Wealth Check: A pension dream built on bricks and mortar


The problem: Short-term costs cloud the long-term vision

Aspiring property developer Karin Jones, 36, has plans to build up a portfolio to fund her retirement.

In the short term, she wants to buy a new one- or two-bedroom property with her fiancé so she can rent out her current home - a studio flat in Hammersmith, west London.

"And in the longer term, I want to buy a third property to do up and sell on," she says.

"Eventually, as my retirement fund, I'd like to have a number of properties to rent out."

Since she bought her flat eight years ago, at a cost of £55,000, it has more than trebled in value to around £185,000. She has a tracker mortgage with the Halifax at a rate of 5.7 per cent; the loan is £50,000 interest-only and £10,000 repayment.

But before she can start thinking about building her property empire, Karin has to save for a New York wedding in June, likely to cost around £5,000. Then, once the couple have returned to the UK, they want to have a party. This will cost £3,000 and they hope their families will help to fund it.

As a manager for the Flight Centre travel shop, Karin earns between £35,000 and £42,000 a year according to performance-based incentives.

Her savings include £1,000 in an internet account with Intelligent Finance, paying 4.5 per cent, and £7,500 in an equity individual savings account (ISA) with online stockbroker TD Waterhouse.

However, Karin has £10,000 of debts split between a personal loan and two credit cards.

A £5,000 loan at 6.9 per cent with Northern Rock, taken out 18 months ago to pay for her car, has three years left to run.

On her plastic, she recently moved a balance of £2,500 on to a Virgin card that is interest-free for nine months, but she also owes £2,500 on an HSBC card at a rate of 14.9 per cent.

Karin has paid in to a company pension for three years and currently contributes 6.5 per cent of her salary, while her employer puts in around 3 per cent.

She has no insurance policies.

The cure: Don't rely on property for your retirement

Karin needs to get down to some disciplined budgeting to meet the expense of her wedding and also to pay off her credit card debt, says Julie Hedge at independent financial adviser (IFA) Christie Scotts.

She also urges caution over a property portfolio: "There are still good long-term gains to be made in bricks and mortar, but the best investment strategy is one that doesn't place all of its eggs in one basket."

Ms Hedge recommends Karin build up resources in all "asset classes" - extra pension premiums, ISAs, unit trusts, investment bonds - as well as property.

Savings/investments

Karin has done well to amass £8,500 in savings, but given the amount of cash she needs this year alone to fund her wedding and pay off debts, she may have to consider using her savings in the short term, says Ms Hedge.

"If so, she should aim to make a monthly commitment to a savings plan - such as a tax-free mini cash ISA."

The Halifax, for example, pays 5 per cent on its Saver Direct.

"Karin could also move her Intelligent Finance savings into this tax-free account," she adds.

However, Ben Yearsley of IFA Hargreaves Lansdown warns that Karin must first check the status of her equity ISA. If it is a maxi account - allowing her to invest up to £7,000 a year - this will prevent her from taking out a mini cash ISA at the same time.

Debts

Karin should try to move the HSBC balance to the Virgin card, says Ms Hedge, but she should ensure that the balance is paid off before this deal runs out. "The interest shoots up to an annual percentage rate (APR) of 15.9 per cent afterwards."

Property

Provided there are no redemption penalties, Mr Yearsley says Karin should shop around for a better mortgage deal with a lower interest rate. "A large part of the home loan is on an interest-only basis," he adds. "She should either start a regular savings plan to pay it off [such as a mini stocks and shares ISA], or change to a repayment basis."

But Colin Rothery at IFA Throgmorton Financial Services says switching to a repayment deal is less necessary if her studio flat is to become an investment - as long as her main residence is on a repayment basis.

He adds that it will be easy for Karin to remortgage her flat to a "let-to-buy" deal (one that lets customers use their existing property to buy a new place while renting it out).

"Today, lots of lenders offer these products at competitive rates. And if she needs a rise in the mortgage, this should be relatively easy to arrange as there's lots of equity in her flat."

Retirement

Karin should consider raising her contributions, says Mr Yearsley. "As a rule, you should be putting in half your age as a percentage of your salary.

"Karin is 36 and has only been paying into a pension for three years," he adds. "She needs to increase her payments or she will not have built up a big enough pension pot by the time she wants to retire."

Protection

Karin needs to think about insurance now she is getting married, says Ms Hedge. "Her employer may offer benefits, so she should check she is getting all she is entitled to."

If you would like a makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
Powdered colors are displayed for sale at a market ahead of the Holi festival in Bhopal, India
techHere's what you need to know about the riotous occasion
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Evening Administrator

    £8 per hour: Recruitment Genius: This Pension Specialist was established early...

    Guru Careers: Executive Assistant / PA

    £30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

    Ashdown Group: Graduate Application Support Analyst

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Reach Volunteering: External Finance Trustee Needed!

    Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

    Day In a Page

    Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

    Homeless Veterans campaign

    Donations hit record-breaking £1m target after huge gift from Lloyds Bank
    Flight MH370 a year on: Lost without a trace – but the search goes on

    Lost without a trace

    But, a year on, the search continues for Flight MH370
    Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

    Germany's spy HQ springs a leak

    Thieves break into new €1.5bn complex... to steal taps
    International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

    Whirlwind wit of Simone de Beauvoir

    Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
    Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

    Confessions of a planespotter

    With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
    Russia's gulag museum 'makes no mention' of Stalin's atrocities

    Russia's gulag museum

    Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
    The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

    The big fresh food con

    Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
    Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

    Virginia Ironside was my landlady

    Tim Willis reveals what it's like to live with an agony aunt on call 24/7
    Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

    Paris Fashion Week 2015

    The wit and wisdom of Manish Arora's exercise in high camp
    8 best workout DVDs

    8 best workout DVDs

    If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
    Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

    Paul Scholes column

    I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
    Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

    From the Azteca to Vicarage Road with a million followers

    Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
    Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

    Khan ready to meet winner of Mayweather v Pacquiao

    The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable