Wealth Check: 'Will I be able to get back on the property ladder?'

A graphic designer sold his property and wants to save for a deposit on a bigger house. But other demands on his money are slowing down his plans



The Patient


Father of three Glynn Reynolds, 33, is keen to get back on to the property ladder.

He and his wife used to own a house, but currently live in a rented three-bed house in Mansfield Woodhouse, Nottinghamshire. "We had a mortgage for about 10 years which cost us £200 per month," says Glynn. "But when we decided we wanted to move to a better area, we couldn't meet the high deposit needed."

At the start of this year, Glynn and his wife opted for a quick sale to a property developer, and moved into their rented property. "We now live in a nice house with a market value of about £160,000, and pay about £600 per month in rent," says Glynn. "When we moved here, we couldn't afford the mortgage, but once the property market picks up and deposit requirements drop a bit, we hope to be able to put in an offer on this house."

Glynn works as a graphic designer and earns £22,000; he has been in his current job for six years. "I'd like to be able to start my own graphic design business at some stage," he says. "We also have dreams of having enough money put aside to be able to afford to go on a Caribbean cruise in two years' time."

In recent years, Glynn has been disciplined about paying off his debts. "When we sold our house, we paid off most of the money we owed," he says. "This left us with just an overdraft of £1,000, and a small loan that will be cleared in one year's time. Both are with NatWest."

To help with budgeting, Glynn also uses cashback site Quidco to save money when making purchases.

However, there are several areas of his finances where Glynn knows he needs to make changes.

"At present, I have no money set aside in savings and investments and do not have a pension or any protection policies in place," he says.

The Cure

Our Independent Financial Advisers (IFAs) are concerned that despite having plans to get back on the housing ladder, Glynn seems to have made little preparation towards this. They urge him to get serious about saving in the short term to build up an emergency fund, and then in the medium term for a deposit. They add that while his immediate financial priorities should be building cash savings and paying off his debts, he also needs to give some thought to saving for the longer term for retirement.

Focus on paying off debts

While Glynn may not have given a lot of thought to saving, he is being sensible in paying off his debts, says Patrick Connolly from AWD Chase de Vere. "The interest he is paying on his loan is likely to be greater than the interest on cash savings, so he should see if he can pay this off even more quickly without penalty," he says. "He should also aim to clear his overdraft, as this may come with a high level of interest and charges."

Build up an emergency fund

Once Glynn has paid off his debts, he needs to get serious about saving. "Saving for a house deposit may need to be a slightly longer-term objective, depending on how quickly he is able to squirrel money away with careful budgeting," says Mr Connolly. "But before that, Glynn needs some cash savings in a rainy-day fund to meet any short-term emergencies."

Mark Osland from Formula Ltd says the best way to save this emergency fund is through a cash individual savings account (ISA), into which he can currently save up to £5,340 a year tax-free. "Top rates on cash ISAs include the AA at 3.05 per cent and ING at 3 per cent," he says.

Start saving deposit money

Glynn will need a deposit of at least 5 per cent to be able to buy a house, and more than this to benefit from better interest rates, according to Mr Connolly. "If he could find a house for just £100,000 this would still mean a minimum deposit of £5,000," he says. "Even then, Glynn may struggle to find a mortgage company willing to lend him £95,000 based on his earnings. He would either need to include his wife's earnings, or save a much bigger deposit."

Mr Osland adds that Glynn needs to factor in the extra costs associated with moving house, such as stamp duty and mortgage arrangement fees.

Reconsider home ownership

Kusal Ariyawansa from Appleton Gerrard Wealth Management suggests that Glynn speak to his local authority and housing associations.

"These organisations may give him further guidance about affordable housing, and tips on how to get back on to the property ladder," he says.

However, he urges Glynn to think carefully about his decision to get back into home ownership. "To struggle to pay a mortgage is anything but ideal, and especially if there is little chance of capital appreciation," he says. "Glynn should consider whether he is better off in the rental market."

Get protection policies in place

Mr Ariyawansa urges Glynn to focus on making sure his dependants are looked after in case anything should happen to him. "He should begin by asking his employer whether benefits, such as sick pay are offered," he says. "He should then start a family income benefit policy which will pay a monthly tax-free amount over a term. As he is young, and in a good state of health, this should be affordable." Glynn should also consider a long-term income protection plan, adds Mr Ariyawansa. "This will pay a proportion of his salary as a tax-free benefit if he is unable to perform his own occupation," he says.

Don't ignore pension planning

Glynn should find out if his employer has a pension scheme, and if it will make contributions on his behalf, says Mr Connolly. "While Glynn may wish to delay retirement planning, the longer he leaves it, the harder it will be to achieve a decent standard of living," he says. "The best approach is likely to be a combination of pensions and stocks and shares ISAs."

While pensions give attractive initial tax benefits, they are inflexible, he adds. "ISAs can also be tax efficient, but as you can access your money whenever you need to, you may be tempted to spend any money you have built up long before you reach retirement," he warns.

Delay the Caribbean cruise

The Caribbean cruise should not be a financial objective in the short to medium term, says Mr Ariyawansa. "Given that he has a loan and an overdraft to pay off, it would be unwise to take a further loan to go on an expensive family holiday."

Starting a business

Glynn needs to decide how serious he is about setting up his own business. "Before taking this step, Glynn needs to get some money behind him. He should also take professional advice," says Mr Osland.

Nonetheless, Mr Ariyawansa says now may be a good time to start thinking of ideas. "When times are hard, your competition also struggles, but when times are good, your competitive also does well," he says. "By networking and attending free business workshops he can get an idea how his vision can be a success."

Do you need a financial makeover?

Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF

j.knight@independent.co.uk

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