Ideas on life financial direction?

[Bernoulli]

Hi PH
I've talked to friends and family about this and frankly I haven't really come across any answers that sit 100% right with me.
In the last few years I've started to do pretty well for myself and now I feel the need to think about what to do with myself long-term. Here's some background on my current situation so everyone knows where things stand:

Under 30, no kids, single, no desire to settle down any time soon
Take home pay £4.5k per month (contractor - that's after tax)
Live & work West Mids.
Currently rent, don't own any property.
Credit rating was 996/999 until recently, it's dipped down to high 800s when I started a new car PCP.
Based on my income I've been advised I would be offered a mortgage of £206k at present, or £245k if I eliminated the loan & car PCP.

I have a 15k loan outstanding @ 5.75% APR, payment £288 a month.
10k invested in a stocks & shares ISA spread over about 7 funds, just using it as a savings account with a likelihood of actual interest, happy to pull it all out to use for something worthwhile. Currently doing about 3% but at times does up to 8%.

Monthly outgoings-
£520/month rent, all bills inc
£600/month on a nice car which is on PCP @ 5.9% (I absolutely love it so I'm not getting rid unless I choose to change!)
£288/month the aforementioned loan payment
£400/month food fuel entertainment etc
£200/month sundries, conservative rounded up figure.
--- Total £2.5k spare per month

For the time being I'll keep chucking the excess into ISAs until I work out what I'm doing.

The obvious points:
- Pay off the loan? I could do, but the payments don't bother me and for the moment I think that having the cash available is more useful than being debt-free
- Buy a house to live in? Well, maybe, but... Renting doesn't bother me - my current place is cheap because it's a shared property and I really like the social element, I'd think of take on housemates even if I owned a property myself. I'm not someone who feels any particular desire to own the property I live in, and I seem to find myself wanting to move every 6-12 months anyway, so the very un-liquid nature of owning property fills me with dread. Horror stories from colleagues taking 9 months to sell their house, or making a bad call on an overpriced property and losing money, or moving too soon and wiping out the increased value with your moving costs. Plus I can't find any properties that excite me for my budget. I could afford a nice enough 2-bed flat, or a 3-bed house in a crap area, but frankly none of the options look attractive enough to make me actually desire them.
- Buy to let? Again same concerns in my eyes with owning property, plus I wouldn't want any hassle of running the property/properties; perhaps a portfolio of small agent-managed BTLs run completely hands-off and just enjoying the increased value when I want to cash out, the portfolio meaning my eggs aren't all in one basket at least.

I've done the sums on property endlessly and they do add up, even taking into account risk factors and the fact I'm not 100% at ease with the cash being so tied up, but still it doesn't feel right.
The cash wasted on renting currently doesn't bother me, although I am aware that if/when I get fed up with sharing, the monthly cost of renting and running a place I am happy with will be about double.
The one idea I did have was building a house - did a LOT of research on the subject over the last few months and I love the idea in terms of the project (keep me occupied), but also the completed house I would get to live in I think would have me content for a year or two at least, AND the potential returns on the eventual sale are sizeable - but to build the house I want will cost 250-300k inc land and the best I can find in self-build mortgages will only offer me about 150-175k, so, that's shelved for now.

What else? Any suggestions? Just keep stacking away cash until I have enough to leverage a mortgage for a property I am excited about? Forget about property altogether as not for me, and do something else? It seems to me that if you're not going to keep your cash 100% liquid, it's wise to invest in something that you can directly enjoy and get use out of - most people their house, but that doesn't seem sensible for me particularly knowing how I feel about staying in one place for long. In another thread someone was talking about a collection of watches for example, which I could perhaps get into, though I don't love them as yet - I was thinking maybe classic cars, just buying and running for a little while not restoring or anything; not as a huge moneyspinner but as a pastime that occupies my mind and wallet, hopefully doesn't lose money, maybe makes money, and is more liquid than property... but I don't know. Another flight of fancy perhaps.


Fortunate position to be in, I know, but I feel a little rudderless at the moment which isn't good for me; I function best when I have a plan. Ideas welcomed.

[NickCQ]

The first thing I would do is speak to another mortgage broker - the total borrowing you have indicated (£200 - 250k) sounds very low for your income level.

[Bernoulli]

NickCQ said:

The first thing I would do is speak to another mortgage broker - the total borrowing you have indicated (£200 - 250k) sounds very low for your income level.

Contractor without enough years of accounts to go off those/SA302's yet - the figures I quoted above are based off the hours I actually do, and have invoices for the past 12 months plus to prove, but when mortgages assess me based off contract alone they tend to have to cap the hours at about 35/week when in reality I do much more.

Contract is a rolling 12 month and is rock solid, it's expected to renew continually barring something drastic like another global financial crisis.

[NickCQ]

Bernoulli said:

Contractor without enough years of accounts to go off those/SA302's yet - the figures I quoted above are based off the hours I actually do, and have invoices for the past 12 months plus to prove, but when mortgages assess me based off contract alone they tend to have to cap the hours at about 35/week when in reality I do much more.

Contract is a rolling 12 month and is rock solid, it's expected to renew continually barring something drastic like another global financial crisis.

Ah OK, that's frustrating.

I'm not usually a cheerleader for BtL on these forums, but in your situation it could make some sense. If you have some exposure to the property market it means that you are 'hedged' against future rises in house prices if you do want to buy a place to live in at some stage later in life when your income regularises.

You are at a comparative advantage not owning your own property as you wouldn't have to pay the 3% additional stamp duty. But it depends what kind of rental yields you can get in your area as to whether you'll have any meaningful cash left over from month to month after tax, fees and the rest of it.

[BoRED S2upid]

Hammer the savings for a bit I know it's boring but if it went tits up in 6 months time you currently don't have enough to cover your debts never mind live for a few months while looking for another job.

[Bernoulli]

BoRED S2upid said:

Hammer the savings for a bit I know it's boring but if it went tits up in 6 months time you currently don't have enough to cover your debts never mind live for a few months while looking for another job.

Got no problem stacking away into savings for a while, but the debts thing is a little misleading; if everything went tits up the car has enough equity in it that it would clear its PCP even trading it in to a dealer; after that I've still got a few month's worth of income from my ltd company even if I didn't have a contract, and the 10k ISA - together more than enough to live off for however long it takes to get back up to speed I reckon. Loan's got 4.5 years left on it so no point paying it off until I've enough savings to still have some change after, is my current thinking.

Even if I save for a while, I'm happy enough doing that if I'm saving for something. Right now I don't have a medium or long term goal.

Still that's a sound point, thank you.

Edited by Bernoulli on Monday 6th March 11:50

[NickCQ]

Bernoulli said:

Loan's got 4.5 years left on it so no point paying it off until I've enough savings to still have some change after, is my current thinking.

As long as you are happy burning 800 quid a year on interest.

[Bernoulli]

NickCQ said:

As long as you are happy burning 800 quid a year on interest.

It's about £450 a year in interest, and in the short term that seems worth it to retain access to a £10k pot, which is enough of a sum to open doors. Once I know what I'm doing and don't need to keep it in the back pocket anymore I'll get it paid off ASAP anyway - paid off my last loan 3 years early too.

edit: Or to put another way it's less than 1% of my income to keep hold of a pot worth an extra 4 month's savings, that's a fine tradeoff to me for now.

Edited by Bernoulli on Monday 6th March 12:15

[NickCQ]

Bernoulli said:

NickCQ said:

As long as you are happy burning 800 quid a year on interest.

It's about £450 a year in interest, and in the short term that seems worth it to retain access to a £10k pot, which is enough of a sum to open doors. Once I know what I'm doing and don't need to keep it in the back pocket anymore I'll get it paid off ASAP anyway - paid off my last loan 3 years early too.

edit: Or to put another way it's less than 1% of my income to keep hold of a pot worth an extra 4 month's savings, that's a fine tradeoff to me for now.

Edited by Bernoulli on Monday 6th March 12:15

£15,000 * 5.75% = £862.5...
Barclays gives me a £5k overdraft for free - you could get that in the short term to bridge any cash needs until you have saved up a suitable cash buffer.

[covmutley]

Cut costs (mainly the debt), save more. Starts paying into pension if you dont have one. Pretty simple really!

[Bernoulli]

NickCQ said:

Bernoulli said:

NickCQ said:

As long as you are happy burning 800 quid a year on interest.

It's about £450 a year in interest, and in the short term that seems worth it to retain access to a £10k pot, which is enough of a sum to open doors. Once I know what I'm doing and don't need to keep it in the back pocket anymore I'll get it paid off ASAP anyway - paid off my last loan 3 years early too.

edit: Or to put another way it's less than 1% of my income to keep hold of a pot worth an extra 4 month's savings, that's a fine tradeoff to me for now.

