Reply With QuoteDoes she have an ISA set up?
Some of them allow the saver access to 5% mortgage deals after a small while. Might kill two birds with one stone.
Failing that, an SS Rolex every 5 or 6 months?
My daughter asked me for some advice today that i am completely unable to provide. I am at a loss to know what to say to her.
She is in her early 20's is saving around £1,000 a month with a vague idea that it would work as a deposit towards a flat. However she lives in London and with prices there rising by far more than what she can save in a year she's giving up on buying a home and has asked me for advice on how she can be little more adventurous with at least part of her savings.
She is particularly disappointed that savings rates don't keep pace with inflation so thats her initial objective. I'm concerned that having given up on saving for something specific she might waste her money on a particularly high risk scheme. I'm also aware that with such a small amount saved good quality professional advice won't be worthwhile.
So does anyone have a either:
- a suggestion for a lowish risk strategy to make up to 2% on a total of £30,000 and at least break even, or
- a persuasive argument to keep her saving at existing rates.
Does she have an ISA set up?
Some of them allow the saver access to 5% mortgage deals after a small while. Might kill two birds with one stone.
Failing that, an SS Rolex every 5 or 6 months?
She has an ISA, but the problem isn't tax its the rates.Originally Posted by Dave O'Sullivan
I think the problem with any house buying scheme isn't interest rates it's that she cant see how her future wages would ever cover the capital sum. She took me through the sums today and sadly i'm inclined to agree with her.
I told her to save for a Rolex Submariner or buy a CWC a month when she started saving; thats why she has come back to me now. My further advice is the same as it was then, "on reflection its too risky"
I thought the new gov backed ISAs that help with buying a property pay a 25% bonus or something like that? Need to be under 40 to get it so no use to me and my daughter's still a bit to young to benefit from it yet.
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Regular savings accounts generally pay a decent rate. Some are dependent on having a current account etc..
They are 12 month investments but very flexible. Worth looking at the Martin Lewis site. There are also sometimes term accounts which pay a higher rate but allow closure with modest interest penalty.
Last edited by David_D; 6th August 2017 at 23:34.
Simple fact of life, saving accounts have always failed to match inflation. You sometimes have long term fixes but even then you take a chance on inflation rising or not rising. Usually savings accounts just scrape below inflation.
Every thing is a risk, some years you make money and sometimes you lose it. Right now my investments are booming, up 18% in the last quarter but it could all tumble tomorrow.
Sorry but there is no easy answer to your question but if she wants to invest, go for a tracker, they are nearly always in the top quartile.
Not particularly adventurous, but I've got a couple of savings accounts at 5 to 6%. Tax payable on that, but you'll still clear 2% easy.
Good luck everybody. Have a good one.
I suspect that there is a cap on that and also exit penalties.
12 month cap on one of them.
Interest only payable after the 12 month period.
Maximum amount payable in each month on both.
Good luck everybody. Have a good one.
Regular savings accounts generally pay a decent rate. Some are dependent on having a current account etc..
They are 12 month investments but very flexible. Worth looking at the Martin Lewis site. There are sometimes term accounts which pay a higher rate but allow closure with modest interest penalty.
Both of mine dependant on having a current account
Good luck everybody. Have a good one.
Yes I have five of them paying in and out to each other but once again limits apply.
Base rate is 0.25% and on that basis any savings rate is going to be meagre.
Not sure what you're saying Mick, but I have two and they are at five and six percent respectively
Good luck everybody. Have a good one.
They only pay 5% & 6% on the first £x,000. Also you have to have £x going in every month. Most current accounts operate on this, not savings accounts.
The amount you can put in is variable each month, but each has a maximum cap. Between my two accounts I can save up to £800/month at those rates.
Good luck everybody. Have a good one.
Help to buy ISA is what I was thinking of
http://www.moneysavingexpert.com/sav...elp-to-buy-ISA
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Sadly nowadays there's no such thing as 'no risk'. Even the safest havens in all probability will lose against inflation.
