Wealth Check: 'Debts are an obstacle to my business ambitions'
A college administrator wants to find a way to grow his holiday lettings company with his partner, but needs to build up his savings pot first
Sunday 27 May 2012
Andrew Bothamley from Nottingham is keen to clear his debts so he can put money into his partner Darren's new holiday lettings business and also make a career change.
The 32-year-old has worked as finance co-ordinator for a college for the past 10 years, but in the past year, he has started doing some photography and web design work on the side, including setting up a travel website called Your Northumberland Guide.
"I'm doing these additional projects to top up my earnings on a self-employed basis and my monthly income is now around £3,000," he says. "I also helped my partner set up his business, Northumberlandholidays.com, in April 2011."
The couple, who have lived together for 13 years, own two buy-to-let properties in Northumberland, having purchased their second property in April. "The first is a two-bed character terraced cottage built in 1890 which we bought in April 2011 for £120,000," says Andrew. "We took out a two-year fix at 4.99 per cent for the £90,000 mortgage. The second property is a two-bed flat in a historic building of a similar era which we bought for £92,000. The £67,000 mortgage is fixed for two years at 4.99 per cent; both are interest-only deals with The Mortgage Works."
The couple also own a four-bed detached house in Mansfield which they bought for £191,000 in December 2006.
"Last year, we tried to sell this property, which had been our main residence, but as house prices have dipped so much since we bought at the height of the market, we have very little equity left, so decided to let it instead," says Andrew. "There is a £150,000 mortgage, which is now on a buy-to-let deal fixed for two years with the Woolwich at 3.59 per cent, on a repayment basis. We moved into rented accommodation last September, and now live in a two-bed bungalow just outside Nottingham, paying £650 a month in rent."
While Andrew is keen to put money into growing Darren's holiday lettings business, his savings have been pretty much wiped out by the purchase of the second holiday let property and he also has debts to clear.
"Overall, I have around £85,000 invested in our three properties," he says. "Aside from this, I now have just £500 in an individual savings account, and the rate is pretty negligible," he says. "I also owe around £8,000 on a personal loan with the Halifax at 8 per cent over three years, and £4,500 on a credit card with Barclaycard, currently on a balance transfer deal at 0 per cent. Equally, where possible, I try to make purchases through Quidco to cash in on the cashback offered."
Andrew does not have a pension or any protection policies in place.
"We intend to use the purchase and set-up of our holiday lets as a pension when we retire," he says. "Right now, I'd love to be in a position where I'm free enough financially to leave my permanent work at the college and concentrate on my photography and web design. But I just cannot take that risk until I've cleared my debts and built up my savings."
Our panel of independent financial advisers agree Andrew's desire to clear his debts is the right strategy, as he can then concentrate on building up his savings. However, they urge him to think about long-term savings and pensions so he isn't reliant on his residential property portfolio in the future.
Duncan Clearwater from Clearwater Financial Planning urges Andrew to start with the debt with the highest rate of interest. "Andrew should repay the personal loan as soon as possible – provided he checks for early repayment charges," he says.
Minesh Patel from EA Financial Solutions Ltd adds that Andrew and his partner should do an analysis of income and expenditure. "This will help identify areas where income could be saved and show how much they have available to repay their debt."
He adds: "The rate on the credit card could be very high at the end of the interest-free period, so if the debt is not repaid at this time, Andrew should move the debt to a low life-of-balance card."
Build up savings
Having most of his assets tied up in property, and very little available in cash or other liquid assets is quite a risky strategy, warns Patrick Connolly from AWD Chase de Vere.
"Building up cash savings should be a major priority," he says. "Everybody should have at least some money available in cash to cater for any short-term emergencies. This will avoid the need to take on debt."
This is even more important given Andrew's desire to leave his permanent job, as he may need to rely on cash savings to make up any income shortfall. "Andrew should aim to build up an amount equivalent to between three and six months' of expenditure," says Mr Connolly.
Mr Patel recommends Andrew and his partner maximise savings in cash Isas as the interest is tax-free. Cheshire building society is paying 3.35 per cent on an instant access Isa on a minimum of £1,000.
Review mortgage deals
The rates on the couple's mortgage deals are generally good, although they need to check the rate on the first property they bought in Northumberland as the two-year fix has come to an end, says Mr Patel.
"If their loan-to-value is less than 75 per cent, they could consider remortgaging to a three-year fix with Skipton building society at 4.99 per cent, or a two-year base rate tracker at 4.59 per cent. This should help them lower their mortgage costs."
As the Northumberland properties are holiday lettings, there could be periods where they are not rented, warns Mr Patel. "Andrew and his partner should consider whether they could be let on short-hold, which would allow six-month tenancies," he says.
As the couple's outstanding mortgages amount to £337,000, they need to devise a plan to repay these over time given their reliance on these for pension purposes, says Mr Clearwater.
While Andrew may view residential property as a secure investment, Mr Connolly warns that having nearly all his money tied up in one type of investment is a risky strategy. "If the residential property market struggles, then all of his investments are likely to struggle as well," he warns. "Andrew should therefore aim to hold other investments."
Start pension saving
Andrew should find out if his employer offers a pension scheme. "If he is not a member, he should join," says Mr Connolly. "As he works at a college, he could find he has access to a final salary pension scheme which could provide him with some excellent benefits."
As none of the couple's borrowings are protected in the event of death, critical illness or disability, Mr Clearwater recommends at the very least, that life cover should be arranged to protect each other. "A joint life policy would pay out on first death," he says. "As Andrew is the main provider of regular income, further life insurance and income protection should also be arranged."
He adds that Andrew and his partner both need to make wills. "This is especially important given that they are not married, as the rules of intestacy do not recognise cohabiting partners," says Mr Clearwater.
If Andrew and Darren were to enter into a civil partnership, their tax position would be the same as for other married couples, which can have its benefits, according to Mr Connolly. "These include freedom from inheritance tax for assets left by one partner for the other on death," he says.
Mark Dampier: 'We're on our own in retirement. They've pulled pensions to pieces'
Donald MacInnes: 'I have to have £500 a month spare from now until at least 2035'
HSBC becomes first bank to offer five-year fixed rate mortgage with interest rate under 2%
Crippling PFI deals leave Britain £222bn in debt
Pension freedoms: How to deal with cold calls from scammers
- 1 Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
- 2 Rarest Beanie Baby of them all could be sold for £62,500 on eBay
- 3 Professional big game hunter Ian Gibson crushed to death by elephant during hunt
- 4 Farmer told to tear down mock-Tudor castle after hiding construction behind hay bales
- 5 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...
Day In a Page
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000