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House Purchase - Savings Query
3 Answers
I want to buy a house and put down as much of my savings as possible for a deposit but I'm not sure how much of my savings to keep back for a safety net? This would be to cover emergencies, one off big spends etc.
Answers
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I agree with APG. The advice I've seen quoted many, many times over the years (even in pre-internet days, in newspaper finance columns, etc) is that one should always aim to have savings equivalent to two months income in the bank for emergency purposes, with up to six months being better. [Before someone posts to criticise that advice, I'll acknowledge that...
17:29 Thu 09th Sep 2021
I agree with APG.
The advice I've seen quoted many, many times over the years (even in pre-internet days, in newspaper finance columns, etc) is that one should always aim to have savings equivalent to two months income in the bank for emergency purposes, with up to six months being better.
[Before someone posts to criticise that advice, I'll acknowledge that it's actually totally impractical for people who struggle on the lowest incomes to follow it, as such people are usually happy just to find that they've got a pound or two left in their pocket, with nothing at all in the bank, at the end of a week. Been there, done that!].
However, in these days of easily-available credit, one also needs to factor in how much spare income might be available to cover emergencies after all monthly bills have been paid. For example, if (after making your monthly mortgage payment, paying all other regular bills, saving for holidays, etc), you expect to have £200 per month left to play with, that's a couple of hundred pounds that could be used to pay off a bank loan (or credit card payment) needed to cover an emergency. So you might not need to have particularly high savings for such a contingency. (On the other hand, if you only expect to have £50 left to play with at the end of each month, you might want to have higher savings to call upon for emergencies, as you wouldn't be able to borrow much to cover them).
When doing your sums, remember that it's not just emergencies that you need to budget for. Mortgage interest rates are currently very low (at around 3%) but there's no guarantee that they'll stay that way. (Indeed, from a historical perspective, it's extremely unlikely that they will). If interest rates get back to the levels of the 1990s (often around 8%), or even those of the 1970s and 80s (well above 10% for much of the time), your monthly mortgage repayments could really rocket up.
The advice I've seen quoted many, many times over the years (even in pre-internet days, in newspaper finance columns, etc) is that one should always aim to have savings equivalent to two months income in the bank for emergency purposes, with up to six months being better.
[Before someone posts to criticise that advice, I'll acknowledge that it's actually totally impractical for people who struggle on the lowest incomes to follow it, as such people are usually happy just to find that they've got a pound or two left in their pocket, with nothing at all in the bank, at the end of a week. Been there, done that!].
However, in these days of easily-available credit, one also needs to factor in how much spare income might be available to cover emergencies after all monthly bills have been paid. For example, if (after making your monthly mortgage payment, paying all other regular bills, saving for holidays, etc), you expect to have £200 per month left to play with, that's a couple of hundred pounds that could be used to pay off a bank loan (or credit card payment) needed to cover an emergency. So you might not need to have particularly high savings for such a contingency. (On the other hand, if you only expect to have £50 left to play with at the end of each month, you might want to have higher savings to call upon for emergencies, as you wouldn't be able to borrow much to cover them).
When doing your sums, remember that it's not just emergencies that you need to budget for. Mortgage interest rates are currently very low (at around 3%) but there's no guarantee that they'll stay that way. (Indeed, from a historical perspective, it's extremely unlikely that they will). If interest rates get back to the levels of the 1990s (often around 8%), or even those of the 1970s and 80s (well above 10% for much of the time), your monthly mortgage repayments could really rocket up.
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