Wealth Check: 'Do I have a case for buying a home?'

Our financial makeover for 'Independent on Sunday' readers
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Penny McLaren is raising her sights along with a rising salary.

She started as a trainee solicitor in March 2004, earning £29,000, but overspent in the following 12 months and ran up a £1,500 overdraft.

However, she cleared this three months ago with the help of a pay rise that took her salary to £34,000, and a £1,900 performance-related bonus. If she continues to work for the same firm - as she hopes to when qualifying in March next year - her salary will jump again to £52,000.

"I'd like to make the most of this, but I want to be in a position where I can take a career break or change careers without being too tied down finan- cially," she says.

Penny has all her savings with the Halifax. These include £2,750 in a "guaranteed reserve" account paying up to 4.3 per cent; £8,000 in a WebSaver variable account paying 4.65 per cent gross; and £180 in a Saver Direct mini cash individual savings account (ISA) returning 5 per cent.

She also has £500 in a Barclays current account, £150 in premium bonds, and 234 shares in the HBOS banking group.

Her debts stretch to £7,000 in student loans and £95 on a Platinum Barclaycard.

Her main goal is to take her first step on the property ladder in a couple of years' time.

"I waste far too much money paying £700 a month renting in an expensive area."

She has provisionally planned to buy with a friend - who will be earning a similar salary by the time they come to look for a home.

Penny will be entitled to join her work pension scheme when she qualifies as a solicitor.

She has no protection policies.

Interview: Esther Shaw

The patient

Penny McLaren, 25, from south-west London.

Job: trainee solicitor.

Income: £34,000.

Savings: £2,750 in a "guaranteed reserve" savings account, £8,000 in an online account, £180 in a mini cash ISA, £500 in a current account, £150 in premium bonds.

Investments: 234 shares in HBOS.

Goal: to buy a property and start saving into a pension.

The cure

Penny has a reasonable sum saved for a property deposit, but she should also set aside three months' salary as emergency savings, says Drew Wotherspoon at independent financial adviser (IFA) John Charcol.

She could spread her investment risk by cashing in her single-company shares and putting the money in a fund, says Justin Modray of IFA Bestinvest.

Debts

Penny owes only £95 on her Barclaycard but she is still paying a high annual percentage rate, 15.9, says Mr Wotherspoon. Transfer to a 0 per cent card - such as Virgin or MBNA - and no interest is payable for nine months.

Penny shouldn't worry about paying off the student loan early, says Mr Modray. With interest linked to inflation, the debt is one of the cheapest available.

Savings

The Halifax accounts pay competitive rates of interest, says Mr Modray.

But he recommends that Penny switch her current account to one offering a better interest rate on credit balances. Cahoot pays 3.83 per cent.

Investments

Penny's HBOS shares are worth around £2,000, says Mr Modray. "She could diversify by selling these and putting the proceeds in an investment fund."

He picks out Jupiter Merlin Growth, which invests in a mix of large, medium-sized and small global companies. "She could buy the fund within her mini equity ISA allowance of £4,000."

Alternatively, Mike Marigold, of IFA Montgomery Charles Financial Management, recommends Framlington Monthly Income.

Property

If Penny and her friend were to buy a £300,000 property together, they would need a minimum deposit of £15,000 to obtain decent mortgage rates, says Mr Marigold. "They would also have to raise stamp duty of £9,000 along with fees, which could be up to £2,000."

Buying with a friend provides more choice, but it can be risky, warns Mr Wotherspoon. "One may want to go their own way or may lose their job," he says. "Get legal advice before entering this type of agreement."

Retirement

Mr Marigold recommends Penny delays a pension until her next pay rise takes her into a higher tax bracket. "She will then be able to make contributions where 40 per cent comes in tax relief."

Protection

She has no dependants, so has no need for life cover - unless she were to buy a home with her friend.

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

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