Wealth Check: 'We won't have a bean left after our big day'

We give 'IoS' readers a financial makeover
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The problem

The problem

A June wedding is set to wipe out the savings built up by Catherine Jankowicz and her fiancé, Martin. But before the end of the year, they want to move out of their current property, a flat in north London, and buy a new home with a garden.

"We want a place where we can raise a family," says Catherine. "We'd like to know the maximum mortgage we can afford to take on for our next move."

When the couple bought their flat back in 2001, Catherine took out an £8,000 graduate loan to put towards the deposit. The couple have about £123,000 to pay on a flexible repayment mortgage with the Woolwich, set at a discount of 2 per cent below the bank's 6.79 per cent standard variable rate until 2006. They have also bought the freehold on the flat and are paying for it over five years.

"Once we have the freehold, which we view as an investment, the flat will be worth around £215,000," says Catherine.

While she has around £12,000 in an HSBC savings account and £150 in premium bonds, her current account is £1,000 overdrawn for most of the time.

Her pension contributions are currently about 10 per cent of her salary, but Catherine is keen to raise them. Her employer makes a 3 per cent contribution. She also has a small £2,000 pension pot from a previous job.

Catherine has no life cover.

Interview by Esther Shaw

The patient

Catherine Jankowicz, 27, from Muswell Hill, north London.

Job: marketing manager.

Income: £41,000.

Savings: £12,000 in the bank, plus £150 in premium bonds.

Goal: To pay for her wedding in June, move home and make better pension provision.

The cure

Catherine and Martin should wait until the wedding is over to sit down and plan their finances, says Ben Yearsley from independent financial adviser (IFA) Hargreaves Lansdown.

"They can then start by upping pension contributions and starting regular savings plans for both cash and equities."

Catherine should make cashflow her top priority, says Gary Jefferies from IFA Park Row. "The commitments she is looking to take on must be affordable both now and in the future."

If Catherine and Martin take on a larger mortgage and start a family, protection will be essential. "Life assurance should be a minimum," adds Mr Yearsley.

Property

Given the value of her existing property and her income level, Catherine could obtain a mortgage on a new home of around £240,000, says Mr Jefferies.

"This would mean payments of £1,400 a month over 25 years."

Mr Yearsley says a £200,000 mortgage should be the maximum - "especially if Catherine intends to stop work to look after children in the near future".

Consider a fixed-rate mortgage, advises Gill Cardy of IFA Professional Partnerships. "They don't always offer the most attractive headline rates, but they offer certainty of outgoings if you need to accommodate reductions in income and increases in expenditure."

Savings

Catherine must keep a closer eye on her income and spending and draw up a proper budget. Once her wedding is over, she must continue saving to replenish her cash reserves, says Ms Cardy, and aim to build up emergency savings equivalent to three months' salary.

A mini cash individual savings account (ISA) will help her to save, adds Mr Yearsley. He points out that overdraft charges are usually set at higher interest rates than those offered by savings accounts. So it makes sense to clear the overdraft after the wedding - "and keep the account permanently in credit".

Investments

Taking a longer-term view, Catherine should address the fact that she has no investments, says Mr Yearsley. Putting money in the stock market via an equity ISA might be the answer. "[She could start] with a core UK exposure and then move to overseas markets."

Pension

Catherine should look to pay a target level of 15 per cent of her salary into a pension, says Mr Jefferies, although it might not be easy. "Increasing [a] mortgage and starting a family will drain income," he warns, "but the current pension contracts do allow contributions to be increased or decreased without penalty."

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