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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
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

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

    Gaping hole at the heart of the European Union

    Treatment of Greece has shown up a lack of genuine legitimacy
    Number of young homeless in Britain 'more than three times the official figures'

    'Everything changed when I went to the hostel'

    Number of young homeless people in Britain is 'more than three times the official figures'
    Compton Cricket Club

    Compton Cricket Club

    Portraits of LA cricketers from notorious suburb to be displayed in London
    London now the global money-laundering centre for the drug trade, says crime expert

    Wlecome to London, drug money-laundering centre for the world

    'Mexico is its heart and London is its head'
    The Buddhist temple minutes from Centre Court that helps a winner keep on winning

    The Buddhist temple minutes from Centre Court

    It helps a winner keep on winning
    Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

    Is this the future of flying?

    Battery-powered planes made of plastic, and without flight decks
    Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

    Isis are barbarians

    but the Caliphate is an ancient Muslim ideal
    The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

    Curse of Brink's Mat strikes again

    Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
    Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

    'The ministers talk to us about miracles'

    Why Greeks are cynical ahead of the bailout referendum
    Call of the wild: How science is learning to decode the way animals communicate

    Call of the wild

    How science is learning to decode the way animals communicate
    Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

    'The economic collapse has happened. What is at risk now is democracy...'

    If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
    The science of swearing: What lies behind the use of four-letter words?

    The science of swearing

    What lies behind the use of four-letter words?
    The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

    The Real Stories of Migrant Britain

    Clive fled from Zimbabwe - now it won’t have him back
    Africa on the menu: Three foodie friends want to popularise dishes from the continent

    Africa on the menu

    Three foodie friends want to popularise dishes from the hot new continent
    Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

    Who will fill Donna Karan's boots?

    The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'