Wealth check: 'Will life be good with a mortgage?'

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The Independent Online

For five years, Liz Kelleher has been living rent-free in a London flat owned by her parents. She has used this to her advantage, ridding herself of all debts except £400 on a little-used Egg credit card that charges interest at an annual percentage rate of 15.9.

She has also been able to save up a £15,000 deposit towards a property - £10,000 in an HSBC mini cash individual savings account (ISA) paying 4.27 per cent gross, and £5,000 in an HSBC current account paying 0.25 per cent on balances above £2,000 (0.1 per cent below).

But Liz isn't sure how far this money will stretch as she tries to get a foot on the property ladder in East or West Dulwich, south London, where she is currently house-hunting.

However, her parents are happy to give her a hand with the deposit and prepared to share a home loan until she can afford to buy them out. "I hope to manage the mortgage on my own within about five years," she says.

Liz has no pension and her employer, a small charity, has no scheme in place. "So far, sorting out a pension has not been a priority."

But, with a property purchase on the way, she hopes to be able to afford both mortgage repayments and contributions to a private pension.

She has no protection policies in place.

The patient

Liz Kelleher, 26, from central London.

Job: fundraising manager for a charity.

Income: £25,000.

Savings: £10,000 in a mini cash ISA and £5,000 in a current account.

Investments: none.

Goal: to buy a first home in the next few months and start a pension.

Once you're home and dry, get started on a pension

In the short term, Liz's decisions simply boil down to a strict budget, says Simon Webster at independent financial adviser (IFA) Facts & Figures. "The key will be buying the property and then [monitoring] her spending for a couple of months, as there are always unforeseen extras," he warns. "She can then review affordability [for the pension]."

Anna Bowes from IFA Chase de Vere stresses that the younger Liz starts saving into a pension plan, the better.


It may be sensible for Liz to set up a mortgage with her parents as guarantors, rather than joint owners, says Mr Webster. "If not, they may have to pay capital gains tax when she takes over the property and the mortgage."

One option could be the 1st Start deal from the Bank of Ireland. "This is more flexible than other guarantor mortgages as it does not require assurance that [Liz's] earnings are likely to increase in the shorter term," says Ms Bowes.

But Mike Marigold, from IFA Montgomery Charles Financial Management, adds a note of caution: "If Liz defaulted on the mortgage through lack of income, her parents would be faced with fairly hefty repayments."

Liz could raise a mortgage in her own right of around £100,000, he says. And with such a big deposit, she should find a good rate. "There are two- and three-year fixed deals at 4.29 per cent."


Once she has used up her cash on the deposit, Liz needs to build a small sum again for short-term costs and emergencies, says Ms Bowes. A mini cash instant-access ISA is the best home for this.

Even though Liz owes only £400 on her credit card, there is no point paying interest if she doesn't have to, adds Ms Bowes. She should transfer to another card firm offering a 0 per cent deal on balance transfers.


Liz can start by paying as little as £20 a month into a low-cost stakeholder pension, where charges are capped at 1.5 per cent, says Ms Bowes. But she should try to invest much more than that to ensure a comfortable retirement.

The flexibility of stakeholder plans means Liz could stop and start premiums or add lump sums if she chose to.


With no dependants, Liz has no need for life insurance, says Ms Bowes. But she should consider income protection in case she is unable to work due to injury or illness.


With a new home, rebuilt savings and a pension under her belt, Liz should consider long-term share investments, says Ms Bowes. A UK fund like Invesco Perpetual Income or Cazenove UK Growth and Income would be a good start.

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