Wealth Check: 'How can we get ourselves a bigger home?'

Start by taking a longer-term mortgage and build up tax-free money from an instant access ISA, says our panel of experts

The patient

Andy Heath and his partner Rhona Kirkwood, both 36, are keen to move to a bigger home for their growing family.

At present, the couple live with their two children, Angus, four, and Isabella, two, in a three-bed house in Coventry. He works for international development charity Practical Action as a media officer, while she is a legal adviser with the civil service. They have a combined salary of £60,000, alongside £500 a month in childcare vouchers.

Andy says: "I love my job, as the charity helps provide technology for long-term solutions to the problems the poorest people in the world face, but there isn't much prospect of salary rises for either Rhona or myself in the near future."

The couple bought their home eight years ago for £130,000, and are in the process of applying for a £90,000 repayment mortgage over 12 years fixed at 2.65 per cent for two years with Coventry Building Society.

"Our house is in a nice part of Coventry and currently worth around £160,000," says Andy. "We are remortgaging but it hasn't gone through yet – at present, our repayments are £769 over 17 years, but we want to reduce the length of the mortgage."

A few years ago they paid £30,000 for an extension to add a separate toilet and bigger kitchen. "However, there is no way of adding a fourth bedroom without spending a fortune," he says.

"Although we are happy where we are living, in reality we will need to move in a couple of years' time because we can't extend our house further, and Bella's room is only a box room – when she's old enough, she'll want a much bigger space."

At present, their ideal is to find a four-bed house in the area, but these are priced at around £325,000, so currently out of their range.

However, fortunately, aside from their mortgage the family is debt-free as while they use a credit card they make sure to wipe out the balance each month. But they have little in the way of short-term savings, with just £2,000 in National Savings and Investments' premium bonds.

Turning to pension planning, Rhona pays into the Civil Service Pension Scheme. Andy worked for the police for five years and paid into their scheme, but has yet to sign up to his current employer's offering.

"I know this is a massive error, and I should rectify it," he says. His employer will be paying into his pension scheme too.

They have no protection policies in place.

The cure

The couple really need to reassess their financial priorities, stresses Tony Byrne, from independent financial adviser (IFA) Wealth and Tax Management.

He warns: "While they want to upsize their home, this should be lower down on their to-do list, after purchasing adequate insurance cover, and joining the employer's pension scheme – only once these are ticked off should they consider saving towards buying a bigger property."

Protection

As Andy and Rhona have a young family it is crucial they are better protected, stress our panel of IFAs.

Mr Byrne said: "They should buy life insurance and, ideally, income protection to cover outgoings in the event of death, a serious illness or disability."

Neil Mayfield, from Mayfield Investment Management, adds: "They should at least have life cover in place to provide enough capital to repay the mortgage in the event of death, plus an income while the children remain dependant."

As a first step they should check what cover is available through their employer. Rhona will have death in service included with her pension scheme, and Andy could benefit from this too if he joins his employer's scheme.

For example, if Andy and Rhona took £90,000 level term assurance over 12 years, this would cost just £6.65 per month each with LV=, according to broker Lifesearch, although ideally they should opt for more than this to cover everyday living costs.

To provide £1,500 per month tax-free income protection cover for Andy, deferred for three months to age 60 in the event of long-term illness or disability, would cost around £32 a month with Exeter Family Friendly.

Given they expect to take on a larger mortgage in the future, the family will need to look to increase life cover at that stage.

Retirement planning

Andy and Rhona should review their pension provision to understand what it is likely to provide for them at retirement.

As Andy has pointed out he should definitely join his employer's scheme. He is effectively turning down a pay rise by failing to do so, given his employer will double his contributions.

Warren Shute from Lexington Wealth Management says: "If Andy pays £125 into the scheme his employer will contribute £250 – a total of £375 a month.

"However, this contribution would only cost Andy £85 a month in his take-home pay owing to tax and national insurance savings."

Property

Based on current property values they will have a house to sell worth £160,000 with a mortgage outstanding of around £78,000 after two more years of repayments on a reduced term, says Mr Mayfield, giving total equity of £82,000.

However, Jonathan Harris, a director of mortgage broker Anderson Harris, says reducing the mortgage term might not be the wisest move. "This will push up the monthly mortgage payments when they would be better off saving towards the deposit on the new property. It would make much more sense to opt for a 25-year term rather than reduce their existing mortgage to 12 years," he says.

Savings

To help the couple budget effectively they should make a note of their monthly expenditure to see where savings can be made to help build an emergency fund and move towards a future property purchase, agree the advisers.

Ideally, they should aim to increase their instant access savings to at least £8,000. They could keep their premium bonds, but ideally use instant access cash Individual Savings Accounts for short-term savings to benefit from tax-free interest.

**

Do you need a financial makeover?

Write to Julian Knight at:
The Independent on Sunday, 2 Derry Street, London W8 5HF

j.knight@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
news
Sport
footballLive! Chelsea vs West Ham kicked off 10 Boxing Day matches, with Arsenal vs QPR closing the action
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
PROMOTED VIDEO
News
i100
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
News
news
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
Finacial products from our partners
Property search
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

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

    Christmas without hope

    Gaza fears grow that conflict with Israel will soon reignite
    After 150 years, you can finally visit the grisliest museum in the country

    The 'Black Museum'

    After 150 years, you can finally visit Britain's grisliest museum
    No ho-ho-hos with Nick Frost's badass Santa

    No ho-ho-hos with Nick Frost's badass Santa

    Doctor Who Christmas Special TV review
    Chilly Christmas: Swimmers take festive dip for charity

    Chilly Christmas

    Swimmers dive into freezing British waters for charity
    Veterans' hostel 'overwhelmed by kindness' for festive dinner

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all