Wealth Check: The problems are multiplying for a single parent
Sunday 09 July 2006
The problem: The flat, the debts and the limit on earnings
Trying to make ends meet as a single parent is a struggle for Lucy Davies. Although her work as a freelance public affairs consultant gives the 36-year-old from Tulse Hill, south London, the flexibility to look after her five-year-old daughter, she finds it hard to juggle the dual role of mother and breadwinner.
"I work every hour I can but still have to take time off to collect my daughter from school," she says. "I try to live on as little as possible, but it's not easy."
Earning around £24,000 a year, Lucy has been unable to put any money by in savings or investments. She also has debts to contend with, including £7,000 on a credit card from Egg and around £200 on a longstanding student loan - though she will have paid this off by the end of August.
Lucy bought a three-bedroom maisonette for £212,000 in December 2004 and has since spent time and money revamping its interior - pushing its value up to £280,000.
However, she recently found out from the freeholder that the property is due for a "full external renovation" [to upgrade the outside of the building]. Faced with a substantial service-charge bill of £10,000, she has had to remortgage.
"My initial mortgage was for £160,000 but I've now borrowed an extra £40,000 to cover the service charge - and to allow me to consolidate the personal loan [taken out to pay for her own renovations] and other debts."
As a result, Lucy now has a £200,000 Standard Life mortgage. This is an interest-only deal at 4.9 per cent, which sets her back £830 a month.
She is concerned about the size of these repayments and worries that she may have to sell the maisonette. "It would break my heart after having put so much work into it."
When her daughter is a little older, Lucy wants to be in a position to afford out-of-school childcare so that she can work longer hours and earn more. "It is my goal to achieve a secure home for the two of us."
To this end, Lucy pays £57 a month for a mortgage-protection policy - in case she can't meet her repayments due to illness or unemployment - and £37 a month for private medical cover.
She is also concerned that she has not yet started a pension.
The cure: You may have to move. 'This is no way to live'
Lucy needs to cut back her expenditure to the essentials, says Caroline Anstee at independent financial adviser (IFA) Elements.
It is also worth having a chat with a debt counsellor at a body such as Citizens Advice, she adds.
Mike Pendergast from IFA Zen Financial Services says Lucy should definitely consider selling up and downsizing.
He also asks if Lucy has claimed all the financial help to which she is entitled. "As a single parent, she should receive a reasonable amount of support for childcare, and extra tax credits. She should contact the benefits agency."
Debts and savings
Philippa Gee from IFA Torquil Clark says Lucy is doing a "fantastic job" in trying to find a balance between earning money and caring for her daughter. "But if she really wants to wipe out her debt and start saving, she needs to be very strict."
So even though Lucy doesn't spend much now, she should take a tough approach to anything that might be superfluous.
"She could establish a weekly amount that will cover all of her outgoings and then strive to keep to this limit - perhaps by withdrawing this sum at the beginning of the week."
Lucy has been making regular repayments on her student loan, and once this is cleared at the end of next month, she should divert the same sums into whittling down her credit card balance, adds Mr Pendergast.
These are the solutions Lucy could apply now. In the future, says Ms Gee, she could improve her income by working longer hours. Alternatively, she may be able to use her experience and knowledge as negotiating tools to secure higher contractual employment rates.
Another approach to boosting future earnings, Ms Gee continues, is to study for further relevant qualifications.
Lucy has in effect borrowed more than eight times her salary on the mortgage, says Mr Pendergast. "This is clearly well in excess of what she can afford: her monthly repayments are around 55 per cent of her net income."
He also points out that she is covering only the interest on the mortgage. "This cannot continue indefinitely as she has no repayment vehicle in place [to clear the whole home loan at some point in the future]."
Lucy should think about selling up and moving somewhere cheaper - using the equity she has created in her home as a deposit - he says.
Ms Gee agrees that while Lucy may be emotionally attached to her home, she should look at the situation "a little more coldly".
"At present, she is weighed down by the constant worry that she will not be able to make the mortgage repayments," she says. "This is not any way to live. Lucy needs to consider [a move] or even renting in the short term."
Lucy does need to think about starting a pension as soon as possible, says Mr Pendergast.
The tax breaks available for investing in a pension, whether an occupational or personal scheme, make it one of the most efficient ways of setting money aside for your old age.
"However, her priority at the moment must be either to increase her income or reduce her mortgage."
Mr Pendergast suggests Lucy try shopping around to see if she can secure a better mortgage-protection deal. The £57-a-month premium seems "a little expensive"; industry averages suggest it should be closer to £40.
Given the many demands on her finances, Ms Anstee says Lucy needs to ask whether private medical insurance is essential expenditure.
It is worth checking to see if her employer offers any income protection or sick cover above basic statutory sick pay.
If you would like a makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email email@example.com
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Questions of Cash: What are my rights if my leak is caused by neighbours’ roofs?
Pension mortgages: 'The advice I was given was wrong and now I face losing my home'
Best savings rates are not all they might seem
The 10 Best money-saving sites
Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along
- 1 Exclusive: Abusers using spyware apps to monitor partners reaches 'epidemic proportions'
- 2 Margaret Thatcher 'expressed fears of Asian rising' at Anglo-Irish summit in 1984
- 3 Top 10 travel destinations for 2015: From Haiti and Alaska to Namibia and Iceland
- 4 The 'Black Museum': After 150 years, public set to see exhibits from police’s grisly crime museum
- 5 The Unluckiest People of the Year 2014 (and one very unlucky giraffe)
British actor Idris Elba cannot star as James Bond because he is black, says shock jock Rush Limbaugh
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Germany anti-Islam protests: 17,000 march on Dresden against 'Islamification of the West'
Ukip member gets into Christmas spirit with Union Flag plea to Santa 'for our country back'
BBC director Danny Cohen: Rising UK antisemitism makes me feel more uncomfortable than ever
Immigrants make UK racist, says Ukip councillor Trevor Shonk
iJobs Money & Business
Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...
Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...
Not specified: Selby Jennings: SVP Model Validation This top tiered investment...
Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...
Day In a Page
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
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