How to Maximise Savings - House deposit/Pension/ETFs?

M

Moon Unit

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13
Age: 38


Annual gross income from employment or profession: €53,000 (I just worked it out, it's actually 53 not 50)


Fortnightly take-home pay: €1394

Type of employment: e.g. Public Servant (Teacher)

In general are you: saving

Renting currently: €450 monthly

No loans or credit cards

Savings (currently saving €1000 a month in the credit union) and investments: None

Do you have a pension scheme? Public Service Pension scheme (started in 2008)

Do you own any investment or other property? No

No children

Life insurance: No


What specific question do you have or what issues are of concern to you?

Although I started teaching in 2008 I have only done 6 years full service due to career break, travelling, general messing around. Now I am in a good situation in that I am paying low rent and don't have many outgoings. I have started to save €1000 a month in the credit union with a view to perhaps getting on the property in a few years.

My savings are not gaining any interest obviously and I wanted to know if it's possible for them to do that. I looked into ETFs previously but they are long term and it seems like the tax system in Ireland doesn't lend itself too well to this type of investment.

My question is if I should keep saving as much as possible and try to buy a property in a couple of years, if I should be maximising my pension somehow (AVCs/buying back years), or investing in some other way? I would love to retire at 60 which I'm not sure is possible seeing as I will only have done 28 full years service by the time that comes around.

I know my finances are in a mess for my age and that I only have myself to blame for that so no judgement please, just advice.

Thanks a million.
 
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I don't think there is a huge rush on buying AVCs.

But for getting a mortgage the clock does tick, the longer you leave the shorter the mortgage term will be, therefore reducing your borrowing capacity.


Otherwise if you are saving for a deposit then do keep it in cash. There is too much risk of capital losses or tax on gains with ETFs over your time horizon.
 
Note that there is a Death Benefit in the PS pension scheme, so you do have a form of life insurance.

If you die in service, a lump-sum will be paid.
 
NoRegretsCoyote said:
Indeed.

I don't see the point of life insurance if you have no spouse or children in any case.
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Yep. I still have to pay a statutory 1.5% - Spouses & Children pension deduction even though I have neither, but that's another story.


Thanks for the advice. So the thing to do is keep saving for the deposit, but there's nowhere to put it to maximise interest because all the savings accounts are very low interest? And I shouldn't go near ETFs? For the moment anyway?
 
Moon Unit said:
Yep. I still have to pay a statutory 1.5% - Spouses & Children pension deduction even though I have neither, but that's another story.
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Yes but you might some day and won't have to make a back payment.


Moon Unit said:
Thanks for the advice. So the thing to do is keep saving for the deposit, but there's nowhere to put it to maximise interest because all the savings accounts are very low interest? And I shouldn't go near ETFs? For the moment anyway?
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It's up to you. Savings earn nothing, but you won't lose in nominal terms.

You could of course get an after-tax return with ETFs, but also a loss. Your time horizon is maybe 3-5 years. Would you tolerate a 20% loss on your savings for a house purchase in 5 years time? This is quite possible with equities. Personally I was very risk averse when saving for a house deposit.
 
Well done on saving 1K per month. At 12K per year, it would take you 2-3 years to save the 10% deposit for a house.
Considering the low rent you have at the moment, I would consider where else can you cut down to save some more per month. It would be nice to send to savings one out of every 2 paychecks.
 
NoRegretsCoyote said:
Personally I was very risk averse when saving for a house deposit.
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Yes. You're so right! I'll just keep saving so, and think about investing when I'm in a different situation.


Bilbo1 said:
Well done on saving 1K per month. At 12K per year, it would take you 2-3 years to save the 10% deposit for a house.
Considering the low rent you have at the moment, I would consider where else can you cut down to save some more per month. It would be nice to send to savings one out of every 2 paychecks.
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It's fairly easy to save at the minute because there's nowhere to go and nothing to do! So I will be able to put more than the 1000 in over the next few months which I will definitely be doing. I think 1000 a month is what I'll be able to save when normal life resumes, which we all know costs more money. But you're right, this should be my top priority, I could probably send one out of every two paychecks if I really try!
 
Whilst your financial position isn't amazing for your age, it's not particularly bad either. You are debt-free with no dependents and earning a decent (and safe) income.

Your plan to buy a property in a few years makes sense, and saving 1k per month should be able to get you to a deposit within 3-5 years. I think it's a no-brainer to keep this savings in cash (i.e. deposit account) or near cash considering you'll need it quite soon. Something you could look at for a small return is certain mortgage saver accounts that some of the banks offer.
 
If you can get on the property ladder aged 40
Then you can get a 25 year mortgage which will be paid off normally by the time you're 65
Good timing.
 
€175k - You can borrow up to 3.5x your salary (a limit, not a target)
€20k - You can borrow at 90%LTV meaning you need a 10% deposit
€195k - Maximum purchase price for you
€5-8k - Costs of stamp duty, solicitors, valuations, etc
€5-10k - As a first time buyer, you will probably need furniture, TV, utensils etc. Spend as much or as little as you like but make sure you budget for these items. They don't all need to be purchased on the day you move in but you will need them at some point in the first 6-12 months

You should set a target of €30k so that you can afford a deposit and the associated costs of purchasing. Once you reach €20-24k it is time to start talking to banks or brokers about getting Approval in Principal.

Are there properties in your area that you would be happy to live in that are less than €195k? It is worth having a look now to see what is available within your price range. If you currently have a few thousand saved and you can keep saving more than €1k/mth, you might not be that far off being in a position to purchase, sometime in the next 18-24 months if you are diligent. Just don't go mad when we come out of lockdown :D
 
_OkGo_ said:
€175k - You can borrow up to 3.5x your salary (a limit, not a target)
€20k - You can borrow at 90%LTV meaning you need a 10% deposit
€195k - Maximum purchase price for you
€5-8k - Costs of stamp duty, solicitors, valuations, etc
€5-10k - As a first time buyer, you will probably need furniture, TV, utensils etc. Spend as much or as little as you like but make sure you budget for these items. They don't all need to be purchased on the day you move in but you will need them at some point in the first 6-12 months

You should set a target of €30k so that you can afford a deposit and the associated costs of purchasing. Once you reach €20-24k it is time to start talking to banks or brokers about getting Approval in Principal.

Are there properties in your area that you would be happy to live in that are less than €195k? It is worth having a look now to see what is available within your price range. If you currently have a few thousand saved and you can keep saving more than €1k/mth, you might not be that far off being in a position to purchase, sometime in the next 18-24 months if you are diligent. Just don't go mad when we come out of lockdown :D
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Thanks for the detailed post.

As a public servant my salary does go up every year by generally around €1500. I have heard that banks take that into account when approving a mortgage amount? Although I am not completely sure about that as I haven't looked into it properly yet.
 
Op just be aware some credit unions have savings caps too so you might need a separate account for savings if you go over the limit if applicable
 
Very true! You never know with credit unions !

Would it be worth opening a savings account with Raisin bank? They seem to have the best interest at the minute.

At the minute I'm with PTSB , who I joined because they had no fees, but now I'm paying €72 a year, so I'm looking for another current account at the minute anyway and reading through some other threads. i'm probably going off topic here, apologies.
 
Moon Unit said:
Very true! You never know with credit unions !

Would it be worth opening a savings account with Raisin bank? They seem to have the best interest at the minute.

At the minute I'm with PTSB , who I joined because they had no fees, but now I'm paying €72 a year, so I'm looking for another current account at the minute anyway and reading through some other threads. i'm probably going off topic here, apologies.
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Absolutely, move to a bank with no fees. On principle, if nothing else.

As others have said, you need to keep your savings in cash for your house deposit. Banks take your incremental salary scale when assessing your job security and determining your suitability for an exception to the central Bank lending rules, if you're applying for one. But when they're calculating how much you can borrow, it will be calculated on that year's salary.

Are you based in Dublin or more rural? You'll struggle to buy a house on your own on a teacher's salary I'm Dublin. It always strikes me that teachers are mad to work in dublin if they can avoid it. Dublin teachers should really get paid more, like in London, to cover the additional living costs.
 
It may be worth your while approaching some lenders or speaking to a broker to understand where you are currently at regarding approval in principle and if the 1K a months savings along with your low rent being paid monthly is sufficient. Lenders will stress test the loan so will want to see ability to repay more than the actual mortgage payment. It won't cost anything to have an informal chat with them over the phone and lending criteria can differ so speak to as many lenders as you can.

Also you may possibly get a mortgage exemption where they can borrow more than the than 3.5 times your salary OR get a higher LTV (above 90%). They can only issue so many per year and apparently they go fairly quickly at the start of the year but you could least ask about that as well.

You're in a good position with no credit card debt, low monthly outgoings and you are showing regular savings. And some lenders are lending up to 67 years of age, so you could start with a longer term and just overpay the mortgage when you can.

good luck with it all
 
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