Wealth Check: 'I want to pay off all my debts and buy a flat'
Saturday 15 March 2008
Paul Baker, 25, lives in Edinburgh with his partner. He became a commercial airline pilot 18 months ago and earns £36,000 a year. His main goal is to pay off two HSBC professional studies loans that helped him train to be a pilot, whilst still having enough spare cash for a comfortable lifestyle. However, he is also interested in getting on the property ladder and wants to know if it is the right time for him to buy a flat.
We asked three financial advisers to take a look at Paul's financial situation: Martin Bamford from Informed Choice; Mike Pendergast from Zen Financial Services; and Danny Cox of Hargreaves Lansdown.
Case notes: Paul Baker, 25, Edinburgh
Salary: Paul is a commercial airline pilot on a starter salary of £36,000.
Monthly outgoings: Paul spends about £2,700 on paying back a large loan that paid for his training, as well as rent and living expenses.
Debts: Two professional studies loans totalling £70,000. One of £65,000 with 7.75 per cent APR, the other £5,000 with 8.5 per cent APR.
Pension: Paul contributes roughly £150 a month into his employer's pension scheme.
Debt & Savings
At the current rate of repayment, Paul's loans will be cleared in six years. Bamford and Cox both agree that this should be Paul's priority and is the best use of any spare income he has in the short term.
Paul has £2,500 in a bank account and Bamford says that although it might be worth keeping it there as an emergency fund, Paul should focus on using all his resources to pay off the loan with the higher APR because it is costing him the most to service. "People often feel more comfortable having some savings when they are in debt but in reality this is financial madness," says Bamford.
Cox and Pendergast both advise Paul to move the money from his bank account into a mini cash ISA, as the interest tends to be higher than in standard bank accounts and is tax free. Both Abbey and Barclays are recommended, offering 6.25 per cent and 6.31 per cent on their Direct ISAs respectively.
All the advisers are concerned by the uncertainty of the market and Bamford advises Paul not to rush into buying a property as it would result in more financial pressure and debt.
Paul does not have a deposit and if he were to buy a property, he would either have to raise one from his limited spare cash, or borrow 100 per cent of the value of the property. "Mortgages that lend the full purchase price tend to be more expensive and have higher fees, including high loan to value fees," explains Cox.
Because of the falling demand for rental property, all three advisers agree that if Paul does buy a property, it should be viewed as a place to live rather than a short-term investment.
Paul's current pension scheme is projected to provide £9,000 a year if he retires at 60. While this represents only half the amount he needs, Cox accepts that his priorities are currently elsewhere.
Furthermore, Paul is only at the early part of what should be a long and lucrative career as a pilot, and his earnings should increase dramatically over the next 10 years. Therefore, Bamford says that pension saving should take a back seat for Paul in his twenties and even thirties while he focuses on debt repayment.
Cox advises Paul to increase his pension savings when he gets pay rises, either through additional payments to his present scheme or by paying into a low-cost self-invested personal pension (Sipp). Pendergast agrees, but stresses that if he uses a money purchase pension, he should ensure that he spreads his contributions between at least five or six funds to spread the risk.
To find an independent 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 email@example.com
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits record low as popularity suffers in wake of Ukip sex scandal
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Germany sees 'visible rise' in support for far-right extremism in response to perceived 'Islamisation' of the West
iJobs Money & Business
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
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