Author Topic: UK: where should I put my money after I've fed the house-monster  (Read 3117 times)

sea_saw

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OK folks the situation is as follows.

I'm buying a flat in a notoriously expensive area. No need to berate me on this, I know throwing all your money into housing is not the most mustachian thing and living in a cheaper area would be a more sensible decision in many ways. However living here does allow me to walk/bike everywhere, own zero cars, buy cheap but excellent groceries, enjoy local inexpensive hobbies, and spend time outdoors. I've made some personal and financial calculations and I'm taking the plunge. 

Household: just me. I'm 31.
Income: 38k per year. 2250 take-home per month as a base. On track to increase with time (at least 200/month extra next year), bonuses occasionally.
Savings: cash savings pretty much all going into house purchase. Good pension with employer matching.
Debt: none, only mortgage related.

Expected monthly stats
Bills: estimate of 350 per month (utilities, taxes, etc. I'm hoping it will be a little less, but probably not by very much).
Living expenses: 300 (food, household expenses, hobbies, all shopping, etc. This is set at a sustainable level. In mega savings mode I can reduce it, but around here seems to be my personal happiness/value for money sweet spot)
Short term savings: 200 (occasional holidays, replacement electronics, etc. Can definitely be skipped entirely in belt tightening times, but will make me antsy in case something essential breaks or I can't afford to go to someone's wedding or whatever).
Total outgoings: 850. Leaving 1400.

Now the housing costs. Please put down your face punchers.

I got a 30 year mortgage for 175k, fixed at 1.41% for two years. This was the maximum I could qualify for. At the initial interest rate, monthly payments will be 600.

That mortgage + my savings was not enough to buy squat around here. To make up the additional moneys required, my parents are taking out a remortgage on their place in their name, for 80k. This will be a 10 year fixed rate loan at 2.49%, so payments of 750 per month. In theory, that is pretty much all of my remaining monthly moneys, which is insane. However there are mitigating factors (or I wouldn't be doing it):
  • The bright side to living in an expensive area, is that I intend to rent out my second bedroom, which would bring in around 550 / month net. This goes most of the way towards covering the extra payments.
  • My parents are OK for my payments to them to be flexible, say if my interest rate on my main mortgage increases. However I don't intend to lean on this generosity except in case of emergency.

Paying my mortgage(s), bills, and feeding myself are obviously not optional. What I need to figure out is where to set the dial on everything else. Should I put a bit away in investments a month even if it's a relatively small, 'token' amount? With the rental income I'm about 500 per month up, where should that go? If I get a bonus of 1k one month, where should that go?

Possible options, in my current thinking of order of priority:
  • Building up an emergency fund. I hope to have a tiny bit of cash left over after dealing with the new place (fees, furniture etc) but it won't be a lot, like 1k. If I had more I'd have put it in the deposit :)
  • Building up a buffer with my parents worth n number of payments, in case of unexpected expenses or tenants fucking off with no notice or whatever
  • Make some home improvements (probably about 5k total work needed)
  • Rebuild my long term investments (FIRE? You never know)
  • Lifestyle inflation/relax on the obsessive tracking of small change
  • Overpaying on my mortgage (up to 10% allowed with no penalty)
  • Overpaying on the remortgage (up to 10% allowed with no penalty)
 

Questions for the MMM hive mind:
  • What number of payments should my buffer cover?
  • How big should my personal emergency cash fund be? 5k? Should I set aside anything more for unexpected expenses of home ownership?
  • How do I even begin to prioritise the home improvements against the financial considerations? They're not hugely urgent, the place is totally liveable, but the kitchen is starting to fall apart and the layout is poorly thought out. At what point am I rich enough to justify the expense of rearranging it?
  • Is it really a better decision to put extra cash into index funds instead of my mortgage? Pls help convince my brain that I should be as excited about making use of my ISA allowance as paying off the mortgage. All this debt feels like a red hot emergency more than the loss of potential profit does.
  • At what point down this checklist can I relax on keeping the room at maximum occupancy, and e.g. only rent to people I like (I expect MMM says: when you're retired...).

I need a gameplan with some concrete targets to work towards.

Edit: And if anyone wants to talk frugal living and tips for squeezing my outgoings further I'm game, and happy to post a more detailed breakdown of what I spend my money on. But on the scale of things it seems clear to me that I need to prioritise increasing my income rather than stressing too much about decreasing my discretionary spending further.
« Last Edit: May 16, 2017, 01:44:57 PM by sea_saw »

valsecito

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #1 on: May 16, 2017, 07:11:36 PM »
You are putting yourself in a very vulnerable position in terms of liquidity! Illness, tenant not paying, unforeseen house expenses, ... can all get you during a very vulnerable initial phase.

You will need your parents to be your liquidity buffer for some time. If I were you, I would make a very clear agreement with them about them keeping extra liquidity available for emergency situations. Have them be your buffer during your self inflicted liquidity crisis. Depending on your relation with them, either pay or thank them for their help.

5k buffer is definitely too little in your case. Build a liquidity buffer to cover 3 to 6 months of expenses. You may want to aim for 10k as a nice round number. That would be in the range...

You have the luxury of not having to even think about home improvements or investing versus repaying the mortgages early yet. You simply won't have the budget for any of that for at least two years. Look on the bright side! One less thing to worry about! And in terms of home improvements, another advantage is having lived there for some time, you get the time to chew on it and come up with a well thought out plan.

You clearly feel a lot of pressure from what you call a "red hot emergency". Financially speaking, you need to focus on two things right now: short term financial gains/buffer (liquidity) and maximising your earnings (solvability).

As a person, be really aware of the risks this kind of debt pressure and financial focus entails when it comes to your development as a human! Keep reaching out!
« Last Edit: May 16, 2017, 07:13:09 PM by valsecito »

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #2 on: May 17, 2017, 01:20:22 AM »
I understand. I realise this is extremely precarious.

In my defence: UK and good employer, so medical bills don't exist and generous sick leave policies do.

Also, rental places here go within hours of posting. I will of course do everything I can to find good tenants. My friends who rent out spare rooms have never even had to go outside the friends-of-friends network into public ads, so fingers crossed. I'll take deposits upfront and all that.

Finally, my parents are able to carry the entire loan repayments themselves without hardship. We're doing it this way because they'd lose more money by taking it out of investments than in a low interest mortgage. Obviously if they put in any more money than they have already I will both thank them and pay them back either immediately or later with interest.

They're both very cavalier about this (and they're not dumb with money by any means - got me into frugality and investing). They were suggesting I put an extra 5k on their remortgage to pay for the home improvements and I insisted on only taking on exactly as much as is needed to make the sale because wtf. They're counting on my income going up which... yeah it most probably will but I don't want to put that in the calculations until I know more about how much by.

I definitely plan on living with the unwieldy kitchen for a bit to work out the best plan. I'll keep it on the horizon then. So, OK, 10k emergency buffer (to cover both 'buffers' I described in my post?), then reconsider if I'm better off investing or paying extra into the loans?

10k seems like a lot to have in the bank. Any thoughts on where to put it? Maybe a cash ISA? By the way I should have said that I keep one month ahead plus all short term savings in my current account and don't plan to touch that... so there's 4k there atm that I wasn't even counting as 'savings' because it's all assigned for future expenses YNAB style. I'll aim for a 10k emergency fund on top of that I think. You've jolted me into rethinking living on a tightrope!

It's the 'unforseen house expenses' that scares me because I really don't know what to budget for. A flat should be relatively low maintenance, and I pay a regular service fee to the management company who would be responsible for any major structural works out of that fund. But I've not been a homeowner before and I'm sure other kinds of problems can still be expensive.

It is a tough position but I'm not sleepwalking into it, and I genuinely think long term  it's the best I can do. I generally respond well to this kind of pressure. Definitely a reason to focus on my earnings...

PS I talked to an otherwise sensible friend about this and he said the same thing about short term liquidity, then he said: do you have a credit card? (yes, paid off in full each month) great, there's your emergency fund then. I was like O.O noooo
« Last Edit: May 17, 2017, 01:27:59 AM by sea_saw »

human

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #3 on: May 17, 2017, 04:36:47 AM »
80k pounds is what canadian 150k no way in hell would I ever borrow this kind of money from someone.

Linda_Norway

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #4 on: May 17, 2017, 04:54:37 AM »
Could you do some additional Air B&B of your own bedroom when you are away for a holiday? Just to generate some extra, hopefully untaxed income. Or could you find a second job a couple of evenings a week?
Your mortgage rent if really low. Some experts expect the rent to stay low, although no one can know for sure. You two year fixed doesn't give you any guarantee for how much it would rise after those two years. Some wierd idea: Could it be an alternative to co-buy the house with a friend, so that you only need to finance half the price?
About your new kitchen: look at Ikea kitchen. You can save a lot buying at Ikea compared to dedicated kitchen shops. And those kitchens can look nice. Or, if your current kitchen is unpracticle, could you just reorganize some of it, like replacing cupboards and maybe buying a new surface plate?

MrsWolfeRN

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #5 on: May 17, 2017, 05:30:58 AM »
This article should help justify your purchase a bit:
 http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/

I am not sure about options for investing in the U.K., but it is generally preferable to invest in a taxable account rather than prepay a mortgage. At your low rate, the market will statistically earn much more than you are paying out in interest. Also prepaying doesn't stop that next payment from being due if you run into an emergency. If you invest taxable, and your rate goes up astronomically in two years, you can withdraw the funds and make a lump sum payment.

Wait to spend any money on remodeling until you have built up enough cash/ taxable investments for six months of expenses.

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #6 on: May 17, 2017, 05:34:44 AM »
human: Thanks, that's very helpful feedback ;)

I'm not trying to argue this is an ideal situation. It's bonkers. But we have spent many months planning and re-planning this to come up with the least-worst option. I'm just trying to work out how best to arrange my finances in this tight situation.

Linda_Norway: yes, I lowballed the rental income. (And hopefully everything else too).

I may well be able to drum up more from airbnb than from a housemate. I estimate I would need 40% occupancy of the second room to beat a full time housemate - however I don't know how likely that is to achieve, and it is also much more work. I could also airbnb my room while I'm away but a paying tenant is in, or ideally, airbnb the whole flat, which fetches significantly more than airbnbing individual rooms.  I estimate renting out the entire flat for one week per month would beat having someone in the second room all the time. (I have plenty of friends I could crash with for the price of me cooking dinners or similar).

I just don't want to count on getting x amount from this sort of scheme until I try it and get a better sense of how practical and reliable it is. For example, my jobs don't lend themselves to being on call for airbnb guests.

I do already have an evening job, with pay set to increase :) I'm also experimenting with an etsy shop. But I think the biggest gains are likely to be found from angling to increase my main salary, and maximising what I can get out of the property itself. 

I absolutely understand interest rates could rise. After two years I'm hoping to lock in a low rate for longer, but as you say, no one knows. I wouldn't be doing this if I couldn't be flexible about making the payments on the second loan.

We absolutely looked in to co-buying with friends or family and for various reasons it didn't work out any better than this scheme. I am in a way basically co-buying this place with my parents. Except I'm starting to pay them out immediately instead of if/when I sell.

The current kitchen is totally livable it just kind of sucks. For example the current layout doesn't have space for a freezer, because the previous person prioritised counter and cabinet space. So to tide me over I can get a chest freezer second hand for 30 and put it in a corner of the living room. And the space is cramped and unwieldy because they put too many units in it, but I can't just take bits away without a bit of a rejig. That sort of thing.

I would definitely IKEA or similar the kitchen when it comes to that! I haven't priced it out in detail so it may well be possible to do for less than 5k, that was very ballpark. The question is where it fits in the order of priorities.

I'm getting the sense that it is:

* During fixed period on mortgage and/or until accumulating 10k, whichever is LATER, put every spare penny into an emergency fund, you maniac
* Figure the rest out after that :P

So perhaps I am over-complicating things.

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #7 on: May 17, 2017, 02:24:25 PM »
MrsWolfeRN: I'm sorry I didn't notice your post before, you must have posted while I was typing.

Keeping commuting costs to zero is definitely a part of the appeal, but I'm not kidding myself that it balances out the probably 40k less in loans I could have done by moving further away and commuting by train/bus, and keeping a car for general getting around. However, it would also be more difficult to find people to share with if I'm out in the sticks, and the rents are lower, and airbnb isn't so much of a thing... so with all that taken into account it does start to even out further, and theoretically over a period of about 4-5 years, I end up in the black compared to that alternate universe version of me. And also I hate suburbs and if I lived in one I would be less happy and probably more spendy. So.

I totally understand what you're saying about the interest rates and liquidity. But I think I'll still find it hard to resist not overpaying by the 50 on my main mortgage. Reasons, presented for your facepunchers this time.

  • LOOK at the graph showing the interest saved over the years, just LOOK at it, it is so stupid motivating. Any money I put in now is money I won't have to pay interest on for THIRTY YEARS holy what.
  • Seriously if I can't lay my hands on 50/month I have bigger problems and need to be making major changes no?
  • It's use it or lose it, if I haven't done it by the end of the year I can't do it without penalties that make it not worth doing.
  • If the interest rates do increase in two or five years and I'm more squeezed, wouldn't I be glad that I paid in the extra while it was affordable? ('affordable'... it's hard to judge what really is and isn't affordable in this kind of situation).
  • At the moment I can't get the very best mortgage rates because 175k is actually beyond what most lenders will lend me in terms of my salary to mortgage ratio, so I'm limited to only a handful of mortgage providers. The max at most places was 165k, so if I could limbo in under that bar, I'd have way more options. And If I'm graphing correctly, overpaying is the difference between having 166k after two years vs 164k. I could juust tip into a normal lending band? And how good a mortgage deal I can qualify for will definitely have a big impact on my finances... (that said, the tiniest pay rise would have the same effect, so shrug on whether that 2k would make a significant difference to my situation).
  • It looks like in the first two years, the 50 wouldn't be going into good interest earning funds, but into a bank savings account for being liquid and reliable. Interest rates on cash savings account right now are... not as high as my mortgage interest rate. Better rates can only be found by sacrificing access.
  • In a similar vein of 'ah, but WHICH 50 is being funnelled into the mortgage', I have kind of a psychological thing where mortgage is filed under 'bills' and investments more as aspirations that come after a certain (not extravagant!) quality of life. So if necessary I wouldn't blink to forgo my only two restaurant meals of the month, or live without a bathroom cabinet for another month or whatever to put 50 into the mortgage, but I don't know if I would make the same sacrifice to put 50 into savings. PUNCH ME ALREADY

I guess I need to sit down and do a graph showing how much impact overpaying for say 2 years and then stopping would actually have on the numbers, because I don't want to have my gut feelings lead me astray. And consult with a mortgage expert on the remortgaging thing.

cerat0n1a

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #8 on: May 17, 2017, 03:23:57 PM »
It's the 'unforseen house expenses' that scares me because I really don't know what to budget for.

I think a lot of people find owning their first home a very expensive time because they have to fill that home with stuff - beds, tables, kitchen equipment, tools to do DIY etc etc. So a lot depends on how much of that stuff you already had. If you were renting a similar unfurnished flat previously there might not be much to buy. If you were living with parents previously, you might need a lot of stuff.

As I suspect you're also finding out, the process of buying somewhere can be expensive - solicitors fees, local authority searches, valuation/ surveys, mortgage application fees etc etc.

I tend to agree with other posters; doesn't make sense to me to overpay on a mortgage fixed at 1.41% when you don't have any spare cash. Build up a couple of months money in the bank in case the washing machine breaks/other unpredictable emergency and then think what to do next. 

Is there anything clever you can do with the lifetime ISA thing - can you shove some money in one for the next few weeks, get your 1000 off the govt and use that money to buy a house? (Suspect not, but have you checked?)

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #9 on: May 17, 2017, 04:54:54 PM »
Nothing doing on help to buy or lifetime ISAs. Past me should have set them up alongside the stocks & shares ISA but she didn't so hey ho. A big middle finger to the lot of them, if they wanted to be helpful, waiving/reducing my stamp duty would have been a much more effective way to do it.

Money for stamp duty, mortgage fees, solicitor's fees, and survey costs are present and accounted for. I hope to have 1k left from that pot after it's all done to help make the new place a home but it's there in case I underestimated something. Meanwhile obviously I am continuing to save, at the rate of about 1k/month.

In terms of furniture, I'm in a furnished place at the moment so I'm starting from nearly zero. However I've done unfurnished before and this area is absolutely swimming in free or nearly free furniture from freecycle, gumtree and charity shops. Things like a sofa, tables, chairs, wardrobes etc I'm not too worried about. All the kitchen stuff here is mine and I have small items like bedside lamps and whatnot. Bedframes however I never seem to run into any good ones second hand, and mattresses I probably... wouldn't. So beds are likely to be my biggest expense. Suggestions on that welcome.

I'm expecting to get white goods as part of the sale. If not I will cry. But the place is vacant and they're there and not worth anything much. I have DIY obsessed friends on the same street so hoping to get away with next to nothing on that for a bit.

What have I forgotten?! I am certain there are things.

You say 'a couple of months', others have said 'six months'. Hmmmmm.

Linda_Norway

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #10 on: May 17, 2017, 11:47:09 PM »
If you need a lot of furniture, then look at what other people give away or sell for low sum. Flea markets are good, as well as your local equivalent of Graig's list. Maybe your local garbage disposal unit has used furniture to collect. Let your friends and family know that you need stuff. They might have leftover stuff to give you.
« Last Edit: May 19, 2017, 01:39:41 AM by Linda_Norway »

cerat0n1a

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #11 on: May 18, 2017, 05:25:11 PM »
You say 'a couple of months', others have said 'six months'. Hmmmmm.

It's not America. You're not going to be hit by unexpected medical bills, or sued by someone. You need enough money saved to replace stuff that breaks, to cope with an expensive month of weddings or whatever. Big house problems are covered by insurance. The worst scenario to deal with is losing your job and not being able to find another one. If you have a couple of months saved, you can deal with no job for a couple of months. I really can't see why more than 4-5k is needed as an emergency fund in your circumstances.

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #12 on: May 19, 2017, 04:38:03 AM »
Thanks again cerat0n1a! That was my instinct too so I'm happy to get a confirmation/excuse to follow it after all ;) Also if I get laid off from my job I'd expect to get more than two months pay out of them. It's a different world out here folks.

Just noticed you're in Cambridge! I'm not but I am somewhere... analogous...

What's your thinking on next steps after that 5k buffer is set up? I'd like to get about 1.5k into my parents' hands just to be a couple of payments ahead of the money going out. Then wot, home improvements or investments? I guess when I'm in the space the prioritisation will be more obvious. But knowing me I'll be more likely to live with a kitchen I hate to feed my savings. Guess we'll cross that bridge when we get there. 

I just want to get started. Going to be beyond upset if this falls through.

FI4good

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #13 on: May 19, 2017, 05:17:41 AM »
Just my 2p worth as to what i might do,

Why be a couple of payments ahead to your parents rather than just keeping the cash in your buffer account where you can earn interest on it and you don't have to bother them with varying amounts and hassle ?

National savings and investments is about the safest place to start for buffer monies :- https://www.nsandi.com/our-products

Once the buffer is sorted out then look at your pension and company match, free money, you may as well pay in to get the maximum match.

Company tax advantaged share plans is probably the next thing to take advantage of if your company do them. 

Depending how far away from 55 you are look at the cost of saving taxed money in an ISA vs tax free in Pension . ISA's are now available via Vangard in the uk  https://www.vanguardinvestor.co.uk/home   do your own due diligence most people round here seem to like the company i've never used them and know nothing .

Set it up as much as you can so it's all standing orders and automatic, you can then go and do something more interesting :)
« Last Edit: May 19, 2017, 05:20:16 AM by FI4good »

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #14 on: May 19, 2017, 06:59:15 AM »
Hmm, we discussed me being a couple payments ahead with them as an easy way to even out any wobbles in ability to pay from my end. I'll check with them again though, it might well be preferable for me to even out those wobbles out of my own cash buffer.

However in any case, right now I don't think I can get a good interest rate without sacrificing liquidity/taking on volatility anyway, and that's obviously not appropriate for a cash buffer you might need to pay for a new washing machine out of. So I don't think it makes a material difference if it sits in my bank account or theirs. It's just kind of a psychological thing. I'll go with their preference I think.

My pension is at max and has been for my entire employment.

I'm not sure I follow what you mean by putting 'taxed money in an ISA vs tax free in Pension'. ISAs are tax free. Or do you mean there's a way to take the money out of my pay into a pension before tax?

I have a stocks and shares ISA in which I'd previously bought a carefully researched/nicely diversified bunch of index funds. I've sold everything and am holding it as cash in that account until this house sale goes through. But I'd love to build it back up again ASAP.

No worries about standing orders or other administration aspects, I run a tight ship and money isn't about to get spent on random crap just because it's not getting whisked away on auto! What I need are targets to work towards.
« Last Edit: May 19, 2017, 07:11:24 AM by sea_saw »

cerat0n1a

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #15 on: May 19, 2017, 03:41:47 PM »
I'm not sure I follow what you mean by putting 'taxed money in an ISA vs tax free in Pension'. ISAs are tax free. Or do you mean there's a way to take the money out of my pay into a pension before tax?

Money that goes into your pension is not taxed on the way in. If you are a basic rate income taxpayer and you contribute 1000 into your pension, it gets "grossed up" to 1250 by the inland revenue (because taking 20% tax away from 1250 makes 1000.) So if you are a 40% (or more) taxpayer, it can be very tax efficient to put money into pensions and bump up your net worth. The downside is that the money is inaccessible until you are 55, probably even later than that if you're young, plus there is the potential for lots of government mucking about and moving of goalposts. Money coming out of your pension is potentially taxable - you can take a 25% tax free lump sum but the rest is subject to income tax.

Money that goes into your ISA has already had tax paid before you put it in there. It's only the profits that you make within the ISA wrapper that are tax free. However, you can access it whenever you like.

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #16 on: May 20, 2017, 05:46:14 AM »
Ah got it. I wondered how it could be pre income tax, didn't realise it would get 'grossed up' at the point of contribution to the pension. I've just kind of relied on my company one.

Given my age and setup (plus whatever will happen to retirement age etc) it feels less appealing than going back to my ISA but I'll have to crunch the numbers at some point! Getting a bit bored of all these spreadsheets though heh.

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #17 on: July 13, 2017, 06:09:27 AM »
Reviving this thread...

The flat purchase is still winding its way through the solicitors stuff. Fingers crossed.

In the meantime, I have saved up 5k emergency fund, so boom, that's one job done. Hopefully furnishing the place etc will not eat into it too much. I'm still on the fence about refurbishing the kitchen but am now tentatively planning to live in it for a bit before embarking on that kind of project.

I've been doing a lot of spreadsheeting and am now firmly on team Don't Overpay Mortgages While They're Fixed At 1.14%. I realise now that the key piece of information I was missing is that as soon as the fixed period is over, overpayments are penalty-free. This means if my loan value is too high to be able to find another fixed period at a good rate I can chuck some money at it to reduce it at the time that I renew.

Also, my parents and I established that my payment method to them is going to be to put the money in a savings account with both of our names on. It makes no difference to my folks if the money I put in exactly tracks the payments they're making or not, so if necessary I could stop contributing for a bit, or even treat it as an emergency fund and take money back out. And for mortgage affordability checking purposes it won't be seen as a debt obligation. I am so very lucky to be in this position.

My overall monthly picture looks something like this:

ItemIncomeExpense
Main salary2000
Part time job salary300
Bills300100 service charge, 100 council tax, 70 utilities, 30 internet
Living expenses30080 groceries, 80 hobbies, 50 non-groceries food, 20 household, 15 phone, 15 union, 40 misc
Short term savings200holidays, electronics, etc
Parents loan75010 year loan, fixed at 2.4%, flexible payments
Formal mortgage60030 years, fixed at 1.14% for 2.5 years
SUBTOTAL23002150difference of 150 per month
Part time let350Occasional airbnb, Mon-Thurs tenant, etc - conservative guesstimate
Full let200Additional money compared to part time let
Total including tenant28502150700

If anyone's curious, if I was renting alone I'd be paying about 950 a month in rent. Which is also roughly what my mortgage payment would be if the whole loan was spread across 30 years instead of half of it at 10 years.

My goals are now as follows:

1) maintain emergency fund.

Purpose: emergencies only.
Target: 5k 
How: money already exists. Keep it in a simple bank account.

2) have 10k savings available when it comes time to renew the mortgage.

Purpose: flexibility. At the moment I'm borrowing so high relative to my salary that most lenders won't go there, especially as they don't like to consider my evening job reliable income. I was able to secure a good deal via a broker but he was expensive. By the time I come to renew I would like my loan to be under 4x my gross main salary (the usual requirement) so that the usual comparison websites etc work again. If my salary increases significantly that will be easier, but if I haven't, I MIGHT be better off reducing the loan amount to get there.
Target: 10k within 2.5 years, approx 350/month
How: UK input welcome for what I can use for such short term savings. I'll definitely use regular savers which are 5% interest, but they're limited to only small inputs a month, so what to use after they're maxed out? Plus I'll need somewhere to put the saved money after the 5% period is up.

3) long term savings

Purpose: retirement, early or otherwise
Target: I don't have a concrete one but I'm determined for any extra money to go here instead of lifestyle creep.
How: I have a S&S ISA with some small change left in it from when I took the deposit money out (500, which I've put into a global index tracker for now). However I've also been persuaded by the arguments in favour of opening a SIPP so I will probably do that. (Or LISA?). I'm still debating what proportion of funds to put into each and what kind of asset allocation to have in them. Input pls.
« Last Edit: July 13, 2017, 06:51:44 AM by sea_saw »

PapaBear

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #18 on: July 13, 2017, 08:00:45 AM »
Also, my parents and I established that my payment method to them is going to be to put the money in a savings account with both of our names on. It makes no difference to my folks if the money I put in exactly tracks the payments they're making or not, so if necessary I could stop contributing for a bit, or even treat it as an emergency fund and take money back out. And for mortgage affordability checking purposes it won't be seen as a debt obligation. I am so very lucky to be in this position.

Sorry to jump in here, as it is not related to your actual questions:
However, the shared account might be not the best choice tax-wise. To be honest, I have no clue about the situation in the UK, but at home payments into a shared account are considered as 50% yours and 50% the other party. And now it gets complicated: If it is not really clear to whom the money belongs, you might get into trouble with the Gift tax (if there is any in the UK) and in the case one of the owners would die (with inheritance tax and part of the money going to the estate).

Maybe I'm paranoid, but it helps a lot with authorities if you have separate accounts and all the money flows are documented in writing (basically a loan agreement between you and your parents with 0% interest for the mortgage and the same payment pattern as their remortgage, I guess). Especially when an inheritance is involved at a later point in time, things usually get hairy. Maybe something to think about.

Simplest workaround: Have the account in your parents name, but you with power of authority on the account as well. In this way you would act on their behalf when accessing the account but all money going in and out there is 100% theirs.
« Last Edit: July 13, 2017, 08:02:28 AM by PapaBear »

sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #19 on: July 13, 2017, 09:10:00 AM »
Thank you, I hadn't even thought of that possible concern.

I might discuss it with my mortgage broker further. It was very clear that I would not pass affordability tests if the bank saw the extra loan as a formal debt I'd taken on, or my parents as relying on me for the income to stay solvent. It was less clear what might give the banks the impression that either of those things are true (they're not, obviously!) vs it not being a problem. The broker said that it would probably be OK for me to just transfer my parents the money monthly and that if the lender did have any questions my parents might potentially need to supply a letter saying this was an informal and flexible agreement based on me paying only as much as I had to spare.

It just made me have a slight alarm bell in my head because there doesn't seem to be much written about this situation, so I really can't get a sense of whether this is going to become a massive hassle or if I'm fretting over literally nothing. So it was my dad who suggested putting my name on the account to make my repayments to them more of a 'savings account' for myself as far as the banks are concerned. It might be that if joint accounts are a liability he would prefer for me to keep it wholly in my name, perhaps giving him and my mum authority on the account in the reverse of what you suggested.

It does slightly beg the question of why I shouldn't just save all the money at the best interest rate I can get and just keep track of what's mine or theirs separately, maybe paying them money in lump sums when requested.

No one seems to have any answers. And when I ask my parents what they would prefer/would make them most comfortable, they say so long as I'm saving the money and keeping track they're not too fussed about the admin.

Perhaps I'll propose that I just keep hold of the money until remortgage #1, once that's in the bag they can have it for whatever they want (probably to overpay their bank loan - they are very very firmly on team Get Rid Of Your Mortgage ASAP).

In which case my other question is doubled - what's my best place to accumulate about 10-20k in approximately 2 year time period?

Edit: It looks like high interest current accounts + regular savers are my best bet, if I'm willing to do a swaparound every year. http://www.moneysavingexpert.com/banking/compare-best-bank-accounts#nationwideflexdirect

It all seems a bit messy to chase around not that much cash in interest... in fact it doesn't look like I can beat the 2.4% on their loan in short term savings. So it just boils down to how important it is to have it to hand vs put away. Disappoint.
« Last Edit: July 13, 2017, 10:44:05 AM by sea_saw »

dreams_and_discoveries

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #20 on: July 14, 2017, 03:10:17 AM »
What's your risk tolerance?

And I am right in guessing family is where the desire to pay down the mortgage comes from?

I'm firmly in the invest and keep the mortgage club, mortgage rates are tiny at the moment, and you can make much more investing in low cost index funds.


sea_saw

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Re: UK: where should I put my money after I've fed the house-monster
« Reply #21 on: July 14, 2017, 04:02:29 AM »
Hmm, like I said in reply #17, I'm also now on board the train of invest rather than overpay mortgage.

My risk tolerance is somewhat low, but not like, nonexistent. It depends what funds you're talking about though. I've pretty much talked myself into keeping quite a lot of liquid cash over the next two years - enough to 1) allow me to lower my mortgage amount if required to pass affordability checks, and 2) track my payments to my parents' loan. Anything above that, I'm very glad to put into index funds.

And yes you're right, my family looove to pay off mortgages quick. It's also a bit of a psychological thing for them, they paid off their original mortgage over a decade ago and I think it's making them feel a bit weird to have their house mortgaged again when they're about to retire. So I don't want to put that money at risk. On the other hand I'm finding it hard to beat the 2.4% rate in cash savings account, so if we're going risk-free, we may be better off just putting my money into the loan and calling it a day.

I'm probably overly worried about the possible mortgage renewal pitfalls just because I haven't done it before. Does anyone here have any experience with this? perhaps I should try r/UKpersonalfinance. My worries:

1) Without overpayments, at the end of my fixed period my loan amount will be 165k. With my current base salary of 34.5k, the theoretical upper limit a bank would lend me is 155. I have a second job for another 5k/year, but only one lender was willing to count it as guaranteed income, as it's a zero-hour contract. No lenders will consider the rental income as guaranteed. Thus, I'm thinking of keeping 10k available to reduce the loan amount if necessary (and if not, I can invest it then, but I've missed out on two years in the market).

Of course if I get a pay rise in the meantime, that eliminates or reduces this problem. Public sector job tho.

2) The table above with only 150 to spare a month would make a bank throw up. Would they get nauseous seeing 750 leave my account each month to go to my folks, or do they not care so long as it's not a legal whatsit on my record? Nobody quite seems to know, some sources advise caution others say it's not an issue.

Basically I think there might be enough risk inherent in my buying so much house relative to my income without me adding more by putting all my money in index funds when I might need it soonish? Am I being too conservative for a 31 year old with a good social safety net?

(For the record, my outrageously expensive house is a 500 square foot flat).

(Also for the record, I really didn't think too much about my time horizon when I started investing in 2014, and it's responsible for 10k of my deposit, so I'm not insensible to the possible gains I could be missing out on).