Wealth Check: 'Can we become mortgage free before we start a family?'

The Sweetings may be overly ambitious, our panel of advisers warn,  and they should first consider their protection policies and pensions

The patient

Daniel Sweeting is keen to get his finances into a more stable position so he and his wife, Laxmi, can commit to having a family without the need for both of them to work.

The 32-year-old is a station manager earning around £37,000, and his 34-year-old wife is a self- employed beautician who earns around £23,000.

The couple live in a two-bedroom semi-detached house in Watford and would love to be "mortgage-free" as soon as they can. They bought this property in April 2011 for £201,000, and borrowed £161,000; they now have £152,000 left to pay.

"We'd love to have cleared our mortgage in four years' time," says Daniel. "We also have plans to refurbish and extend our home to boost the value – and create additional equity."

Daniel and Laxmi have a lifetime Woolwich tracker mortgage with a pay rate of 3.48 per cent.

The Sweetings have around £12,000 in a five-year, fixed-rate individual savings account (Isa) with Newcastle Building Society which pays 5 per cent interest. They also have £12,000 in a current account, and a further £400 squirrelled away with peer-to-peer lender, Zopa. In addition, they have £4,000 in a Morgan Stanley fixed-income equity Isa, as well as £23,000 in an equity Isa, mostly in individual stocks and shares.

Aside from these investments, the Sweetings also own a buy-to-let property.

"We bought a three-bed, mid-terrace property in Hertfordshire for £194,000 in January 2007," says Daniel. "We initially borrowed £179,000 and now have £121,000 outstanding on a mortgage with the Bank of Ireland. We are currently on the standard variable rate of 4.49 per cent."

With this mortgage, £21,000 is on a repayment deal, and the remainder is interest only.

"The rent covers the mortgage with £200 left over each month," says Daniel.

The couple owe £9,000 on a credit card, but this is on a 0 per cent deal; they also spend £1,000 on a second credit card each month, but ensure they pay this off in full.

They owe a further £9,000 on a car-finance deal, but this is in Laxmi's name and is subject to tax relief as she uses this for work.

While Daniel pays around £97 a month into his work pension scheme and gets this contribution matched by his employer, Laxmi does not have a pension.

Daniel also pays £5 a month for a life-insurance policy with Aviva, but is thinking of cancelling it.

The cure

Our panel of independent financial advisers agree that Daniel and Laxmi have taken a number of sensible steps to put themselves in a good position. However, they urge them not to forget about longer-term objectives such as planning for retirement. They also recommend they reconsider the level of risk they are taking with their investments, and review their protection policies.

Review protection policies

Danny Cox from Hargreaves Lansdown warns the Sweetings do not have sufficient insurance protection, and could face serious problems should either of them suffer an illness, become unemployed or die.

"Before cancelling the life-insurance policy, they should consider how their mortgages will be repaid if either died," he says.

Patrick Connolly from adviser AWD Chase de Vere adds that Daniel needs to find out what protection benefits his employer offers.

"Many employees get life assurance or income protection," Mr Connolly says. "As Laxmi is self-employed, she should also consider income protection, as she won't get any assistance from an employer."

Minesh Patel from EA Financial Solutions urges both Daniel and Laxmi to get wills drawn up.

Rethink property plans

Mr Cox says the couple's plan to be mortgage-free in four years may be unrealistic.

Mr Patel points out that although they are paying a higher rate of interest on their buy-to-let mortgage, interest payments on this can be offset against rental income for income-tax purposes.

"While the rate is lower on their residential mortgage, the couple would be better off focusing on repaying this first and keeping the debt on the buy-to-let property," he says.

Mr Patel also suggests the couple should remortgage their buy-to-let property to a cheaper deal.

Be mindful of debts

Daniel and Laxmi are taking the right approach with their credit cards to avoid paying any interest, according to Mr Connolly.

"They can also claim tax relief on the car-finance deal, the only other debt they have," he says.

Mr Patel suggests the couple should concentrate on paying off their credit-card debt at the end of the balance-transfer period.

"They should also consider replacing the card they use for general spending with a Tesco ClubCard offering 0 per cent on purchases for 16 months, as they can collect ClubCard points in the process," he says.

The couple could also make use of a site such as Topcashback.co.uk when spending, to make the most of cashback on their purchases.

Make the most of cash ISAs

As the couple have a short-term financial goal, they are being sensible by making use of cash Isas, as all interest earned is tax free.

"They have done particularly well with their Newcastle Isa, as this pays a rate which you couldn't match with products currently available," Mr Connolly says. "But they are holding too large a balance in their current account. They should look to put some of this money into a cash Isa."

 

Tread carefully with investments

Mr Connolly warns that the Morgan Stanley Isa is risky product, as the return depends on the performance of the stock market.

He is also concerned about the level of risk the couple are taking.

"Investing significant amounts in individual shares isn't the right approach for most people, as the price can fall," he says. "It usually makes more sense to get access to shares through collective investment funds such as unit trusts, OEICs or investment trusts.

Build up pensions

As Daniel is paying 3 per cent of his income into his employer's pension scheme, he has made a good start, according to Mr Cox, especially as his employer also contributes.

"But this is insufficient to provide a good standard of living in retirement considering that neither Daniel nor his wife have other pension savings," he says.

Mr Patel suggests Daniel has the ability to pay in at least 7 per cent of his salary.

"Laxmi should also start some other form of pension saving, such as a stakeholder pension."

Alternatively, Mr Cox suggests Laxmi could consider a low-cost self-invested personal pension which would allow her to invest in funds or shares in the same way as an ISA.

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

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

    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 ...

    Christine McCleave: FP&A Analyst

    £36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn