Bastiaan Los is a 38-year-old IT manager from London. Despite taking home a salary of around £3,000 a month, he hasn't been able to achieve his dream of getting on the property ladder.
As a father of two young children, he desperately wants the security of owning his own home. And while he's managed to save £10,000 towards a deposit, he doesn't think it's enough.
Bastiaan's other main financial headache is retirement planning. At 38, he still has not started a pension, and knows very little about investment. He is prepared to pay £150 a month into a pension fund, and hopes to generate an income of around £1,500 a month by the time he is 65 – enough to retire on in his home country of Brazil.
We asked three financial advisers to look at Bastiaan's case: Kevin Anderson of Budge & Co; Anna Sofat of AJS Wealth Management; and Adrian Kidd, from Mintzone Financial Services.
Bastiaan Los,38, IT manager, London
Marital status: married with two children, 7 and 12
Pensions: none, but willing to start saving £150 a month
Savings: £10,000, to be used as a deposit on a home
Debts: None, but uses bank overdraft for emergencies
Expenses: £1,250 a month on rent, £220 a month on council taxes, £1,800 a month on living expenses
Anderson says that Bastiaan's savings of £10,000 would only be enough to cover the cost of stamp duty, solicitor's fees and removal expenses should he buy a property.
He therefore suggests Bastiaan considers taking out a 100 per cent mortgage, covering the entire value of the property he wants to buy. However, he warns that this will cost more than a regular mortgage, probably incurring a higher lending charge.
Sofat says Bastiaan will be able to get a mortgage of four or more times his salary, but advises him against it, as recent interest rate rises would make it difficult to cope. She says that he could probably afford to buy a house worth around £216,000. Assuming Bastiaan could raise a deposit of £16,000, a £200,000 interest-only mortgage would cost him around £916 per month. However, she questions what he will be able to buy for this amount in London.
Although Bastiaan wants to buy a three-bedroom house, Sofat suggests he may not be able to afford any more than a two-bedroom flat in London, which would probably not be sufficient for the needs of his family.
Kidd says that north London may be out of Bastiaan's price range, and suggests he consider looking elsewhere if he is realistic about achieving his goal of getting on the property ladder. Kidd acknowledges that choosing an area with good schools for Bastiaan's young children will be crucial in deciding on a suitable area.
Sofat suggests that one way of buying a larger property would be to consider shared equity schemes, in which the borrower only buys part of a property.
Most such schemes are only available for public sector workers. However, she says Bastiaan would qualify for the Flexishare plan from Advantage, which allows the borrower to buy between 65 and 85 per cent of the equity in the property with the remainder being funded by a residential ownership loan (ROL).
The additional loan is charged interest at just 2.99 per cent, but when the borrower comes to sell the property, Advantage would share in the equity uplift. Sofat points out that, most importantly, there is a no negative equity guarantee.
Anderson says that investing £150 per month, assuming a growth rate of 7 per cent per annum, would give Bastiaan a pension of approximately £4,000 a year at 65. Sofat adds that Bastiaan would also get a pension from the state, which would be in the region of £5,000 a year depending on his national insurance contributions record. However, this would still leave him around £200 a month short of his £1,500 target.
Given his age, Anna recommends Bastiaan invests 60 per cent of his pension in equity funds, 30 per cent in property funds, and 10 per cent in fixed interest.
Kidd suggests Bastiaan should try to save around three months of his salary in a high interest account to provide stability for his family in the event of an emergency, rather than relying on his bank overdraft.
He also recommends Bastiaan joins his company's pension scheme or takes out a private plan. Anderson agrees and says Bastiaan could reconsider the amount he is willing to save each month.
All advisers agree that Bastiaan should take out a life insurance policy in the event of being unable to work for a prolonged period through illness or injury. They say it is particularly important with a young family, as he is the main earner. They advise that a figure of four times salary would be appropriate for life cover, and this would cost approximately £21 per month if taken for a 20-year term.
Kidd says Bastiaan should also consider writing a will, laying out who would care for his children should something happen to both he and his wife at the same time.
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