Requested - opinions on my finances plus advice on impending £5000 inheritance

foldydog1234

Hi!! 

I would like to get opinions on my finances in general plus approach for a £5000 impending inheritance (dates tbc depending on probate process). 

I've been trying to work pretty hard on my budget and happy with savings progress so far.

Goal is to try and purchase property from family member around Autumn this year but no set deadline on this, they are currently renting it out. 

• Income: £2,354 after tax + £434 PIP (used for medical/travel costs). - 2788

• Outgoings: £1,526 on all bills/rent, £600 spending, rest into savings (emergency, ISA, LISA, large purchases, travel).

• Savings current:

  • LISA (totals combined with partner): £45K, adding be adding £4K each lump sum via bonuses in new tax year (gov. bonus brings it to £55K)

  • Cash ISA: £2.8K (saving for house move costs).

  • Investment ISA: £580.

  • Emergency fund: 4 months' outgoings.

• Pension: £17.5K (needs consolidating), enrolled in workplace pension, on track but planning to increase contributions post-house purchase.

• Debt: None, £5K available credit (11.3% APR).

House Purchase Plan:

• Buying from family for £192.5K.

• Estimated mortgage after £55K deposit = £880-900/month (20 years).

• If I put the £5K inheritance into the deposit, payments drop to £800-820/month, saving ~£2-3K total interest over 20 years.

Question:

Since the £5K doesn’t make a huge difference to the mortgage, would I be better off putting it into a LISA for growth?
Or maybe £1K into HL stocks & shares ISA and the rest into general savings?

Would appreciate any advice!

RHemmings

EDIT: Deleted. 

I'm not sure of your figures. They don't look right to me. Saving £80 a month over a mortgage of 20 years would be a lot more than £2-3k saved. But, if you are looking at a mortgage of £137.5k being reduced to £132.5k, does that really make an £80 per month difference? 

EDIT: Using a sample mortgage rate calculator, the mortgage appears to go down by about £31 per month with your £60k deposit instead of a £55k deposit. 

foldydog1234

RHemmings said:

I'm not a financial advisor or anything like it. 

If putting the £5k into your mortgage reduces your payments by £80 a month over a 20 year mortgage, that's a lot more than £2-3k less you'd be paying over the period of the loan. How did you calculate the £2-3k saving in interest? I'm not saying that you're wrong, but I can't see it. £80 less a month is £960 less just for a single year.  It's also a bit more of a safety margin if interest rates go up. 

Personally, given your finances, I would put the £5k into your mortgage. As while £80 per month may not sound like much, once you remove your bills (including mortgage payment) your disposable income will be much less. £80 sounds like a useful amount of extra disposable money per month to me, and I would go for that.

Just speaking personally. 

Hey!! Thanks for getting back to me, ok, I'm not the best with maths (I can do the essentials obviously, but not great with knowing formulas to calculate something - work in progress) so I used an online calculator thing that told me how much interest I would pay over the course of the mortgage and then based it on that.

I think I need to run those numbers again and verify. I agree though, you can do something with £80 and as you said it can also be a bit more of a safety net/contribution towards in case there's interest rate changes again in future.

Thanks for your input

RHemmings

foldydog1234 said:

RHemmings said:

I'm not a financial advisor or anything like it. 

If putting the £5k into your mortgage reduces your payments by £80 a month over a 20 year mortgage, that's a lot more than £2-3k less you'd be paying over the period of the loan. How did you calculate the £2-3k saving in interest? I'm not saying that you're wrong, but I can't see it. £80 less a month is £960 less just for a single year.  It's also a bit more of a safety margin if interest rates go up. 

Personally, given your finances, I would put the £5k into your mortgage. As while £80 per month may not sound like much, once you remove your bills (including mortgage payment) your disposable income will be much less. £80 sounds like a useful amount of extra disposable money per month to me, and I would go for that.

Just speaking personally. 

Hey!! Thanks for getting back to me, ok, I'm not the best with maths (I can do the essentials obviously, but not great with knowing formulas to calculate something - work in progress) so I used an online calculator thing that told me how much interest I would pay over the course of the mortgage and then based it on that.

I think I need to run those numbers again and verify. I agree though, you can do something with £80 and as you said it can also be a bit more of a safety net/contribution towards in case there's interest rate changes again in future.

Thanks for your input

I edited my post, after checking an online (Halifax) mortgage calculator. I got very different numbers from you. 

foldydog1234

Hey, yeah so I've just run it again, it reckons that 

At 55,000 deposit - lending of 137,500, £877.33 monthly, total interest payable £73059.81, total loan payments £210559.81 total cost £265,559.81

At 60,000 deposit - £845.43 monthly, total interest £70,403.09, total loan payments £202,903.09, total cost £262,903.09

So I took subtracted the lower total cost from the higher number and came up with £2656, but this does seem like very little.

Have I misunderstood something here or done this wrong? Thanks

EDIT - I got my figures using a prospective interest rate offered when searching mortgages on a comparison site, however appreciate this is not what it might finally come down to at the time. This was just doing it as accurately as I can at this stage.

theartfullodger

Is purchase price genuine market price or is a sweetheart (discounted..) family deal?? MHRC have (obvs..) the right to assess as market not sweetheart...

You need to have a fund of £££ for a rainy day... Can't see it - is there one??

Good luck.

foldydog1234

theartfullodger said:

Is purchase price genuine market price or is a sweetheart (discounted..) family deal?? MHRC have (obvs..) the right to assess as market not sweetheart...

You need to have a fund of £££ for a rainy day... Can't see it - is there one??

Good luck.

It will be purchasing 50% of property, price based on recent 3x valuations, under the impression this can be complex and requires solicitor involvement - if not possible we may need to come up with a whole new plan. All will be done above board make sure we are tax compliant and not doing anything dodgy. Not worth the agg and also wouldn't wish to put other family members at some kind of risk.

I have currently 4 months salary rainy day, built slowly continuing to build this. I put a rundown in first post of everything I could think of to assist.

theartfullodger

Good start!

foldydog1234

theartfullodger said:

Good start!

aye not too bad. I am minded to crack on with this, against what we pay on rent, we would be paying £323 less per month on the mortgage (obviously we don't get full equity on return, but we may retain as a rental property anyway) - which would free us up some funds to accelerate these emergency savings and also invest.

I ran the numbers again with some assistance and it seems I would actually save £7657 on the mortgage with higher deposit.

I would imagine if I invested this £5000 wisely in some funds and let it sit for the duration of the mortgate it would probably come to a fair bit higher than this?  

Albermarle

As this is more of a personal finance question, than a housing/house buying one, you would probably have been better off posting it here.
Savings & investments — MoneySavingExpert Forum
The mortgage vs savings vs pension etc is a very regular topic on there.

If you invested £5K say in a medium/high risk, mainstream low cost multi asset fund, over 25 years, you could maybe expect an average growth of 2 or 3 % above inflation based on historical data.
If you put it in a pension that was invested in the same way, you would also get the benefit of tax relief, but you would not be able to access the money until your late 50's.

foldydog1234

Albermarle said:

As this is more of a personal finance question, than a housing/house buying one, you would probably have been better off posting it here.
Savings & investments — MoneySavingExpert Forum
The mortgage vs savings vs pension etc is a very regular topic on there.

If you invested £5K say in a medium/high risk, mainstream low cost multi asset fund, over 25 years, you could maybe expect an average growth of 2 or 3 % above inflation based on historical data.
If you put it in a pension that was invested in the same way, you would also get the benefit of tax relief, but you would not be able to access the money until your late 50's.

ah apologies, my bad! seems like we are maybe reaching a conclusion here anyway.

ok that's a good point RE the inflation. perhaps the pension is the way to go, as I will be saving continually in other streams some of which I will leave accessible in case of requirements, I feel secure with locking away 5k until that age.