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
Saturday 16 March 2013
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 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."
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.
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."
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.
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
Customers paying up to £250 more on energy bills than they should every year
Has your Premium Bond won the £1million jackpot?
Midweek Money: The end (of the tax year) is nigh: act now
There are 'dark corners' of the investment and pensions industry, says Pension Minister
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
- 1 Home Office says Nigerian asylum-seeker can’t be a lesbian as she’s got children
- 2 What happens to your body when you give up sugar?
- 3 Drugs Live cannabis trial: Hash is less harmful than any other drug, expert claims
- 4 Turkish Airlines flight TK 726 crash-lands on Nepal runway amid dense fog
- 5 Apple and Google users being spied on for a decade because of 'Freak' security flaw
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...
Day In a Page
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 deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
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