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

CASE NOTES - AMY CUTHBERT

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.



Mortgage

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

PROMOTED VIDEO
Finacial products from our partners
Property search
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

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    MBDA UK Ltd: Indirect Procurement Category Manager

    Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

    Recruitment Genius: Web Developer - PHP

    £16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

    Day In a Page

    Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

    Greece elections

    In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
    Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

    Holocaust Memorial Day

    Nazi victims remembered as spectre of prejudice reappears over Europe
    Fortitude and the Arctic attraction: Our fascination with the last great wilderness

    Magnetic north

    The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
    Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

    Homeless Veterans appeal

    Homeless in Wales can find inspiration from Daniel’s story
    Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

    Front National family feud?

    Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
    Pot of gold: tasting the world’s most expensive tea

    Pot of gold

    Tasting the world’s most expensive tea
    10 best wildlife-watching experiences: From hen harriers to porpoises

    From hen harriers to porpoises: 10 best wildlife-watching experiences

    While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
    Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

    'I don’t want just to hold tackle bags, I want to be out there'

    Nick Easter targeting World Cup place after England recall
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore