Wealth Check: 'I've got 18 months to raise £10,000'
Justin Westcott, 27, London
Saturday 11 March 2006
Justin Westcott, 27, lives in a flat in Clapham, south London, that he bought six months ago. Although he earns a decent salary, the £179,500 purchase price left him stretched, and his mortgage is set up on an interest-only basis. That makes the monthly payments more affordable but the capital he owes is not being repaid.
Justin is also concerned because he doesn't have the money to pay a £10,000 service charge due in 18 months for new double-glazing that he was required to install shortly after moving into his new home.
Saving for a pension is Justin's final financial priority - currently he has no retirement savings.
We asked three firms of financial advisers - Chase de Vere, Hargreaves Lansdown, and John Scott & Partners - for their help.
Personal: Justin works in public relations and earns between £30,000 and £40,000 a year
Savings: £500 in online account, no investments or pension
Mortgage: £162,000 Northern Rock loan, costing 5.99 per cent a year
Debt: £1,300 on NatWest credit card; £8,000 car loan costing £179 a month
MORTGAGE AND DEBT
"Getting the mortgage sorted is the top priority," says Hargreaves Lansdown's Ben Yearsley. "His options are to change to a repayment mortgage or to start a savings plan such as an ISA, to cover the mortgage capital when it falls due."
If Justin puts £200 a month into a stocks-and-shares ISA, Yearsley points out, he will still be allowed to open a cash ISA, which could be a good savings vehicle for other needs, such as rainy-day cash and the double glazing bill.
With 23 years to go until the mortgage is due to be repaid, a stock market ISA could be a good bet, Yearsley says. "Equity income funds make a decent start as they tend to invest in UK-based, profitable, dividend-paying companies."
There is, of course, a risk that an ISA might not grow sufficiently to repay the mortgage, though Justin will be able to monitor performance as time goes by. But the total monthly payments using this model will be smaller than if Justin switches to a straightforward repayment mortgage.
Patrick Connolly of John Scott adds: "The initial focus should be to pay off the debt where the highest interest is charged - either the car loan or the credit card." While Justin is understandably worried about the cost of the double glazing, there's no point saving money if he earns a lower rate of interest on the cash than he pays on his debt.
At the very least, Connolly suggests, Justin must consider cheap credit-card deals such as 0 per cent offers and move his NatWest account.
"Raising £10,000 won't be easy, and the only option may be to take out another loan, maybe added to the mortgage as the money was spent on home improvements" says Susan Hannums of Chase de Vere. "Justin should also put as much as he can into a high-paying savings account, such as the Halifax Regular Savings deal that pays 7 per cent for a year."
Juggling these demands won't be easy, Hannums adds, and Justin must start by becoming more organised about his money.
"Budgets are not necessarily just about cutting back or saving money but just monitoring your money is important," says Hannums. "This shouldn't stop him going out or buying clothes, say, but if Justin can put by a set amount each month to spend on these luxuries, he will be much less likely to overspend."
Hannums' colleague Anna Bowes says there are low-cost pensions that could make a good starting point for Justin as he begins thinking about saving for old age.
"A stakeholder pension could be right for Justin, if he chooses one with a good choice of funds, such as Legal & General or Standard Life," she says. These plans will allow Justin to make contributions of as little as £20 a month, though Bowes suggests he tries to save a little more if he can possibly find the money.
Yearsley adds: "As a broad rule of thumb, you should save half your age as a percentage of your salary each year." In other words, he says, Justin should be saving around 13.5 per cent of his salary, which equates, after tax relief, to around £240 a month.
This may not be realistic while Justin is also saving for the cost of the double glazing and thinking about his mortgage, but the early pension money can be saved, the more it will produce in old age.
Yearsley says it is important for Justin not to become over-anxious. "He is in a relatively decent position, with a good salary, not much debt apart from the mortgage and still under the age of 30," he adds.
However, one additional area the financial adviser believes Justin must address is protection. Currently, he has no insurance that would pay out if he was unable to work due to ill-health or an accident.
- 1 Howard Jacobson: Let's see the 'criticism' of Israel for what it really is
- 2 Brazil vs Germany World Cup 2014: In defence of Mesut Ozil - the Arsenal midfielder works magic in the shadows
- 3 Do you know this man? Amnesia sufferer found in park pleads for help in identifying who he is
- 4 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
- 5 Tony Abbott embarrasses Australia by praising Japanese WWII military, ‘getting on the sake’ and posing for ‘crotch-shot’ photo opportunity
Sustained immigration has not harmed Britons' employment, say government advisers
British jihadist calls for 'flag of Islam' over Downing Street and Buckingham Palace
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£30000 per annum: Harrington Starr: A global leader in trading platforms and e...
£28000 per annum: Harrington Starr: A fast growing consultancy to the financia...
£30000 per annum: Harrington Starr: Technical Support Analyst - Liverpool Stre...
£65000 per annum: Harrington Starr: One of the world's largest privately owned...
Day In a Page
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
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay