Wealth Check: How can I make the great leap from a flat to a house?
An Edinburgh technical consultant wants to expand his family within the next three years. That means finding the money for a much bigger home
Sunday 24 October 2010
Jonathan Eisenberg, 31, a technical consultant from Edinburgh, saved enough last year to put down a £70,000 deposit on a one-bedroom Georgian flat in the city centre.
But with plans to marry his fiancée, a single mother with one daughter, and to have more children in the near future, Mr Eisenberg says he will need to upgrade to have enough space to accommodate everyone.
At present, he shares the two-bedroom flat his fiancée rents and lives in with her daughter. In an ideal world, he would like to move into a three- or four-bedroom detached or semi-detached house in the capital within three years, but expects this will cost in the region of £240,000 to £350,000.
He is earning a salary of £24,000 and has outgoing monthly expenditure of £1,000 plus a £200 monthly mortgage repayment. Because most of his savings are locked up in the mortgage, the financial planners believe he may have to lower his property expectations or extend his timeframe if he wants to move his family into a larger property.
Upgrading a property
Mike Stafford, a certified financial planner and partner at Hertford-based Stafford & Co, says Mr Eisenberg's dream is understandable but may not be achievable in the time he has specified.
"If Jonathan sold his property now, he could expect to have £70,000 to put towards the new property. His borrowing power is, at a stretch, four times his salary, giving him potentially an extra £96,000. If we allow £10,000 for the expenses of moving, stamp duty and solicitors' fees, his purchasing power is in the region of £156,000," estimates Mr Stafford.
"As his ideal property is £240,000, he will have a shortfall of £84,000. This tells us that short of winning the pools or receiving an inheritance, he is not yet in a position to upscale."
However, Mr Stafford says that Mr Eisenberg does not need to give up on his goal and there are various ways in which he can start to bridge the gap in his finances which would potentially allow him to purchase his dream property further down the line.
Mr Stafford says: "Jonathan has a number of options: he could rent out his property and, at current rental rates in Edinburgh, he should be able to clear £400 per month after paying the mortgage – meaning there would be a possible £14,400 to be added to the kitty after three years."
Other options he could consider include moving to a better-paid job, doing overtime or extra part-time evening work or, if eligible, trying for a larger bonus.
However, Mr Stafford says Mr Eisenberg's decision to let out his flat should not be taken lightly as there are a number of cost and time implications that would go with being a landlord. "Jonathan would need to obtain consent from his lender to rent out the property and this could incur a charge. He would need to inform his home insurer because the presence of a tenant could change the way they view the cost of protecting the property. And, thirdly, he would need to consult an accountant to ensure he doesn't incur capital gains tax on the eventual sale of the property."
While Mr Eisenberg has some way to go before he retires, Joe Swanson, the joint managing director of Weybridge-based staff benefits consultancy Company Rapport, recommends that he begin saving into a pension now to ensure he is not strapped for cash when he retires later on in life.
"The first consideration for retirement planning is Jonathan's employer. Many companies offer valuable assistance with long-term savings in the form of company-sponsored pension schemes. Some are entirely funded by the employer and some require a corresponding employee contribution. The biggest crime in retirement planning is to reject the employer contribution, either through apathy or, where a personal contribution is required, due to the short-term preference of cash over savings."
If Mr Eisenberg's employer does not offer a pension scheme to staff, there are still other options which will enable him to prepare a retirement provision.
Mr Swanson says: "It would be sensible to split contributions between a pension and at least one other savings vehicle, such as an ISA. The relief from income tax provided by pensions is attractive and the ISA provides increased flexibility.
"If Jonathan invested £100 per month into a pension plan from now until 65, it could provide him with a fund of £130,000 assuming an average growth rate of 7 per cent per annum. He would be entitled to take out 25 per cent of this as a tax-free lump sum and the remaining fund could get him a retirement income of £6,250. Bearing in mind that his income at 65, projected forward by increases in the National Average Earnings Index, could be about £90,000, it puts into context the value of savings he needs to make to be comfortable in retirement."
While Mr Eisenberg is still relatively young, a high level of dependency hinges on his income in helping support his fiancée and her daughter and also paying his existing mortgage. Minaz Kasmani, a certified financial planner at WH Ireland Wealth Management in Cardiff, recommends Mr Eisenberg consider some forms of insurance to ensure he and his loved ones are protected in the case of unexpected events.
"With no savings in place and all the equity tied up in the property, there would be a significant financial strain if Jonathan were to suffer a loss of earnings due to ill health or premature death. He should consider income protection insurance, which would pay out a portion of his earnings if he was unable to carry out his occupation due to ill health. The policy would pay out as many times as needed during the policy term, and the payout would continue until the earlier of Jonathan's recovery, retirement or the policy expiry."
Ms Kasmani suggests that Mr Eisenberg select a benefit which is linked to inflation to maintain its real value over time. "Assuming the policy is set up to Jonathan's retirement age of 65, and pays out a tax-free monthly benefit of £1,396, after a one-month waiting period, this cover would cost £43 per month with Liverpool Victoria. This insurance will enable Jonathan to focus on getting better without worrying about how his financial commitments will be met.
"A provision really should be made for the young family if Jonathan were to be met by untimely death. A family income benefit policy would be a cost-effective solution, paying a tax-free income to the family from the point of Jonathan's death, until the policy expiry date, which could coincide with his daughter attaining majority. Assuming the policy is set up for a 20-year term, with an inflation-linked monthly benefit of £2,000, this would cost £10 per month with Legal & General. This insurance will enable Jonathan's partner to concentrate on looking after their daughter, rather than being forced to work when she is not ready."
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF
- 1 Malaysian cyclist could face disciplinary action after 'Save Gaza' gloves protest
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 Fifty Shades of Grey trailer provokes moral outrage from US parenting groups
- 4 McDonald’s removes chicken nuggets from the menu in Hong Kong amid major food scare
- 5 Students offered grants if they tweet pro-Israeli propaganda
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar