Options at 24 years old

paddyraggy1993
paddyraggy1993 Posts: 4 Newbie
Combo Breaker First Anniversary
in Savings & investments
Hi there,

I'm currently 24 (turning 25 next month) and within the next 12 months or so my siblings and I will be selling the house we currently live in which was gifted to us by our parents. My share of the proceeds will be approximately £90k - most of which I intend to use as a deposit on a property of my own.

I currently earn £22,500 - probably rising to £25,000 or so by next year. I live in the Central Belt of Scotland and will be working either in Glasgow or Edinburgh for the foreseeable future so will be looking to buy something in the region of £125k-£150k.

I'm contemplating how much of a deposit it would be wise to put down and what I should do with the rest of the money. In my head I'm thinking 60k deposit and keeping the rest as an emergency fund/investment.

I'm quite conscious of setting myself up for the future and currently pay the maximum amount into my pension that my employer matches. I'm thinking it would also be a good idea to supplement this with putting the maximum amount each year into a LISA - but I'm a bit put off by uncertainty over government policy over the next 35 years and also the penalty in the unlikely event that I would need the money as an emergency.

I'm quite frugal generally speaking but I don't know what the future will hold in terms of marriage, children, life... I am in quite a fortunate situation and would like to make the best of it. Any advice would be appreciated!

Comments

  • chockydavid1983
    chockydavid1983 Posts: 713 Forumite
    First Anniversary First Post
    £60k sounds good to me, although remember that there are many other costs involved in buying a home, e.g. stamp duty solicitor's fees, moving costs etc.
    If the purchase price was £150k, then £60k would be enough to give you a 40% LTV and access to the best mortgage rates. If less, I'd be tempted to put down exactly 40% for that purpose.
    £30k would be a good amount for an emergency fund (3-6 months expenses) plus a start in investing (max £20k per year into S&S ISA).
    And well done on maxing employer pension contributions- a smart move.
    You are in a good position for 24 certainly.
  • AndyPK
    AndyPK Posts: 4,241 Forumite
    First Anniversary First Post
    Allow maybe £10K for furniture (or everything inside the house) if you are starting from scratch.

    or maybe you will have some stuff from the previous house
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    First Anniversary Name Dropper First Post Combo Breaker
    AndyPK wrote: »
    Allow maybe £10K for furniture (or everything inside the house) if you are starting from scratch.

    Is your £90k after you've paid capital gains tax?
    Free the dunston one next time too.
  • Bimbly
    Bimbly Posts: 483 Forumite
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    kidmugsy wrote: »
    Is your £90k after you've paid capital gains tax?

    Surely, the OP will not have to pay CGT because it is his/her main residence:

    https://www.gov.uk/tax-sell-home
  • paddyraggy1993
    paddyraggy1993 Posts: 4 Newbie
    Combo Breaker First Anniversary
    It is my home yes.

    I'm a little worried about opening a LISA and saving money for retirement in there because over the course of the next 35 years I have no idea how the rules could change. Would it be less risky just investing in a regular stocks and shares isa and missing out on the government contribution?
  • JohnRo
    JohnRo Posts: 2,887 Forumite
    First Anniversary Combo Breaker First Post
    Whatever happens in future, it's inconceivable that government contributions already received would be confiscated.

    Perhaps the solution is to hedge your bets somewhat and do a little of both where the ISA investment also acts as a psuedo emergency fund, a pot of last resort.

    Then you're not left staring at inaccessible assets that could otherwise help you overcome some future financial distress should it occur.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    First Anniversary Name Dropper First Post Combo Breaker
    Bimbly wrote: »
    Surely, the OP will not have to pay CGT because it is his/her main residence:

    https://www.gov.uk/tax-sell-home

    Good point.
    Free the dunston one next time too.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    First Anniversary Name Dropper First Post Combo Breaker
    OP, in your shoes I think I might take the advice to put down a deposit big enough to get you a low interest rate on your loan. I'd then aim at flexibility for the rest until getting used to the expense of living as a sole owner-occupier. Also for flexibility I'd want the option of overpaying a useful amount every year. For even greater flexibility I might look for a mortgage that let me borrow back any overpayment I'd made.

    Remember that you can make £1k p.a. in savings interest free of income tax. So you'd certainly want to put some money in high interest accounts which at present means well chosen current accounts and regular saver accounts. As others have suggested a sensible way to start investing, if that is what you decide to do, is in an S&S ISA. What you choose to invest in within that tax wrapper is another question.

    I'd open a LISA for some modest amount to guarantee that I could contribute to it if I wanted to right through to age 50. A counter-argument says that you should put in the max £4k so that it increases to £5k and then has the chance to grow for 35 years. It is conceivable that it could grow to £20k plus a cumulative allowance for inflation.

    One advantage of an ordinary S&S ISA is that if you become a higher rate taxpayer you might find it useful to withdraw money from the ISA and contribute it to a pension. With a LISA you couldn't do that economically until you are 60.

    It may be that by the time you've bought a house and equipped it, and put aside a cash emergency fund, there isn't much room for investment in S&S. So be it. Just make best use of your pension at work and bide your time.
    Free the dunston one next time too.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    First Anniversary Name Dropper First Post Combo Breaker
    Two other ideas.

    (i) Investigate the "offset mortgage": it might provide a convenient way to store your emergency cash.

    (ii) Suppose you have only a modest amount that you want to invest - as distinct from save. Suppose you take heed of people who think that a stock market crash might be due soon. Then there would be a case for putting up to £4k into a Cash LISA (the only provider at the moment is the Skipton BS I believe) with the intention of transferring into an S&S LISA after the crash. If you pulled off such a masterpiece of timing you could allow yourself a couple of shandies in celebration.

    Come to think of it: even if you waited, say, five years before transferring to S&S you'd have earned the equivalent of 5.356% p.a. from the combination of the taxpayer's bonus plus the 0.75% p.a. that the Skipton pays. That's a handy return while waiting for your masterly pounce on cheap shares.

    If your pounce were only two years away you'd have earned the equivalent of 12.64% p.a.: what an encouraging start to an investing career! I'm warming to this idea. The counterargument is the desire for flexibility, though as you know the penalty for taking money out of a LISA would sting but it's not draconian.
    Free the dunston one next time too.
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