Why not look for a property elsewhere so she's in the market? A buy to let would be my second choice (due to higher fees) but she might get a mortgage under what's called 'future intent to live'. In short she's moved away from where you live for a job but intends to relocate back in the future. Some lender will consider this so it's all upfront and on a residential basis and they will let you rent it out.
Property is the best investment long term, especially if you're not on the ladder as it's a home.
There is a new problem with buy to let, soon you will get no tax relief on the mortgage interest. This means that rental income will barely cover the mortgage. The only way for BTL to cost in is to buy the house for cash.
Thanks for all the ideas, the above in particular rings true.
My gut feeling is that she should put 1/3 in something like tracker, and then use the bait rates offered by the banks for regular savings to maximise the return on the rest. Also a few thousand in premium bonds to help resist the temptations of gambling
If nothing else juggling the savings accounts will develop some scheduling skills.
PS I'll get her to have another look at the Help to buy ISA I can't remember why but there is a problem with it, it might be that the £45000 limit doesn't buy you anything in London?
Last edited by raysablade; 7th August 2017 at 00:11.
As you mentioned she was saving to buy a flat, I'd still suggest buying a flat purely as an investment. Someone else mentioned that savings has failed to keep up with inflation. Yet even with Brexit looming the forecast for property values are still predicted at 5% per annum. If you look at the past ten years property has risen in value buy around 50%.
Of course every market can change/turn sour and there is still some uncertainty around property, but in simple economic terms of supply and demand it still makes property look pretty safe.
I bought a flat in Chelmsford; it's a tiny little place, but its less than 1 mile to the train station and London Liverpool Street Station is only a 35 minute train journey. I bought it just over 3 years ago as a wreck, put £5k into doing it up, so total cost to me with legal fees etc was around £77k, one just sold for around £110k, plus all the while I've been getting around £600/month rent, whereas my buy-to-let mortgage is around £300/month. I manage my flat myself, but you can reckon on 7-10% for an agent to manage for you, plus maintenance.
I reckon it's a no brainer.
She'd have an appreciating asset and even if se never lives there it should be a sensible buy.
I'm not a financial advisor but work in the Building Industry so I have always held the view bricks and mortar are sound investments in the UK.
Good luck.
That's not true. You will continue to get tax relief at the standard rate but not at the higher rate. If your rental income and your salary are below higher rate tax then it makes no difference.
Quite right. I have been a landlord for twenty years and still believe property to be a very good investment. I would not pay current inflated London prices for new builds but look instead for older properties/doer uppers in outer London e.g. Woolwich, Abbey Wood (new Crossrail stations) or commutable towns for better value.
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Very difficult to give a straightforward answer because there are so many individual issues - like what sort of access you need, your attitude to risk, time frame etc. For example equities (Unit/Investment Trusts) have done very well over the last couple of years- but you need to be prepared to take - at least- a mid-term view ...say 4 or 5 years. Hence inappropriate if you might need the money in 12 months time
With £1000 a month spare I would be using Hargreaves Lansdown website, using ISA Allowance. Each month put into a different Fund within the ISA. Lot's of articles and ideas on the HL site, if each month you put into one of their Top picks you'll have a good range covering all sorts of risk grades within a 12 month cycle which means while some funds will go up and some down, the overall direction should be upwards unless there is a massive and sudden global recession. In which case house prices are likely to plummet in line with the funds.
By a range I mean for example
1 UK Mid to large business fund
1 UK SME fund
1 Europe fund
1 Global infrastructure fund
1 Asia
1 Americas
1 USA
1 India
1 China
1 BioTech
1 Health
etc etc.
Saving £1k a month at 20yrs old is superb.
London is full of Shared Ownership schemes to help help people get on the crazy property ladder.
Each borough has their own restrictions, but then main idea is save a small deposit and then buy 25% of a flat with a deposit and small mortgage. I've done it for the past 5 years and still able to get a great return on the investment, even at 25%.
£12-20k deposit plus a mortgage on an average salary should be enough to do a 25% shared ownership on a nice flat. You can always increase the percentage, but it's costly.
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I have sold my BTL's so I could be out of touch but a friend of mine mentioned the rules that you have just mentioned but said that in a year or two, the tax relief was being scrapped completely. This is to discourage people getting into debt to finance becoming a landlord.
Buy some parking spaces as and when affordable (usually off plan in desirable areas is cheapest) - sell or rent them out - not huge profits but start small and accumulate.... it all adds up
should then save up and live on a houseboat...
Not necessarily true. I've got a BTL mortgage & am paying 1.14% interest (0.89% over base for the life of the mortgage). I think my interest payments are a hundred & something a month. Rental income is over 1K
Thats interesting, as is all the other advice.
Plenty here to chew on, thanks all.
And as was mentioned before you still get tax relief on mortgage interest at 20% (although it will be less beneficial for higher tax payers from 2020 onwards).
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Or go one further and buy a freehold garage (preferably brick built.) I had 8 at one stage bringing in £100 a month on an outlay of between £10k and £15k per garage. Easily 10% return per year plus I've made some crazy profits on garages when I've sold them. IMO garages are one of the last investments in the property world in which you can have brilliant returns. You still need to educate yourself, I.e what different areas command price wise etc but it's all very straightforward. One tip; you'll make your profit the day you buy not the day you sell so buy wisely and they will be a great little earner...pm me if you need any further help.
Oh and no stamp duty to pay, and only 18% of any profit made will be payable (capital gains)
Location, location, location! Average price statistics are meaningless. Prices where I am are pretty well where they were 10 years ago.
Savings objective and time horizon are key. Property is not liquid and some of us are old enough to remember that the price of residential property can fall as well as rise.
Checkout the new government LISA, maximum of £4K per annum to be paid in and the government pay 25% per annum. No brainer really especially as you can access it (less the government payments) if you really need to access the cash at any point. Whilst you get a better return on a pension you typically cannot acces that if needed.
http://www.moneysavingexpert.com/savings/lifetime-ISAs
Your friend has got it wrong. Tax relief has been available at your highest rate, however from this year onwards it is being reduced down to 75% then 50% then 25% then 0% by 2020 - only on the highest rate though i.e. At 40% (unless you are an additional rate payer) so even in 2020 everyone will still be able to get 20% relief.
There is a scenario where you could lose out. For example your mortgage interest is £500 and the rent is say £600. Forgetting repairs/insurance etc you would have previously only paid tax on a profit of £100 so a higher rate payer would pay £40. By 2020 you can only claim lower tax relief so you could end up paying tax of £140 (£350 x 40%) if you are higher rate (assuming my maths is correct) which means you physically lose £40 a month!
Highly unlikely as you wouldn't purchase a buy to let with that interest/return but in theory it may happen.
It would be great if any of the banks could bring a product to market.
Thinking about it this does seem to be a good plan. Her long term savings objective is to buy something in London so an asset linked to London property prices is going to be the best the best vehicle to achieve that. She works long hours so will need to rent somewhere reasonably close to central London for the foreseeable future. That means that she needs to buy something other than a home for herself that she can let.
A flat or as others have suggested something ancillary such as garages or parking keeps her in the game. The important thing is that by linking her investments to London property prices she's insulated against the biggest risk she faces which is a price rise beyond the savings rate.
A fall in prices is bad for her investments but very positive for her objective. Why didn't I think of that myself:)
Mines with Nutmeg and there are other options too.
A very tough decision!
Interesting, vaguely similar question:
Is it a bad idea to buy a property in London if it's not home for life?
https://www.theguardian.com/money/20...-home-for-life
But ....
Think hard before buying a London property
https://www.ft.com/content/922574d8-...3-e2df1b0c3220
Stagnant property market prompts London owners to cancel sales
https://www.ft.com/content/2d3318ac-...6-7b38dcaef614
An analyst has worked out what happens to London house prices under three scary political scenarios
http://www.cityam.com/267799/analyst...e-prices-under
And update today.
Headed "Housing market lull 'spreads from London'"
http://www.bbc.co.uk/news/business-40874731
'Overall, 1% more UK surveyors reported prices rising rather than falling.'
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