Am I doing this right?

dude7691

Hi There,
I'm currently 21, and have a goal to buy a house in late 2024/early 2025. I am looking to get around £87k saved (which I'm on track to do) in order to put £75k deposit down, on a £120k or thereabouts property. Would leave me £12k to deal with buying costs and still got a decent emergency fund, plus a start towards furnishing the place. I currently have my assets (about 35k) distributed as follows:

Al Rayan Everyday Saver @ 1.15%: £11k or so
BLME 3 year fix @ 2.45%, expiring Oct 2022 with £11k in it
Regular savers with Coventry @1.85%, Virgin Home Coach @1.75% and HSBC @2.75%. All coming to about 5k. 
Virgin Current @2.02%: £1k 
The rest of the money (£5k) is in a Cash Lifetime ISA, maxed it last year and plan to do so this year also. 

I'd love to invest because I've been following the markets for quite a long time. With interest rates being as pitiful as they are, mine look very attractive, but I'm fully aware they might not stay that way. I stand to lose about £1650 over 4 years if interest rates go negative. If interest rates go negative (say -0.1%), will there still be some providers offering a positive interest rate? Even if it's just 0.3-0.4% on fixed accounts. I'm obviously just trying to work out my worst case scenario. 

I am aware that 4 years is not a safe amount of time to invest over, and it's just woeful trying to get a return using savings. I'm fine for now but I know within the next 6 months, my regular savers will expire and it's a dire market for new regular saver applications. I know the government are trying to get us to spend but it's not going to work on me because I need to buy a house, which I can't do without a massive deposit. 

Could I be doing more? Am I making the right financial decisions by sticking to safe accounts with a 4 year savings plan or am I being scared and I should be investing some of it? I'm not asking for crystal ball predictions on the stock market, but rather a question of whether I'm being financially responsible by staying out of the markets (in my view they're overinflated, but the market won't care what I think). 

One thing I have looked at is the Investec structured deposit accounts for the FTSE 100, offering a "kick out" plan which only risks the interest not being paid if after 3 years, the FTSE 100 is not above its starting level. Offers a 2.25% annual return, or nothing if the FTSE is below where it started after initially taking out the plan. Any opinions on these? 

https://www.investec.com/en_gb/advisers/products-and-services/structured-products/deposits/ftse-100-kick-out-deposit-plan.html

Thank you, apologies for the long read

Albermarle

I stand to lose about £1650 over 4 years if interest rates go negative. If interest rates go negative (say -0.1%),

It is highly unlikely that retail savings rates will turn negative . Even today you can get up to 0.6% on easy access ( more on Premium Bonds , (max investment £50K) and over 1 % on fixed rate accounts .

You are right that four years is on the short side for investments, although I would be tempted to maybe try a few grand ( max ) in a S&S ISA, in a medium risk fund.

Another_Saver

dude7691 said:

Hi There,
I'm currently 21, and have a goal to buy a house in late 2024/early 2025. I am looking to get around £87k saved (which I'm on track to do) in order to put £75k deposit down, on a £120k or thereabouts property. Would leave me £12k to deal with buying costs and still got a decent emergency fund, plus a start towards furnishing the place. I currently have my assets (about 35k) distributed as follows:

Al Rayan Everyday Saver @ 1.15%: £11k or so
BLME 3 year fix @ 2.45%, expiring Oct 2022 with £11k in it
Regular savers with Coventry @1.85%, Virgin Home Coach @1.75% and HSBC @2.75%. All coming to about 5k. 
Virgin Current @2.02%: £1k 
The rest of the money (£5k) is in a Cash Lifetime ISA, maxed it last year and plan to do so this year also. 

I'd love to invest because I've been following the markets for quite a long time. With interest rates being as pitiful as they are, mine look very attractive, but I'm fully aware they might not stay that way. I stand to lose about £1650 over 4 years if interest rates go negative. If interest rates go negative (say -0.1%), will there still be some providers offering a positive interest rate? Even if it's just 0.3-0.4% on fixed accounts. I'm obviously just trying to work out my worst case scenario. 

