Wealth Check: 'I want my future to lie in property investment'

Robert Shaw, from Swindon, is a university student on a year's placement as a customer support analyst for IBM.

He plans to buy his first property and pay off the mortgage within the next five years, but he is unsure whether a mortgage lender would be willing to subsidise such a project.

"My main financial goal is to secure my money for the future, and I believe that my future lies in property investment," he says.

"However, I don't know if I am eligible for support from the banks. I don't see why I wouldn't be: I have a good credit history, having never borrowed before."

Robert is passionate about IT, and takes pride in his work, but he acknowledges that the industry can be fickle.

"Modern technology is continually progressing, and at a very fast rate. This means that you constantly have to be on the ball and willing to retrain in order to keep up," he says.

"So I intend to retire at about 45 and focus on my property portfolio, but I aim to start on that sooner rather than later."

He is not afraid to take financial risks: "I have fallen flat on my face countless times, but have always gained something from the experience. I believe that if a risk is worth taking and you have the confidence and passion to see it through, then you have to do it."

Case notes

Annual Income: £17,000
Savings: £7,000
Expected inheritance: £45,000
Pension: None

Offering advice this week are Lorreine Kennedy, of Care Matters, Danny Cox of Hargreaves Lansdown, and Diane Weitz of Ashlea Financial Planning...

Buy-to-let mortgages

The mortgage market currently remains very tight, warns Cox. "In addition to Robert's general creditworthiness, lenders will assess the rental potential of the property as well as the general condition. Evidence is often required as to the rental potential," he says. "Lenders will assess whether the rent will be sufficient to pay the loan, and often require further security from the borrower."

Robert should speak with a specialist in the buy-to-let market, adds Weitz. "Alexander Hall has a very helpful website with lots of good advice about what should be considered in this market, including a calculator indicating what rent can be expected from property of a given value."

In short, to get a buy-to-let mortgage, the site suggests you need to be at least 25, already have had a mortgage, be buying a property in good condition, and have an income of at least £35,000, which may rule Robert out at present on several criteria. However, waiting and getting a bit more financial experience may stand Robert in good stead.

"Property investments are generally geared; meaning money is borrowed to invest," explains Cox. "When the market goes up, this gearing works positively, since Robert would be able to achieve a greater market exposure and therefore greater profits than if he hadn't borrowed. However, when the market falls, this gearing works against Robert and his losses are increased."

Early retirement and financial goals

The advisers agree that property can be a good long-term investment towards retirement, but Cox has some misgivings.

"Property is an illiquid asset, meaning it cannot be bought and sold quickly and easily. This creates problems for investors wanting or needing to sell," he says. "If Robert hopes to build a retirement fund through property investment, it is good to acknowledge that, as with any other investment; property will rise and fall in value, making investments such as these very unpredictable in terms of revenue."

For example, between August 2007 and May 2009, the Halifax house price index recorded an average fall in values of 22 per cent.

"The current average property price in Swindon is around £180,000," points out Kennedy, "so Robert would require at least £40,000 each time he purchases, to cover the cost of a deposit and the legal applications.

"Aside from the potential revenue accumulated from property ownership, if Robert does achieve his goal to work with IBM, then it is quite likely that he will be able to join their company pension scheme, which can be a wise move," she adds.

Savings and protection

"Although Robert is earning for this year, next year he will be back at university with no earnings, so he should save as much as possible this year," says Weitz. "Putting all of his savings into property would not be a good idea.

"The growth in the capital value of property over the last few years was fuelled by easily obtained credit, which contributed to the credit crunch. Right now, it is possible that property prices could fall further," she warns.

"My advice for Robert would be to perhaps save for a little while longer, use cash ISAs to build a larger deposit and then consider buying a property," suggests Cox.

"Robert's outgoings are very low at present, and this year with IBM will be a perfect time to build upon his savings," adds Kennedy. "Setting and reviewing his income and expenses annually is a good habit to get into, and will ensure that he gets the right balance between enjoying life now and having to secure a future."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
i100
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
health
News
science
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
News
Chuck Norris pictured in 1996
people
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
News
A voter placing a ballot paper in the box at a polling station
i100
News
people
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
Sport
football
Finacial products from our partners
Property search
  • Get to the point
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

    SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

    £20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

    Ashdown Group: Marketing Executive - 6 month FTC - Central London

    £25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

    Ashdown Group: Junior Project Manager (website, web application) - Agile

    £215 per day: Ashdown Group: Junior Project Manager (website, web application ...

    Guru Careers: Software Engineer / Software Developer

    £40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

    Day In a Page

    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'
    Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

    Flesh in Venice

    Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
    11 best anti-ageing day creams

    11 best anti-ageing day creams

    Slow down the ageing process with one of these high-performance, hardworking anti-agers
    Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

    Juventus vs Real Madrid

    Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
    Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

    Ashes series looks a lost cause for England...

    Whoever takes over as ECB director of cricket, says Stephen Brenkley
    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power