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

The patient

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."

The cure

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; request a free guide on NISAs from Hargreaves Lansdown

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