Best instant access rate is about 0.5%, or about £75 a year. According to the Moneysavingexpert Premium Bonds calculator, you have a 97% chance of winning £50 a year or more. However, if you are planning to draw down the money to replace lost income, once you go below about £10k, the chance of winning nothing increases.
You're basically gambling a small amount of interest so it's entirely up to you what you choose. If you paid £10k off your mortgage and the rate was 2%, that's a guaranteed gain of £200 per year, to put it into perspective, but you won't be able to access the money again if you did that.
Is the self employed person planning to obtain paid work to increase the £35k pa income?
If you know about the income drop, you could start to try and live on the new amount from now on - depending on how the income is split between you, and things like pensions, student loan repayments etc, the income drop is going to be about £500 a month or so.
Maybe try to start living on the reduced income now, or working down towards it - put £100 pm extra into savings each month and pretend the money doesn't exist, and try to live on the rest?
If one of the adults will end up being a non tax payer, and you're married, you can transfer some of the tax allowance, so the higher earner pays a little less tax. Also have a really good look at your budget and cut all costs you can to make your money go as far as possible.
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Also sign up to the weekly email for ongoing hints and tips about making the most of your money. If you're coming from a place of not really thinking about budgeting and what you're spending, you can close a lot of that income gap down, by just being careful and spending a bit more mindfully. Of course, if you're already in that place, there's a lot less room to cut down, so it will be harder.