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 firstname.lastname@example.org
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Simon Read: Timeshare owners accuse Macdonald Resorts of land grab
Five Questions: Changes to car tax discs
A student's guide to financial survival: You don't have to drown in debt at university
Bargain Hunter: Win a new iPhone 6
More than 300,000 adults are too deeply in debt to apply for bankruptcy
- 4 Alex Salmond: 'The rocks would melt with the sun before I'd ever set foot in the House of Lords'
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
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
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize