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Spend & Save

Wealth Check: How can we build up our savings now we're in our dream home?

Marie and Brian want to pay off their mortgage as quickly as  possible and provide for eight-month-old Harry’s future

The patient

Marie Walker, 33, and her partner, Brian Serajuddy, 39, moved into their dream home in 2012, and used almost all of the money they had squirreled away for the deposit, so are keen to start building their savings again.

The couple live in a four-bed new-build property in Cottingham, east Yorkshire, with their eight-month-old son, Harry.

They bought this for £285,000, and have a mortgage for £205,000 with the Coventry Building Society. This is a fixed-rate deal at 3.89 per cent on a repayment basis.

“While we have a big mortgage, we don’t plan to move again,” says Marie. “We are shortly set to renew our deal, and hope to get a lower rate, with a view to reducing the term and clearing it more quickly. Ideally, I’d like to be mortgage-free by the time I’m 50.”

Marie is currently on maternity leave, but is due to go back to work in June this year. She works for the NHS as a diabetes specialist podiatrist on a salary of £38,000, while Brian works as a computer software developer earning £32,000.

“As we used up almost all of our savings buying our home we had to pretty much start saving from scratch last year,” says Marie. “We did build up a decent fund but have gone through nearly all this while I’ve been on maternity leave.”

The couple have around £1,200 in a cash individual savings account with Santander. “We’re using our remaining savings to tide us over until I go back to work, as from March I’m on no pay,” says Marie.

Aside from these savings, Marie has around £9,000 invested in five 10-year investment policies with the Police Mutual. “My father was in the police and these are in my name and valued at between £2,000 and £5,500,” says Marie. “They are due to mature between 2015 and 2023 and the payouts will depend on growth.”

The couple have no loans or overdrafts, and while they owe £1,200 on a Tesco credit card and £1,800 on a Santander card, both are 0 per cent deals.

“Our card debt will be paid off within a few months of me returning to work,” says Marie. “Once we’ve done this, we’d like to start to replenish our savings again – hopefully in preparation for baby number two.

“If we do have a second child, we’d like to get ourselves into a financial position where I can look at returning to work on a part-time basis.”

In terms of retirement planning, Marie pays £280 a month into an NHS pension (while on full pay), and Brian pays £415 a month into a salary sacrifice scheme through work.

The couple have £500 saved in a Junior Isa for Harry; this is with the Halifax. “We plan on slotting away between £500 and £1,000 a year,” says Marie.

Marie and Brian have life insurance with critical illness cover with PruProtect. Brian pays £58.99 for his policy, while Marie pays £29.87.

The cure

Our panel of independent financial advisers agree Marie and Brian seem to be in a reasonably good financial position, with little debt other than their mortgage. They commend them on their plans to build their savings, but urge them to review their investments, and also to boost their protection.

Draw up a plan

Marie and Brian have the right attitude towards money, says Martin Bamford from Informed Choice. “They have already identified the need to repay the card debt quickly, replenish their savings and start planning for the longer term,” he says.

“I think a comprehensive financial plan would help them uncover their lifetime goals – and the best steps to take to achieve these.”

Build savings

Having used their cash savings to pay their mortgage deposit, the challenge is building their savings again, according to Patrick Connolly from Chase de Vere.

“This will be easier once Marie goes back to work,” he says. “As well as having cash savings to cater for any short-term emergencies, they may then require additional savings to make up for a shortfall in income if they have another child.”

Adrian Lowcock from Hargreaves Lansdown agrees that the couple’s priority should be rebuilding their savings. “The good news is, they are doing the right thing by using cash Isas for their savings as all interest is tax-free,” he says.

Think carefully about saving for children

While a Junior Isa can be an effective way to save for children, a stocks-and-shares account may be a better alternative to a cash account, according to Mr Connolly, given it will run for 18 years. “It’s likely that investing in shares will provide a better return than investing in cash over that timeframe,” he says.

Mr Bamford urges them to be wary of putting too much money into a Junior Isa. “Building up a fund of £20,000 could give Harry a good start in life, but this is assuming he spends the money wisely when he reaches his 18th birthday,” he says. “It might be preferable to save in their own names, designating an account on his behalf, and then keeping control of the money.”

Research mortgage deals

While mortgage rates are starting to creep up, in expectation of future interest rate rises, there should still be some good deals available in the next few months, according to Mr Connolly. “Marie and Brian should look carefully at the options available and may want to consider another fix on a repayment basis,” he says. Mr Lowcock adds that rather than looking to reduce the term, they should look for a product which allows overpayments. “This will help pay off their mortgage sooner, but with more flexibility.”

Continue with pension saving

Our advisers agree that Marie and Brian are making good progress with their pension. “Marie is paying into the NHS scheme, a top-quality scheme offering benefits guaranteed by the Government,” says Mr Connolly. “Even though changes are happening, Marie should continue to contribute.”

They should review their pension arrangements to check they understand what benefits they will receive. “This will give a strong indication as to whether they will be able to retire when they want with the level of income they want,” says Mr Connolly.

Review investments

While it is positive that Marie is making regular investments, Mr Connolly advises against taking out any further policies with the Police Mutual.

“These plans tend to be expensive, have limited flexibility and offer poor value,” he says. “For example, with the policy due to mature in January, Marie would have invested £2,520 and her return might be just £2,676. This isn’t good over 10 years.”

He suggests Marie review her existing policies, but warns there may be high exit penalties. “For this reason, it might prove best to retain them – and especially those maturing sooner,” he says. “The couple can then use the payouts to reduce their mortgage, and to help boost their cash savings.” Mr Lowcock suggests regular premiums into stocks-and-shares Isas from an investment supermarket or platform.

Boost protection

Mr Bamford warns that following the arrival of Harry, the couple’s protection cover looks a little lightweight. “They might want to consider additional life assurance in the form of income benefit,” he says. “This would pay a monthly or annual benefit until Harry turns 18 in the event of either of them dying. At the same time, they should update their wills and ensure they have appointed a guardian.”