Luke Murdoch is a 20-year-old technical process manager who has been working at Barclays bank for two years. Despite his dedicated approach towards saving, Luke faces the difficulties of many other first-time buyers eager to get on to the property ladder.
While Luke is in a similar situation to lots of young people, his differences lie within his strong savings ethos and ample awareness of the current financial climate. Despite this, Luke is unsure that he is doing enough at the time of the credit crunch to ensure he will be able to buy his first property in the near future.
Luke Murdoch, 20, banking technical manager, Dorset
Income: Luke earns £17,170 a year and up to £21,000 including bonuses.
Monthly spending: £500 living expenses, £45 car insurance, £220 tax and NI contributions.
Savings: £200 regular savings with a balance of £9,700.
Pension: £150 in a pension, contributing £35 a month.
Property: Living with parents with the intention to buy in the near future.
Debts: Barclaycard balance of £597 and student loan balance at £1,500 being paid off by payroll contributions.
We asked three financial advisers to take a look at Luke's situation; John Donaldson of Yours Financially; Mike Pendergast of Zen Financial Services; and Kevin Anderson of Budge and Company Ltd.
Luke is currently living with his parents, where he does not have to pay rent or bills. Anderson says that in view of the market conditions, he should continue to live with his parents for as long as possible to save as large a deposit as achievable. He also suggests Luke should start paying his parents a market rent to get him used to a large monthly housing outlay without it being dead money to a landlord. His parents can then give this back to him to increase his deposit on a property.
Donaldson agrees that he should be saving for a large deposit, advising that he aim to amass around 10 per cent of the value of the property that he wants to buy. "If we assume Luke will want to buy at around £120,000, this will mean a deposit of £12,000 will be needed," Donaldson says. "As he already has saved £9,700 and is setting aside £200 a month, this would take around a further year of saving.
"He could increase what he saves to around what a mortgage might cost him – this would be a little over £700 per month. This may be more than he wants to save now, but if he can get used to the higher savings, he may need a smaller mortgage when the time comes, or he could realise his goal of buying his first home earlier."
Luke is a member of the Barclays bank pension scheme and so far has £150 saved and is contributing £35 per month. His desired retirement age is 65, with a net income of at least £1,000. Donaldson says that because Luke is keen to buy his own property, his retirement income needs to be a secondary priority, as it seems unlikely that he will be able to save more towards his pension at the moment. Donaldson suggests that he should investigate the investment choices within his scheme and select a more suitable fund, perhaps investing in higher-risk/higher-return areas.
Pendergast also suggests Luke should make sure his pension is monitored at least annually either by himself or by an adviser.
SAVINGS AND INVESTMENTS
Luke saves £200 a month into his ING ISA. However, Anderson suggests Luke should consider shopping around: "Icesave currently offer an instant access account paying 6.1 per cent. The AER is guaranteed to be at least 0.3 percentage points above base rate until 31 January 2011 and at least equal to base rate until 31 January 2013."
Anderson adds that Luke may want to consider saving some money into a stocks-and-shares ISA, as he may achieve a better return than in a cash savings account. He advises that Luke invest a little each month, so that even if markets continue to fall in the short term, he can take advantage of buying shares at cheaper prices.
Donaldson agrees and suggests that Luke starts saving into an equity ISA. The proceeds from this may help him pay off his mortgage earlier or be added to his retirement funds.
Other than a £1,500 student-loan balance, Luke's only debt is his Barclaycard balance of £597 on a 12.9 per cent interest rate.
Donaldson says Luke should consider paying off his Barclaycard balance immediately, even if it means using his ISA money, as it will give him a higher return. Despite this debt, Anderson claims that Luke is in a very healthy debt situation for someone of his age.
The advisers agree that with no dependents and no major overheads, Luke probably does not need any kind of life insurance or income protection at the moment. However, Pendergast says that once he has bought his house, he should consider life, critical illness and mortgage payment cover. He adds that Luke should check what insurance his current employer provides for him in the event of illness or death.
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