Wealth Check: 'I want to buy a property but I'm confused about mortgage rates and leases'
Saturday 29 May 2010
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
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 email@example.com
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Liam Neeson's Downton dreams
Thriller is set in the secret world of British espionage
- 1 Mario Balotelli: Staff at arson-hit Manchester Dogs' Home convinced Liverpool striker is behind five-figure donation
- 2 Scottish independence live: Scotland gives a clear 'No' in historic referendum - as it happened
- 3 iOS 8 is full of shiny new features - but it's terrible news for app developers
- 4 Friends 20th anniversary: Six things we wouldn't have without influential comedy series
- 5 Scottish independence: Tory revolt against 'devo max' grows as Rail Minister Claire Perry joins
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...
Day In a Page
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000