Wealth Check: 'I'm living with my Mum, and I want to move out'
Saturday 18 November 2006
Mary Barber has worked as a sales manager for a soft drinks company for a year. She currently shares a two-bedroom flat with her mum, but would like to move out, ideally by February next year. She isn't sure, however, whether her finances are in good enough shape to justify taking on a mortgage.
Mary's current salary is £28,000 and she gets a bonus worth up to a further 20 per cent of pay each year. She does have a small amount of savings and she has also joined her company's pension scheme. However, Mary does have some debts, including a student loan of £1,248 and a loan from Barclays with more than £3,600 still to repay.
We asked three financial advisers for their advice: Drew Wotherspoon, of John Charcol; Ben Yearsley, of Hargreaves Lansdown; and Darren Littler, of Savills Private Finance.
Mary Barber, 25, sales manager, London
Salary: £28,000, plus a yearly bonus.
Savings: A Barclays savings account that currently holds £4,000 and an ISA with Abbey, worth about £2,200.
Debts: Student loan with £1,248 to pay and £3,632 on a Barclays bank loan.
Pension: Mary is a member of her work money purchase pension scheme.
Monthly spending: £830 on living expenses and bills.
Mary believes she would be able to get a mortgage of around £150,000 and this is about right looking at her salary and bonus, the advisers say. However, before purchasing a property Mary needs to think about both the initial costs and the ongoing payments.
Littler says that Mary needs to remember that the upfront costs of purchasing a property include stamp duty - on a property of £150,000, this would be 1 per cent or £1,500. Then there will be the lender's valuation fee, the survey and legal costs - these could easily add up to a further £1,500.
These costs will obviously affect the size of the deposit Mary can put down, though some lenders will assist with these costs. Northern Rock contributes £500 towards legal bills on completion, for example.
Mary has made a decent start with her savings but she should increase them to at least £7,500 in the next few months. That would be a deposit of 5 per cent on a property with a purchase price of £150,000, giving her access to cheaper mortgage deals. The difference in price between a 95 per cent and 100 per cent mortgage is about 0.35 percentage points, which equates to a saving of about £25 a month, says Wotherspoon.
Wotherspoon also thinks that Mary should consider spending slightly less on a property and instead use some of her savings to pay off her bank loan. However, this depends on what's available in her local housing market - at the very least, she must make sure the interest rate on the loan is competitive.
Everyone should have at least three to six months' salary saved for a rainy day and the ideal place is a mini cash ISA - a tax-free and easily accessible account. Mary's Abbey ISA is therefore a good account.
Mary's debts are relatively small, according to Yearsley, and should be paid off in a couple of years. He doesn't think she should be too concerned about them, though he also thinks that she may be able to find a cheaper interest rate.
Once Mary has bought her property she should start looking at her long-term savings - a stocks and shares ISA would be a good place to start. Yearsley suggests that Mary should invest via a fund supermarket in order to get access to a range of different fund management companies under the same roof.
Mary has made a good start with her pension, and she would be happy to increase her monthly contributions. There's no reason why she shouldn't if she can afford to, but she is saving more than most people her age, so there's no rush.
However, Yearsley suggests that Mary should check that her pension funds are performing well. He also points out that, with so long to go to retirement, she can afford a higher degree of risk. Mary should realise, though, that her aim of retiring by 50 may not be possible as the pension rules are changing.
Another key issue is income protection, and Mary needs to check with her employer to see if they offer any sort of cover. Permanent health insurance or critical illness cover would be worthwhile for someone with no dependents. This type of insurance can be expensive, but will cover you if you can't work due to ill health.
For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail firstname.lastname@example.org
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Questions of Cash: What are my rights if my leak is caused by neighbours’ roofs?
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
Minister's pension promise to firefighters challenged
Bank-beating exchange rates on your international payments
The 10 Best money-saving sites
- 1 President of Argentina adopts Jewish godson to 'stop him turning into a werewolf'
- 2 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
- 4 Sir Winston Churchill’s family begged him not to convert to Islam, letter reveals
- 5 UK weather: 'Coldest night of the year' tonight as freezing temperatures plummet to -10C
Millions of Britons struggling to feed themselves and facing malnourishment
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Nigel Farage: Ukip leader named 'Briton of the year' by The Times
Immigrants make UK racist, says Ukip councillor Trevor Shonk
iJobs Money & Business
Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...
Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...
Not specified: Selby Jennings: SVP Model Validation This top tiered investment...
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
Day In a Page
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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
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