Since leaving university, Julie Chiromo, 36, of north London, has struggled to keep on top of her student loans and other debts. Although she currently rents a flat on her own, she hopes to buy a property within the next five years, but is concerned her financial situation may make this aim difficult.
"I have been thinking of buying a house, but with the withdrawal of 100 per cent mortgages and my current financial situation, I do not think this is a viable option for me at the moment," she says.
CASE NOTES: Julie Chiromo, 36, community care manager, London
Current salary: Julie's salary is approximately £20,000 to £25,000 per annum.
Monthly outgoings: she spends around £1,301 on rent, food and bills.
Savings and investment: Julie saves £100 per month.
Debts: she has £2,500 in student loans, on which she is paying interest at 4.8 per cent. Julie is also paying £100 per month towards a car loan.
We asked three financial advisers to take a look at Julie's situation: Mel Kenny of Radcliffe and Newlands, Dennis Hall of Yellow Tail Financial Planning and Keith Churchouse of Churchouse Financial Planning.
Paying off debts
The advisers suggest that generally it is better to pay off debts before saving, as the interest payable on debt is usually higher than what is received on savings.
Kenny suggests that Julie draws up a financial plan that she can stick to. This way she will feel more comfortable and in control of her situation with the knowledge that her income is working hard for her.
"Until the summer of last year, the interest rate on student loans was very small and encouraged minimal payments," he says. "The rate has now doubled to 4.8 per cent making it less attractive to have."
Churchouse estimates that Julie is currently paying £75 towards her student loan automatically. "I recommend that Julie focuses on using any excess income to repay this as soon as possible," he says.
Julie also has had concerns regarding paying off her car loan over the last two years. The advisers suggest that as the car hire loan is likely to be above cash ISA rates, paying off this loan should be a priority.
The mortgage and property market is likely to be quite different in five years' time. The advisers all agree that Julie will need to be disciplined with her finances if she is to keep her financial options open. "Julie should check her eligibility for the Key Worker Living programme, a government initiative," says Kenny. "With this she may be able to obtain a loan to buy a share of as little as 50 per cent of the property's value," says Kenny
Alternatively, Julie could work on the assumption that she will be able to raise a mortgage on 3.5 times her income and would require a 10 per cent deposit. "At today's income levels that would equate to being able to borrow £87,500 and Julie would need almost £10, 000 for a deposit, so she would be looking for a property costing under £100,000 and there are not many of these around in Greater London," says Hall.
Julie is currently saving £100 a month. She should continue to set aside money on a regular basis into a suitable savings account such as a cash ISA. Kenny says: "Egg's mini cash ISA currently attracts 6.05 per cent variable interest per annum tax-free. Over the next five years this could be used to either pay off the student or car loan, go towards a property deposit or make further contribution to her current pension."
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