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
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
General Election 2015: How you vote next week could affect your finances
Social tenants locked into energy tariff for 40 years
Winter heating underpayment brings summer pain
Five Questions On: GB Energy's new tariff
- 4 Women think Irish men are the sexiest, survey finds
- 5 Florida couple forced to register as sex offenders for having sex on public beach
In defence of liberal democracy
General Election 2015: Post-election 'shambles' looms as 70 per cent of voters say SNP 'should not be able to veto UK government policies'
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...
£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...
Day In a Page
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
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 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