Wealth Check: 'On our teachers' salaries we're strugging to buy a home'

Sharon Snowden and her husband James despair of ever being able to buy their own home. The couple live in Cobham, Surrey, one of the most expensive parts of the country, and they are currently renting a one-and-half bedroom flat. They would like to start a family and to buy their own home - ideally this would be a two-or three-bedroom house with a garden. But on their teachers' salaries of £23,000 each a year, they are struggling to get on to the property ladder.

Both are saving hard for a deposit - they have already put about £20,000 aside between them in various savings products and try to add as much as possible to these funds every month. But Sharon still feels the couple are some way off their financial goals and wonders whether a change of career or a move to a part of the country where housing is cheaper is their only hope.

We asked three independent financial advisers for their suggestions: Ray Boulger of mortgage broker Charcol; Ben Yearsley of Hargreaves Lansdown; and Patrick Connolly of John Scott & Partners.

The patients

Sharon, 27, and James Snowden, both teachers
Personal: Sharon is married to James, and the couple live in Cobham, Surrey. Both work as primary school teachers.
Income: Joint household income of £46,000 a year.
Property: The couple rent a two-bedroom flat, but would like to buy a house.
Pension: Both have been members of the Teachers Pension Scheme for three years.
Savings: James has £7,000 in an ING internet savings account and aims to pay in £300 a month. Sharon has £6,000 in the same product and adds between £50 and £200 a month. James has two ISAs worth £3,000 each with Royal Bank of Scotland.
Debts: Around £4,000 left to pay on student loan.
Monthly expenditure: £1,250 on bills, council tax and general spending; about £1,100 on savings, including pensions; £98 student loan repayment. Holidays, about £1,500 a year.

Property

Thanks to the sensible approach they have taken to their finances so far, Sharon and James are in a better position than they perhaps 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, Sharon and James will have amassed a total of about £25,000 within two years, enough for a house deposit even in leafy Surrey. With house prices flat for the moment, Yearsley thinks there's no harm in waiting.

Ray Boulger also thinks the couple should be more positive, though he points out that starting a family will put an extra financial strain on them. The couple are prepared to consider relocating, and they have friends in Lincolnshire and Leeds; as teachers, their salaries would not be affected by such a move, but house prices in these areas are considerably lower than in Surrey.

In these areas of the country, the couple should be able to find a two- or three-bedroom house for about £125,000. Their savings will be sufficient to cover a decent deposit as well as moving costs. If they can find somewhere for £120,000 or less, there will be no stamp duty to pay either. A 25-year repayment mortgage covering 90 per cent of the cost of a £120,000 property - that is, £108,000 - would cost the couple £600 a month at an interest rate of 4.5 per cent.

If they decide to stay where they are, Boulger calculates that, based on their current level of income, Sharon and James could get a mortgage of up to £220,000. If they borrow this amount today, they would only be able to put down a 5 per cent deposit. The monthly cost of a £220,000 25-year repayment mortgage at 4.5 per cent would be £1,223 - just about affordable now, but possibly less so if they have to go down to a single income as a result of starting a family.

Finally, Boulger says that Sharon should reconsider key worker schemes, which she has previously rejected. It is true that if the couple bought a two-thirds equity share they would have to give up one-third of the value of the property when they sold it, but they would still realise a capital gain, and this could be a good first step on to the property ladder.

Savings

Patrick Connolly says Sharon and James are right to keep their savings in cash because they may soon need access to the money and they can't afford any risk of it falling in value in the short term. The couple need to take full advantage of their full £3,000 annual cash ISA allowances, he suggests, and he recommends products from Halifax and Bradford & Bingley.

However, while Sharon and James are understandably focused on the short-term goal of buying their own home, they should make sure they do not neglect the longer term. Their membership of the Teachers Pension Scheme is an excellent start in this regard - it is a generous pension plan offering fixed benefits linked to pay, and the scheme is underwritten by the Government.

However, over time, Connolly would like the couple to think about other long-term savings - in addition to pension planning - possibly using tax-free ISAs to gain some exposure to the stock market.

Debt

There is little point in Sharon paying off her student loan early, according to Yearsley. Usually, it makes sense to use any spare money you have to repay debt ahead of building up savings, because banks and building societies generally charge borrowers more than they pay savers. However, student loan interest-rates are pegged to inflation, which makes them very cheap.

Protection

Yearsley is concerned that James and Sharon have no life insurance, or any cover to protect themselves in the event that one of them cannot 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 a sensible use of some of their spare cash each month.

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk