Withdrawing from savings

Jammie01

Myself and my partner are saving for a house at the moment. We dont plan to buy until 2014 and will have about 45k saved between us by then.

What I'm wondering is what the bank thinks of withdrawing lump sums occasionally from savings? This would be for things like holidays, college fees, car insurance etc. Would this be generally advised against even if it doesn't happen regularly? Would the bank use it against you when applying for a mortgage?

At the moment I am considering increasing the amount that I save every month so that I can pay my college fees next September. Would I be better off having two savings account, one for the house and another for these extra expenses that come up or is it ok to have it all in the one account and withdraw the fees from that? I want to be seen in the best possible light by the bank when I do apply in 2014 for a mortgage.

Thanks in advance!

orionm_73

I would go with two accounts. One on demand, to cover fees, insurance and holidays. If the bank offers a higher interest a/c where you have to give notice of withdrawals or deposit a minimum amount monthly, I'd use that for the house deposit savings.

Jammie01

Thanks for the reply. So do you think it would put a bank off lending to someone even if it only happened say once or twice a year? Its just that at the moment I'm saving into my credit union account which has a salary deduction service- real handy as the savings never go into my current account and I don't have to bother with standing orders or direct debits and making sure the money is in my account when they need to go out.

I'll have a look to see what savings accounts the various banks have though and see if they suit me,

Thanks again

killers1

It would be easier if you separated the savings for the house into one account and the savings for one off expenses in a different one. It's not that it would go against you when you apply for your mortgage, it'll just make it easier for the underwriter to assess your application. If you are saving it in the one account the bank will just see what the balance has increased by over say a year and divide by 12 to get the average amount you have 'really' saved on a monthly basis in that time and it will be that figure that will go towards showing your ability to service the mortgage repayments.

Beau

Jammie01 wrote: »

I'm saving into my credit union account

I love the credit union but for that amount of money surely a higher interest rate savings account with limited withdrawals would be a better option and the credit union for smaller shorter term savings.

Minier81

I don't think occasional withdrawals from saving are seen in a negative light. I got my first mortgage a year ago, and had a really strong savings history but occasionally dipped into it. The bank never mentioned any of the withdrawals - which would have been for holidays and that sort of thing. Granted I did have about 4 savings accounts to get that best interest rates, because some of them had limits on what you could save monthly. And when I dipped in, it was always to one particular account. From a practical point of view, it may be easier to set up a second savings account - something like those on-line regular saver ones.

Ritchi

I'm not sure, but from what I've been led to believe, the biggest factor in how much you can borrow, is down to what your ability to repay is(rent + savings - loans). So if you're dipping into savings, that to me, would suggest that your ability to repay, or budget correctly isn't as straight forward. I would definitely advise having a separate account, which you do not dip into.

killers1

Ritchi you're right in terms of how the bank assess your ability to repay the proposed mortgage. The only difference it makes in terms of a mortgage application is that it is easier for an Underwriter in the Bank to understand how you manage your finances. Say for example you save €1,200pm over 12 months (€14,400 in total) but during the year you dip into the savings account and withdraw a total of €4,800. The balance you are left with is €9,600. (€9,600 / 12 = €800pm) The €800pm is what you have proven you can afford towards a mortgage repayment. By having a separate savings account you can save the €800pm (untouched) and save the additional €400pm) for the one off expenses during the year (€400 X 12 = €4,800). Either way the figures work out the same i.e Total Saved €14,400, total spent €4,800, savings left over €9,600 which equates to €800pm...Either way won't negatively effect your application but by making it easier for the Underwriter to understand how you operate your finances(by having separate accounts) the greater your chance of approval...

Ritchi

killers1 wrote: »

Ritchi you're right in terms of how the bank assess your ability to repay the proposed mortgage. The only difference it makes in terms of a mortgage application is that it is easier for an Underwriter in the Bank to understand how you manage your finances. Say for example you save €1,200pm over 12 months (€14,400 in total) but during the year you dip into the savings account and withdraw a total of €4,800. The balance you are left with is €9,600. (€9,600 / 12 = €800pm) The €800pm is what you have proven you can afford towards a mortgage repayment. By having a separate savings account you can save the €800pm (untouched) and save the additional €400pm) for the one off expenses during the year (€400 X 12 = €4,800). Either way the figures work out the same i.e Total Saved €14,400, total spent €4,800, savings left over €9,600 which equates to €800pm...Either way won't negatively effect your application but by making it easier for the Underwriter to understand how you operate your finances(by having separate accounts) the greater your chance of approval...

Really? I would have thought consistency would have had to play a part in it.

If you dip into to pay for something, it would suggest that you wouldn't be able to use the savings you're making now, as a potential monthly mortgage repayment.

killers1

Ritchi wrote: »

killers1 wrote: »

Ritchi you're right in terms of how the bank assess your ability to repay the proposed mortgage. The only difference it makes in terms of a mortgage application is that it is easier for an Underwriter in the Bank to understand how you manage your finances. Say for example you save €1,200pm over 12 months (€14,400 in total) but during the year you dip into the savings account and withdraw a total of €4,800. The balance you are left with is €9,600. (€9,600 / 12 = €800pm) The €800pm is what you have proven you can afford towards a mortgage repayment. By having a separate savings account you can save the €800pm (untouched) and save the additional €400pm) for the one off expenses during the year (€400 X 12 = €4,800). Either way the figures work out the same i.e Total Saved €14,400, total spent €4,800, savings left over €9,600 which equates to €800pm...Either way won't negatively effect your application but by making it easier for the Underwriter to understand how you operate your finances(by having separate accounts) the greater your chance of approval...

Really? I would have thought consistency would have had to play a part in it.

If you dip into to pay for something, it would suggest that you wouldn't be able to use the savings you're making now, as a potential monthly mortgage repayment.

Ritchi have a re-read of my example above where the person is saving €1,200pm but only gets credit for €800pm towards proving repayment ability because of withdrawals from the account. Where just one account is used the bank will add up total lodgements, subtract total withdrawals and divide by 12 to get the 'real' figure you have shown affordability for on a monthly basis.

Ritchi

killers1 wrote: »

Ritchi have a re-read of my example above where the person is saving €1,200pm but only gets credit for €800pm towards proving repayment ability because of withdrawals from the account. Where just one account is used the bank will add up total lodgements, subtract total withdrawals and divide by 12 to get the 'real' figure you have shown affordability for on a monthly basis.

Ah yeah, that makes sense so. They are assuming any savings over the average are your potential savings after paying a mortgage.

killers1

Ritchi wrote: »

killers1 wrote: »

Ritchi have a re-read of my example above where the person is saving €1,200pm but only gets credit for €800pm towards proving repayment ability because of withdrawals from the account. Where just one account is used the bank will add up total lodgements, subtract total withdrawals and divide by 12 to get the 'real' figure you have shown affordability for on a monthly basis.

Ah yeah, that makes sense so. They are assuming any savings over the average are your potential savings after paying a mortgage.

Sort of, but in the example above the person withdrew €4,800 during the year so the account balance accumulated €9,600 which works out at €800pm... Clear as mud eh?!

Jammie01

Thanks guys,

Think i might look into transferring the amount I've got so far in my credit union account into one with a better rate and I'll make no withdrawals to that. I'll also save an extra 200 a month into my credit union and that will be for any time I need to dip in.

Much clearer now!