John Rafferty, 22, is a student, studying Electrical and Electronic Engineering at Queen's University Belfast. He is currently undertaking a year's industrial placement with Powerteam Electrical Services and he lives with his parents in Warrenpoint, Co Down.
As he will soon be entering full-time employment, John is eager to receive some advice about buying his first car and owning his own property.
"By the time I'm 30 I would like to have done some travelling and own my first house. How realistic is this going to be on an engineer's salary?" he asks.
Besides finishing his degree and getting a full-time job, John is also keen to start putting some money away for the future and building up his pension with an aim to retiring when he is 65. "Ideally I would like to retire by the age of 65 with my family home fully paid off. What advice can you give me regarding pensions?" he asks.
Income: £12,500 per year
Debt: Average student debt
Monthly outgoings: £175 tax and National Insurance contributions, £400 living expenses
Other: Fuel – £150 per month
Advice this week is given by Mel Kenny of Radcliffe & Newlands, London, John Kelly of Chelsea Financial Services and Danny Cox of Hargreaves Landsdown...
The experts agree that John should begin to repay his debts immediately in order to give himself a savings buffer and substantial deposit for his first property.
"Longer term, when John looks to borrow to buy a property, the bigger the deposit, the better and cheaper the range of mortgage deals that will be available to him," says Cox. "In a normal mortgage market, first-time buyers were able to borrow 100 per cent of the value of a property (and sometimes more). However, since the credit crunch, deposits of at least 20 per cent are required plus a spotless credit history. Lenders also take into consideration other debts including student loans. Perhaps the best way to tackle the repayment of debt – and to save – is to have a budget and set a target. This target should be high enough to be meaningful but not so high that John looses motivation. If money is tight, saving something, even a modest £50 per month will soon build up and provide a good habit to get into."
"Houses in Northern Ireland have already lost a quarter of their value in the last year," adds Kenny. "If the house bears are right, the housing market will be dour for many years to come due to the likely continuation of restrictive lending practices and, following the recent stimulus, the likelihood of higher interest rates further down the road. John may therefore be pleasantly surprised, or otherwise, by the housing market in eight years' time. Threats to his plans may no longer then be property prices, but the price of borrowing."
"Travelling the world is no longer a rite of passage for our university leavers," explains Kelly. "The credit crunch has put paid to that notion. With current unemployment rates on the rise, our young need to get serious about foregoing potential employment for the thrill of broadening their horizons."
At the moment there is no indication that there will be employers rushing to offer positions to John when he returns from his travels. Indeed it might be a case of signing on rather than up after a stint globetrotting, should he go.
"Travelling is a luxury: John should consider intently any job opportunity he might receive after leaving university. Should he decide to go travelling, he may find it difficult to find a bank that will service his loan needs as all banks have tightened their lending since the onset of the credit crunch. He should firstly check with his current bank to discover if they are offering any graduate loans."
"John should attempt to put away at least three times his monthly salary," explains Kelly. "This will help to provide for any unforeseen expenses or emergencies. Currently the best savings rate through a cash ISA is 3.55 per cent offered by Barclays Bank. Only after these goals are achieved should he consider saving for a house deposit or starting an investment portfolio.
"The earlier he can start his investment and pension portfolio the better, as he will benefit from the effect of compounding. The more he puts into his pension, the more comfortable he will be in retirement. To achieve a retirement income of £20,000 aged 65 (assuming a growth rate of 7 per cent and adjusted for inflation) he would need to save around £300 per month."
"When John gets a job he should check whether his employer offers a pension scheme, if they do, he should join," adds Cox. "John's aim is to retire at 65 and he needs to bear in mind that the Basic State Pension will not be payable until age 68 by the time he retires. In the absence of a company pension scheme he should consider starting a private pension."
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