Wealth Check: 'I want to buy a property but I'm confused about mortgage rates and leases'


Annual income: £30,000 to £35,000

Living expenses: £800 a month

Travel expenses: £120 a month

Holidays: £2,000 a year

Regular savings: £200 a month

Savings/pensions: None

Amy Cuthbert is planning her first step on to the property ladder. "I have worked in the advertising industry for more than five years and have recently saved enough money for a deposit becuase I’m fed up with renting," says the 28-year-old, who lives in London. "Should I take a tracker or a fixed-rate mortgage? I fear that if I take a tracker, the interest rates will go up. But I don’t want to take a fixed rate and then see low tracker rates continue."

She is also worried about leases. "Many of the properties I have been viewing need a lease extension, which varies in cost. I’ve read that if you remain in the property for two years then you can extend it for an additional 90 years. Should I wait for this? Or should I extend it immediately, which would mean only extending it to 99 years?"

This week’s advisers are Lorreine Kennedy, of CareMatters; Duncan Carter, of Clearwater Financial Planning, and Robert Forbes, of Plutus Wealth Management.


Should Amy take a fixed-rate or a tracker loan? "At present, fixed-rate deals are higher than tracker deals but there are a number of advantages to fixed rates," says Kennedy. "A fixed rate will provide you with certainty and allow you to budget each month – this can be very useful if Amy’s income and expenditure are tight.

"Tracker deals are attractive right now as they represent the lowest rates. That is fine while rates are stable but if rates rise then Amy could be under considerable financial pressure," she adds. "A 1 per cent increase in interest rates will have a marked on monthly payments. If the idea of that keeps you awake at night, then it is likely that a fixed rate will be the best option for Amy."

Carter says: "For many people, having certainty is of importance and some will accept the potentially higher rate under a fix as a price worth paying to ensure their outgoings are certain for a known period."

However, he warns of the potential problems when the fixed rate ends, adding: "Many people in the past borrowed far too much on low fixed rate deals and are now finding their lender’s standard variable rates to be significantly higher than the fixed rates they enjoyed."

For that reason, Amy should consider longer fixed rates, advises Forbes. "If Amy is going to buy a place, she should look at getting the longest fixed rate possible," he says. "A two-year fix may cause problems because 24 months from now Amy may find interest rates – and therefore her repayments – much higher, so ideally a five-year fixed rate would be best."

Extending property lease

There are several factors to think about when considering extending a lease, says Carter. "These include the value of the property, the remaining length of the lease, how long you intend to stay in the property, and the current level of ground rent," he adds. "The term of lease will be an issue for a lender who will generally not grant a mortgage where there are fewer than 60 years remaining."

He says Amy should be aware that the length of the remaining lease will affect its future value. "This is an area where specialist advice should be taken once you have decided upon a property. One scenario to avoid at all costs is getting into a dispute with the landlord that might end up at a Lease Valuation Tribunal, as this is both time-consuming and expensive." For more information, he recommends the Leasehold Adviser Service at www. lease-advice.org.

There is also the question of paying for a lease extension. "The cost of extending a lease can be considerable and time-consuming," Kennedy says. "Two of my clients have extended the leases on their properties in recent months: the first cost £45,000, the second £38,000. In addition are legal costs, which can run to £2,000 to £3,000. Amy needs to consider how she will raise the additional money if she decides to extend the lease."

Pension and savings

Amy says she is living for the present rather than planning her finances. "In the long term this will cost her greatly," says Forbes. "She should be contributing to a pension scheme, especially if her employer offers matched contributions.

"Also, she should think about the short term and use her £5,100 cash Isa allowance and start investing for the medium term into an equities Isa. Her contributions to her pension and Isa don’t have to be huge at this point as she is focused on her property, but starting the habit of looking more long term will help to shape her finances much more efficiently."

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@independent.co.uk

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

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

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

    The secret CIA Starbucks

    The coffee shop is deep inside the agency's forested Virginia compound
    Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

    How the Establishment closed ranks over fallout from Nessie 'sighting'

    The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
    One million Britons using food banks, according to Trussell Trust

    One million Britons using food banks

    Huge surge in number of families dependent on emergency food aid
    Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

    2,500 years of history in 3,000 amazing objects

    Excavation at Italian cafe to fix rising damp unearths trove
    The Hubble Space Telescope's amazing journey, 25 years on

    The Hubble Space Telescope's amazing journey 25 years on

    The space telescope was seen as a costly flop on its first release
    Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

    Did Lord Ashcroft quit the House of Lords to become a non-dom?

    A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
    Apple's ethnic emojis are being used to make racist comments on social media

    Ethnic emojis used in racist comments

    They were intended to promote harmony, but have achieved the opposite
    Sir Kenneth Branagh interview: 'My bones are in the theatre'

    Sir Kenneth Branagh: 'My bones are in the theatre'

    The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
    The sloth is now the face (and furry body) of three big advertising campaigns

    The sloth is the face of three ad campaigns

    Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
    How to run a restaurant: As two newbies discovered, there's more to it than good food

    How to run a restaurant

    As two newbies discovered, there's more to it than good food
    Record Store Day: Remembering an era when buying and selling discs were labours of love

    Record Store Day: The vinyl countdown

    For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
    Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

    Mary J Blige and Will.i.am to give free concert

    The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
    10 best tote bags

    Accessorise with a stylish shopper this spring: 10 best tote bags

    We find carriers with room for all your essentials (and a bit more)
    Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

    Paul Scholes column

    I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
    Jessica Ennis-Hill: 'I just want to give it my best shot'

    Jessica Ennis-Hill: 'I just want to give it my best shot'

    The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...