Wealth Check: Should buy-to-let be part of this lawyer's brief?
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 25 July 2004
As a property lawyer, Catherine Morgan has an interest in buy to let. Now she wants to enter the market herself in her home city of Manchester. "I'm not sure whether to buy a flat and move into it while renting out my existing house, or buy two cheaper student homes for letting," she says.
The UK property market may be overheating but she is happier risking her money here than on the stock market. The poor performance of Invesco Perpetual's European Growth individual savings account (ISA), in which she invested a lump sum, has left her wary. "A case of once bitten, twice shy," she says.
Catherine's other financial target is to reduce the £5,000 balance on her credit card, the result of spending on holidays. She has built up this debt since 2002 but hasn't paid any interest on it, as she has switched it between providers offering 0 per cent introductory deals - from Egg to Halifax and from Goldfish to Royal Bank of Scotland (RBS). The 0 per cent offer on her current Mint card runs out early next year.
She has £4,000 saved in NS&I certificates, which earn her 3.65 per cent interest a year.
Catherine paid £150,000 for her Manchester home three years ago. She has a five-year mortgage fixed at 5.5 per cent with Scottish Widows, and a lodger to help cover this.
"I keep thinking I ought to remortgage [her house is now worth £190,000] but I'm not sure if it's a good time," she says. She has life cover via a discounted deal through the Law Society.
As for a pension, Catherine has just started with her third law firm since qualifying and is about to join its defined contribution pension scheme. Her employer will pay up to 4 per cent of her salary into this.
She contributed to a similar scheme at her first law firm but stopped paying in when she left, and her second job didn't offer a pension. She is unsure whether to transfer her existing pension pot to her new scheme.
Catherine pays £15 a month for her Royalties Premier current account from RBS and keeps a second account for bills and mortgage payments.
Interview by Sam Dunn
Catherine Morgan, 32, from Manchester
Job: solicitor specialising in commercial property
Income: between £38,000 and £43,000 a year
Savings: £4,000 in National Savings & Investments (NS&I) certificates
Investments: £6,000 in Invesco Perpetual equity individual savings account (ISA); £1,000 in Powergen and Scottish Power shares
Goal: invest in buy-to-let properties and clear £5,000 debt outstanding on her credit card
Buy-to-let could prove a sound investment but Catherine should tread carefully, says Justin Modray of independent financial adviser (IFA) Bestinvest. "As well as asking whether the market has peaked, she must factor in stamp duty and running costs," he says. "Were she to sell a property other than her main residence, she could face a capital gains tax bill."
One expense can be cut immediately, says Philippa Gee of IFA Torquil Clark: by ditching the RBS account, which costs her just shy of £200 a year for access to a "lifestyle manager".
David Higgins of IFA Glazers warns that Catherine might be "exposing herself to a high level of risk in an overinflated market" by investing in property at this time. And Ms Gee is concerned that she would be putting most of her money into a single asset - bricks and mortar.
If she is determined to go ahead, Ms Gee recommends that Catherine does her research carefully and tries to diversify. "Catherine could consider the purchase of properties in different areas so as not to be exposed to the price movements of just one city," she says.
Mr Higgins suggests setting up a standing order to repay the credit card debt: "If Catherine can afford £210 per month, she could settle this in just under two years - provided she keeps using interest-free offers." But Ms Gee calculates that Catherine can afford to save £500 a month, clearing her debt in just 10 months.
Three years ago, the Invesco Perpetual ISA was at the top of its peer group, says Mr Higgins. Unfortunately, it has suffered in the wake of the technology market crash and changes of fund manager.
Both Ms Gee and Mr Modray say the new manager has improved the fund's prospects but suggest alternatives to spread the risk. Ms Gee proposes a multi-manager fund that invests across a range of funds, while Mr Modray suggests shifting money to an online fund supermarket such as Fidelity's FundsNetwork that lets you buy into different funds inside a single ISA wrapper.
NS&I certificates suit Catherine's risk profile and, as tax-free investments, are probably worth keeping, says Ms Gee. Mr Modray agrees, particularly given Catherine's higher tax rate status. For new savings, a mini cash ISA is recommended. Abbey's postal ISA currently pays 5.1 per cent and promises to stay 0.5 per cent above the Bank of England base rate until next April.
All our IFAs think Catherine should join her company pension scheme. She should also investigate what she would be charged for transferring her existing pension savings into her new fund. If the cost is prohibitive, Mr Modray suggests that "there is no real downside to leaving the pension with the old employer", although Catherine must monitor which funds it is invested in to ensure they are appropriate.
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
10 tips for taking out a personal loan
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 26-30 January
Revealed: Amazon earns more through government grants than it pays in tax
City Watchdog to investigate banks' handling of PPI compensation claims
- 1 Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
- 2 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 3 Dad attempts revenge on teenage daughter, plan backfires spectacularly
- 4 Ball pool for adults opens in London
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
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 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