I am aware that 4 years is not a safe amount of time to invest over, and it's just woeful trying to get a return using savings. I'm fine for now but I know within the next 6 months, my regular savers will expire and it's a dire market for new regular saver applications. I know the government are trying to get us to spend but it's not going to work on me because I need to buy a house, which I can't do without a massive deposit. 

Could I be doing more? Am I making the right financial decisions by sticking to safe accounts with a 4 year savings plan or am I being scared and I should be investing some of it? I'm not asking for crystal ball predictions on the stock market, but rather a question of whether I'm being financially responsible by staying out of the markets (in my view they're overinflated, but the market won't care what I think). 

One thing I have looked at is the Investec structured deposit accounts for the FTSE 100, offering a "kick out" plan which only risks the interest not being paid if after 3 years, the FTSE 100 is not above its starting level. Offers a 2.25% annual return, or nothing if the FTSE is below where it started after initially taking out the plan. Any opinions on these? 

https://www.investec.com/en_gb/advisers/products-and-services/structured-products/deposits/ftse-100-kick-out-deposit-plan.html

Thank you, apologies for the long read

Considering how many posts we get with not nearly enough information this is refreshing.
You're doing fine.
One point re your mortgage, why such a high deposit to value? Below 60% loan to value there's no lower mortgage rates generally so why not save 40%, buy when you have that much and then start investing the rest?

Bobziz

Why do you want to put down such a large deposit ? £48k will get you access to the best mortgages for a £120k property.

barnstar2077

Saving up such a massive deposit is a bit of a false economy.  By the time you have saved up such a large sum your house will cost more than the original 125k that you thought it would.  You may want to consider taking out a mortgage sooner that allows you to overpay massively.

"House prices at all-time high, says Nationwide"
https://www.bbc.co.uk/news/business-53995878

dude7691

Another_Saver said:

dude7691 said:

Hi There,
I'm currently 21, and have a goal to buy a house in late 2024/early 2025. I am looking to get around £87k saved (which I'm on track to do) in order to put £75k deposit down, on a £120k or thereabouts property. Would leave me £12k to deal with buying costs and still got a decent emergency fund, plus a start towards furnishing the place. I currently have my assets (about 35k) distributed as follows:

Al Rayan Everyday Saver @ 1.15%: £11k or so
BLME 3 year fix @ 2.45%, expiring Oct 2022 with £11k in it
Regular savers with Coventry @1.85%, Virgin Home Coach @1.75% and HSBC @2.75%. All coming to about 5k. 
Virgin Current @2.02%: £1k 
The rest of the money (£5k) is in a Cash Lifetime ISA, maxed it last year and plan to do so this year also. 

I'd love to invest because I've been following the markets for quite a long time. With interest rates being as pitiful as they are, mine look very attractive, but I'm fully aware they might not stay that way. I stand to lose about £1650 over 4 years if interest rates go negative. If interest rates go negative (say -0.1%), will there still be some providers offering a positive interest rate? Even if it's just 0.3-0.4% on fixed accounts. I'm obviously just trying to work out my worst case scenario. 

I am aware that 4 years is not a safe amount of time to invest over, and it's just woeful trying to get a return using savings. I'm fine for now but I know within the next 6 months, my regular savers will expire and it's a dire market for new regular saver applications. I know the government are trying to get us to spend but it's not going to work on me because I need to buy a house, which I can't do without a massive deposit. 

Could I be doing more? Am I making the right financial decisions by sticking to safe accounts with a 4 year savings plan or am I being scared and I should be investing some of it? I'm not asking for crystal ball predictions on the stock market, but rather a question of whether I'm being financially responsible by staying out of the markets (in my view they're overinflated, but the market won't care what I think). 

One thing I have looked at is the Investec structured deposit accounts for the FTSE 100, offering a "kick out" plan which only risks the interest not being paid if after 3 years, the FTSE 100 is not above its starting level. Offers a 2.25% annual return, or nothing if the FTSE is below where it started after initially taking out the plan. Any opinions on these? 

https://www.investec.com/en_gb/advisers/products-and-services/structured-products/deposits/ftse-100-kick-out-deposit-plan.html

Thank you, apologies for the long read

Considering how many posts we get with not nearly enough information this is refreshing.
You're doing fine.
One point re your mortgage, why such a high deposit to value? Below 60% loan to value there's no lower mortgage rates generally so why not save 40%, buy when you have that much and then start investing the rest?

Hi there  

I'm glad the info was useful, and appreciate that just doing my best. 

The reason is that I project I won't be on a high income for quite a long while. I'm currently living with family, renting but cheaper than market rates. Doing Open Uni so I'm a student also, and I do some self employment work which helps me save but that income is in no way useful towards a mortgage because it's crazily unstable in its regularity. I project that I'll finish uni in 2024, and then straight into work (probably min wage initially) and keep my eyes open for opportunities in the field I want. Min wage is about 16k a year, so as a rough figure I could borrow 64k, meaning I'd need a 56k deposit or thereabouts. Borrowing right at the 4x income limit raises interest rates quite a bit I think, so 45k would be more realistic. In my view at least  

I hope that makes sense, should've mentioned that before. 

wjr4

It’s great that you’re saving so much and I agree with above - maybe invest a couple of grand just to get used to it? Don’t forget to actually make sure you have a life too as well as saving! 

dude7691

Bobziz said:

Why do you want to put down such a large deposit ? £48k will get you access to the best mortgages for a £120k property.

Hi there Just explained in full detail in reply to @Another_Saver but in summary I have a low income and probably will for quite some time. I have family responsibilities also, that prevent me from moving too far away from where I am now, West Wales, where job opportunities in higher skilled jobs aren't exactly that common

dude7691

barnstar2077 said:

Saving up such a massive deposit is a bit of a false economy.  By the time you have saved up such a large sum your house will cost more than the original 125k that you thought it would.  You may want to consider taking out a mortgage sooner that allows you to overpay massively.

"House prices at all-time high, says Nationwide"
https://www.bbc.co.uk/news/business-53995878

I wish I could! I'm all too aware house prices are rising nearly as fast as I can save, if not faster. I'm personally not optimistic on housing next year but I know markets have a habit of surprising you. Stamp duty could be extended, rates could go negative and then boom houses can go up 5% a year for the next 5 years and all of a sudden I'm looking at properties that were 100k today, I understand that  

I gave some more details as to why I need a large deposit above in reply to @Another_Saver but yeah broadly speaking I have a low income, family responsibilities that prevent me from moving away too far from West Wales (where I live) so I'll likely be on a low income for a while too, limiting the amount I can borrow. 

dude7691

wjr4 said:

It’s great that you’re saving so much and I agree with above - maybe invest a couple of grand just to get used to it? Don’t forget to actually make sure you have a life too as well as saving! 

Hi  

I've done some light investing before, I made some decent cash out of crypto back in 2017, and got out before it all came tumbling down. Depends if you count that as proper investing and not speculating I know what it's like to have your assets fluctuating like crazy, it's just never been with such a large amount I guess. It's also a bit unnerving knowing that over 4 years, there is a possibility a fall today might not be recouped in that time, whereas over 25-30 years (inc dividends) it's practically a certainty. 

Haha I wish I could I'm just conscious of how high prices are for everything at the moment. Housing and stocks alike, so I've had to make some pretty significant sacrifices in my lifestyle to achieve what I have. My view is once I get my house I'll be 25-26, and I'm still young enough to start living properly, but at least I'll have some assets to back me up Then again, I could get run over tomorrow, you just never know xD

Albermarle

It's also a bit unnerving knowing that over 4 years, there is a possibility a fall today might not be recouped in that time, whereas over 25-30 years (inc dividends) it's practically a certainty. 

If investing in developed world stock markets , I think the longest period ever in 200years when you would have still made a loss was 13 years . The odds of making a loss after ten years are pretty small , even after seven it is probably no more than 10% ( can not remember exactly ) Even then the potential loss could be small . Overall if history is anything to go by then any even any investment over five years you would be unlucky to make a loss , but it would be a possibility.

On the other side average gains are around 7% .