Wealth Check: 'I want to invest in my future in a low-risk way'

Case notes

Neil Shah, 26, Nottingham

Salary: £25,000 per annum

Monthly spending: £1,300

Debts: Student loan of £12,500

Mortgage: £100,000 over 25 years

Property value: £140,000

Savings: £300 per month

Pension: £360 per month – personal and employer contributions

Neil Shah, 26, is a database officer for Nottingham City Council. He is single and has a fixed-rate mortgage with Northern Rock on a two-bedroom flat worth £140,000. He puts £120 towards his pension and £300 into savings every month.

Neil is keen to move up the housing ladder, but is worried about buying at the wrong time with the current state of the market. He also wants to look at the best ways to invest so he can secure his future and retirement while having a conservative attitude to risk.

We asked three financial advisers to look at Neil's situation: Keith Churchhouse from Churchouse Financial Planning, Donna Bradshaw from IFG Group and Danny Cox from Hargreaves Lansdown.

Mortgage

At 26, Neil is ahead of the game when it comes to property, but Cox believes he may struggle to push forward with another property at this stage. "The problem Neil will currently find, is raising the deposit for a new property so that he can keep his existing flat.

"The maximum amount companies will lend on buy-to-let properties has fallen in recent months to around 85 per cent of the value of the property, known as loan to value. Most prefer buyers to have deposits of at least 25 per cent, and the smaller the deposit, the greater the cost of arrangement fees and the higher the interest rate.

"Neil has a very good mortgage deal and should keep this until October 2008. Getting further borrowing against this flat might be difficult, partly because he is with Northern Rock, and partly because he is already borrowing 71 per cent of the value of his home," says Cox.

Churchhouse agrees that Neil should be cautious about the property market: "Neil's objective is to have a portfolio of buy-to-let accommodation in the future for financial stability. I also note that he does not take big risks with his money.

"Because of this and the current economic climate, I would recommend that Neil holds off additional property purchase at this time, to save a larger deposit for when the property market is more stable. Current property forecasts for 2008 are not good, with warnings of a 'significant slowdown'," adds Churchhouse.

Pension

Bradshaw says Neil's pension situation is good, but that he could save more: "Neil is a member of the Local Government Pension Scheme (LGPS), one of the best pension schemes available. As he wants to retire at 60, he could consider setting up a personal pension to run alongside his employer scheme or a stocks-and-shares ISA."

Cox says Neil should carefully consider how much he saves for his pension with his retirement goals in mind: "If Neil continues with his current pension arrangement until retirement, I estimate that this would provide him with a pension in today's terms of £11,297 per annum at 60 and £16,724 per annum at age 65.

"This assumes that the contributions increase by 2.5 per cent per annum, that the pension fund grows by 6 per cent per annum after charges, and that the pension in payment increases by 3 per cent per annum.

"If Neil chooses to use property to supplement this income, a portfolio of property worth £1.5m, yielding rent of 3 per cent per annum, will provide an income of £45,000, which in today's terms is £16,470 per annum at age 60 or £14,221 per annum at age 65," says Cox.

Neil would need around £540,000 in cash to achieve his objective of having £200,000 in the bank in today's terms at age 60.

Savings

Churchouse recommends that Neil considers creating an emergency fund: "As a rule of thumb, I would normally recommend that a client maintains deposit funds of around three to six months' income, which should be between £4,000 to £9,000. For tax efficiency, £3,000 of this should be held in a cash ISA and the rest in a high-interest instant-access deposit account."

To find a financial adviser in your area, visit www.unbiased.co.uk

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk