Wealth Check: No savings but I want to buy my own house
Saturday 14 January 2006
Currently lodging with her mum, Julia Anne Nash, 29, is keen to buy her first property within the next year. With no savings, Julia will need a 100 per cent mortgage, though she intends to set up a savings account immediately. Aware that her ambition might be out of reach, Julia would consider buying with a friend.
While getting on the property ladder is Julia's main financial goal, she would also like some advice on starting a pension, as she currently doesn't contribute towards one. Julia has a £3,000 debt in the form of a personal loan costing 11.9 per cent a year.
We asked three independent financial advisers for their help: Jason Evans of Kohn Cougar, Kim Barrett of KS Barrett & Associates, and Alec Ruthven of AM Ruthven Associates.
Personal: Julia works in the accounts department of a carrier company earning a salary of £16,000.
Property: Looking to buy her first home within the next year.
Debt: £3,000 personal loan, paid back at an interest rate of 11.9per cent. Monthly payments are £152.03.
Savings: None but intends to set up a savings account to build up money to cover moving costs.
Pension: None at present.
Julia needs to tackle her £3,000 debt this year, stresses Evans. She cannot begin to contemplate owning her own home until she deals with the debt, which represents 25 per cent of all she earns in a year. Priority must go to increasing the loan repayments and cutting back spending.
Julia's second problem is coping with the house price rises of the past few years. Teaming up with a friend and buying a property jointly would enable her to get more for her money. However, it is important that Julia gets a contract drafted that details the situation in the event that Julia or her friend wishes to sell the property at some point.
While it is possible to obtain a 100 per cent mortgage, fewer lenders offer such loans, warns Barrett. Also, the terms on the deals tend to be less attractive. The most serious problem for Julia is that she intends to purchase in Weston-super-Mare, where a minimum amount of £90,000 is required to purchase the most basic of properties.
If Julia were able to secure a 100 per cent mortgage, says Ruthven, a half-share in a £140,000 property would mean she has to repay £70,000 plus interest. This is likely to cost in the region of £450 to £500 per month over 25 years. Ruthven agrees it is vital that Julia saves as much money as possible over the next year while she is living with her mother. If she can pay off her loan early and provide a 5 per cent deposit, she is likely to achieve two things: a better interest rate on her mortgage and another £152.03 towards mortgage payments.
Evans advises Julia to put her savings into a cash ISA, which will pay tax-free interest. It looks as if Julia could save £400 a month, (£4,800 per year), adds Ruthven. She should make a list of outgoings and identify areas that can be cut.
Julia will need to change her retirement expectations unless she is able to make sizeable contributions to a pension plan, says Barrett. However, it is essential that Julia does something, as to do nothing would be a serious mistake. She would advocate starting a stakeholder pension plan.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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