Wealth Check: 'How can I afford to buy out my brother's stake in the mortgage?'
Saturday 10 February 2007
Jane Stevens has worked for Oxford University for 25 years, including nine years in her current job as an accounts clerk. She lives in the city and her mortgage is on target to be repaid at around the time she retires, assuming she works until age 65.
However, Jane's brother owns a stake in her home. He is planning to retire in the near future and would like her to buy him out. He is looking for around £30,000, which would boost his retirement savings and give her full ownership of her home.
The bad news is that Jane's £10,000 savings fall some way short of the target payment and she's not sure how to make up the shortfall. She's also aware that she's not a million miles away from retirement herself. Are her pension arrangements in order, and are there any other areas of her personal finance to which she should be paying attention to ensure a secure future?
We asked three independent financial advisers for their help: Justin Modray, of Bestinvest; Liseanne Mealing, of MDM Associates; and Colin Rothery, of Throgmorton Financial Services.
Jane Stevens, 54, accounts clerk, Oxford
Income: around £28,500 a year before tax.
Monthly spending: £1,900.
Property: 12 years to run on 6 per cent mortgage. Spare room that could be rented out.
Savings: £10,000 in savings and £3,000 Friends Provident endowment policy due to mature at the end of 2007.
Pension: Final-salary Universities Superannuation Scheme.
Liseanne Mealing says the easiest way for Jane to buy out her brother's share of her house would be to add to her mortgage. She currently has £39,000 to repay on her existing mortgage and her home is worth £240,000, so she should be able to secure an additional advance. Borrowing £30,000 on the same terms as her current mortgage would mean an extra monthly cost of £150, which is affordable given Jane's current commitments and income.
Colin Rothery also thinks extending the mortgage is Jane's best bet. She could reduce the amount she needs to borrow if she plans to use her £3,000 Friends Provident endowment plan to pay her brother, and the cost of the mortgage will also come down if she shops around for a cheaper mortgage than her current deal.
Currently, Rothery says, good products are available from Bank of Ireland - 5.44 per cent a year variable; Cheltenham & Gloucester - 5.59 per cent fixed; and Nationwide - 5.64 per cent, tracking the Bank of England base rate.
Reducing the extra mortgage needed by the £3,000 endowment would cut around £30 a month off the cost of these loans.
Rothery also says that because the remortgage would be below £100,000, she should find a product that has no upfront fees - with a free valuation and no booking charges. If Jane's brother is currently named on the property deeds she may need to arrange a "transfer of equity", which would cost around £250.
The only obvious alternative to a remortgage, says Justin Modray, is to start saving hard. He calculates the she has around £250 surplus income each month. If she put all of that into a savings account that earns 6 per cent a year after charges, she'll have accumulated the £30,000 after around eight years. Her maturing endowment will help, of course.
Modray thinks Jane should consider saving into a well-diversified fund such as Midas Balanced Growth within a stocks and shares individual saving account, where returns would be tax-free. This invests across global stock markets, bonds, property and hedge funds.
Jane wisely wants to keep £5,000 in readily accessible savings in case some sort of emergency crops up. Modray believes this is sensible, but he wants her to earn as much interest as possible on the money. Rather than her current building society savings account, she should use cash individual savings accounts - she can invest up to £3,000 each tax year - as interest will then be tax-free. The National Savings Direct ISA currently pays an especially attractive 5.80 per cent a year, the equivalent of 7.25 per cent for a basic-rate taxpayer such as Jane.
Mealing agrees with advice. She points out that Jane says she is risk-averse, so stock market funds are probably not the right option. A compromise option might be a fund such as Old Mutual Prosper 80, which is lower risk but qualifies for the full £7,000 annual ISA allowance.
Jane is fortunate to be a member of a final-salary pension scheme, says Modray. She should ask her employer for a projection of how much her annual pension is likely to be at retirement. The good news is this income is guaranteed - and safe since she is in a public-sector scheme - and her long-standing membership should serve her well.
Mealing calculates that Jane will have accrued 36 years of pension scheme membership by the time she retires. On her current salary figures, that should produce an annual income of £8,000, plus a tax-free cash lump sum on retirement of around £25,000. She will also get a state pension, but needs to check exactly how much with her local Department for Work & Pensions office.
Jane has life insurance in place to repay the mortgage in the event of her death. The advisers suggests she gets some quotes on term assurance, just to see if she can lower her monthly premiums. The cost of such policies vary widely between providers.
For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail firstname.lastname@example.org
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Regular cast member Ste Hay, played by Kieron Richardson, is about to test TV boundaries
How to cut the cost of car insurance: A five-step guide to getting a better deal
How not to go into the red over Christmas
Simon Read: The only place for debt is out in the open, don't be afraid to ask for advice
Families pay the price of superfast broadband
Donald MacInnes: I was fired for making up horoscopes and then my lifestyle deteriorated
- 1 Lee Evans announces retirement from comedy on The Jonathan Ross Show
- 2 Pirelli calendar 2015: The problem with 'plus-size' models like Candice Huffine
- 3 These grandmas smoking weed for the first time are wonderful
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Angelina Jolie confuses everyone with 'ay up me duck' East Midland's greeting to Derby actor Jack O'Connell at awards show
G20 summit: Enter Putin. Accompanied by four warships. To the sound of mockery
'Muslims pre-date Columbus in discovering America,' says Turkish president Erdogan
David Cameron 'compares Vladimir Putin’s Russia to Nazi Germany' ahead of tense meeting
Former Tory PM Sir John Major says 'we would not have an NHS without migrants'
France 'blocks' Russian sailors from boarding a warship
G20 summit: David Cameron warns Vladimir Putin that Russia's relationship with the West is at a 'fork in the road' over Ukraine
iJobs Money & Business
£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
$175 - $200 per annum, Benefits: full benefits: Carlton Senior Appointments: P...
Not specified: Carlton Senior Appointments: Senior MD Financial Advisor - San ...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens