Natasha McNamara, 27, a quantity surveyor from London, wants to take her first step onto the property ladder. "My main financial goal is saving towards a deposit to buy a home," she says. "But living in London and being single makes this extremely challenging. I don't have a partner to club together with."
Currently, she rents a room in a three-bed house in Clapham, south London, for £600 a month.
She has carefully slotted away £15,000 so far in an ISA paying 2.75 per cent with Santander. However, with London house prices still out of reach for many despite last year's falls, Natasha needs all the help she can get.
"I'll be looking for a one-bedroom flat around Clapham," she says. "But I haven't yet started the search. I'm hoping that property prices will continue to fall as I carry on saving."
Fortunately, Natasha has a stable income, earning £28,000 a year. However, she has £9,000 in student loans still to repay.
"I don't have credit card debt but I do have a prepaid Kalixa MasterCard that I have currently loaded £200 on," she says. "I have it as I don't like using my credit or debit card to make purchases online for security reasons, and I travel abroad regularly so this gives me benefits on foreign exchange as well as saving on the cost of using credit and debit cards abroad."
She has yet to make any long-term financial plans, and hasn't started a pension, although she is keen to put together an investment portfolio.
"I've considered investing in stocks and shares, both in the long and short term. My knowledge in this area is limited and I would really like some expert advice on where to start, but I am concerned about the cost of getting advice," she says.
Natasha is establishing a good position from which to commit to a mortgage when the time is right, agree our panel of independent financial advisers (IFAs). She has a good job, savings and is managing her student debt.
She is right to seek guidance at this stage to maximise the benefits from her savings and take the next step towards owning her first home.
Savings and property
Natasha's first port of call should be her local Housing Association, says Robert Forbes from IFA Plutus Wealth Management. "They can give her all the information about government-sponsored schemes to help first-time buyers." She could be eligible for one of the Government's "HomeBuy", assisted-purchase schemes which offer loans to those with low household incomes. "HomeBuy Direct" will help households earning less than £60,000 to buy a property on certain developer sites through an equity loan of up to 30 per cent of the property's value. There's also the "New Build HomeBuy", which helps people to buy a share of a newly built property and pay rent on the remainder. More information is available at direct.gov.uk.
But even if she can secure additional funding, Natasha will still need a considerable deposit to get a mortgage. She already has savings in a cash ISA with Santander – but it may not be enough. She will almost certainly need a 10 per cent deposit but more than this will give wider access to more competitive mortgage deals.
Natasha should use up her full cash ISA allowances, at £5,100 every year, and make sure she is taking advantage of the best rates.
She needs to calculate roughly how much buying the type of property she wants will cost her. "This'll mean she'll then have a target amount that she can save for and also a timescale in which to save," says Mr Forbes.
Then she can work out what the deposit shortfall stands at. She shouldn't forget the additional expenses that will be incurred at purchase, including legal costs and stamp duty.
Pensions and investments
It may seem a long way off, but it is important to give some consideration to planning for retirement. "Contributions that Natasha makes will benefit from tax relief at the basic rate, meaning a £100 contribution costs just £80," says Danny Cox from IFA Hargreaves Lansdown. "This makes pensions one of the most tax-efficient ways to save – and if there is an employer pension, Natasha should take the opportunity to join." In this way she will benefit from any employer contribution.
Stock market savings should be considered only for investment terms of five years or more. The value of stock market investments will rise as well as fall and Natasha should be prepared for this. "Buying shares with relatively small amounts of money can be expensive and it is difficult to build a diversified portfolio," warns Mr Cox. One of the best ways to ease into stock market investing is by making regular savings into an equity ISA. "These start as little as £50 per month and are one of the easiest and most flexible ways to save," he adds.
Natasha could consider a regular savings ISA through a fund supermarket such as Fidelity FundsNetwork since this is one of the easiest and cheapest ways to invest.
Depending on how much investment risk she wants to take, she could look at UK equity income funds or international or emerging market funds. However, Mr Cox recommends she stick to equity income as a first-time investor, which will also see her benefit from dividend payments. Gordon Bowden from IFA Quainton Hills Financial Planning says: "A good adviser will offer an initial meeting at no cost or obligation and Natasha could use this to discuss what she wants to achieve and the amount of ongoing support that she receives." Any investment will need to be reviewed in the future, but she might be comfortable taking her first step into the stock market using her own research.
Any adviser should explain clearly how they would be paid, either by commission or by fees. "She should be clear that a commission is effectively deducted from her investment and so is not 'free'," says Mr Bowden.
"Natasha needs to watch the interest rate of her student loan," warns Mr Cox. In September this will increase to 4.4 per cent in line with retail price index (RPI) increases. "It is unlikely her cash ISA will achieve this level of return and therefore Natasha might want to consider clearing the loan at this point – although this will impact on her deposit savings." The danger is the interest paid on the loan will be higher than the tax-free interest on her cash ISA.
Once Natasha has purchased her home, it would be prudent to consider some cover, such as income protection insurance. This is one way to avoid financial hardship if serious ill-health occurs.
Do you need a financial makeover?
Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF