Best use for savings?

novicewithmoney21

Hey, I'm fairly naive when it comes to finance and the best use for savings so any advice on this would be really appreciated. Also, sorry if I've posted this in the wrong forum but it relates to mortgages and car buying. 

Here's my situation - I have around £48k in savings. This year we want to upgrade from our 2 bedroom detached to something bigger - looking at mortgage calculators I think we could get a mortgage of around £250k. 

I also need to buy a new car soon - within the next couple of weeks. I'm not much of a car nut so don't need a brand new top of the line model, I'm looking at used Hyundai Tuscons between £15k - 20k in value. Not keen on a PCH deal as I don't like the idea of spending 1000's and having nothing at the end, and a PCP isn't sitting well with me either. 

My question is would it be better to pay for the car outright using my savings and treat it as an interest-free loan to myself, then "pay myself back" as much as I can per month to replenish the savings pot (which could take around 2 years)? OR would it be better to pay a deposit of up to 1/2 the value of the car and take out a loan for the rest?

With interest rates being so low I'm thinking the latter would be better as it'd help me keep a large amount of money for a new house deposit and refurbishments etc. Or would the fact that I'd have a debt of £10k - £12k and monthly repayments affect the amount I'd be able to get on the mortgage?

lisyloo

What rates are you getting for loans?
yes you'd have to declare the loan on affordabilty calculations, but it's not massive.
My gut feeling is to say use the savings for the car.

hazyjo

Why spend so much on a car? Does it have to be so big and pricey? Wouldn't be spending anywhere near that much if I wanted money for a big extension project or a house move.

moneysavinghero

The bigger the deposit you can put down the better the rate you can on your mortgage. So it might be better to take out a small loan if that means you will get a better rate on the main £200k+ mortgage.

Take a look at the mortgage calculators and see how much a difference it makes if you have 15-20k less deposit.

Greymug

hazyjo said:

Why spend so much on a car? Does it have to be so big and pricey? Wouldn't be spending anywhere near that much if I wanted money for a big extension project or a house move.

I can't comment on the OP's needs, maybe they need a car as big as a hyundai tucson because they've got a big family or whatever. But, in general, I tend to agree that 20k on a second hand car is a fairly chunky investment. You can buy something decent at half that price, especially when you're not a car nut and don't care of blings.

I'm not a car nut myself, in fact I still drive my 15 year old polo that I bought 8 years ago for 2.5k quid. It's an embarrassment and by far the worst looking car on my street, but it's worked so far (and just like that, I've jinxed it)

lisyloo

Greymug said:

I'm not a car nut myself, in fact I still drive my 15 year old polo that I bought 8 years ago for 2.5k quid. It's an embarrassment and by far the worst looking car on my street, but it's worked so far (and just like that, I've jinxed it)

Mines 23 years old (last century in fact).
I bought it for £250 plus a kettle (family trade)
No major issues, just the usual wear and tear. Pretty cheap to maintain.
My partner has a much bigger car and the difference in maintenance is astonishing e.g. tyres for mine was £135 for 4, his is about £800.
I was recently commuting 80 miles a day in it. Had one breakdown due to broken thermostat but things will happen.
I'd much rather put the money in my pension or spend it on a holiday.

Going back to the question I think the OP needs to look at loan rates, savings rates (<1%) and mortgage rates.

MovingForwards

I'd be using most of the savings towards the new property and buy a runabout.

AdrianC

lisyloo said:

My partner has a much bigger car and the difference in maintenance is astonishing e.g. tyres for mine was £135 for 4, his is about £800.

I suspect there may be an element of apples-with-pears there.

£40/tyre is undoubtedly going to be Chinese ditchfinders.
£200/tyre is probably going to be fairly premium branded - and you could probably get <£100 ditchfinders in the same size.