Wealth Check: Why this teacher needs lessons in saving for a home of her own
With no debts and a sensible approach to money, Sophie Williams should still make provision for longer-term investments, including a pension plan
Saturday 14 September 2013
Sophie Williams from south-west London is currently a lodger in a three-bed maisonette but is keen to move out and rent a place on her own, while also continuing to save hard for a deposit on her first home.
The 29-year-old has been teaching for five years, and for the past year has been earning a salary of £28,646 as a French teacher at a private school. However, she has just been promoted to head of languages and is now earning £33,978.
At present Sophie pays just £460 a month in rent, including bills, but is keen to stop lodging.
"I'd really like to rent privately," she says. "I'd also like to save for a deposit but am not sure whether I'll be able to do this on my own in London. As I work in a private school and am not employed by the local education authority, I don't qualify for key worker status. I've also looked at the Government's Help to Buy scheme, but have not found any properties in the area of London I want to live in (travel zones two and three) for less than £300,000. I'm worried that even with the help offered, buying my own place will still be unaffordable."
Sophie has been disciplined about slotting money away and currently has £6,500 in an easy-access individual savings account with Santander and also has £2,000 in her Nationwide current account.
"Since April I've been saving £400-£500 every month which is not too onerous given my low rent payments," she says. "However, house prices are starting to rise and are going up faster than I can save."
While Sophie had been paying into a pension for three years in a previous job through the Teachers' Pension Scheme, there is no pension plan offered at her current school. She also only gets two paid sick days a year.
"Part of me wonders if there is much point in me saving at all, but as I'm not part of a pension scheme at the moment, have no money in investments, and don't get paid if I'm off work ill, I feel I need savings to give me some security," she says.
Since April this year Sophie has tried to set herself a cash budget of £100 a week to cover expenses such as food, travel and socialising, in a bid to be able to save more.
"I have been quite good at sticking to this, and it's also made me think more before making purchases I don't really need," she says.
Sophie is in the fortunate position of having no debts other than her student loan repayments, and while she does have a credit card with Nationwide, she pays this off in full each month.
"Despite being quite careful with my money, I'm lucky that I'm able to live a good life, and can afford to take holidays and go out with friends," she says. "That said, I'm single at the moment, but worry about what will happen next, as I can't see myself being in a financially secure enough position to get married and have children in the foreseeable future."
Our panel of independent financial advisers agree that Sophie seems to have achieved a good balance between what she is earning, spending and saving, and commend her on being responsible with her money and not having any debts. They urge her to now focus on saving as hard as she can to build a house deposit, but also to balance her cash savings with longer-term investments, including pensions.
Continue to build up savings
Patrick Connolly from Chase de Vere says Sophie is being sensible in building up her cash savings, pointing out this will give her the best opportunity to meet her financial objectives in terms of property and potentially having children in the future.
"Equally, by having savings in cash, it will avoid the need for her to go into debt if she has any short-term emergencies," he says.
Minesh Patel from EA Financial Solutions adds that Sophie is also doing the right thing by putting her savings into a cash Isa.
"The rates are low but this fund will be needed for her property purchase and the interest is tax-free," he says.
Lisa Conway-Hughes from Westminster Wealth Management says she should regularly review the rate she is getting to ensure it is competitive. Useful sites are SavingsChampion.co.uk and Moneyfacts.co.uk.
Mr Connolly adds that current low rates mean that, after inflation, Sophie will be losing money in real terms,
"She needs to be wary of holding too much in cash for too long," he says. "Going forward, Sophie should not give up on saving, but should look to balance this with longer-term investments including pensions offering the opportunity to earn better returns."
Consider a flat-share
Sophie is paying relatively little in property costs as a lodger, but Mr Connolly warns this will go up if she moves into rented accommodation.
"Other than moving to an unsuitable property or area, the only real way for her to address this is to rent with other people and split the costs with them," he says.
Save hard for a deposit
Mr Connolly says the best way for Sophie to take the first step on the property ladder is by continuing to save as much as possible each month – especially now her salary has increased.
"Buying a property will seem like a very long-term goal, but while she is on her own there is unlikely to be a shorter-term solution," he says.
Mr Patel suggests Sophie widens her property search beyond zones two and three.
"She needs to consider less-expensive parts of London from where it will still be possible to commute to school," he says. "She should also consider options such as a guarantor mortgage from a lender such as The Mortgage Works or the Woolwich, where a parent's or other relative's income is used to secure higher borrowing."
Ms Conway-Hughes adds that Sophie should also think about options such as buying with a friend.
Don't neglect pension saving
The Teachers' Pension Scheme of which Sophie was previously a member is a great-quality plan with valuable guarantees backed up by the Government, according to Mr Connolly.
"However, three years' membership won't be enough to build up a sufficient level of pension benefits," he says.
Mr Patel points out that under new legislation, known as auto-enrolment, all employers will now have to provide a pension for their employees.
"In addition, both employers and employees will be compelled to make contributions," he says. "Sophie should find out when her school will implement a scheme, and start paying into it. Pension contributions benefit from tax relief and are a great way of saving for the future. Sophie should look to increase these from year to year."
In the meantime, she should start paying into a stakeholder pension.
"She needs to start a pension as soon as possible," says Ms Conway-Hughes. "She can always increase the amount she pays in once she's built up her deposit."
With cash accounts paying low rates of interest, Mr Connolly says there is an argument for Sophie looking at other forms of investments for any money she won't need for 10 years or more.
"She should look at both pensions and stocks-and-shares Isas," he says. "Pensions provide initial tax benefits but are quite inflexible, whereas stocks-and-shares Isas can also be tax-efficient and offer far greater flexibility."
Mr Patel says her attitude to investment risk needs to be identified.
"At 29, she has a longer time-frame for investing. An index-tracking equity fund – through a provider such as HSBC or Legal & General – could offer a cheap and effective method of investing for the longer term," he says.
Think about protection products
As Sophie has no dependants and no debts, she has little need for life cover, according to Mr Connolly. But
Ms Conway-Hughes says that as her sick pay is not very generous, she is very exposed financially, and urgently needs an income protection policy.
An interest rate rise may be on the way - act now to secure a better mortgage deal
Switching your current account? Pick one that reflects the way you run your finances
The most expensive cities in the world 2015
Payday lender Cash Genie forced to repay £20m to ripped-off customers
Five Questions On: GB Energy's new tariff
- 1 The difference between a psychopath and a sociopath
- 2 Cara Delevigne addresses awkward interview on Good Day Sacramento
- 3 Top Gear team of Jeremy Clarkson, Richard Hammond and James May officially heading to Amazon Prime for new car show
- 4 How to cancel Amazon Prime: after Top Gear hiring, how to leave premium service
- 5 MH370 debris: Investigators 'confident' that Boeing 777 wing found - live updates
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
I am the Jeremy Corbyn supporter that many will tell you doesn't exist
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
Calais crisis: For desperate migrants it is 'England or death' as they brave dogs, riot police and speeding trains
iJobs Money & Business
Negotiable: Recruitment Genius: This company prides itself on its ability to p...
Negotiable: Recruitment Genius: This company prides itself on its ability to p...
£800 per day: Ashdown Group: A highly successful, global financial services co...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250...
Day In a Page
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.