Wealth Check: 'I'll storm the barricades to buy a home'

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The patient

Shelley Batten, 25, from Peterborough. Job: Customer services representative. Income: £12,000. Savings and investments: None. Goal: To boost her income and clear her debts, while at the same time saving for a deposit to buy her first home.

The problem

Shelley Batten struggles to keep her finances under control on her current salary but is desperately keen to get a foot on the property ladder within the next year or so.

So, to give her the best chance of saving up for a deposit, she recently decided to move back in with her parents.

Previously, Shelley had spent nine months renting a property with a friend.

"I'm looking to buy a one bedroom house or flat, and hope I'll be able to afford this on my own," she says.

Shelley lives in Peterborough, where the average price for this kind of property is around £75,000. As she acknowledges: "It would help to have a reasonable deposit."

At present, Shelley has neither savings nor investments.

"I have no money put by with the salary I'm earning at the moment," she says. "I have quite an active social life and, financially, just live from month to month - I tend to spend what I earn."

However, she is in the process of changing jobs and hopes to join the prison service as a custody officer in the near future.

"This should mean quite a big pay rise," she says. "I'm looking at a salary of £18,000, which should make things a lot easier."

In the meantime, Shelley still has £2,000 left to pay on a £3,000 loan taken out with HSBC - and £450 on a credit card with the same lender at an annual percentage rate (APR) of 15.9.

She generally pays off only the minimum repayment amount on her credit card each month.

But with the expected pay rise, she hopes she will be able to better balance the competing demands on her money.

"I'd like to start paying into a pension when I get a new job, but I need to work out how I'm going to afford this on top of mortgage repayments and my other debts," she says.

The cure

Given that Shelley's priority is to start saving to buy her first home, she should be putting aside as much as she can as soon as possible, says Kevin Anderson from independent financial adviser (IFA) Budge & Company.

"It is important Shelley begins to save for a deposit," he says. "The larger the deposit, the higher the multiple of salary she will be allowed to borrow [for the mortgage]."

He says the change in jobs will help - but the extra income she is expecting must be saved, not spent.

Paul Byles from IFA Towry Law says some short-term sacrifices in Shelley's lifestyle will help reduce the size of her eventual mortgage.

"This will keep the monthly mortgage repayments at an affordable level," he adds.

Debts

Jennifer Storrow from IFA Gee & Company urges Shelley to concentrate on her debts - by not using her credit card. Her cards and the bank loan will affect her credit rating and hence the amount she can borrow on a mortgage.

"She should pay off the credit card debt as soon as she can," Ms Storrow says.

"Shelley could think about changing provider to one offering a 0 per cent interest-free period, and then she needs to cut up her card [while making repayments].

"There will be time in the future to acquire new cards."

Savings

Once Shelley has cleared her debt, she should aim to build up a short-term emergency fund as well as a deposit, advises Mr Byles.

Shelley should start saving a regular amount into a mini cash individual savings account (ISA) to earn tax-free interest that will build up her short-term funds more quickly than if she leaves them in an ordinary savings account, says Mr Anderson.

"She should be looking to save £100 per month," he says.

Property

Mr Byles warns that it is likely to be quite an income stretch for Shelley to borrow £75,000 on a mortgage based on a projected gross annual income of £18,000.

"A sizeable deposit will be useful to reduce the initial borrowings," he says.

If Shelley buys a property at £75,000 with a deposit of £3,750 (5 per cent), her mortgage repayment will probably be around £500 a month, says Mr Anderson.

"I'm not sure she will be able to do this on her own unless her parents can help her."

It is possible to have a 100 per cent mortgage, though. But Ms Storrow warns: "This makes you very vulnerable if house prices drop and remain low. And interest rates can also be higher on these mortgages."

She suggests Shelley consider buying a property with a friend or relation.

Pension

Mr Byles says Shelley is wise to think about joining the prison service's pension plan.

"Her new employer's company scheme will offer wider benefits than a private arrangement," he explains.

Protection

As Shelley has no dependants, life assurance is not a concern, says Mr Byles.

If you would like a financial makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk

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