Sarah Ploughman and her husband, Peter, are desperate to buy their own home. The couple live in York and rent a flat. They'd like to start a family and buy a house with a garden. But on their teachers' salaries of £23,000 a year, they are struggling to get on the property ladder.
Both are saving for a deposit - they've put £20,000 aside between them in savings products and try to add to these funds every month. But Sarah still feels the couple are some way off their financial goals and wonders whether a change of career or a move to a cheaper part of the country is their only hope.
We asked three independent financial advisers for their suggestions: Ray Boulger, of mortgage broker John Charcol, Ben Yearsley, of Hargreaves Lansdown, and Patrick Connolly of JSP Towry Law.
Sarah Ploughman, 27, teacher, York
Personal: Sarah is married to Peter, and the couple live in York. Both work full-time as primary school teachers.
Income: Joint income of £46,000 a year.
Property: Two-bedroom rented flat.
Savings: Combined savings of £19,000 in ING savings accounts and ISAs.
Debts: Around £4,000 left to pay on student loan.
Sarah and Peter are in a better position than they realise, says Ben Yearsley, with a decent chunk of savings, money to spare each month and only a small debt, in the form of a cheap student loan. At their current rate of saving, the couple will have around £25,000 within two years, enough for a deposit. With house price growth expected to slow this year, there may be no harm in waiting.
Ray Boulger points out that starting a family will put an extra financial strain on them. The couple would consider relocating and have friends in Lincolnshire and Leeds where house prices are cheaper.
In these areas, the couple may be able to find a two-to-three bedroom house for around £125,000. They would have the savings to pay a decent deposit and cover moving costs. A 25-year repayment mortgage of 90 per cent on a £120,000 property would cost £600 a month at a cost of 4.5 per cent. If they stay put, Boulger says Sarah and Peter could get a mortgage of up to £220,000. If they borrow this amount, they would only be able to put down a 5 per cent deposit. The monthly cost of a £220,000 25-year repay-ment mortgage at 4.5 per cent would be £1,223.
Boulger says theyshould consider key worker schemes. If they bought a two-thirds equity share they would have to give up one third of the value of the property when they sold, but they would still get a capital gain, a good first step on to the property ladder.
Patrick Connolly says Sarah and Peter are right to keep their savings in cash because they may soon need access to the money. The couple need to take full advantage of their full £3,000 annual cash ISA allowances, he suggests. Sarah and Peter should not neglect the longer term. Membership of the Teachers Pension Scheme is a good start - it's a generous plan offering fixed benefits linked to pay.
There's little point in Sarah paying off her student loan early according to Yearsley. Student loan interest rates are pegged to inflation, which makes them cheap.
Yearsley is concerned that Peter and Sarah have no life insurance, or cover to protect themselves in the event that one of them can't work due to ill-health or an accident. While they have no mortgage or children, life cover is less important, but buying permanent health insurance or critical illness cover would be sensible.Reuse content