  • £700 on a 0% credit card that I pay off at £71 a month until the 0% period ends
• Major monthly expenses of note
  • £950 rent to landlord (zone 4 London)
  • £190 for bills
  • £160 tube fare

The reason why I am posting today is I'm feeling pretty hopeless right now.



I'm still renting at 31 years old, so I really want to move onto the property ladder but my income is too small to get a mortgage. My deposit wouldn't be enough, I think I'll probably need roughly £100k, possibly £125k for mortgage lenders to even think about lending to me as even just a 1 bedroom property can go for at least £325,000 to, well, the sky is your limit.



So I feel a bit lost right now, like in a limbo. I want to start saving more aggressively into my S+S ISA but thats for longer term, which is not ideal when you're trying to scrape together a housing deposit!



As I'm just over the threshold for higher rate taxation, it makes contributing into these current accounts and other taxable products more painful because I'm already earning > £500 a year in interest from these things.



I can't pay into a Cash ISA because I already pay into a HtB ISA each month (my understanding is that counts as a 'Cash ISA' even though you can only pay in a maximum of £200 a month, so I have £17,600 allowance to put elsewhere) so my only 'tax efficient' option seems to be to increase my S+S pot, but I really don't want to do that if I want to buy in the next 5 or so years, 5 years seems too short of a time frame to risk it.



What would you do?

gwynfil

This is the reality of modern life- high house prices. It's difficult if you are trying to rely on one income. The good news is that you are obviously financially savvy and well organised and not in loads of debt. Your financial situation looks promising and stable. It seems it is just the high house prices that are the problem. Interest rates are so low, so there are not a lot of good savings opportunities. I won't tell you any more things you already know!



Zone 4 looks expensive. Are there any cheaper alternatives further afield that would fit in with your working life and still be feasible to travel to work?


I appreciate you don't want to waste money on rent, but at least you don't have repairs to think about. The upkeep of looking after a property etc.



Adding to your savings pot means you always have that money for your future.



You would have to really research the pros and cons- but could you become a property owner/landlord yourself in a cheaper area? One where you could make money on property?


Stay positive as you are in a good financial position at the moment. You can't do much more than you are already doing, as the situation is simply that house prices are ridiculously high and interests rates so low. Having cash savings and no debt is always a bonus though.

Zero_Sum

Move out of London

atush

Every train/tube station you move outwards bring both rent and property prices down. Consider buying zones 5/6 or 4 further out.

Alexland

I don't think you are hopeless - you are trying hard against a very difficult situation. House prices are high and cash returns are poor. Options are to earn more, save even harder, invest with risk, buy elsewhere, wait longer, ask family for advance inheritance or find a partner to share the cost.

This goes against all normal advice but when I was saving my first property I had about 1/3rd of my deposit in the stock market (via an M&G UK all share tracker in those days to reduce currency risk). My thinking was that even a 50% crash would only reduce my deposit by 1/6th and house prices might drop by a similar amount in that situation anyway so I wouldn't need such a big deposit (or mortgage, which would have been a real bonus!) to buy the same proportion of a property.

Still my approach was higher risk as stocks could drop and house prices could increase but that seemed unlikely as I noticed that large movements in aspirational asset types tended to be synchronised.

Also when you have bought your property (and got through the hump of initial expenses) consider increasing your pension contribution to make it proportionate to 30+ years of retirement - that's 360+ missed paydays! You won't get very far making single digit or low double digit employee contributions. Compounding is important but contribution level is critical.

Alex

kuratowski

woefulsaver wrote: »

I can't pay into a Cash ISA because I already pay into a HtB ISA each month (my understanding is that counts as a 'Cash ISA' even though you can only pay in a maximum of £200 a month, so I have £17,600 allowance to put elsewhere)

Some providers (e.g. Nationwide) allow you to split your Cash ISA among different products which for tax purposes count as only a single Cash ISA. This would be worth looking into in your particular circumstances.

ValiantSon

If you increase your pension contributions (which I would recommend doing, as yours seem a bit on the low side) then you can take yourself out of higher rate tax, allowing you £1,000 in interest per year.

Have you spoken to a mortgage broker about the possibility of getting a mortgage? I'm not convinced it is as bleak an outlook as you suggest. I would, however, suggest looking further afield; commuting into London will make housing a lot more affordable, even with the increased transport costs.

Increasing S&S investments in your ISA might seem like a good option, but the tax relief on pension contributions makes that more attractive. It would be great if you could do both, but we can't always have everything.

kidmugsy

woefulsaver wrote: »

[*] 31 year old single man
[*]£52,000 a year salary
[*]Roughly £20,000 in pension

• I contribute 6%, employer 7%
• I'm going to up my contributions to 8% (employer 9%) very soon

[*]Roughly £64,000 in savings spread across


[*]£20,300 Virgin Money Cash ISA (1.4% interest - matures this month)
[*]£26,600 Virgin Money Double Take Savings (1.25% interest)
[*]£6,400 Virgin Money Help To Buy ISA (3% interest)
[*]£3,000 NS & I Investment Growth Bond (2.25% interest)
[*]£3,000 Tesco Bank Current Account (3% interest)
[*]£2,500 Nationwide Current Account (5% interest)
[*]£2,000 Santandar Regular Saver (5% interest)
[*]£2,000 Santander Current Account (used for daily stuf)
[*]£900 in Vanguard S+S ISA (..current valuation, but contribute £200 a month)

... my income is too small to get a mortgage.

As I'm just over the threshold for higher rate taxation, it makes contributing into these current accounts and other taxable products more painful because I'm already earning > £500 a year in interest from these things.

I can't pay into a Cash ISA because I already pay into a HtB ISA each month (my understanding is that counts as a 'Cash ISA' even though you can only pay in a maximum of £200 a month, so I have £17,600 allowance to put elsewhere) so my only 'tax efficient' option seems to be to increase my S+S pot, but I really don't want to do that if I want to buy in the next 5 or so years, 5 years seems too short of a time frame to risk it.

Leave London is cogent advice. Other things you could do:

Ask for a pay rise.

Get a second job. (That's how I accumulated a deposit in my late twenties.) You are now allowed £1k p.a. tax-free for bits-and-bobs work, if I understand correctly. In my second job the "pay" consisted of the use of a tied cottage. Bingo: that was tax-free then. Is it now? Or, consider seeing if you can find an old dear who would take you in as a lodger for a nominal rent in return for you providing her with some company, a sense of heightened security, and the occasional odd job. (Even changing light bulbs can be testing for the old.)

Sort out the STB/Cash ISA problem next tax year by considering a LISA. Indeed check the rules to see whether it could be any help this tax year.

Use an S&S ISA and invest the money in something that you'd expect to go up and down in a way that would mimic house prices. For example Hearthstone, Granger, Housebuilders and whatever else google might throw up.

Open a Nationwide 5% regular saver.

Consider moving the £26,600 Virgin Money Double Take Savings into Premium Bonds. The prize fund interest rate of 1.4% pays roughly an erratic 1.25% in small prizes with the other 0.15% going on the large prizes that few win. The nearer you are to the limit of £50k the more nearly equal your monthly winnings will be. They are tax-free so they won't consume any of your £500/£1000 savings interest allowance. If you really don't fancy persevering with the S&S ISA put that money into PBs too plus the £200 p.m.

Chin up! Keep saving and show some flexibility with your spare time and living arrangements. Or marry a rich girl.

enthusiasticsaver

You are doing all the right things but high London property prices are stopping you from buying a property plus buying on only one salary in London is difficult. Research the different areas you could buy in and still commute to London or perhaps consider moving out of London altogether and getting a job elsewhere in the country. Look at maybe Kent for slightly cheaper flats but still good links into London.

woefulsaver

Thank you for the replies everyone, it's encouraging to hear that I'm not a lost cause!


Just some follow up responses to the advice various people have given


Ask for a pay rise


I got promoted last month, so I don't think a payrise will be on the cards just yet!



Leave London

I get this a lot and I think it's definitely something worth looking into, my only concern is the train fare eating up the cost of any accomodation savings, but I'll consider looking into it if it makes sense. I'm not from London/South east myself so not too familiar with the surrounding areas!



Also when you have bought your property (and got through the hump of initial expenses) consider increasing your pension contribution to make it proportionate to 30+ years of retirement


I've seen other people say increase your contributions, the reason why I have them so low at the moment is exactly the situation described, I want to increase them by a greater amount after I buy a property because I'm trying so hard with the deposit. Although I am going to increase them to 8% in the next week or so.



Consider moving the £26,600 Virgin Money Double Take Savings into Premium Bonds.


I am looking to do something like this (or move the money into an account paying better interest - but might need to take the tax hit), I only have this money in this account right now because I needed a stop gap after moving from a Santander Current Account to a 'Lite' one and needed somewhere quickly to park the £20k





Have you spoken to a mortgage broker about the possibility of getting a mortgage?


No, the thought has never occurred to me to be honest, I will do now though!



Become a property owner/landlord yourself in a cheaper area? One where you could make money on property?


Can't help but feel that's adding to the problem of housing in the UK! (just kidding )


Personally I don't think I can take on the responsibility of being a landlord right now, I suffer from anxiety/depression and I don't think it would be wise or fair to others in my case.




Get a second job.


I've been thinking about a side hustle recently, but my work is very creative and mentally exhausting (I'm a software engineer) so it's quite hard right now. Point taken though, two jobs in my situation is probably a good idea.





Open a Nationwide 5% regular saver.

In progress as we speak.




Chin up! Keep saving and show some flexibility with your spare time and living arrangements. Or marry a rich girl.



Noted.



Thanks again all!

MallyGirl

Pension- at a bare minimum you should aim to contribute as much as you need to get the maximum employer contribution. It is free money and your future self will thank you for it.
Is pension via salary sacrifice ?