Postponing Home Renovation: What to do with savings

Regular reader of this forum, first time poster. Any advise is greatly appreciated...

Age: 42
Spouse’s/Partner's age: 44

Annual gross income from employment or profession: 57k
Annual gross income of spouse: 80k

Monthly take-home pay: approx 7k

Type of employment: Private employee and Public Service.

In general are you:
(a) spending more than you earn, or
(b) saving
Saving: Currently saving 2k a month (can increase this to 2.5k)

Rough estimate of value of home: 280k
Amount outstanding on your mortgage:
140k
What interest rate are you paying?
2.25% (monthly repayments €750)

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
120k cash in bank accounts

Do you have a pension scheme?
Yes, partner has defined benefit scheme, My pension pot currently at 80k (I contribute 4%, Company 5%)

Do you own any investment or other property?
No

Ages of children:
8,7,4

Life insurance:
Yes,basic

So, things I'd like to do:
We had planned on doing a renovation and extension to our existing house starting this summer and were saving hard to reduce the amount of topup mortgage.

Projected costings of renovation and extension were €300k but with material and labour price increases in construction this figure was increasing every week so we have parked the project for the time being.

We will have to do the project or a paired back version in the next few years but we can live in the house in the meantime. Its hard to know what the construction industry will be like in the next few years (brexit, supply chains, material shortage due to covid, labour shortages) but we can’t see us starting the project again in the next 2 years.

We have 120k in savings now just sitting in our accounts doing nothing and we believe we can continue to save 2.5k monthly going forward.

We would be very grateful for advice on what we should do with our current savings to ensure we are making the best use of it.

Many Thanks

€300k is pretty much the cost of building a new house! With that kind of renovation you'll presumably have to rent as well for 6-9 months too - this is not easy to find!

Would you not be better off using equity, savings, and more mortgage for a bigger/better house in the same area?

Otherwise your pension pot at 1.5x gross income is on the low side for someone of your age. I would look at maxing own contributions to take account of tax relief for your age bracket.

Very difficult.

With such a major project planned for the medium term, you should retain access to cash. You should not lock it away in a pension fund.

You could pay off your mortgage and this would save you €2,700 a year in interest. ( €120k @2.25%).

But if you have a mortgage-free home, it might be difficult to borrow €300k against it to do the work you want. It seems easier to top up an existing mortgage.

I think you should just do the work you need to do as soon as possible.

Alternatively, you have no choice but to leave it sitting in a bank account earning nothing.

When you have the project done and you know where you stand financially, you can address the pension issue.

Brendan

Lansdowne said:

We can’t see us starting the project again in the next 2 years.

We have 120k in savings now just sitting in our accounts doing nothing.

Click to expand...

If you can’t find anything better, you could buy a 3 year savings bond, €100k would earn €1,000 tax free over the 3 years, but they can be cashed in at any time with 7 days notice.

If you are ready to go ahead with your renovation in 2 years, cash in the bond, it will have earned €600 at that stage. Not a lot I know but better than nothing from your bank.

https://www.statesavings.ie/our-products/3-year-savings-bond

So your house is currently worth around €280k but you're planning on spending €300k on it, do you have an idea how much your house will be worth with the renovations completed? Is it likely to add anywhere near that amount of value to the property? It can be worth taking a bit of a hit to save on the cost of moving or to stay in a perfect location / the forever home, but you could end up with a huge capital loss if you're only going to add €100k for example to the value of your home.

Many thanks @hfp, @twofor1, @Brendan Burgess & @NoRegretsCoyote - I really appreciate you taking the time to reply.

We will keep our heads down for the time being, keep saving and see what the next year or 2 has in store!

hfp said:

So your house is currently worth around €280k but you're planning on spending €300k on it, do you have an idea how much your house will be worth with the renovations completed? Is it likely to add anywhere near that amount of value to the property? It can be worth taking a bit of a hit to save on the cost of moving or to stay in a perfect location / the forever home, but you could end up with a huge capital loss if you're only going to add €100k for example to the value of your home.

Click to expand...

I work on the assumption that the increase in value of a house post renovations will be net of labour costs.

We're in a similar situation at the moment (although on a smaller scale) and I'm thinking about putting our savings in Prize bonds until we're ready to go ahead with the extension. I know the prizes have been reduced even further but at least we will be able to access our money when we need it.

If you are planning on spending it in the next 2-3 years, leave it in cash. State savings is the best place for it. You can access it any time and get a small bit of interest if kept to term. Investing it is too risky.

Building prices are mad at present but it doesn't look like cooling over the next few years. Maybe prices will go down for the likes of timber and steel but the demand for labour is crazy. You may end up paying more in the future.