Should I put the majority of my savings towards a house deposit or invest?

Steephill99

Hello. I am a first time buyer and I am planning on buying a house in the next few months. We have agreed on a price of £170k and I have saved around £70k via a LISA and cash ISA.

Should I put the majority of my savings towards the deposit to get around a 40% LTV or would I be better off putting less towards the deposit and investing the rest into a stocks and shares ISA?

I am currently 25 and earn around £2.5k a month.

Any advice will be much appreciated.
Thanks

Newbie_John

% Vs %

It all really depends, the more you put into house the lower interest rate you get - based on LTV.
Also if your mortgage is 5% that's like having savings with 5% rate on it but fully tax free (unlike savings based on tax rate).

What are the mortgage rates based on LTV and what's the cash ISA rate?

Also rates are slowly going down, so if you consider mortgage fixed for 5 years and your cash ISA isnt fixed then the difference can be quite significant in couple of years.

I'd put as much as sensible into deposit.

tacpot12

Trump's election in the USA means that interest rates might also rise over the next five years. Stocks and Shares might also have a rocky time as a result of Trump. 

Newbie_John's last sentence is the critical one. What is it sensible to put down as a deposit? 

I've always taken a 'safety first' with Mortgages, so I would recommend putting down £70K less what you might need for any repairs on the house and for an emergency fund (your emergency fund should be at least £7.5k, and ideally a bit more). You can probably afford to put £2500 of your emergency fund into a Stocks and Shares ISA, so that you can get the hang of monitoring an investment. You would be unlucky to lose enoughto make any material difference to your financial situation.   

If you don't know what to invest in, then I would suggest Vanguard LifeStrategy 100 is a benchmark fund. At your age, you can afford to be invested 100% in Equities. It is cheap and well diversified.

Stubod

I would maximise my deposit to reduce mortgage payments...

Sistergold

The world politics seems so rocky and the economy is so unpredictable, the interest rate rises have left me drained and so I would also vote to put as much as you can towards roof over your head. Always keep a good chunk for emergencies as you don’t want that stress either. 

So another vote here for the lower the mortgage the better. 

Weldone for being in a position to buy first house at 25! 

Herzlos

Your mortgage APR is going to be higher than savings, so I'd keep a chunk as a rainy day fun and for new house expenses, then put everything else towards the deposit especially if you can tip it over an LTV band that gives you a better APR.

theoretica

I think all the LISA is probably sensible to go to the house so you get the bonus now. 

Consider the overpayment terms on your mortgage - you may find it doesn't affect the mortgage interest and is reassuring to keep a bit more back than you think you need and then use it to overpay the mortgage when you are settled and have dealt with moving costs and discovering whatever cost you forgot to budget for, or was higher than you thought.

Bigphil1474

OP, just to clarify - if you put a £70k deposit down on a £170k house and mortgage the rest, that would be an LTV of roughly 60% (not 40%). It's the mortgage amount (L) divided by the property value (V).

Albermarle

Some things to consider.

1) If you go from 60% LTV to say 75% LTV, what actual difference would it make to the interest rate charged ?
2) If you did invest via a S&S ISA, you should be looking on a long time scale. Ideally > 10 years, but no less than 7 or 8 years.
3) Currently cash interest rates are still quite good and approx double inflation. You could consider a long term fixed rate account / cash ISA .
3) Presume you are working, so for an even longer term ( but tax friendly investment) you could increase your pension contributions. Having a good pension pot is not just about having a good income when you are old, but it can enable early retirement.

A lot of similar questions come up on this forum- Savings & investments — MoneySavingExpert Forum

The usual answer in the end is that rather than one or the other, do both. However everybody's situation ( and personality is different) 

ReadingTim

Firstly you're going to incur some costs associated with moving and possibly the new house: new furniture, decorating and other "stuff".

I'd then have an emergency fund of 3 or so months wages/costs in the event you're out of work, need a new car/roof/boiler at short notice.  

Of what's left, it really depends on what else you're saving or investing for, if not a new house: getting married, starting a family?  If none of those within the next couple of years, I'd stick all of what's left of the £70k into the deposit to secure the lowest possible monthly mortgage payments. 

Once you're in the new place and your finances have stabilized in terms of your new outgoings you can then resume the investing - to really see the benefits of that you need to leave it for 5+ years.  

Albermarle

ReadingTim said:

Firstly you're going to incur some costs associated with moving and possibly the new house: new furniture, decorating and other "stuff".

I'd then have an emergency fund of 3 or so months wages/costs in the event you're out of work, need a new car/roof/boiler at short notice.  

Of what's left, it really depends on what else you're saving or investing for, if not a new house: getting married, starting a family?  If none of those within the next couple of years, I'd stick all of what's left of the £70k into the deposit to secure the lowest possible monthly mortgage payments. 

Once you're in the new place and your finances have stabilized in terms of your new outgoings you can then resume the investing - to really see the benefits of that you need to leave it for 5+ years.  

Just to expand on the comment in bold.
The idea with investments ( talking here about diversified investments in mainstream stocks and shares) is that historically over the long term they have produced returns better than inflation. However in the short and medium term they can go up and down .
So the longer you leave the investments, the more likely you will see a gain than a loss.
After 5 years the chance of a loss has historically on average been about 12%.
After 8 years it is about 6%
Only after 13 years is it zero .
It is a bit of a generalisation, but it shows the general idea.