Wealth Check: 'How can I save now I've got a mortgage?'
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 16 May 2004
"I have around £5,000 in savings but this is about to be swallowed up by a flat deposit, legal fees and stamp duty," says Laura Hogg. The 23-year-old is buying a home just outside Norwich for £91,500. As her deposit is small, she has had to take out a repayment mortgage for £88,755 - 97 per cent of the flat's value.
The deal is on a first-time buyer rate from the Halifax, fixed for three years at 5.5 per cent, and her monthly repayments work out at about £540.
"Now I've bought this property, I need to bed my finances down and start to save," says Laura. "That £5,000 will go, though, and I won't have anything left. I guess I should have an emergency savings fund but don't know where to start."
To manage her money, Laura has two Gold current accounts with Norwich & Peterborough (N&P): each month, her salary is paid into one account to pay off bills, before she switches what remains into the other, "fun" account. Any money left at the end of the month is earmarked for savings, but "there isn't usually much left".
She owes £900 on a Cahoot credit card charging 9.3 per cent and tries to pay off £50 to £100 each month. However, she has fallen behind because of the upheaval of moving.
Each month she also pays £200 to Ford on a hire purchase deal that gives her a new car every two years.
Laura has already begun to save for her future. She has three years' worth of pension savings from a former job at N&P - a final salary deal where she paid in 5 per cent of her salary. She is unsure whether to leave it, cash it in or transfer it over to her new final salary pension scheme at Norwich Union (NU).
She is considering buying life cover with her new firm to benefit from special staff rates but has neither income protection or critical illness cover.
Interview by Sam Dunn
Laura Hogg, 23, lives near Norwich.
Job: editor of the in-house magazine for insurer Norwich Union.
Savings: £5,000 in Head Start, the young saver account at Norwich & Peterborough.
Goal: to keep a tight rein on spending as she settles into her first home.
"Laura is an example of the financial challenge facing young people who want to buy a home," says Nick McBreen at independent financial adviser (IFA) Worldwide Financial Planning. And although her budget will be tight, she needs to build up an emergency savings fund and shift her credit card debt to a better deal, advises Darius McDermott, managing director of IFA Chelsea Financial Services.
The car is also a questionable asset given its high cost, and at her age, protection is less of a priority than saving.
Laura should move the balance on her Cahoot card to one charging 0 per cent on transfers for an introductory period. This will enable her to clear the balance instead of just paying off the interest, says Ben Gibbs at IFA Glazers. The Halifax's One Visa card is offering 0 per cent for nine months before reverting to 9.9 per cent - which should give Laura plenty of time.
Mr McBreen says she could make big savings by running a cheaper, second-hand car.
Making regular monthly payments into a mini cash individual savings account is a good way to start building up an emergency reserve, says Mr McDermott. Abbey offers 4.6 per cent and Marks & Spencer 4.5 per cent.
Laura could also get a very competitive rate on an internet savings account, including 4.3 per cent with Halifax's websaver.
Laura could have opted for a lower discounted variable mortgage rate, but by going for a fixed deal she's removed the risk of higher payments if the base rate rises, says Mr Gibbs. "She has a large loan relative to the property's value, but if her income and the value of her flat rise significantly over the next few years, she will have more flexibility to review her mortgage."
Final salary schemes are "like gold dust", says Mr McDermott, and Laura should join the NU scheme quickly and invest as much as possible.
As for her old scheme, the transfer process is complicated and lengthy. "Her best course of action would be to leave the N&P pension [pot] where it is and let it grow," adds Mr McDermott
Laura should check whether her pension also carries other benefits; some employers offer policies such as income protection, says Mr McBreen. If not, she should consider taking out income protection in case she suffers a serious illness.
Laura could generate £13,000 of income a year for a premium of £9.02 a month with Liverpool Victoria. She would need this to start paying out when statutory sick pay comes to an end (up to 28 weeks after she contracts an illness).
However, Mr McDermott says insurance shouldn't be her priority. "Given her age, I would encourage her to save rather than pay protection premiums that she can't afford." She doesn't need life insurance to cover her mortgage as she has no financial dependants.
If you would like a financial makeover, write to Melanie Bien at the Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email firstname.lastname@example.org
Donald MacInnes: 'I have to have £500 a month spare from now until at least 2035'
HSBC becomes first bank to offer five-year fixed rate mortgage with interest rate under 2%
Pension freedoms: How to deal with cold calls from scammers
Wonga results could get even worse this year, chief admits
Barclays new Blue Rewards hands cash to customers. What’s the catch?
- 1 Gwyneth Paltrow and Chris Martin file for divorce after 10 years of marriage
- 2 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 4 Bookies now say Ed Miliband is more likely to be prime minister than David Cameron
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
Katie Hopkins on LBC: Listen to caller taking The Sun columnist to task over migrant comments
iJobs Money & Business
£12000 - £15000 per annum: Recruitment Genius: An expanding Insurance Brokerag...
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
Day In a Page
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 four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
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.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
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.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
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.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
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
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000