Wealth Check: 'How can I be free of a mortgage by the time I hit 50?'

Owen Wright, 23, is a graduate doing a PGCE teacher-training course at Oxford. He is single, and would like to be earning £30,000 in six years' time and able to own a nice house without a mortgage by the age of 50. He is worried that high unemployment will lead to fewer taxpayers and, in turn, less money available to pay teachers.

While he is currently not on a pension scheme, still being in education, he is "prepared to save a lot for retirement in order to receive at least £50 a week above the basic pension. I would like to stop paid work as early as is sensible. Hopefully 55-60," he says.

Case notes

Income: bursary of £9,000 tax-free, £4,000 loan
Living expenses: £9,000
Other: £3,425 (tuition fees, plus holidays)
Expected inheritance: £16,000
Debt: £10,000 (student loan)

Advice this week is given by Chris Wicks of N Trust Group, Danny Cox, head of advice at Informed Choice, and Martin Bamford, a chartered financial planner at Informed Choice...

Debt

"While you are a student and have no income, it would be prudent to avoid incurring any additional expenses," advises Chris Wicks. Owen currently has no savings, but does keep money for emergencies. "It is important for you to keep a good tab on your expenses in order to avoid getting any further into debt than you have to."

Danny Cox suggests that Owen use his inheritance wisely once it arrives. "Owen's expected inheritance will be sufficient to repay his student loan, giving him a much better start to his working life than the typical university leaver."

Martin Bamford sees a potentially different role for the money. "A large number of people have moved from other professions into teaching, as a result of the recession, so Owen may find himself faced with tougher competition for jobs initially."

"Owen might, therefore, choose to use this inheritance to fund his living expenses whilst looking for employment when he graduates. Depending on how long this takes, he might consider temporary work to avoid depleting this inheritance or building up more debt."

Mortgage

Owen's goal of owning a home that is mortgage-free by the age of 50 is one that Martin Bamford thinks is certainly viable. He adds that "Owen needs a strategy for getting on the housing ladder in the first place. As a newly qualified teacher, he might consider shared ownership with other teachers as a way of being able to afford to buy a property."

Chris Wicks suggests yet another use for the inheritance money. "When you receive your inheritance, it would be sensible to retain this on deposit as you are likely to need it, for example, as a house deposit in the next couple of years. As you are not currently a taxpayer, you should complete form R85(1990)."

Danny Cox spells out what Owen's goal would look like in terms of numbers. "On the basis that he wants to be mortgage-free by the age of 50, Owen should stick to a mortgage of no more than 25 years and ensure he has an appropriate repayment plan. My preference is a repayment mortgage.

For example, if Owen bought a property with a £100,000, 25-year repayment mortgage, the monthly repayments would be £590 based on a five per cent interest rate. This increases to £651 per month if interest rates increase to six per cent. In the meantime, Owen will need to save hard to generate a deposit, and a cash ISA is an ideal – and tax-free – way to save up to £3,600 a year."

Pension

"The basic state pension is currently £95.25 per week so Owen's minimum target of £145.25 per week, or £7,500 a year is technically below the poverty line and below the £9,000-a-year he is currently spending on living expenses," says Danny Cox.

He points out that Owen will have to provide for himself until he is 65, assuming that he takes the Teachers' Pension Scheme, as that is the earliest that he can draw it. "If Owen took out a personal pension at age 25 and paid in until the age of 55, to achieve the desired income of £7,500 in today's terms, he would need to save £360 per month."

Cox, whose advice on this issue is almost directly echoed by Bamford, also counsels not ignoring the Teachers' Scheme. "The teacher's pension, being a final salary scheme, is one of the best pensions available in the UK and backed by the taxpayer."

Wicks also endorses the scheme: "The website www.teacherspensions.co.uk has a number of useful calculators. For example, if you achieve 40 years' service based on a final salary in today's terms of £30,000 you could expect a tax-free cash sum of £8,5713 and a pension of £12,858.

He adds: "You can also top up your pension by making contributions to a private pension or the additional voluntary contribution scheme that comes with the Teachers' Pension Scheme."

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@ independent.co.uk

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
  • Get to the point
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

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own