Mortgage and savings

[Longlostpals]

We have £100,000 deposit and have been offered a mortgage of £300,000. The house we are buying is £350,000.

So what would you do with the money? I like the idea of keeping back 15k or so to have a cash cushion for when we need it in the future. Or should I plough the full 100k into the mortgage?

If the 100k is earmarked for a deposit, I would plough the whole lot in. £250k is still a pretty massive mortgage and that would save you an enormous amount of interest.

Thanks for the reply. We actually didn't know we had 100k (inheritance) until after we put in the offer so had budgeted with a 50k deposit. 85k deposit would shorten the mortgage by 5 years and the payments would still be less. We have 2 kids so having some money there in a savings account ready for when we really need something is very attractive to us.

Would you not have any other savings if you used the whole £100k?

You should definitely be looking to have savings for emergency or long term use (eg funeral costs - hardly anyone seems to think about that, despite it being inevitable!). I suggest an amount equal to 6 months outgoings. Some people think 3 months is sufficient but I'm more cautious, especially if you're in a position to build a bigger savings pot.

+1 to having ar least a 6 month emergency fund. With Brexit coming in just 5 months, I’d push to have at least a 9 to 12 month cushion saved.

You can usually get a better interest rate if you have a mortgage of less than 75% of the house value, so it may well be worth putting a bit more in to get a better deal. Although you may need a new mortgage offer if one has already been arranged, and proof of the inheritance for the money laundering checks that the solicitor does.

Have you budgeted the stamp duty and all the fees as well? I’d definitely put the whole £100k into the deposit if you have other savings. Otherwise, keep 6 months living expenses in ready access savings until we’ve weathered brexit. We’re keeping 12 months’ in cash savings at the moment, usually we’d have most of this amount invested.

Oops, I left out "at least" before the amount of savings.

Having enough money in savings to easily cover the cost of a new boiler/roof/redundancy (and the inevitable funeral) is a luxury not many people can afford and I would definitely take the opportunity to have such savings.

No other savings- we had put everything into the deposit (as we were quite stretched to be able to afford the size of house we need in our area) We would put it in a high interest account and add a monthly amount. There is the possibility of another baby in the next couple of years so may need an injection of cash during maternity leave.

Have also budgeted for stamp duty (first time buyers so we get a massive discount), solicitors fees etc. Luckily found out about this before we agreed on a mortgage deal and have already provided proof from the solicitor dealing with the inheritance.

If no other savings, you definitely need to leave enough for living expenses, I strongly recommend 6 months. This would cover you for job losses, house repairs, childcare etc. Don’t forget removal costs, conveyance etc. Do not underestimate the potential of disastrous Brexit, unless you work in the nhs perhaps, there’s high risk of redundancy everywhere due to brexit coupled with impending global recession. The smart money has left the country already.

In a similar situation but using some inheritance + equity to get a new property. We are keeping back £40k out of £90k to put towards kitchen bathroom etc but will never go below £15k savings hopefully.

Thanks this is all so useful. I'm sure there will be some costs we've forgotten. Conveyance budgeted. Removal costs will be minimal- we'll hire a van for the big stuff but have a small army of amazing family and friends to help with the actual move.

I would definitely have a financial cushion... 6 months of expenses. An amount allocated to moving in costs would be also be useful.

Any other debts - car on finance, loans, catalogue/store card, credit card? I would use this opportunity to be debt free apart from the mortgage.

Then I would put what remains towards the cost of the house as the lower the loan to value the better. So if you are putting say £80/85k towards the house.

Then I would aim to be putting more money towards the mortgage each month, so you chip away at it. Most lenders will be happy to accept up to 10% of loan value in additional payments per year without any penalty... though do check the mortgage paperwork.

If you become pregnant, at that point you stop chipping away and build up a fund of money to help you through maternity leave.

I would have a financial cushion as cash savings, there are always unexpected expenses after you move in.

I’d use 80k as the deposit and chuck the other 20k into a Marcus easy access account paying 1.5%.