Best home for £10K

Anderpool

Dear MSE peeps,

My daughter is likely to come into approx. £10K in the next few months. The question is - what to do with it

Details
The money is coming from a relative who would like it to be used for my daughter's home.
My daughter owns her own home with a mortgage of £180,000 @ 1.95% fixed for the next 4 years. She has an S&S ISA with approx. £12,000 in global EFT, and £6,000 in PB's as an emergency fund.

The question is - what is best to do with the new money.

It seems wrong to simply pay off £10K of the mortgage, since that is only costing 1.95%, and it is possible to get about 3-3.5% on 1 year+ deposits. However, tying it up for 3+ years risks interest rates booming and the 3+% looking rather sad then (assuming it is used to pay £10K off the mortgage when the fixed period comes to an end).
Putting it into the S&S ISA is tempting, but if, when it comes time to re-mortgage, the S&S is down, that would also be disappointing.

Would some sort of investment ladder be best ?

If it was up to me, I would dump it all in a global tracker and keep my fingers crossed, but it is not my money

Any clever ideas ?

Andrew

Albermarle

I think you are probably right about not paying off the mortgage when she has a low fix.

However, tying it up for 3+ years risks interest rates booming and the 3+% looking rather sad then
On the other hand if you fix for one or two years, then after that savings rates may have dropped. Probably not but your never know. Also £6K as an emergency fund is not that high, so maybe better in a shorter fix in case it is needed in an expensive emergency.

If the investment time scale is less than 5 years then putting it in a global tracker is a bit risky.

Stubod

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

InvesterJones

If really wanting to go towards home then put in a global tracker S&S ISA and tell her it use it not for the mortgage now, but in 10 or so years when she's closer to either paying off the mortgage or remortgaging  etc.

But in terms of the money working the most.. she could probably start a SIPP and put it there (which could be justified by reasoning that later in life it'll be the equivalent of X huge amount she'd have put in later which she can effectively now put to a different use like mortgage).

dcs34

Albermarle said:

However, tying it up for 3+ years risks interest rates booming and the 3+% looking rather sad then
On the other hand if you fix for one or two years, then after that savings rates may have dropped. Probably not but your never know. Also £6K as an emergency fund is not that high, so maybe better in a shorter fix in case it is needed in an expensive emergency.

One way to mitigate this is to split it between 1, 2 and 3 year fixes; taking advantage of current rates but with some flexibility if rates rise in the future or there is a need to spend from the emergency pot.

ColdIron

I don't think I'd be going anywhere near 2 or 3 year fixes right now

Bigwheels1111

Stick it in Al Ryan at 2.1% easy access.
Then in January or February fix it.
Should be 3 more base rate rises, followed by interest rate rises.

Alistair31

You won’t get much home for £10k…

Apodemus

In times of high inflation, the best form of saving can sometimes be to use today's cash to bring forward future essential purchases.  So, if there are essential home improvements or repairs that are likely to be needed in the next few years, then doing these now might be an option.

Anderpool

Thanks for all these ideas, it looks like : easy access for a few months is the best bet, and then review in the New Year.

Andrew