Wealth Check: 'I worry about not being able to pay the mortgage'

Mariatu Allie, 26, from London, is worried about making ends meet after renovating her home. She shares the £400,000 mortgage with her sister and is paying it back on an interest only basis. But to meet the payments, she is renting out some bedrooms. "I worry about what would happen if we lose our tenants or our mortgage payments go up," she says. "We just can't afford many extra costs or losing the rental income."

Three independent advisers offered Mariatu advice this week: Matthew Woodbridge from Chelsea Financial Services, Mel Kenny from Radcliffe & Newlands and Keith Churchouse from Churchouse Financial Planning.

CASE NOTES: Mariatu Allie, 26, TV compliance officer, London
Salary: £28,000
Monthly outgoings: £1,800
Pension: £0
Savings: £3,200
Mortgage: £400,000
Protection: None

Mortgage and rental income

"Luckily Mariatu is in a reliable rental location in London where there will always be a steady demand," says Mel Kenny. "She has plenty of value in her property and can currently meet her mortgage payments, but her situation is a finely balanced tightrope. She has to have good tenants, a contingency plan and be able to pay out the extra if one of the rooms becomes empty."

Matthew Woodbridge agrees that Mariatu is on the edge of a financial precipice. "She has taken on a huge debt relative to her annual earnings with this mortgage," he says. "And with her income so closely matching her outgoings, she has no room to manoeuvre if interest rates increase or she has unexpected expenses."

Although her home may be difficult to part with, the advisers also suggest that if house prices are beginning to fall, and with money very tight, Mariatu may wish to crystallise the capital growth she has achieved through the property and sell up.

Meanwhile, to try to alleviate some of the pressure, Mariatu should make sure she takes advantage of the rent-a-room relief offered by the Government, adds Keith Churchouse. "She could rent her rooms for up to £354 per month with no tax liability. No tax is payable if the rental income doesn't exceed £4,250 a year if the landlord occupies the property." He adds that Mariatu should look at her remortgage options well ahead of the end of her current deal, to make sure she gets the best deal for her circumstances. With interest rates expected to fall further this year, Mariatu's payments may become cheaper, Churchouse says.

Savings

Mariatu already has a cash ISA worth £3,200, but Woodbridge believes she should start building another cash savings pot to help protect her against income pitfalls. "Mariatu should start building a cash position worth between three and four months of her salary," he says. "Scarborough's 6.5 per cent regular savings ISA is very impressive, and the new ISA rules mean she can invest up to £3,600 from 6 April."

Kenny agrees and also suggests the best home for Mariatu's savings are an ISA. "The NS&I Direct ISA offers a variable rate of 5.80 per cent tax, or Icesave's Cash Mini ISA currently attracts 6.1 per cent tax free," he says. "Greater returns are possible on the stock market but investing this way should be considered as part of a longer term financial strategy."

Protection

"With this mortgage, Mariatu needs to make sure she protects her income in the event of unemployment, illness or an accident that stops her working – such as losing tenants," says Kenny. "Mariatu leaves herself vulnerable without the appropriate safeguards." Churchouse adds that Mariatu should make a will as a matter of priority. "She should encourage her sister to do the same," he adds, "particularly if they want their share of property to go to each other when they die. Without wills, the sisters even risk the property being handed over to the state."

Pension

Money may be tight, but every one of our advisers urge Mariatu to start putting money away for her retirement as soon as possible. "The earlier you start a pension the more you have in retirement income," says Woodbridge. "This will become imperative for Mariatu has she aims to retire at 60. Her priority right now needs to be building her cash up, but in the meantime she should see whether her employer offers a company pension, especially if they contribute to it."

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; request a free guide on NISAs from Hargreaves Lansdown

Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
Voices
Hunted: A stag lies dead on Jura, where David Cameron holidays and has himself stalked deer
voicesThe Scotland I know is becoming a playground for the rich
News
people
PROMOTED VIDEO
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
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

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker