Wealth Check: 'We want to travel without having to save for it all year'

The Sheppards work full time, but love travelling. They like exotic holidays, but also enjoy simpler camping trips with Mr Sheppard's daughter, who is five.

The Sheppards work full time, but love travelling. They like exotic holidays, but also enjoy simpler camping trips with Mr Sheppard's daughter, who is five. The couple wantto have more money left in the bank at the end of the month, so they can travel without having to save for a full year.

The couple also want to pay off their debts and, once they have done this, move to a larger property in the £120,000 to £140,000 price range. The Sheppards want to know whether they should add their debts to the mortgage now, to cut monthly outgoings, or pay the loans back over the three years they have left to run. But they realise that if they add the debts to their mortgage now, it will limit the budget for their next home. What is their best course of action?

We put their case to Drew Wotherspoon at Charcol, Daniel Claydon at Claydon Associates and Lisanne Mealing at MDM Associates.

JULIE, 29, AND TONY, 35, SHEPPARD

Salaries: Julie £24,000; Tony £14,000.

Debt: £13,000 of £15,000 borrowed from Halifax. £6,000 loan from Yorkshire Bank.

Property: Repayment mortgage of £31,000, with 15 years left, with Egg.

Savings: £500, Britannia (4.75%), for Tony's daughter

Pension: BT and NHS pension schemes.

Monthly outgoings: Mortgage £270, bills £150, food £280, home phones £60, food £280, petrol £20, other £600.

SAVINGS

Mr Claydon says the first priority for the couple should be to start to save. They should try to put some money into an easy-access account, such as a mini cash Isa, so they have money for emergencies, holidays or towards a house move.

Mr Wotherspoon says that although the Sheppards have been able to build up equity in their house, this will not help them in any short-term financial emergencies. They should save a reserve of about £6,000. They could save this over 21 months by setting aside £280 a month. Ms Mealing points out that they could shelter all this from tax by using their cash Isa allowances.

Mr Sheppard should make sure that any savings for his daughter are in her name, so that they are not taxed.

DEBTS

Whether it makes sense for the Sheppards to move their debt to their mortgage depends on whether their loans have large redemption penalties. The couple's loans are their largest financial commitment, costing them more each month than the mortgage. Mr Wotherspoon works out that personal loan repayments and interest cost the Sheppards £567 a month. They could make savings by switching the debt to a mortgage.

If they keep to their existing arrangements, and perhaps delay moving, they will have tighter cash flow now but need a smaller mortgage in three years' time - and so be better off in the long term. The crux of the matter, the panellists agree, is the cost of redeeming the personal loans. If there are no penalties, or these are small, it will almost certainly make sense to move the debts to a mortgage. Ms Mealing calculates that if the couple add their loans to their existing mortgage, they would have a loan of about £50,000. The cost of that would be be about £330 a month over 20 years or £292 over 25 years.

Mr Claydon suggests the couple could consolidate their loans into one, with a low-cost lender such as Northern Rock, now offering unsecured loans at 5.8 per cent. Over five years, this would cut their loan repayments to £410 a month. The best course depends on the level of any redemption penalties.

MORTGAGE AND PROPERTY

When it comes to moving house, the Sheppards are in a better position than they might think, not least because they have built up a good amount of equity in their existing home. Mr Claydon suggests the couple could look at switching from Egg to another lender. A flexible mortgage, allowing overpayments, might be one option.

If they want to move, they have headroom to allow them to buy the property they want, whether they leave their personal loans as they are or add them to the mortgage. Ms Mealing says that the couple could have a mortgage of £96,000, based on 2.5 times their salary. Even if they added their existing debts to the mortgage, they could still raise enough money to buy a home costing £136,000.

Mr Wotherspoon says that even if the Sheppards consolidate their other debts on to a mortgage, they would have equity of £40,000. This, assuming they want to spend £140,000 on a new property, means they have a deposit of more than 25 per cent. This gives access to the best deals on the market.

Advisers' views are given for information only.

* For a free financial check-up in the Wealth Check column, write to The Independent, 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk.

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

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Life and Style
tech

Apple has been hit by complaints about the 1.1GB download

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
A 'Sir Alex Feguson' tattoo
football

PROMOTED VIDEO
Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Arts and Entertainment
Actor and director Zach Braff
tv

News
i100
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
News
i100
Arts and Entertainment
The former Doctor Who actor is to play a vicar is search of a wife
film

Matt Smith is set to join cast of the Jane Austen classic - with a twist

Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
tv

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
Life and Style
i100

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Property Underwriter

    £70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...

    Operational Risk Manager - Asset Management

    £60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week