Wealth Check: 'I want to invest in my future in a low-risk way' - Spend & Save - Money - The Independent

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

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Property
Home body: Badger stays safe indoors
property
PROMOTED VIDEO
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
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

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Payroll & Accounts Assistant

    £20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week