What to do with savings for a house?

patchyX2

I'm mid-30's with a wife and 2 young kids. House is worth ~400k with an 80k mortgage fixed at 1.49% for several years. We were originally looking to move into a bigger house in 3-4 years time, but have recently come into a bit of money which means we could potentially move later this year.

Currently the money is split between premium bonds (100k) and a Chase account earning 1.5% (30k), so it's earning a bit, but is certainly being eroded in real terms due to the current inflation rate.

With the current economic situation, I'm a bit nervous about getting a big mortgage. The new mortgage would be around double our existing one, and whilst we can reasonably comfortably afford the repayments, even at a higher interest rate, I'd be wary about the potential for job losses due to a potential recession.

On the flip side, if we play it safe and just sit tight for the next few years, I'd be equally as worried about that 130k no longer being worth as much and thus not being able to afford the move in a few years time (if house prices continue to go up). I'm not willing to put it into stock/shares or anything else risky given the short investment timeframe, so we're stuck with low interest rates.

I know this is a bit of a 'no one has a crystal ball' type of post, but I'm just interested in people's opinions on what they'd do in a similar situation.

eskbanker

Could you move to a bigger house but without taking on a larger mortgage, i.e. just put the £130K in as additional equity?

canaldumidi

If you are considering buying a property and "could potentially move later this year." then clearly stocks and shares are out, as is any fixed term savings account longer than, say, 6 months.

A notice account is an option though again, more than a month or so's notice might hamper any purchase,so...

stick with your current arrangement!

patchyX2

eskbanker said:

Could you move to a bigger house but without taking on a larger mortgage, i.e. just put the £130K in as additional equity?

It's possible, but we wouldn't do it. We're planning to skip the next rung of the ladder as it were and move to our ideal home. If we move to the next rung on the ladder then we'd just be looking to move again in X years time which feels like we'd be wasting the ~35k it would cost us to move to the 'inbetween' home (stamp duty, solicitors/ea fees etc) . 

Albermarle

On the flip side, if we play it safe and just sit tight for the next few years, I'd be equally as worried about that 130k no longer being worth as much and thus not being able to afford the move in a few years time (if house prices continue to go up). I'm not willing to put it into stock/shares or anything else risky given the short investment timeframe, so we're stuck with low interest rates.

Depends what a 'few years' means . If it was 5 years, I would consider investing some of it to try and get some better growth . If it was 7 or 8 years , then a bigger % . If it was 10 years or more , then probably best to invest the majority of it.

Thrugelmir

PledgeX2 said:

I know this is a bit of a 'no one has a crystal ball' type of post, but I'm just interested in people's opinions on what they'd do in a similar situation.

Do very little. See what unfolds in the months ahead. Sometimes one can only be a bystander.  

I wouldn't worry unduly about house prices rising. As the broader economic picture and pressure on household disposable income is unlikely to abate for some time. 

sebtomato

PledgeX2 said:

Currently the money is split between premium bonds (100k) and a Chase account earning 1.5% (30k), so it's earning a bit, but is certainly being eroded in real terms due to the current inflation rate.

Current inflation rate is a generic term. Unless you are going to spend £130K on groceries or energy, your personal inflation may not be that high.

If you are planning to use £130K towards your next property, your money is probably not losing any value but more gaining value, as the property prices are going to drop for sure, if interest rates are increasing.