Wealth Check: House hunter must save for a deposit and build up a pension
Debt-free Henrique now needs to work on growing his cash reserves if he wants to buy a home of his own, says our panel of experts
Saturday 15 February 2014
Henrique Carvalho-Wells is keen to start saving more and this includes building a house deposit so he can take the first step onto the property ladder.
The 36-year-old from Ealing in West London works as a royalties auditor earning around £50,000.
He has been reasonably disciplined about slotting money away, and has £8,000 in a cash individual savings account (Isa) with Barclays. But aside from this, he has no other savings or investments.
"I know I need to give a lot more thought to my financial planning – especially as I am often tempted to spend what I earn," he says.
At present, Henrique pays £1,200 a month to rent a two-bed flat.
"I started renting this place in July 2010," he says. "But I'd now love to own a place of my own. Ideally I'd like to buy in Ealing, but the key is to find a property that I can afford – and this might mean purchasing a one-bed flat, just so I can get a foot onto the bottom rung of the property ladder. As things stand, I'm looking to buy a place in the £200,000-£250,000 price bracket."
Henrique is in the fortunate position of having no debts, but he's also not given much thought to saving for the future, and doesn't have a pension at the moment. He also has no protection policies in place.
"While my main focus is being able to save up for a deposit to buy my first home, I'd still like to have enough money to plan holidays," he says. "Equally, I am trying to be mindful of the fact I need to get serious about saving."
Our panel of advisers agree that Henrique has done well to build up some cash savings but say he needs to work hard to save enough for a house deposit. They also urge him to start putting money into a pension as a matter of priority.
Continue to build savings
Patrick Connolly from Chase de Vere says Henrique has done well not to have any debts, but now needs to work harder at saving.
"He is doing the right thing by holding his savings in cash Isas," he says. "All interest is tax-free which is especially useful given that he's a higher-rate taxpayer, currently paying 40 per cent on his cash savings."
The annual cash Isa allowance for the current 2013-14 tax year is £5,760, rising to £5,940 from the start of the new tax year on 6 April.
"To ensure he secures the best-possible return from his cash Isa, Henrique should check the rates currently available," says Jody Sturman of Moneysprite. "As his goal to save for a house deposit is relatively short-term, he should aim to choose an Isa that will allow him access to his money when he needs it."
Useful sites for comparing rates include Savingschampion.co.uk and Moneyfacts.co.uk.
Save hard for a house deposit
Henrique has made a good start towards getting on the property ladder by thinking about the type of place he hopes to buy, where he'd like to live, and how much it will cost, according to Mr Connolly.
"That said, one of his biggest challenges is saving enough money for a deposit," he adds. "He needs to make a conscious effort to save more money, and therefore needs to decide whether it's more important for him to get his own home or to continue to spend money on luxuries such as holidays."
Danny Cox from Hargreaves Lansdown says Henrique will need to save a deposit of at least 5 per cent to be able to secure a mortgage.
"That will mean amassing between £10,000 and £12,500," he says.
While he already has £8,000 squirrelled away, Mr Cox warn Henrique against using all of his cash savings for the deposit, pointing out that there are lots of other costs associated with buying a property.
"He will need money to cover a survey, conveyancing and the costs of moving," says Mr Cox. "I'd recommend allowing between £2,000 and £5,000 for these. He will also need cash in reserve for emergencies."
Mr Cox suggests Henrique should set himself a target of how much he needs to save each month to reach his goal.
"He should then ensure he puts this money away at the start of the month," he says. "This will help him avoid the problem of finding his money has run out before the next payday."
Consider Help to Buy
One option could be the Government's Help to Buy scheme.
"With this scheme, Henrique would need to pay a deposit of at least 5 per cent, " says Mr Connolly. "The Government will provide a loan for up to 20 per cent of the price, and he would then need to take out a mortgage for up to 75 per cent of the purchase price to meet the shortfall."
A bigger deposit will mean better mortgage deals
Mr Sturman adds that if Henrique wants to secure a more-competitive mortgage offer, a 10 per cent deposit may be preferable.
"Nationwide is currently offering a two-year fix at 4.64 per cent at 95 per cent loan-to-value (LTV), but Skipton is offering a better rate of 3.79 per cent on a two-year deal at 90 per cent LTV," he says.
He also points out Henrique will be near the top of his affordability limit if he buys a £250,000 property.
Don't ignore pension planning
At 36 years old, Henrique needs to start saving into a pension as a matter of priority, says Mr Connolly.
"The days are gone when most people can rely on the Government or their employer to provide them with a suitable standard of living in retirement," he says.
Mr Cox adds that apart from anything else, the tax relief on pensions is very attractive.
"As a higher-rate taxpayer, a monthly £100 contribution will cost him just £60," he says.
Mr Sturman points out that between now and mid-2015 Henrique's employer will be getting in touch to inform him he is eligible for auto-enrolment.
"This means he will automatically qualify for a workplace pension into which his employer will be required to make contributions," he says.
Think about investing in the future
While Henrique doesn't have any investments, this isn't his biggest priority right now, according to Mr Connolly.
"For the time being he needs to focus on building up cash savings and joining his company pension scheme," he says. "
For most people, the best way to save for the long-term is a combination of pensions and stocks-and-shares Isas, adds Mr Connolly.
"Pensions provide the initial tax relief but are inflexible, whereas equity Isas can also be more tax efficient, but are more flexible, as investors can access their money whenever they need to."
Review protection needs
Henrique does not have any urgent protection needs, but should still find out what benefits are offered by his employer, as many provide life assurance or income protection benefits.
Mr Cox suggests Henrique should properly review his protection needs if he gets his own home.
"He will need to consider life insurance to protect the mortgage, and also income protection to ensure he has sufficient replacement income to meet his mortgage and living expenses should he be unable to work due to accident or sickness," he says.
Do you need a financial makeover?
Write to Julian Knight at:
The Independent on Sunday, 2 Derry Street,London W8 5HF
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
- 3 Make your voice heard: Sign The Independent's petition to welcome refugees
- 4 Refugee crisis: Aylan's life was full of fear - in death, he is part of 'humanity washed ashore'
- 5 German police forced to ask public to stop bringing donations for refugees arriving by train
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Britain to take more refugees as Cameron bows to pressure after more than 200,000 back our campaign
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
Day In a Page
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
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.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
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.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
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.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
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.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.