Wealth check: Is there an ethical way to buy a house?
Limited savings, a student loan and green considerations can make a young woman's property dreams difficult to realise, says Maryrose Fison
Sunday 04 July 2010
Like many people in their late twenties, Eloise Horsfield would like to move out of the rental sector and buy her own home. But with limited savings, tighter lending requirements and a desire to make her financial decisions ethical, she is uncertain how to approach her goal.
"I'm worried that if I wait too long the house prices will go up again and that I'll be really old before I'm able to pay it all off," she says.
In an ideal world, Eloise says she would like to purchase a two-bedroom flat in London but she is willing to consider buying further out or in Bristol, where she has friends and previously went to university. She has also contemplated renting out one room or buying with a friend.
Eloise earns an annual salary of £22,350 based on a 30-hour-working week which she opted for 12 months ago so as to study on a part-time media studies course. When she completes the course in six months, she will have the option of returning to her full-time salary of £29,803 and earning extra money through freelance French and Spanish translation work.
The high cost of living in London and repaying a hefty student loan has made it difficult for Eloise to accrue a substantial savings pot. She has approximately £1,000 in savings and is budgeting for about £200 in savings each month. Her outgoing costs include £540 in monthly rent for a room in a shared flat in Stoke Newington and £60 per month on student loan repayments. To date, she has paid off £3,475 of her loan but still has an outstanding balance of £16,293.
Helen Tandy, an independent financial adviser at the GAEIA Partnership, a firm specialising in environmental and ethical investments, says it will take Eloise some time to achieve her dream of buying in London if she wants to maintain her present lifestyle, but says more options could open up if she is prepared to leave the capital or save more each month.
"Having looked at the Bristol area, it seems she would be able to purchase a property there with good rail links into London to her requirements, for about £150,000 to £160,000. This would link in with her salary level and mortgage affordability," says Ms Tandy.
If Eloise continues saving £200 per month and is earning her full-time salary, Tandy calculates it would take her between six and seven years to save enough money to put down a 10 per cent mortgage deposit. However, she says lending companies will invariably take her student loan debt into account so she would be wise to pay this off as quickly as possible. She says Eloise could reduce the time frame for getting a mortgage if she increased her monthly savings and returned to a full-working week.
"It would be better from the view of arranging a mortgage and savings if Eloise were working on a full-time basis with a regular, more guaranteed income than freelance work. She would need to save £666 a month to save £16,000 over 24 months. Returning to full-time work or even putting away any extra income from freelance work would all help increase her savings."
Although Eloise doesn't expect to receive financial donations from her parents, Ms Tandy says she could consider asking them if they would be prepared to offer savings as a security.
"I have found one high street lender offering a 95 per cent mortgage if an extra 20 per cent of the purchase price was put aside in a special savings account with the same lender. This may offer Eloise some chance of purchasing a property sooner if she has a family member who is unable to give her the funds to help her with the purchase but may be willing to set aside money in an account in this way to provide a helping hand.
"If she wanted to raise a larger mortgage, a family member could act as a guarantor on a mortgage in her name, whereby their income or a proportion of it would be taken into consideration; however, she would still need at least a 10 per cent deposit."
Helen Tandy has also tracked down a number of mortgages which fit Eloise's criteria for finding a product which will enable her to act ethically with her money.
"Co-operative Bank and Ecology Building Society both offer mortgages to those borrowers who would prefer to deal with an ethical provider. Ecology Building Society lends on cases where it can see an environmental benefit in the project. This could be the type of building or renovation work being carried out. Norwich and Peterborough building society offers "green" mortgages that help to offset the carbon generated by the property by planting trees."
Adam Young, the managing director of Dragonfly Financial Planning, believes it will be difficult for Eloise to maintain her lifestyle and buy a property and feels Eloise needs to ask herself whether she really wants to buy at such a volatile economic time.
Eloise could spread the costs by buying with a friend or taking advantage of tax-efficient room-rental schemes. The Government's Rent-a-Room scheme allows homeowners to receive a certain amount of tax-free gross income from renting out furnished accommodation to a lodger.
"Purchasing a property jointly would help absorb some of this risk, but sharing a purchase has its own trials and tribulations," he said. "By contrast, acquiring the property in her own name would provide control and tax efficiency. She could rent a room where up to £4,250 could be earned without being subject to tax. The risk obviously comes from having no tenant."
Although Eloise's workplace does offer a pension, she has prioritised repaying her student loan over making contributions so far. But Bhupinder Anand, the managing director of Anand Associates, says she would be wise to take advantage of this option as it is a win-win situation. "Eloise is wasting an opportunity by not joining the company pension scheme. This is in effect 'free money' and, even if she has to make a contribution herself, it is something she must do."
While many begin saving in a pension in their thirties, the cumulative effect on retirement income in later life of delaying saving now can be sizeable.
"The cost of delaying starting a pension can be substantial. For example, saving just £200 per month (net of basic rate tax) starting now would deliver a fund of £375,000 at age 65 for Eloise. Deferring the start date by just five years has a huge impact, delivering a fund of £260,000 – almost a third less. To achieve the same higher fund, but starting in five years, Eloise would have to start investing £285 per month."
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF firstname.lastname@example.org
Mark Dampier: 'We're on our own in retirement. They've pulled pensions to pieces'
Questions of Cash: I don't use Amazon Prime, but my credit card bill says I do
Buyers beware of new-build home headaches
Crippling PFI deals leave Britain £222bn in debt
Pension freedoms: How to deal with cold calls from scammers
- 1 BBC election debate: The one photo that summed up the whole 90-minute leaders debate
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 4 'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
- 5 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
If I’m being racially abused I don’t need a white stranger with a saviour complex to rescue me
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
Russian warships in English Channel 'to conduct anti-aircraft and anti-submarine military drills'
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...
Day In a Page
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
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 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
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000