Wealth Check: Buying a flat in London is no Ealing comedy

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The problem: What are the chances on a £25,000 salary?

Melanie Rodrigues, 26, is desperate to get a toehold in the property market and secure some sort of financial future. But the cost of living in London is making it hard.

"I want to stop spending so much of my pay cheque on rent," she says. "At the moment, I feel as though I am throwing money down the drain."

Melanie earns around £25,000 a year as a researcher for BBC Crimewatch UK, but as she pays £725 a month to rent her one-bed flat in Ealing, west London, finances are tight.

"My job is exciting, as I get to travel around the country, but this makes daily expenses unpredictable. It's hard to budget - especially when living costs in London are so expensive."

So far, her search for flats in Ealing has yielded nothing but expensive properties: one-bed flats cost around £230,000.

"I would like to buy a place I can rent out in the future to help fund travelling plans if I take a career break," she says.

Her parents have offered to help her with a deposit when she is ready to buy.

Melanie has also been disciplined in building up her own savings. She has £12,000 in an HSBC cash individual savings account (ISA) at a rate of 4.35 per cent, and £3,000 in an HSBC flexible saver account at 2.6 per cent.

Her other financial concern is saving for the longer term. "I would like to begin investing in shares but am not sure how to choose the right ones," she says. "I'm interested in ethical funds as I want to invest in companies I really believe in."

Debt is another burden, as she has £15,000 in student loans from her four-year law degree.

She also uses the £1,000 interest-free overdraft facility on her HSBC graduate current account to help make ends meet each month.

Melanie contributes 5.5 per cent of her pay to the BBC's final salary pension scheme, but has no protection policies in place.

The cure: Buy with a friend, get more from your savings

Without a lot of financial support from her family, Melanie will struggle to buy a flat in west London, warns Paul Greaves of independent financial adviser (IFA) Montgomery Charles.

But he says that one possibility is buying with a friend.

Property

Melanie should work on building a deposit of at least 10 to 15 per cent to give her access to the best mortgage deals, says Paul Byles of IFA Towry Law. This will mean she avoids the higher lending charge levied by some banks and building societies to protect themselves if borrowers can't meet their repayments.

But Mr Greaves warns that Melanie faces an "immediate difficulty" in trying to buy in the £230,000 price bracket. "The maximum loan available to her would be four or five times salary - up to £125,000."

He adds that even if she did manage to get a repayment mortgage of £200,000, the monthly sums would still be around £1,168 over 25 years at an interest rate of 5 per cent.

Although the cost would be less with an interest-only mortgage, buying with a friend or family member is also worth considering as she would be able to borrow more, says Mr Byles.

But he warns that problems can occur when one person wants to sell before the other, so legal advice should be taken.

Another option suggested by Mr Greaves is buying a purely rental property outside London, where the income will at least cover the interest on the mortgage. "This would get Melanie on the ladder and, potentially, provide some income in the future to help fund her travelling."

Savings

Melanie should continue to maximise her cash ISA allowance by making regular contributions, says Mr Byles. "This will help her to accrue capital for her main objective of a property deposit."

Mr Greaves suggests she switch the £3,000 in her HSBC flexible saver to an account offering a better rate. He cites Bradford & Bingley's online account, paying 4.85 per cent.

Investments

Melanie should steer clear of the stock market for now, says Caroline Anstee of IFA Elements. Investments in shares are for the long term and she will need access to her savings.

But once the property purchase is settled, the best way to invest is through a stocks and shares ISA where Melanie can put in £4,000 a year - in addition to her cash ISA allowance.

As she has shown an interest in "green" funds, Mr Greaves suggests F&C Stewardship Income. Mr Byles recommends Aberdeen Ethical World and Standard UK Ethical.

Retirement

Ms Anstee says Melanie is lucky to have access to the BBC final salary pension plan. "It doesn't matter that she is only paying the minimum; the important thing is to have a pension. She can review how much she contributes when the house purchase is settled."

Debt

Since the rate on student loans is linked to inflation - and currently stands at only 3.2 per cent - Melanie should not worry about clearing the debt immediately, says Mr Byles.

Protection

Ms Anstee recommends that Melanie check what benefits are provided by her employer. "After reviewing these, she should think about income protection and critical illness cover."

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