Best place thing to do with saving for a house in 5 years

whatuk65

Hi,
I was wondering what people's thoughts are on this. 
I currently own a 2 bed flat, and our plan is, in around 5 years to buy a 3-bed house.
I currently have around £50k in savings in an ISA getting 1.5%. 
I'm self-employed, so I need a decent amount easy access, say £25k.
Where should I put the rest?
Everything I've read about investing says it's not worth doing for under 5 years.
So, I could either put it in a 2 year fixed savings account, but that would mean withdrawing the money from the ISA for a 0.3% boost in savings.
Or I could overpay our current mortgage which is 2.39%. I know once it's in the mortgage it's effectively looked away, but there's always payment holidays if we really needed it. 
Thanks for any advice, 

colsten

It sounds as if there are two of you. Would your partner qualify as a first time buyer? If so, a LISA in their name could be an option. Obviously a LISA is not for yourself, as you already own a property.

Unless you are a higher rate tax payer, no ISA  makes much sense for you as you have a £1,000 personal savings rate. So you might as well got for the top fixed rate account as none of them will yield more than £1,000 on current rates but several pay more than 1.5%. Just one proviso - there's a Budget in just a few days time on March 11 so you might want to wait for any potential giveaways / unicorns before you tie up your money. 
https://www.money.co.uk/savings-accounts/fixed-rate-bonds.htm

Sailtheworld

On the off-chance your username implies you were born in 1965 rather than were 65th in the list for the whatuk username you could move some of the ISA money into pensions and getting a tax uplift without losing (too juch) accessibility.
Putting £25k into a longer term ISA for an extra 0.3% equates to £75/ year - is it worth it?
Squirrelling £25k into the existing mortage would be a 0.89% boost equating to £222 / year.
Or, some of all of the above? Or, you just do what feels best because, with rates so low, there's no real penalty for doing the 'wrong' thing.

Thrugelmir

If you plan to move in the years ahead. Then overpaying the mortgage makes sense. As will help bridge the gap. 
Likewise if financial issues were to arise then would give you some flexibility, i.e. possibly reducing your monthly outgoing. Though this depends on the future direction of interest rates. 

Vet

Overpaying the mortgage! Well worth it in the long run.

whatuk65

Cool thanks for all the help. My plan was always to overpay the mortgage, so glad to get some confirmation on that. 
No neither of us are first time buyers, so no LISA, and no not born in 1965 either.

DiggerUK

I am in the brigade that recommends clearing the mortgage as fast as possible, even if there is no plan to upsize. As your plan is to upsize eventually then do that, you will be in a position to bag the best mortgage offers with a smaller LTV needed..._

phillw

whatuk65 said:

I know once it's in the mortgage it's effectively looked away, but there's always payment holidays if we really needed it. 

You need to look at early repayment charges on the mortgage before deciding whether to pay a lump sum into it.
If you have no early repayment charge then I would go against normal convention and try to keep the term the same and lower your monthly repayment when you overpay. That way you will have more liquid cash every month that you could pay off the mortgage if you choose, or cut back if times are tough. It's only really locked away until you move in 5 years, where you will probably end up pushing yourself financially as far as possible anyway & you can't easily beat that interest rate.
If you have an ERC then be careful you don't trigger it as you could be worse off. If you max out your allowance then you might still be left with some left over, in which case I'd try to lower the term.