Wealth Check: Trainee firefighter's burning ambition to buy a new home

Our experts advise Bex Sims to start saving more and increase her mortgage overpayments to help meet her property goals

The patient

Bex Sims from Derby would like to pay off more of the mortgage on her existing home to give her more equity to help afford a new place.

The 34-year-old has just started working as a trainee firefighter, earning £21,500.

"As this new job is based in Nottinghamshire, I might move there, but this could prove quite costly," says Bex. "My current place is a pre-fab and was relatively cheap; I may struggle to buy again on my own."

Bex bought her three-bed semi-detached house five years ago for £81,000. She has a mortgage for £70,000 with RBS and is now paying the standard variable rate. This is on an interest-only basis, but Bex does overpay by around £115 a month.

"In the current market, I don't think I'd be able to sell my property for the amount I paid for it, so if I did manage to buy a new home, I'd look at renting this place out until it is worth selling," she says.

Bex has managed to amass around £2,000 in an individual savings account (Isa) with Virgin Money, and also holds around £1,000 in her Santander current account.

"In addition, I check Quidco when buying anything online to see if I can get cashback," she says.

Bex is also disciplined about avoiding running up debts. "I have a Barclaycard cashback card, but pay this off in full every month," she says. "I also have an Aqua credit card, but only use this when I'm abroad, and pay this off in full as well."

Back in 2006, Bex paid into a private company pension for two years, and then transferred that money into the local government scheme when she joined the fire service in 2008.

"I now have five years of pension savings accrued in the local government scheme and am waiting to find out how much this would be worth if I were to transfer it," she says.

She has now joined the scheme offered by her employer – the New Firefighters' Pension Scheme (NFPS) – and pays in around £120 a month.

At present, Bex has no investments. She also has no protection policies in place.

The cure

Our panel of independent financial advisers agree that Bex has taken a prudent and responsible attitude to her finances, and commend her for being on the property ladder, living within her means, and having no debts other than her mortgage. However, they urge her to start saving more, and to increase her mortgage overpayments to help her meet her property goals. They also suggest she should focus on making contributions to her employer's pension scheme.

Build up savings

While Bex has done well to build up some cash savings, she needs to do more, according to Patrick Connolly from Chase de Vere.

"She's made the right start by using cash Isas, meaning all interest is tax-free, but she needs to compare rates to ensure her money is working as hard as it can," he says.

"Bex could look to increase her cash savings by setting up a direct debit from her current account," adds Mr Connolly. "This will put her in a better position to meet her mortgage goals and provide an extra cushion if she needs to access money at short notice and wants to avoid having to go into debt."

Think about investing

Danny Cox from Hargreaves Lansdown suggests Bex should also consider some medium-to-longer-term investing using a regular savings stocks-and-shares Isa.

By contrast, Mr Connolly feels that investing is not a major concern for Bex for the time being – and that she should only consider this once she has more disposable income.

Plan ahead for a house purchase

Mr Connolly recommends she gathers all the relevant information to reach a better understanding of her mortgage options.

"She could speak with some local estate agents to get a good idea of how much she could realistically expect to sell for, and should also research property prices in the area in which she wants to buy," he says.

Mr Smaje adds that the Government's new Help to Buy scheme could be an option.

"As Bex would only need to raise a deposit of 5 per cent, this could potentially make things easier," he says.

Mr Connolly urges Bex to increase her mortgage overpayments.

"By starting regular cash savings and making higher overpayments, she can speed up the process of repaying her home loan – helping her to achieve her house-buying goals," he says.

Mr Cox adds that Bex should consider switching to a full repayment home loan.

"This would increase her monthly payments but would ensure her mortgage is cleared more quickly," he says. "She should also look into remortgaging to a fix given the increasing likelihood of an interest-rate increase over the next two years."

Think carefully about becoming a landlord

As Bex is thinking about renting out her property, she needs to understand how easy it would be to get a tenant, and how much she could realistically charge, says Mr Connolly.

"Some people do very well as landlords, but for others it can be an expensive and time-consuming job," he says.

"Bex should fully investigate the pros and cons. She also needs to be aware that even if she does rent out her home, there are no guarantees it will rise in value."

In addition, Mr Smaje also points out that until Bex has more equity in her property, remortgaging onto a buy-to-let deal could be challenging.

Make the right choices on pension savings

Our advisers agree that Bex is fortunate in having accrued some benefits in public-sector pension schemes, as these offer beneficial terms and guarantees which are increasingly difficult to replicate in the private sector.

"That said, she doesn't have many years of service, so these are likely to pay out relatively little," warns Mr Connolly.

He urges her not to rush into transferring the local government scheme benefits into the NFPS.

"There has been a great deal of discussion about the future structure of public-sector pensions," he says. "Changes have been taking place and more are planned."

Mr Smaje also urges caution.

"Bex should seek proper advice before proceeding – if at all," he says.

If Bex does want to transfer her pension benefits into the NFPS, she should have a year from joining the scheme to do this – giving her a bit of time, according to Mr Connolly.

"Equally, going forward, she should then remain in this employer scheme in preference to contributing to a personal pension," he says. "Even if more changes are made to the NFPS, it will still offer better benefits."

Mr Cox adds that the NFPS is very good value – far better than paying into a private pension.

Review protection

As Bex has no dependants, her need for life cover is quite limited, according to Mr Smaje.

However, he adds that she should consider income protection to offer a replacement income should she be unable to work long term due to accident or sickness.

In addition, he suggests that she could also think about critical illness cover.

Mr Cox adds that Bex should draw up a will to ensure her house, savings and other assets pass to those she would wish to benefit in the event of her death.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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