Wealth Check: 'How can I climb onto the property ladder?'
Olly Pickard is 23 and wants to set aside enough money to put a deposit on a house in the next five years. Oh, and he has a student debt of £26,500
Sunday 18 September 2011
Olly Pickard is keen to set aside enough money for a deposit to get a foot on the property ladder in the next five years. The 23-year-old works in accountancy and earns £25,000 a year. He rents a room, for £600 a month, in a shared flat with one other friend in Twickenham, south-west London.
"Ideally, I would like to get on to the property ladder soon, as I see rent as money down the drain, but I can't afford to buy a house at present," he says. "I also wonder when is a good time to get on to the ladder."
After leaving university a year ago, he is burdened by debt, with £26,500 in student loans to repay. "I envisage repaying this over a long period of time as it comes out of my salary each month," he says.
He also pays around £200 a month for a four-year £7,500 car loan with Nationwide at 7 per cent. And while he uses credit cards, he makes sure to pay off the balance on these each month.
"In the short term, I would like to support my lifestyle and add to my savings so that I am in a position to buy," he says. "Beyond that, investments are of interest – but the main priority is to have enough money to be able to get a first home."
Olly has managed to squirrel away some savings, and has £5,000 in a Nationwide individual savings account (ISA) paying 2.75 per cent.
"I don't feel that I make the best use of my savings, with the ISA getting a marginally better rate than elsewhere," he says. "If I had the time to research I would like to put the money into a longer-term bond or investment."
Looking to the longer term, Olly does not yet have a pension. "I haven't contributed to my pension in my first year of working as I wanted to work out how much money I have on a monthly basis," he says.
"I plan to join the defined contribution company pension scheme soon and contribute about 5 per cent of my salary for the first couple of years – but is this sensible?"
Olly is in a reasonably good financial position for his age, says Martin Bamford from the independent financial adviser (IFA) Informed Choice.
"He is on a decent starting salary and had a clear objective in terms of property purchase, and he should be able to create a defined financial plan which will see him through the next five to 10 years," he adds.
As a priority, Olly should consider repaying the car loan early, if he can, before allocating money to savings and other financial objectives, says Mr Bamford. It will be costing him more to service this loan than he will be able to earn in interest on his savings – and he has money sitting in an ISA that could be put towards wiping out the debt.
"However," adds Duncan Carter from IFA Clearwater Financial Planning, "it makes sense to continue paying down the student loan gradually out of salary."
Savings and pensions
Olly should spend a month writing down where his money goes to help him see where savings could be made, say the advisers.
If he is prepared to do so, developing a budget will help him focus on his main goal – building up enough of a deposit to get a mortgaged property of his own in the next five years.
While Olly has the option of transferring his cash ISA into a stocks-and-shares ISA for a longer-term investment, timing this move is tricky, warns Bob Hair from wealth management firm Turcan Connell.
His first step into the stock market is best taken after he has bought a property. In the meantime, sites such as moneyfacts.co.uk will help him find out which are the best rates on the market for cash ISAs.
Savers can now save up to a maximum of £5,340 per tax year into a cash ISA, and they should shop around to find the best deal.
Olly should continue to save, but keep an eye on the rate of interest, and be prepared to transfer this to a different provider if the rate falls significantly.
At 23 years of age, Olly doesn't have to rush to open a pension, says Mr Bamford. However, as his employer is offering to contribute, this will give an early boost to his pension pot.
"Ideally he should contribute around 15 per cent a year of salary, including his employer's contributions, but whatever happens he needs to start somewhere," says Mr Hair. "Around 5 per cent is a pretty good start, but he should plan on increasing this in future years."
Buying a property
There is never a right or wrong time to get on to the property ladder, if you view it primarily as a home rather than as a short-term investment, says Mr Bamford.
"Residential property tends to go up in value over the longer term and it is usually better to spend money on mortgage repayments than money on rent."
However, Olly shouldn't be too disparaging about renting in the short term, stresses Mr Carter. "Over a 25- to 30-year mortgage period, you pay for your home several times over, so it isn't always the great investment it is often heralded to be – but I do understand the sentiment."
To make his five-year target for becoming a property owner a reality, Olly should start to consider the type and value of the property he wants to buy. "It also makes sense to research the mortgage market to find out what size deposit he might need and what the monthly costs would be," says Mr Bamford.
"While much will change over the next five years, this will at least give Olly a good starting point for defining a savings strategy."
To access a reasonable deal, Olly will need to amass a deposit of between 15 per cent and 20 per cent of the property's price.
As to whether now is a good time to buy, there remains a wide gulf between house prices and earnings, and the days of cheap and easy credit which fuelled the house-price bubble are a thing of the past.
Ultimately, Olly will probably only know whether he climbed on to the property ladder at the right time many years after he takes the plunge.
"But what we do know is that, with property prices back to 2007 levels, there are lots of good value properties out there," adds Mr Hair, "so it should be a buyers' market."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Bargain Hunter: Now's your chance to watch the best movies free of charge at home
How much lower will mortgage rates go?
The FTSE 100 is inching closer to its record high but can it maintain these levels?
MPs call for Equitable Life policyholders to be paid £2.8bn owed by government
Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity
- 1 Scarlett Johansson new band 'already hit with legal complaint' from another The Singles
- 2 Husband and wife die holding hands within hours of each other after 67 years of marriage
- 3 What color is The Dress, white and gold or blue and black? An eyewitness gives a definitive answer
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
This is what it's like to be dead, according to a guy who died for a bit
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
iJobs Money & Business
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
£22,000 - £23,000: Beverley James: Are you looking for the opportunity to work...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
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
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