Wealth Check: Should buy-to-let be part of this lawyer's brief?

Each week we give 'Independent on Sunday' readers a financial makeover


The problem

The problem

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

The patient

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

The cure

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".

Buy-to-let property

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.

Debt

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.

Investments

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.

Savings

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.

Retirement

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 m.bien@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
Russia Today’s new UK channel began broadcasting yesterday. Discussions so far have included why Britons see Russia as ‘the bad guy’
tv

New UK station Russia Today gives a very bizarre view of Britain

News
John Moore inspired this Coca Cola Christmas advert
people

News
people

Top Gear presenter is no stranger to foot-in-mouth controversy

Arts and Entertainment
Imelda Staunton as Dolores Umbridge in the Harry Potter films
books

New essay by JK Rowling went live on Pottermore site this morning

PROMOTED VIDEO
Life and Style
Jamie Oliver’s version of Jollof rice led thousands of people to post angry comments on his website
food + drink
Arts and Entertainment
Vividly drawn: Timothy Spall in Mike Leigh’s ‘Mr Turner’
film

Review: Mike Leigh's biopic is a rambling, rich character study

Arts and Entertainment
glastonbury
Arts and Entertainment
Shelley Duvall stars in Stanley Kubrick's The Shining
film
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
film
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    The benefits of Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    Trainee Recruitment Consultants

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Finance Assistant - Part time - 9 month FTC

    £20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

    Marketing Manager

    £40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

    Day In a Page

    The drugs revolution starts now as MPs agree its high time for change

    The drugs revolution starts now as MPs agree its high time for change

    Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
    The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

    Gotcha! The camera is turned on tabloid editors

    Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
    Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

    Fall of the Berlin Wall

    It was thanks to Gorbachev that this symbol of division fell
    Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

    What makes ouija boards and demon dolls scary?

    Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
    A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

    Rose Rouse's safari in modern Britain

    Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
    Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

    'My world of no smell and odd tastes'

    A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

    Matt Parker is proud of his square roots

    The "stand-up mathematician" is using comedy nights to preach maths to big audiences
    Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

    Paul Scholes column

    Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
    Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

    Frank Warren column

    Call me an old git, but I just can't see that there's a place for women’s boxing
    Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

    Adrian Heath's American dream...

    Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
    Simon Hart: Manchester City will rise again but they need to change their attitude

    Manchester City will rise again but they need to change their attitude

    Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
    Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

    A Syrian general speaks

    A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
    ‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

    ‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

    Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
    Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

    Fall of the Berlin Wall

    History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
    How to turn your mobile phone into easy money

    Turn your mobile phone into easy money

    There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes