Wealth Check: 'We need more room for our growing family'
A married police officer with three young children is in need of a bigger home – and that means he's in need of a new savings strategy ...
Sunday 03 February 2013
Police Constable Daniele Lapi is keen to save more so his family can move into a bigger house. At present, the 40-year-old lives in a three-bed property in Bishopbriggs, Glasgow, with his wife, Carol Anne, and their three young children.
The couple bought their home 10 years ago for £96,000, and have a repayment mortgage for £56,000 with Santander. "I took out a tracker and got a good deal which tracks the base rate by 0.75 per cent," says Daniele, who has been a PC for 16 years and earns around £36,600 a year. "We'd like to move into a larger property with four bedrooms for our three growing children," he says. "We'd probably need to spend around £250,000 in the area."
Daniele has some savings, but wants to build on them. "I have around £1,800 with Yorkshire Building Society, £800 with Santander, and £100 with the Halifax," he says. "I also have £450 invested in the Virgin UK Index Tracker – an investment individual savings account (ISA) split evenly between the FTSE and bonds. I set this up five months ago.
"In addition, I've got six small regular savings policies with the Police Mutual totalling £130 a month. These are all at different levels of maturity."
Daniele recognises he has a lot of saving to do, "but I'm very disciplined about paying off my credit cards in full each month," he says. "I'm also savvy with my spending and buy through Quidco when I can, to benefit from cashback."
As a police officer, Daniele gets a good pension through his employer. "I pay in £400 a month which accounts for around 13 per cent of my wage," he says.
He also pays £10 for protection policies through Direct Line, and £30 for a work-protection scheme.
Our panel of independent financial advisers agree it's positive Daniele has built up cash savings and has insurance arrangements, but adds that there's more he could be doing.
Build up savings
Daniele should begin by building his short-term cash savings towards a target of at least three months' net income, according to David Brunning of Bellpenny Financial Planner. "This represents a solid emergency reserve should he have unexpected expenses," he says.
Patrick Connolly from AWD Chase de Vere suggests Daniele gets further into the savings habit and sets up a direct debit from his current account into a savings account. "He should also aim to hold his cash savings within a cash ISA where all interest earned is tax-free," he says. "The current allowance is £5,640."
Mark Osland from Formula Limited recommends that both Daniele and Carol Anne open cash ISAs and save as much as they can into those accounts towards a new property.
"This will get them used to the increased outgoings they will face when they move house and have higher monthly mortgage repayments," he says. "It will also mean they build a considerable savings pot over a fairly short timescale."
While Daniele has made a good start by using some of his stocks-and-shares Isa allowance, his choice of investments should be reviewed, according to Mr Connolly.
"The Virgin UK Index Tracker fund is expensive compared with similar funds," he says. "Daniele also needs to think about what will be gained from such a small investment into bonds. He should look to use more of his allowance – and rethink where he is investing."
Mr Brunning agrees Daniele should focus on his short-term savings. "While his investment Isa could be a platform for building longer-term savings, he would need to leave any money for at least five years, given the volatility associated with any equity-based investment," he adds.
Mr Connolly also points out that the 10-year savings policies investing into the Police Mutual with-profits funds are investments which typically have high charges.
"While they can provide guaranteed returns, the performance is pretty mediocre," he adds. "I would advise against setting up any new policies – but it may be best to keep the existing ones until they reach maturity. The proceeds of these can be used to increase cash savings, invest in stock-and-shares Isas, or to contribute an additional amount to a deposit on the new property."
Plan ahead for property move
With the base rate at a historical low of 0.5 per cent, Daniele is on a manageable mortgage with a very competitive rate, according to Mr Osland. "Daniele could make the most of current low rates by making overpayments," he says. "This would help him pay down his mortgage, and reduce the debt more quickly."
Mr Brunning adds that the ease with which the family can move will depend on the value of their current home – and the amount of equity they have in it. "Estimates from property portal Zoopla suggest Daniele's home is worth around £160,000," he says.
"Given that he has around £104,000 equity in his home, he will need to raise around £146,000 to fund a house costing £250,000 – plus the stamp duty, and legal and moving costs. A lender would need to consider the family's overall income and expenditure to ensure the couple could afford the loan."
Mr Osland adds that while Daniele could ask if the mortgage can be moved, or ported, to a new property, it is likely the top-up will be at a higher rate. He suggests Daniele consider remortgaging to a longer-term, fixed-rate deal. "For example, Yorkshire Building Society is currently offering a five-year fix at just 2.99 per cent," he says. "While the increased cost may be painful initially, it could pay off over the longer term."
Maintain pension saving
Daniele is fortunate to be in the Police Pension Scheme, according to Mr Connolly. "This is top-quality, which, despite some proposed changes, will provide valuable benefits that are government guaranteed," he says. "These would be very expensive to replicate outside of the public service. This scheme will provide the bedrock of Daniele's retirement planning arrangements, and he should continue to pay into it."
Consider extra protection cover
Mr Brunning says that with a larger mortgage, the family will need to look to increase life cover, and potentially also add critical illness cover for Carol Anne.
"While Daniele is confident the benefits offered with his job mean he has sufficient cover in place, he should double-check this," he says. "I would also encourage him to review the family's existing insurance provisions rather than simply topping up existing arrangements."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 This 'woman calls police to order pizza' story isn't going where you're expecting
- 2 Axe wielding man shot dead after attacking four New York policemen on busy street
- 3 Watch what happened when food critics were unknowingly served McDonald's
- 4 Jimmy Carr's Oscar Pistorius joke goes a bit too far at the Q Awards
- 5 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
Poppy Appeal 2014: This is why I won't be wearing a red poppy this year
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
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
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