long term advice

Notepad_Phil

dd95 wrote: »

notepad phil - her house purchase was for 200k, i think she has sights on her "forever home" to be around 600k mark given the type of house and its location. She has 700pm to save currently but expects to add a few hundred more if she gets a promotion

profanely best then to put her savings into higher interest saver (Marcus?) as opposed to s and s ISA? then once/if she purchases the forever home she can start the investing?

That's a big jump in price to get to the forever home and not likely to be covered just by saving even £1000 per month - hopefully she's on a career path with good promotion prospects.

If it were me and this was a definite 15 year plan then after sorting the emergency savings pot and pensions I'd put the maximum possible into the S&S ISA for the first 5 years - then revisit the situation and see what is required.

ec9wrr

Notepad_Phil wrote: »

That's a big jump in price to get to the forever home and not likely to be covered just by saving even £1000 per month - hopefully she's on a career path with good promotion prospects.

If it were me and this was a definite 15 year plan then after sorting the emergency savings pot and pensions I'd put the maximum possible into the S&S ISA for the first 5 years - then revisit the situation and see what is required.

I would do exactly the same.
Build up savings pot to cover around 6 months (more if you / she wants). Then don't pay anymore into cash. Inflation is higher than interest rate so any money in cash is actually losing you money in real terms.
Get mortgage to a sub 60% LTV then I wouldn't pay any more off.
Contribute to pension.
Invest in stocks and shares ISA. Don't leave this bit until last though. You can only get £20k in a S&S ISA. If She / You are considering a £600k forever home you don't want to leave the investing for too long. Otherwise you will break the £20k a year limit and or not have enough time for the investment to have a chance to grow.

Research, or get expert advice to help you / her with investing.

You and she are so far off the £600k home that I would concentrate on saving as much as you can and investing in pension. The house can wait. Don't not live your life.

Agree with others that you / she will need to save a lot more than £1000 a month to get to the forever home of £600k. The price of that forever home is also in most parts of the country still creeping up so is a moving target as well. Often increasing more than the interest rate on cash, so the @dd95 suggestion of Marcus would be futile.

dd95

out of interest, how much do you suspect she will need to save then if it is to be more than 1k per month?

1k per month x 12 = 12k per year
12k x 10-15 = 120k to 150k in savings

say she sells for 220k(?) and has around 100k equity, she'd probably need around 350k mortgage - lenders typically allow you to borrow up to 4x salary don't they?

the you have to add stamp duty (20 odd k) and legals etc

eskbanker

dd95 wrote: »

say she sells for 220k(?)

Then the value of her dream home will presumably also have increased by 10% and she'll need to find another £60K from somewhere?

dd95 wrote: »

1k per month x 12 = 12k per year
12k x 10-15 = 120k to [STRIKE]150k[/STRIKE]£180K in savings

And there's £30K for a start!

ec9wrr

dd95 wrote: »

out of interest, how much do you suspect she will need to save then if it is to be more than 1k per month?

1k per month x 12 = 12k per year
12k x 10-15 = 120k to 150k in savings

say she sells for 220k(?) and has around 100k equity, she'd probably need around 350k mortgage - lenders typically allow you to borrow up to 4x salary don't they?

the you have to add stamp duty (20 odd k) and legals etc

The £600k house will have increased to £660k (10% used only because that was your maths on the house she’s selling)
£660 - 100 equity and 150 savings.
23k stamp duty
433 borrowing needed. Not counting that she needs to have saved some money in cash as the emergency fund. So if she can borrow 433 on her own she’s earning close to 100k by now which means a 6m buffer of cash net income equivalent will be around £30k.

It’s possible but there are a huge number of variables in there. Not least that she’s expecting to get to 100k in 15 years.
That’s a long time so possible. But consider she may move to a different part of country, decide to have children etc which will impact on earnings savings and expenditure.

kangoora

dd95 wrote: »

out of interest, how much do you suspect she will need to save then if it is to be more than 1k per month?

1k per month x 12 = 12k per year
12k x 10-15 = 120k to 150k in savings

say she sells for 220k(?) and has around 100k equity, she'd probably need around 350k mortgage - lenders typically allow you to borrow up to 4x salary don't they?

the you have to add stamp duty (20 odd k) and legals etc

But in 15 years, if you assume house prices go up by 20% (just used as an example) then her £200k house will be worth £240k with possibly £100k equity.

However, the £600k house, assuming same price inflation, will cost her £720k so she would need a £470k mortgage going by your estimations.

I think you are barking up the wrong tree by trying to forecast 15 years into the future.

Nothing wrong with planning savings but just treat it how it comes and review every couple of years or so and, obviously, they should ensure their savings are as efficient as possible.

It could be that a new job or promotions for friend or their partner could mean 50% extra wages so the plunge could be taken earlier via a higher mortgage.

bowlhead99

dd95 wrote: »

out of interest, how much do you suspect she will need to save then if it is to be more than 1k per month?

1k per month x 12 = 12k per year
12k x 10-15 = 120k to 150k in savings

say she sells for 220k(?) and has around 100k equity, she'd probably need around 350k mortgage - lenders typically allow you to borrow up to 4x salary don't they?

the you have to add stamp duty (20 odd k) and legals etc

Perhaps selling her current house for £220k will prove to be pessimistic and she'll actually get £300k, having had (say) close to 3% house price growth for the next 15 years. Great, another £80k of equity more than you had projected. However, if the £600k dream house also goes up by a similar percentage she could be looking at finding £900k for the purchase, plus stamp duty and legals, call it £940k total.

If she earns £100k per year and market conditions are ok, it may be possible to borrow £350k as you suggest, and borrowed over 20 years at 5% interest rate it would only be about £2300 a month to pay for that, not impossible on a big salary.

So only needs to have £590k funded by the investments and cash savings and equity in the existing property.

___
Edited to add:

I agree with the poster above, that speculating on what a dream home might cost in 15 years time, or what interest rates will be in 15 years time, or what her salary might be in 15 years time, will give a very broad range of answers, just as the rates of return on her monthly investments over a period of a decade and a half are an unknown. Remember that if the money is dripping in every month, some of it will have been invested for 15 years, but some of it will have only been invested for one month. The investment returns might be quite decent if invested in equity-based funds, but then in years 13-15 drop by half.

But accepting the uncertainty - what you can say is that if she wants to have a lot of money available in 10-15 years from now, she should aim to save/invest more per month than she hopes to need (hope for the best but prepare for the worst) and invest in a mix of safe assets (to not be scared off by high volatility of her returns) and riskier assets (to help grow her wealth). And revisit the mix from time to time.

dd95

that's very true, would it be worth taking the funds out if returns are decent if for example she was looking to move in a year or so (i.e after minimum 10 years time). Otherwise she may wait until the money is required for the transaction and it could have dropped by half in that time?

thanks all appreciate it

bowlhead99

dd95 wrote: »

that's very true, would it be worth taking the funds out if returns are decent if for example she was looking to move in a year or so (i.e after minimum 10 years time). Otherwise she may wait until the money is required for the transaction and it could have dropped by half in that time?

By the time she is in a position where she is going to be buying in 5 years time, probably her money to do that should be mostly in cash., otherwise she may be very disappointed if there is a downturn and she needs to put the plans on hold. Though of course she may prefer to stay invested and just accept a long delay if markets go badly.

Even if she does stay invested, she doesn't need to be invested in the type of investments which could lose half their value in a crash. Investments are available at a range of different risk levels.

CreditCardChris

dd95 wrote: »

an easy access saver with good interest rate

I do enjoy a good joke :rotfl:

Even if you could find a savings account with a "good" interest rate, the amount you can save will be heavily restricted.