Wealth Check: 'I want to buy my own home within five years'
Saturday 17 October 2009
Rachael Greaves, 25, from Cambridge, wants to get on the property ladder, but is worried about her savings depreciating in the current economic climate. Rachael says: "I want to buy my own home within five years." However, without a clear savings plan, she fears it may not be possible. A £30,000 inheritance in shares from her grandfather may help, but it has slumped in value in the last year. Rachael is therefore concerned about the continued risk of investing.
Offering advice this week are Danny Cox of Hargreaves Lansdown, Philip Pearson of P&P Invest and John Kelly of Chelsea Financial Services.
Salary £2,090 per month (net) as a secondary school English teacher.
Monthly outgoings tax £370, living expenses £500, savings £100, pension £163. Total £1,133.
Savings saves £100 a month into a low-interest deposit account.
Pension currently contributing £163 a month to her teacher's pension.
Debts a student loan, which has yet to be fully repaid.
Rachael wants to be a homeowner within five years, though she is not yet sure how she will achieve this. Kelly says: "The inheritance from her grandfather will help with a deposit on a house, but the money held in stocks has depreciated dramatically and it is difficult to put a figure on what it might be worth in five years' time. She should not sell the shares now as we are experiencing a nascent recovery in the economy."
Cox adds: "Rachael should check whether her grandfather's estate may be eligible for inheritance tax loss relief. If inheritance tax was paid on his estate and these stock values fell following the date of his death, a reduction in the inheritance tax paid might be possible."
"Rachael is feeling the pain from the deep freeze on interest rates, with the average rate on easy-access savings accounts now down to 0.77 per cent," says Kelly. "Given that she is willing to take on a greater risk – and happy to save for at least five years – we would recommend that she should move into riskier investments such as M&G Recovery and Invesco Perpetual Income, or perhaps bond funds such as those offered by Henderson Strategic Bond and M&G Optimal Income. All of these funds have skilled, experienced managers with strong track records of solid performance."
Pearson agrees: "If the shares from her grandfather are worth keeping, then Rachael may wish to consider transferring them into an equity ISA where all future gains will be sheltered from tax. But she should also consider saving on a regular monthly basis into an equity ISA, where she could invest up to £3,600 every financial year. In the new financial year (2010-11) the allowance will increase to £5,200. I recommend the Fidelity Moneybuilder range of funds, which provide good value and no initial charge. Regular saving is available from £50 each month."
Cox also favours the use of a tax-free ISA. He says: "If Rachael plans to retain the stock market investments, she should shelter £7,200 of their value in an ISA this tax year, then £10,200 in an ISA in the new tax year. This is important since investments held in an ISA pay no capital gains tax, which could potentially be a problem if Rachael holds the shares for five years. Capital gains tax is payable at 18 per cent on all profit above the annual allowance, which is currently £10,100."
Cox praises Rachael for her forward planning. "Teachers have a grade-A pension scheme. Rachael already has four years of service and, if she continues to the age of 65 in the scheme, she will have 44 years of service. If we assume that Rachael's salary remains the same, her pension would be £13,750 per annum, plus a tax-free cash lump sum of £41,250. This means that Rachael has a firm foundation for her retirement plans providing she remains in the scheme."
Kelly agrees: "A teacher's pension scheme is highly regarded and much coveted by those in the private sector."
Pearson encourages Rachael to look into the terms of her contract rather than taking out an expensive life assurance policy. "With no dependents and no significant liabilities, I do not advise life assurance at this time. However, Rachael should review her employer's terms for sick pay and consider additional income protection through private health insurance to supplement this to guard against the financial consequences of long-term sickness.
"Most employers will significantly reduce the allowance if the period of sickness is more than six months. It therefore makes sense to have additional protection in place that pays after a period of six months. The cost should be low for someone of Rachael's age."
For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email firstname.lastname@example.org
Mark Dampier: 'We're on our own in retirement. They've pulled pensions to pieces'
Questions of Cash: I don't use Amazon Prime, but my credit card bill says I do
Donald MacInnes: 'I have to have £500 a month spare from now until at least 2035'
Pension freedoms: How to deal with cold calls from scammers
Defined-benefit pension schemes: Rebate change in 2016 may leave you out of pocket
- 1 BBC election debate: The one photo that summed up the whole 90-minute leaders debate
- 2 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 3 'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
The only black face in the Ukip manifesto is on the page about overseas aid
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
Ukip is the only main political party to not address LGBT rights in its manifesto
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
General Election 2015: Polish prince challenges Nigel Farage to a duel over immigration question
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...
Day In a Page
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
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 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
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000