Wealth Check: 'Is the time right to buy my first home?'
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 04 July 2004
Ben Matthews' finances are about to come under strain: his housemate is moving out, so the rent he pays on his home in Staffordshire will double from its current £200 a month. As a result, he is thinking about buying his first property.
"Renting is dead money and house prices here start at around £80,000, which isn't too bad in the scale of things. It's a 90-minute commute to Manchester and more people are moving here. I would like to get my own place but I'm hesitant about the state of the market."
Ben has savings - earning a special staff rate of 4.25 per cent gross with his employer, Britannia building society - that could be put towards a deposit. He would like to find the best home for his cash and start saving on a regular basis.
"I'm not certain if an equity individual savings account is a decent place to start," he says. "Maybe a cash ISA instead?"
He could use his savings to clear the £1,900 debt on his Halifax One Visa credit card, but this isn't a priority. "I'm happy to be a rate tart, and being charged 0 per cent for nine months suits me at the moment."
He adds: "There's no benefit in transferring my savings when I'm not paying any interest on the debt. With all the offers out there, there's bound to be another [introductory] card deal when the time comes to move."
While he is unsure whether he should buy his first home, there is no uncertainty over his pension plans. Since joining Britannia eight years ago, he has invested 7 per cent of his salary in its final salary scheme.
Interview by Sam Dunn
Ben Matthews, 27, lives in Leek.
Job: In-house magazine editor for Britannia building society.
Income: £24,500 a year.
Savings: £3,000 in a deposit account; no investments.
Debt: £1,900 on a credit card.
Goal: to save more efficiently and, possibly, buy a property.
"Ben is throwing money away by renting," says Kevin Anderson of independent financial adviser (IFA) Budge & Co. Considering his level of both earnings and savings, he should look at buying.
Philippa Gee of IFA Torquil Clark advises that he tackle his card debt before embarking on a new savings regime.
Ben should also check with his employer to see if he qualifies for the company's income protection scheme, says David Higgins of IFA Glazers Financial Services.
Despite the shaky forecasts for the UK housing market, buying offers greater long-term benefits than renting.
With house prices in Leek of around £80,000, there is plenty of opportunity for first-time buyers like Ben to get on the property ladder.
If he can put down a 5 per cent deposit of £4,000, his income would be more than enough to raise the remaining cash. Mr Higgins recommends a mortgage fixed for five years at 5.39 per cent with Alliance & Leicester. This works out at £467 a month, which isn't much more than his increased rent.
Ben could also ask Britannia if it offers a staff discount on mortgages, says Mr Anderson.
Ms Gee is worried that Ben has yet to chip away at his debt despite his low outgoings. "If he regularly switches credit cards to take advantage of 0 per cent deals, he could be eroding his credit record. This would be a real issue if he decides to buy a house."
She suggests paying Halifax £250 a month so that he clears the debt within eight months. He should then save towards a bigger deposit before buying a property.
The advisers agree that - even with Britannia's staff rate - Ben could get a better deal on his savings. "The rate isn't thrilling," says Ms Gee, suggesting instead a cash mini ISA that pays a competitive rate of interest free of tax.
Abbey's 5.1 per cent postal ISA offers the best deal with instant access, says Mr Higgins.
Again, Ben should check with his employer before switching his money, since Britannia may offer staff a generous cash ISA rate, says Mr Anderson.
Ms Gee thinks Ben should concentrate on clearing his debt, saving regularly and buying a home before going into stocks and shares. But if he can stretch his savings, Mr Anderson recommends he put cash each month into an equity ISA instead of persisting with a deposit account; he suggests Liontrust First Growth.
Ben is lucky to be in a final salary pension scheme, says Mr Anderson. In most cases, these plans guarantee an annual income for life in retirement, based on earnings and length of service. Although raising contributions is often seen as a sound investment, there would be "little advantage" at the moment since Ben has other priorities, adds Mr Anderson.
If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email firstname.lastname@example.org
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