Edited by Bernoulli on Monday 6th March 12:15

£15,000 * 5.75% = £862.5...

You're not compounding, the capital is paid down monthly too! It's only 15k * 5.75% in month 1.
edit: did have some maths here but it was misleading. Anyway, I'm comfortable with the loan for now & my personal calculations for interest etc are backed up by the finance docs.

Edited by Bernoulli on Monday 6th March 12:31

[NickCQ]

Bernoulli said:

You're not compounding, the capital is paid down monthly too! It's only 15k * 5.75% in month 1. In month 24 for example it's now about £9k * 5.75%.

Fair point, but if it's amortising all it means is that you are getting less liquidity - the price per £ is the same.
If I run the numbers (£15k current principal, 4.5 year term, constant payment amortisation, monthly compounding) through my little excel model you will pay £784 in the next twelve months for an average loan balance outstanding of £13.6k.

[Bernoulli]

NickCQ said:

Fair point, but if it's amortising all it means is that you are getting less liquidity - the price per £ is the same.
If I run the numbers (£15k current principal, 4.5 year term, constant payment amortisation, monthly compounding) through my little excel model you will pay £784 in the next twelve months for an average loan balance outstanding of £13.6k.

Also a fair point - anyway we're getting distracted, I'm happy servicing the cost of the debt for the time being & it's a useful chunk to have in my arsenal, I will pay it off in full once it doesn't require me totally wiping out my savings to do so.
I could as you suggest pay it off ASAP & then source credit elsewhere if I happen to need it but in my eyes a bird in the hand is worth two in the bush, I don't mind credit but hate applying for it - hangover from days where my rating was terrible.

[NickCQ]

Bernoulli said:

Also a fair point - anyway we're getting distracted, I'm happy servicing the cost of the debt for the time being & it's a useful chunk to have in my arsenal, I will pay it off in full once it doesn't require me totally wiping out my savings to do so.

I could as you suggest pay it off ASAP & then source credit elsewhere if I happen to need it but in my eyes a bird in the hand is worth two in the bush, I don't mind credit but hate applying for it - hangover from days where my rating was terrible.

I can see your point, although I have to say in (rare) praise of my UK retail bank, applying for an overdraft was pretty simple. Pre-approved offer via mobile, no forms to fill in or sign, instant decision and so on. Things seem to have come on a lot in the last few years, although it clearly depends who you bank with!

[AyBee]

Interested in the responses...that's a very good salary/rent situation you're in!

Since this is PH - what's the car?

[anonymous-user]

NickCQ said:

Barclays gives me a £5k overdraft for free - you could get that in the short term to bridge any cash needs until you have saved up a suitable cash buffer.

Why are Barclays lending you free money? Doesn't sound like their usual approach at all!

Are you sure it's not an "overdraft facility" of £5k which they are offering, with interest charges if you actually use it? Or perhaps are they making a packet out of you somewhere else so this is just a drop in a bucket?

[sc0tt]

What do you do OP?

I'm in the SE with a pretty similar contractor wage but the bills are £1200 pm.

[NickCQ]

rockin said:

NickCQ said:

Barclays gives me a £5k overdraft for free - you could get that in the short term to bridge any cash needs until you have saved up a suitable cash buffer.

Why are Barclays lending you free money? Doesn't sound like their usual approach at all!

Are you sure it's not an "overdraft facility" of £5k which they are offering, with interest charges if you actually use it? Or perhaps are they making a packet out of you somewhere else so this is just a drop in a bucket?

Maybe I wasn't clear. I don't pay them anything for the undrawn commitment, I get the first £1k free and then if I use the £4k beyond that I pay interest at normal rates, so a regular overdraft facility.

But it means that I have £5k liquidity available for emergencies that I don't pay for unless I use. Which seems better to me than taking out a £15k loan only to have £10k sit around in cash doing nothing.

[anonymous-user]

Yes, I certainly don't understand why OP is taking loans when there's spare cash kicking around. Bonkers.

[Bernoulli]

rockin said:

Yes, I certainly don't understand why OP is taking loans when there's spare cash kicking around. Bonkers.

Originally took it out to buy a car because I was too impatient to save for it , since sold the car hence the cash is now sat idle.