Wealth Check: 'How can I move my growing family out of our one-bed flat?'

The panel of advisers are split on whether a charity worker should sell her first home

The patient

Helen Clegg, 35, from Brighton, East Sussex, wants to move up to the second rung of the property ladder and buy a family home.

However, the wannabe "second stepper", who earns about £31,000 a year as a communications manager for a charity but will be going on maternity leave in September, feels "well and truly stuck".

"I would like to raise a deposit on a larger family home, but the equity in my current property would be almost wiped out after fees if I were to sell it now," she says. "I feel it would be a shame to have invested in the flat I own, only to sell for a massive loss – but my hand is being increasingly forced by my growing family, and my mortgage lender's tolerance."

She rents out her one-bed flat in Brighton for £675 a month, after buying it in October 2007 for £140,000. She pays £623 a month for her current 25-year repayment mortgage, which stands at £113,729 and is fixed for two years with Bank of Ireland at 4.26 per cent.

"The flat is only worth around £130,000 today as property prices have fallen, then stagnated, and it's steadily depreciating in value as the lease has dropped to 69 years," she says. "It would be worth over £140,000 with the lease extension, but that will cost around £11,000 to get done," she says.

"However, the mortgage lender has agreed to allow me to rent it out on a temporary basis to friends, as I needed to move to a two-bed property. This arrangement ends in July, when I either need to sell, or move to a buy-to-let mortgage."

This has left Helen in a financial quandary. She says: "If I were to hold on for five years, when my partner would also be in a position to contribute to a mortgage deposit, I could both extend the lease and maybe have a significant amount of equity in the property."

The couple also pay £1,100 a month in rent for their current home, where they live with their 13-month-old son.

Helen has £2,740 on a NatWest credit card, interest-free until September 2013. "All being well, I should clear this before my maternity leave starts," she adds.

At that point her salary will drop to statutory maternity pay. "Then when I return from leave almost my entire salary will be earmarked for childcare for a six-month period, until my first child reaches three and qualifies for 15 hours free childcare per week," she says.

For long-term planning she has been paying 5 per cent of her salary into a pension since January last year, while her employer contributes a further 6 per cent. She has no protection policies in place.

The cure

Helen typifies the plight of many second steppers, our panel of independent financial advisers (IFAs) says, as they struggle to move up the property ladder following price stagnation and tougher mortgage criteria since the financial crisis.

Kusal Ariyawansa at IFA Appleton Gerrard says: "I empathise with Helen. The pain in deciding whether to sell your first major investment knowing that you've made a loss, or to run it at a potential loss in the hope that it might regain its lost value, is like being caught between a rock and a hard place."

They agree that while she has some sums to do to decide on her best route, she has a good grasp of the issues she faces.

Sell or keep the flat?

The advisers were divided on this. Mr Ariyawansa reckons it would be unwise to sell just yet as the rent meets her liabilities. "But she should be aware of the risks: void periods; interest rate hikes, and negative equity. If these can be managed financially, and tolerated on the personal level, she should keep her flat," he says.

Scott Gallacher at IFA Rowley Turton disagrees. He says: "Ignoring any redemption penalties, holding on to the flat is not a viable option as Helen would not be able to arrange a replacement buy-to-let mortgage without committing additional capital, which she does not have at the moment." He recommends she sell the flat as soon as possible.

Given that Helen has nothing to fall back on in terms of savings, David Hollingworth at the broker London & Country agrees that this might be the best option. He says: "If Helen is going to let the property longer term she is extremely reliant on the property being let at all times just to cover the mortgage payments."

However, while Helen's existing lender has put a time limit on its current consent to let, it is worthwhile seeing if there might be a way to extend that period, he adds.

"July will come round quickly, and even if she elects to sell she might need some leeway to reach the point of completing on any sale."

Switching to buy-to-let

Even if the lender is not happy to give consent for the letting to continue on the current terms it is worth seeing if it will allow her to keep the current mortgage balance, even if it loads the interest rate and/or charges a fee to switch to buy-to-let.

Mr Hollingworth says: "That would at least give an option without having to find capital that she doesn't have to reduce the mortgage balance."

Buy-to-let mortgages typically require at least a 25 per cent deposit, which on Helen's valuation would mean finding more than £16,000. Mr Hollingworth says: "There are a few lenders now that have extended their reach to 80 per cent and even a handful of deals up to 85 per cent of the property value, but even then the mortgage balance would need to be cut by more than £3,200."

Protection

With a young family to consider, a particular concern is the lack of protection in place to provide an income in the event of illness or disability. As a priority, any employee benefits should be checked, including death-in-service benefit.

For Helen, a basic income protection policy that pays around £1,800 tax-free per month will cost about £27 per month, says Mr Ariyawansa.

Savings

While Helen has sensibly mapped out her medium-term financial options, a significant issue is the lack of savings to meet unforeseen difficulties, Mr Ariyawansa says.

When possible, she should set aside 10 per cent of salary each month in a cash individual savings account (ISA) that will act as an emergency fund. The allowance is £5,760 for this tax year.

She can find the best rates at sites such as.moneyfacts.co.uk and moneysupermarket.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

News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave 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
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
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
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    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