Wealth Check: 'I want to pay off all my debts and buy a flat'

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.

Savings: £0

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.



Property

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.



Pension

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 cash@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

Suggested Topics
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent