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Young professional - nearly debt-free thanks to MSE, now wants to save

edited 30 November -1 at 1:00AM in Savings & Investments
7 replies 948 views
rjgbrjgb Forumite
133 Posts
Part of the Furniture Combo Breaker
edited 30 November -1 at 1:00AM in Savings & Investments
Hi all,
First of all, I want to thank Martin (:money: )and all contributors to this forum whose experience, guidance and recommendations have helped me become practically debt free. :T

I left university in 2003 with a £12k student loan, £3k on a credit card, £2k overdraft, and in 2004 got a Northern Rock loan for £9500 to buy a car, and to clear the credit card and overdraft. But I ran up the credit card to £3k again. So, at worst, my debt was about £23k. :eek:

I then discovered MSE and cut my spending, paid off my credit card 14 months ago and paid off the loan this Christmas. I now don't use the credit card and am not using the overdraft facility on my account. Total debt is now about £8500 on my student loan, but I'm in no rush to pay that off. I have also managed to save £4100 in an ISA.

So, effectively, I have paid off £18,600 in 4 years, cutting my debt to £4400. :j

I am now looking to buy, in the next 5-6 months, a two bedroom flat in London for about £300,000 with my girlfriend. She has saved £20,000 for a deposit and I am aiming to have a lump sum of as much over £10k as possible to add to that.

I can save up to £1200 a month, and am planning to sell my car for about £1000 as I don't need one in London.

Other than paying into my Natwest ISA (5.75%) and Bradford and Bingley savings account (6.4%), can anyone suggest good pots to put my money into for up to 6 months? Don't mind taking on a bit of risk.

Look forward to hearing from you, and thanks again! :T

R

Replies

  • Hmm. Unfortunately, 6 months is too short a time for any investments. I think your best bet is to stick it in your B&B savings account that pays 6.4% - pretty good me thinks!

    Good news is, maybe your 300k flat will cost you a bit less in 6 month's time. ;)
  • JonbvnJonbvn Forumite
    5.6K Posts
    Part of the Furniture 1,000 Posts
    ✭✭✭✭
    The Natwest ISA is poor. Consider transferring to Icesave who are paying 6.1% ATM.

    6 months is far too short a period to consider Stocks & Shares.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:
  • rjgbrjgb Forumite
    133 Posts
    Part of the Furniture Combo Breaker
    Hi,
    Thanks for your contributions. I'll look at other ISAs then.

    If the housing market continues its (slow) downward trend, we may hold off buying for 12 months. Would that alter your comments at all? Or is 12 months also too short a period to think about anything other than savings accounts?

    Thanks!
  • debbie42debbie42 Forumite
    2.6K Posts
    5 years if often quoted as a minimum time to be considering investments, as opposed to savings.

    Well done, by the way, in sorting out your finances: that's a fantastic achievement in a short time.
    Debbie
  • dag_2dag_2 Forumite
    793 Posts
    I am now looking to buy, in the next 5-6 months, a two bedroom flat in London for about £300,000 with my girlfriend. She has saved £20,000 for a deposit and I am aiming to have a lump sum of as much over £10k as possible to add to that.
    Congratulations, I hope it goes well for you.

    Mind you, I did a little bit of maths the other day. I looked at FindAProperty.com to find the cheapest flat available for purchase in my area in South London. Then I subtracted the amount left over from the modest inheritance I recently received after paying my debts, from the purchase price. I then multiplied the result of this calculation by the interest rate of the best buy mortgage listed at MoneySupermarket.com.

    The result is cheaper than my rent. But only fractionally! And the dimensions of the flat are a lot less than the one I'm in now. And more to the point, the difference between my rent, and what my mortgage interest would be if I bought a flat, is significantly less than the interest I stand to earn if I put what would have been my deposit into a high-interest savings account. Worse still, I'm judging all this by the introductory mortgage rates too.

    You'd have thought that if lots of other people were in this situation, then this would create a demand for lettings, thereby pushing rents up, thereby also making it cheaper to buy, and also creating a buy-to-let market. But this appears not to be the case, and I don't fully understand why. Perhaps people are neither buying nor renting in London, but are simply moving out to cheaper areas. I'd certainly not recommend buy-to-let investments in many parts of London right now.

    Point is, don't assume that buying a house or flat makes you more financially secure than staying in rented accommodation, especially if you're not able to put down a very big cash deposit. The market seems a bit jittery at the moment. I could be wrong, but it seems that low-end one and two bed flats aren't really expected to rise in price very much any time soon. You may find that you're better off staying in rented, at least until you've saved up a bigger deposit.

    Just a thought. My advice is carry on watching the market, and don't forget to do the maths.
    :p
  • dag_2dag_2 Forumite
    793 Posts
    Dozey me. It's just dawned on me that even if I had the cash to buy that cheapest flat without a mortgage at all, the amount that cash would earn me in a savings account is still only £30 a month less than my rent.

    And that's only for the very cheapest flat. If I had the cash to be able to pay in full for a flat whose living room and bedroom actually had comparable dimensions to those of the flat I'm currently renting, then I would actually be £140 a month worse off, on the savings interest I'd lose out on.

    I find it hard to believe I haven't overlooked something obvious. Perhaps I'm incredibly lucky to have such a comparatively low rent for the flat I'm in. And that luck might not last. Then again, I'm also judging by estate agent advertised prices, and you may be able to haggle those prices down quite significantly, maybe even by as much as a quarter of the list value.

    Then again, on checking Net House Prices, flats still seem to be changing hands for rather a lot more than I think it would be sensible to offer. It's difficult to tell how big these flats are, though, without going and having a look at them, and even then it's not always easy.

    None of this would matter very much if it seemed like house prices were going to rise, though. But it doesn't look like they will. Personally I'd rather not gamble on that - but that's just me.
    :p
  • rjgbrjgb Forumite
    133 Posts
    Part of the Furniture Combo Breaker
    Hi Dag,

    Thanks for your comments. However, I don't fully follow your calculations. From what I can gather, you are suggesting that the interest you make on your savings (inheritance) is greater than the money you would save (or be investing) in having a mortgage rather than renting. Is that right?

    Could you run through them again, perhaps with an example? Say, the property to buy is £300,000 (plus all the legal fees, survery, etc) and would either be in Greenwich/Blackheath, savings are £30,000 and the option of renting would cost £1000pcm. You can pick your own mortgage rate!

    To be honest, I am in two minds about buying as I'm a little worried that prices will drop after we've bought a place. But if you can show me an example (and I realise it is only your opinion and an example) of why it might make more financial sense to rent, I'd be interested to see it!

    Thanks very much,

    R
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