Advice on fixing savings – buying a flat soon

Lexale

Hi everyone! I am seeking clarity on the technicalities of fixing savings before putting down a flat deposit. Some background:

My partner has just started a new job which is what we are using to satisfy the ideal 3 months of payslips for the mortgage lender. Therefore, we expect to be eligible to purchase a flat around February 2024.

I have some fixed-rate bonds maturing at the beginning of November with the majority of our flat deposit in them. As I’m sure many of you are aware, savings interest rates are superb right now. Consequently, I would like to take advantage of this by getting a fixed interest, no withdrawal savings bond. Regrettably, the shortest fixed-interest products are 6 month terms to my knowledge.

Clearly, the timings do not quite align, assuming I’d need my funds liquid from the moment we became eligible for a mortgage. However, I am aware the deposit does not need to be transferred to the flat seller until shortly before completion. The process of buying would need to complete before May 2024 such that the accessibility of my funds would inhibit the transaction. Given how long the flat-buying process can take, I don't think we will complete before May 2024, although it could all go swimmingly I suppose. I am unsure if the proof of funds would mean I’d need the cash liquid from the moment I apply for a mortgage or start making offers, though. I would prefer to stay away from easy-access or variable accounts if possible because I remember the misery from Covid-era interest rates all too well.

I wanted to get some thoughts on whether it would be unwise to fix now, given the timings of our situation, and what documentation and funds our mortgage broker, solicitor etc. will require in the flat-buying process. Unfortunately, 3-month fixes do not exist. I know notice accounts with a 90-day term do, but they are usually variable interest rates. If anyone knows of any savings products that could suit my preferences well, please do post them below. Thanks in advance for your contributions!

Cheers

grumbler

I'm fairly sure fixed-rate savings account is good for proof of funds. And I'm fairly sure that nothing similar to Covid era can happen with interest rates in the next 6-7 months. Generally, the only fixed-rate savings that can be accessed early are cash ISAs, but you'll have to pay penalty for this.
MSE: Fixed-term accounts: must lock cash away

El_Torro

When it comes to looking at affordability I don't see why your mortgage lender would have an issue with some of the money being tied up in fixed term accounts, assuming of course that you can access the money by the time you need to pay the deposit. I wouldn't worry too much about a few extra pounds here and there, your priority should be to have the cash accessible when you need it. There are easy access accounts out there with OK interest rates. 

You mention that savings interest rates are currently "superb". Sure, they're better than they have been, but I wouldn't call an interest rate at or below the rate of inflation superb.

Altior

You can see 1 and 3 month cash bonds here on this platform for example, noted as 'market leading', but as mentioned the difference to easy access is marginal, and not worth it I'd suggest.

Fixed rate savings | Hargreaves Lansdown (hl.co.uk)

BooJewels

As the difference between the interest rates of fixes and easy access accounts is so modest at the moment at less than 1% - I personally don't think I'd take that risk - just in case the perfect property comes along and they want to move fast.  It can happen, I just sold an estate property to a renter keen to move ASAP and it was done very fast by current standards - I think it was a day over 10 weeks from viewing to completion - and he had a 3 week holiday in that which did delay matters.  

Even if you had £100k as a deposit, 1% difference in interest for 4 months is a bit over £300 (£50k would be £166 difference) - is that worth the risk?  You'd earn over £1,600 on your £100k deposit in easy access in 4 months at 5-ish%, so that will nicely cover some of your moving-in expenses - plus it's almost certainly more than you've been earning on the fix for the last year.

grumbler

Altior said:

...mentioned the difference to easy access is marginal,...

BooJewels said:

As the difference between the interest rates of fixes and easy access accounts is so modest at the moment at less than 1% ...

I think the OP's concern was that, unlike fixed-rates, easy-access rates can plummet, not that they are a little lower. 

BooJewels

grumbler said:

Altior said:

...mentioned the difference to easy access is marginal,...

BooJewels said:

As the difference between the interest rates of fixes and easy access accounts is so modest at the moment at less than 1% ...

I think the OP's concern was that, unlike fixed-rates, easy-access rates can plummet, not that they are a little lower. 

Understood - I suppose was downplaying that concern in my mind as it feels as though the consensus here is that rates are fairly stable just now and there are not expected to be any drastic changes in the immediate future.  Ironically, it's EA rates that are holding their own best just now, when fixes have been falling a little in the last few weeks - and a lot withdrawn.

Some of the EA accounts have to give you 30 or 60 days notice before dropping interest rates, so maybe something of that nature would suit the OP's time scales - like the Cahoot Simple Saver at 5.12% (5% monthly) that has to give 60 days notice before a decrease.

Altior

grumbler said:

Altior said:

...mentioned the difference to easy access is marginal,...

BooJewels said:

As the difference between the interest rates of fixes and easy access accounts is so modest at the moment at less than 1% ...

I think the OP's concern was that, unlike fixed-rates, easy-access rates can plummet, not that they are a little lower. 

Indeed, but since they will need to access the funds in the short term for a property purchase, it's not worth fiddling around the edges to 'nick' a few ticks of interest, at least in my view. If there was a prospect of a percentage point or more difference, perhaps, but that is quite unlikely. 

The process of buying would need to complete before May 2024 such that the accessibility of my funds would inhibit the transaction.

Lexale

grumbler said:

I'm fairly sure fixed-rate savings account is good for proof of funds. And I'm fairly sure that nothing similar to Covid era can happen with interest rates in the next 6-7 months. Generally, the only fixed-rate savings that can be accessed early are cash ISAs, but you'll have to pay penalty for this.
MSE: Fixed-term accounts: must lock cash away

Thank you for your reply I will send an email to my mortgage broker today and just confirm this. I happen to agree with you re. interest rates. However a lesson Covid taught me is to always prepare for the worst - my budget looked pretty measly after my seemingly "safe" assumption of 2% interest rates over the course of saving up my deposit was reduced to 0.7% for 2 years.

With the Cash ISAs, I think this would be great for a longer term but if the penalties are 90 days interest, that reduces the effective interest rate quite sharply. Thank you for the link to market-leading rates!

Lexale

El_Torro said:

When it comes to looking at affordability I don't see why your mortgage lender would have an issue with some of the money being tied up in fixed term accounts, assuming of course that you can access the money by the time you need to pay the deposit. I wouldn't worry too much about a few extra pounds here and there, your priority should be to have the cash accessible when you need it. There are easy access accounts out there with OK interest rates. 

You mention that savings interest rates are currently "superb". Sure, they're better than they have been, but I wouldn't call an interest rate at or below the rate of inflation superb.

Hi El_Torro,

Thanks for your contribution. I will check this with my broker I see what you mean, and yes it does seem a disproportionate risk. It's mostly just for peace of mind, I suppose. I agree with you that liquidity is the priority here.

I would agree in most cases a negative real interest rate relative to inflation isn't good. However, thanks to the purpose of the money being buying a flat, and interest rates having nullified house price increases for the last 2 years, the real rate of return I'm getting relative to property has been wholly positive. If house prices are flat and I'm getting 5% interest, that's a positive real return to me. During Covid, my interest rate on savings was 0.7% and house prices were rising 10% a year. That's a negative 9.3% return and that felt worse than now. I realise this is unorthodox but I've found the saving process most rewarding since late 2022.

Lexale

Altior said:

You can see 1 and 3 month cash bonds here on this platform for example, noted as 'market leading', but as mentioned the difference to easy access is marginal, and not worth it I'd suggest.

Fixed rate savings | Hargreaves Lansdown (hl.co.uk)

Thank you for showing me this option Altior I wasn't even aware 3-month fixes existed so I appreciate it!