Wealth Check: 'We're saving £1,000 a month so that we can buy our dream home'
Stephanie and her partner have set their sights on a three-bed detached house, and then plan to have children. How can they achieve their goal?
Saturday 01 February 2014
Stephanie McIntosh, 22, and her partner Shaun Holloway, 29, are keen to get onto the property ladder, having saved hard for their first home.
The couple have been living with Shaun's parents in Newquay, Cornwall, for the past 14 months, enabling them to save up to £1,000 a month. They are now very close to reaching their £10,000 target. "We want to start looking at how much we might be able to borrow, and the deals available – with a view to buying a place by the end of this year," says Stephanie, 22. "Shaun and I hope that one day we'll get married and have children, but for now our main priority is getting our first home."
Stephanie works as the Research, Development & Innovation Office Manager for the Royal Cornwall Hospital and takes home around £1,000 a month. Shaun is an IT technician and brings home a similar amount.
Both have their current accounts with the Halifax, and get £5 each month (provided they deposit at least £1,000). Stephanie also has £6,000 in a Halifax savings account, while the couple have around £200 in a joint savings account with Nationwide.
"We tend to put money we get for Christmas and for birthdays into the Nationwide account," says Stephanie. "We then use this account for spending money. In addition, we have £1,500 in premium bonds."
The couple are looking to buy their first home in Cornwall. "As I have an NHS career in Truro, I hope to live not too far from there," says Stephanie. "Equally, we are both open to commuting that extra bit further if the perfect house comes along. Ideally we'd like a detached three-bedroom house costing between £150,000 and £180,000."
The couple moved in with Shaun's family in November 2012, and pay £450 a month in rent.
Both Stephanie and Shaun also make monthly loan repayments, having borrowed money to buy cars. "I took out a loan for £3,500 with HSBC in May 2012, and currently repay £150 a month," says Stephanie. "Shaun also borrowed money but all our debts will be cleared by May – and we're very excited about that."
While both have Capital One credit cards, they only use these for their "general spend" to benefit from cashback, and pay them off in full each month.
Once the couple have paid off their debts and reached their £10,000 savings target, they want to go on saving £1,000 a month to cover moving costs such as legal feesand new furniture. "This will mean living off £1,000 a month, but we've done this before," says Stephanie. "We try to be as savvy as we can with our spending, and always check sites like Topcashback.co.uk when buying online. We also use vouchers or promotional codes."
Stephanie pays around £70 a month into an NHS pension; Shaun also has a workplace pension, and pays in around £50 per month. "But we wonder whether we should withdraw the money and put it into cash individual savings accounts (Isas) instead," says Stephanie. "At present, we have no protection policies, but also wonder whether we need to review this."
Our panel of independent financial advisers (IFAs) agree Stephanie and Shaun are doing the right thing by clearing outstanding debts, and making regular cash savings to buy a property. But they urge them to keep saving, both for the short term and the longer term. They also suggest once they've bought their home they should review their protection needs, and think about longer-term investments.
Don't take on further debts
Patrick Connolly from Chase de Vere says the couple are using their cards sensibly, and are wise not to take on new debts. "As they are aiming to buy a house, their overall expenditure will increase, and being burdened with debt repayments will make this far more difficult," he warns. "They are fortunate to have cash savings to cater for short-term emergencies."
Continue to build savings
Mr Connolly urges Stephanie and Shaun to continue regular cash saving. "The more they are able to save, the less they will need to borrow, and so the easier it will be to buy a property," he says. "Equally, they are planning to get married and have children, and building additional cash savings will help them manage this more easily – particularly if one of them takes time off work to bring up the children."
Christopher Daems from Principal Financial Solutions urges Stephanie and Shaun to make use of their cash Isa allowances, with tax-free interest. "They should divert some of their money to an instant access cash Isa," he says. "The current annual allowance is £5,760."
To check the best rates, try sites such as SavingsChampion.co.uk and Moneyfacts.co.uk.
Having taken positive steps to help achieve their home-buying dream, the pair now need to take independent financial advice from an adviser or broker.
This will help them find exactly how much they could borrow, what type of property they can afford, and what monthly repayments might be.
Mark Hibbitt from Sovereign urges Stephanie and Shaun to ensure they're on the electoral roll. "If not, any application to borrow could fail the credit check," he says. "They should also get their reports to check there are no errors on their files. Assuming both have good credit ratings, they may be able to apply for a mortgage from 4 to 4.9 times joint income."
He adds that most while most deals would require a 10 per cent deposit, they could look at the Government's Help to Buy scheme. "This would potentially enable them to buy with a deposit of just 5 per cent," he says.
The Government will then provide a loan for up to 20 per cent – and the couple would then need to take out a mortgage of up to 75 per cent of the purchase price to meet the shortfall.
"Many mainstream lenders are now offering deals," adds Mr Hibbitt. "For example, if Stephanie and Shaun took a five-year fix with Santander over 35 years (at 95 per cent on a £150,000 property), their monthly repayments would be around £700."
Mr Daems reminds the couple that interest rates are currently very low.
"If they opt for a variable-rate mortgage, their monthly repayments will go up once general interest rates go up," he warns. "They must ensure they can afford this. The best way is by opting for a fix."
Don't stop pension saving
Stephanie is very lucky to be a member of the NHS pension scheme, according to Mr Connolly. "This is a fantastic scheme which provides guaranteed benefits that would be very difficult to replicate elsewhere," he says. ."
Our advisers agree Shaun should also stay in his company pension scheme. "While retirement may seem a long way off, as they get older Stephanie and Shaun will be grateful they have been paying into their pensions," says Mr Connolly.
Mr Connolly says once they've bought a property, they should look at longer-term investments such as stocks-and-shares Isas. "These are tax-efficient," he says. "And, unlike pensions, Stephanie and Shaun would be able to access their money whenever they wanted."
Think about protection
"They should seriously consider life assurance and income protection policies when they decide to start a family," says Mr Hibbitt. "Before paying for cover, both should contact their employers to find out what benefits are provided for them. They should also draw up wills."
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