How much money would you be comfortable having in the bank?

[unlucky67]

Please don't flame me - this is a genuine worry - so much I'm losing sleep about it - and I do know in lots of ways I am very fortunate...
(I've been member of mumsnet for years - under another user name as well as this ...and always feel I have got good advice...just haven't been on much recently - I tend to get addicted)
My partner and I own a modest house - paid the mortgage off years ago. My partner had a business which he sold a few years ago - so for the last few years we have had money in the bank...for years I have been dithering about getting a slightly 'better' house so my 2 dds don't have to share a room and they have a bigger garden to play in (and I have a nasty neighbour too who makes my life a misery)
A close relative died suddenly a couple of months ago - it hit me hard and I realised that life is just too short...I went seriously house hunting and found one -which isn't absolutely perfect but almost is - it needs a lot of work doing on it and money spending on it ...we put in a lowish offer and to our surprise we got it...we will own it outright...
But this will leave us with about £10-15k in the bank. We don't intend to sell our current house but to do it up a bit (couple of grand) and rent it (income should bring in the same amount as the interest on the money - and in the current market with neighbour problem it would be hard to shift)...
I'm a SAHM and know I will find it hard to get a job in my field now - I probably won't be able to get a well paid job...
My DP is not very well paid - including the interest/rent our annual income is/will be about £25k (although we don't have to pay rent/mortgage - so it does go further) but we don't manage to save much each year...I'm really worried if something big came up we wouldn't have the money - I know we could borrow against the houses etc but we would struggle to pay it back...and it would be a really stupid position to get into ....also no money to pay university tution fees etc for our children...
Just worried I have really really messed up...some of me worries that my grief has made me react too fast ....
We will have approx 60% of one years annual income in savings - which probably isn't going to increase much... would you be worried?

Just laughed at mad woman ....can't remember my old name but it might have been lucky something...must have been feeling a bit down when I name changed (and I can't remember why I did now....unless I just forgot original name...)

Also I should say having money like this is actually a responsibility ...interest rates are terrible right now - so we have seen a decline of around 50% in that part of our income over the last few years....currently interest rates are less than inflation -so cash in the bank at the moment is losing value...
If you rent you have to register as a landlord and do safety checks etc and make sure you get your rent, they don't trash the house and for certain types of let you can't just get the house back when you want to sell ....(Solicitor has advised we see another solicitor about doing that when we are ready -more fees)
Also you become liable for capital gains tax if you sell a home you have rented - not sure how that works at present...but apparently on this house could be almost £30k....
and then you have to watch out for inheritance tax (40% of anything over £325k -including the value of your house(s))

And when (if) I end up in an old peoples home I will probably be paying full whack and the person sitting next to me (who might have pissed all their money up the wall having a good time) will get the same care as me for free....

Ok here goes.... I wouldn't buy the house. My reasons are:

1 - For a house that needs work it will always cost 50% more than what you think it will cost.

2 - Your DP has a 15 year old car.

3 - You are worried about your financial security.

4 - I think house prices are in for a fall and while you don't earn much keeping the money in the bank you don't lose money.

I will give you advice for free that you might get from your MP and save you some money.... There isn't a timeline on a house being your primary residence. There were a couple of MP's who switched their residency to the place they were selling before it went on the market. This was allowed because they swiched the address on their bank accounts to this address.

Inheritance tax isn't an issue if you hold the property as joint tenants with rights of survivorship. Since your DP has sold his business you might as well switch to joint tenancy on the house you are currently living in.

Don't know about you but I plan to follow my grans way of living on her own until she died. I have no desire to see my last days in a an old biddies home.

I'm happy if I have four to six months equivalent of current expenses in cash deposits or 'relatively easy to turn into cash' investments. You'd still have a second house that you could sell in case of emergency. I'd call that a reasonably liquid asset. No, you shouldn't worry.

Will you have £10-£15k left after you've done up the old house, OP, or before?

I can see why you're worrying, actually, this plan does mean your net wealth will be almost entirely tied up in housing. In the event of a crash I don't think a rented house with neighbour problems (which will affect your tenants, surely?) is a very liquid asset. Can't you try to sell the old house?

Oh, I thought you were asking, 'how much money would you be comfortable having in the bank given the economic crisis'.

Remember that in the event of bank collapse, you're only covered for £85k per person, per institution so if you have more than that in a single account, you should spread it around.

I would wait until you have both houses 'done' and then see where you are. Then if the banks are still looking ropey and you have a lot put itin NSI or if it is less than the 85k limit and you don,t need instant access shop around for a good deal. MN is funny about money I don,t think the OP is boasting at all

I am aware of the £85k limit...(it was 100k euros - which is less than the 85 at the moment but FSC have set the exchange rate at £85k until 2016 - something I did fret about with what is going on in Europe)
A house price crash is one of the reasons I haven't bought before now... I can see although better than 2007 they are still crazy money (current house has tripled in value in 10 yrs ...it was a relatively cheap home - now in this area most young couples would struggle to afford it...) then again I don't think any government is going to allow house prices to free fall because too many people will be in negative equity - more serious problems than I will have and I do see this as a house for life... (they definitely should have stopped the banks lending the way they did which led to the unsustainable increase in prices though...)
We are in a bit of a bubble here ...this is a really fantastic place to live semi-rural, good community spirit, good schools - and all within a very easy commute to three universities and a 10 min drive from a city...so you get less house for your money - but values have and should hold up pretty well....this is a safe place to buy if you don't know the city well. (I drew the short straw with my neighbour).
As for renting with neighbour problem ... I think it wouldn't be so bad for new tenants...for various reasons (they won't have our history - and I'll have taken a lot of the flak...and we really do have a communication problem - to the extent when I took his dog home when it got out and was running in the road and nearly got hit by a car - he was angry with me )...and I'm English, we are in Scotland and he is a Scot ...from a few things he has said sadly (and it took me a long time to realise this) he really does have an issue with that...unlike the overwhelming majority of fantastic accepting Scottish people I have met...

Please don't put too much store in house price crashes. There is a shortage of housing in the UK and new homes are not being built fast enough to rectify that shortage. There have been several short-term dips in the last 25 years but the long-term trend is always up. If you're in a nice location, even the short-term dips will not be as severe as in less popular areas. You're not a speculator that wants to make a profit, just a cash buyer that wants a new home. You don't sound like you'll have to sell up in a hurry.... no mortgage lender breathing down your neck, no relocation in the offing... so you've got 10, 20, 30 years potentially in the same property. I think you're in a far more secure situation than many others.

"Inheritance tax isn't an issue if you hold the property as joint tenants with rights of survivorship."

Um, that isn't true. I don't know where you would get that idea from! You can usually discount the value of the deceased's share (starting point is 10%) for the purposes of calculating the tax due, to reflect the effect on the value of the share of the difficulty in selling a share of a property - but you still pay tax on it (sorry).

I think rights of survivorship are different in Scotland, but I'm not sure - I'm not Scots law qualified.

OP, I think whatever financial situation you're in, if you're a naturally cautious sort of person you will never feel 100% secure. Unless you have a dozen multi million pound trust funds that will always be there to bail you out, that sense of 'what if' will always be there.

Maybe if you are feeling nervous about spending your capital, you could rent out your current house, rent a larger place for yourselves that needs no work and then use part of your capital to buy some other income-giving investment? I would recommend seeing a really good IFA who can help you with proper wealth planning. Owning property outright isn't very efficient in general - you're tying up capital and it isn't earning you anything. See an IFA and then have a think.

Are you talking about money in a German bank or a Greek bank?

"Owning property outright isn't very efficient in general"

It might not be efficient but people who own their own home live, on average, a year or two longer than those that don't. The peace of mind, stability and sense of security that comes from ownership should not be dismissed.

Does that mean you live longer if you own outright than if you own with a mortgage, Cogito, or is it a comparison between those who own and those who don't? My comment about owning outright was intended to suggest that buying outright (rather than with a mortgage) is inefficient, not that owning property at all is inefficient. Sorry that is not very clear from my post, which now that I am reading it back seems to suggest that the two options are buy outright or rent - clearly this isn't right , I was trying to suggest the OP should consider purchasing with a mortgage and investing the capital elsewhere.

Mortgaged or owned outright, people who have their own home rather than renting from a landlord are generally happier, more secure and live a little longer.

Why is it inefficient to purchase without a mortgage?
I know if we hadn't paid ours off over the 25 years we would have paid back twice as much...
What investments bring back a higher return that the interest paid on a mortgage? Why have interest only mortgages caused such a problem?

I'm thinking early 90s and the 15% interest rate ...situation where you can't afford to keep up repayments, you have to sell... everyone is in negative equity (including you) or you have to cash in your investments (at whatever return you can get) to hold onto your property...
At least owning if I really really needed to I could borrow against the property to get access to cash...

Also I have a few Lloyds & Barclays shares...not included in the 10-15K - because they are more or less worthless - Lloyds in particular - less than what I paid for them in the late 80s...(my only comfort is that I couldn't afford to pay the second instalment the year after I got them ...and had an unauthorised overdraft...bank forced me to sell about half of them and sale went through on the Friday before Black Monday in 1987 (or was 88?)

Most people don't have enough cash to buy a whole house so taking on a mortgage is a way to a) get a home and b) buy something that will appreciate faster than a cheaper property. When you ask 'what investments bring back a higher return' the answer up until relatively recently has been 'property'. I also remember the 15% interest days, Black Wednesdays/Mondays and all the rest but, when mortgages were steady at about 4% a few years ago and prices were going up 10% a year, property was definitely a better investment than cash deposits, even taking the mortgage interest into account.

It's inefficient because the return on your investment is generally less than if you had put down a cash deposit and used a mortgage for the rest.

For example, imagine you buy a house for £100,000 outright, mortgage free, and then sell it for £110,000 a year later. The return on your £100,000 investment is 10%.

Now imagine that you buy the same house with a 90% (interest only for the simplicity of sums) mortgage, with a 5% interest rate. Let's also assume that you can't rent it out and you have to pay the mortgage of £4500 per year yourself. A year later you sell the house for 110,000 again. You make a net profit (gross profit minus mortgage payments) of £5500. BUT because your investment was only £10,000 you've made 55%. If you've managed to rent it in that year then your return will be higher still.

Obviously this depends on how high mortgage rates are, and whether any increases in value outstrip your interest payments etc etc.

OP Please don't worry you are in a better situation than anyone I know at the moment.

We rent I earn a very good wage as does my DH yet I have £100 in the bank to last us ten days £70 of which is for petrol, im on a Debt management plan and daily get red letters. It's not from irresponsible spending it's down to previous circumstances and not being able to keep up with the cost of living and as a consequence despite now having new jobs and earning much more we are paying for previous rough times and I will be untill 2027 (accoring to my DMP)

You are very lucky to own 2 houses outright. Even if you are not cash rich you do have a bit of a safety net in the bank and you have houses you could either borrow against or sell. If you don't 'need' the money at the moment there is no point in having it in the bank.

Is there anyway you can put the money you get in rent away each month as you havent had this before?

If you own and rent out property surely you need some savings incase something huge needs fixing (like a boiler or roof)? In a ideal world OP would need some savings to pay for repairs on the rented out house.

I'n a ideal world i would be happy with 10k in savings, sadly i am not living in this ideal world and have barely no savings and what savings i do have would not pay of my creddit card bill .

DaisySteiner/Corgito- ok - I get that but I wouldn't bet at property prices increasing that much at the moment.... and not taking into account things like capital gains and fees...(or stamp duty - which wouldn't be relevant in your example)...
In Scotland most houses are sold (through solicitors -not estate agents) as 'Offers over' - a few years ago it was normal to get 20% more than the 'offers over' price...now apparently it could be 20% less....
We offered just over £10k less than mortgage valuation (in a secret auction type scenario) and were the highest bidder...(and our solicitor said he didn't think it would be enough) apparently lower end properties are going for close to 'offers over' - higher value properties are the ones taking the biggest hit...

RhiRhi123 - the rental income isn't extra - it will be about the same as the income we currently get in interest on the money we are using to buy the new house - and is included in our £25k pa income...

It is the repairs etc I'm worried about (and we have dipped into our capital in the past for things like a new kitchen (desperately needed) for this house and a shed...)

Anyone struggling - you really have my empathy...not hugh debts but no money - so desperate I thought I was going to be homeless...maybe thats why this is freaking me out so much...

My advice would be (it is what I did years ago when I was in a mess) -start using cash...take out what you can spend (after fixed expenses and a little for emergencies) for a week in cash (eg food, treats etc)...and that is all you can spend - what you haven't spent at the end of the week you can add onto the next weeks or even put in a separate account for special treats ....

Eg If I had £30 to spend in week (and I didn't have that much) spending £20 on a card is relatively easy - it isn't real - holding three £10 notes and handing over two of them I found a lot harder...
(and also you can't spend £30.50 thinking I WILL spend 50p less next week)

"I wouldn't bet at property prices increasing that much at the moment"

I agree, but property has to be viewed as a long term investment anyway. Additionally it is rarely a good idea to put all your financial eggs in one basket and to use a variety of investment vehicles to spread your risk eg. property, ISAs, pension (don't discount the tax benefits by investing in a pension. If you put some money in a pension the government will top it up by 25% to represent the income tax paid on it. This also reduces your income for tax credit purposes).

I think it would be worth speaking to a good independent financial advisor about your situation.

I agree with DaisySteiner. I think you should see a good financial advisor. I have been an 'accidental' LL and it was not fun at all, so I think you should seriously consider your options before you commit to this new house.