Wealth Check: 'Is the time right to buy my first
home?'
Published: 4th July 2004
This article appeared in The Independent
Save and Spend Supplement.
The problem
Ben Matthews' finances are about to come under strain: his housemate
is moving out, so the rent he pays on his home in Staffordshire
will double from its current £200 a month. As a result,
he is thinking about buying his first property.
"Renting is dead money and house prices here start at around
£80,000, which isn't too bad in the scale of things. It's
a 90-minute commute to Manchester and more people are moving here.
I would like to get my own place but I'm hesitant about the state
of the market."
Ben has savings - earning a special staff rate of 4.25 per cent
gross with his employer, Britannia building society - that could
be put towards a deposit. He would like to find the best home
for his cash and start saving on a regular basis.
"I'm not certain if an equity individual savings account
is a decent place to start," he says. "Maybe a cash
ISA instead?"
He could use his savings to clear the £1,900 debt on his
Halifax One Visa credit card, but this isn't a priority. "I'm
happy to be a rate tart, and being charged 0 per cent for nine
months suits me at the moment."
He adds: "There's no benefit in transferring my savings
when I'm not paying any interest on the debt. With all the offers
out there, there's bound to be another [introductory] card deal
when the time comes to move."
While he is unsure whether he should buy his first home, there
is no uncertainty over his pension plans. Since joining Britannia
eight years ago, he has invested 7 per cent of his salary in its
final salary scheme.
Interview by Sam Dunn
The patient
Ben Matthews, 27, lives in Leek.
Job: In-house magazine editor for Britannia building society.
Income: £24,500 a year.
Savings: £3,000 in a deposit account; no investments.
Debt: £1,900 on a credit card.
Goal: to save more efficiently and, possibly, buy a property.
The cure
"Ben is throwing money away by renting," says Kevin
Anderson of independent financial adviser (IFA) Budge & Co.
Considering his level of both earnings and savings, he should
look at buying.
Philippa Gee of IFA Torquil Clark advises that he tackle his
card debt before embarking on a new savings regime.
Ben should also check with his employer to see if he qualifies
for the company's income protection scheme, says David Higgins
of IFA Glazers Financial Services.
Property
Despite the shaky forecasts for the UK housing market, buying
offers greater long-term benefits than renting.
With house prices in Leek of around £80,000, there is plenty
of opportunity for first-time buyers like Ben to get on the property
ladder.
If he can put down a 5 per cent deposit of £4,000, his
income would be more than enough to raise the remaining cash.
Mr Higgins recommends a mortgage fixed for five years at 5.39
per cent with Alliance & Leicester. This works out at £467
a month, which isn't much more than his increased rent.
Ben could also ask Britannia if it offers a staff discount on
mortgages, says Mr Anderson.
Debt
Ms Gee is worried that Ben has yet to chip away at his debt despite
his low outgoings. "If he regularly switches credit cards
to take advantage of 0 per cent deals, he could be eroding his
credit record. This would be a real issue if he decides to buy
a house."
She suggests paying Halifax £250 a month so that he clears
the debt within eight months. He should then save towards a bigger
deposit before buying a property.
Savings
The advisers agree that - even with Britannia's staff rate -
Ben could get a better deal on his savings. "The rate isn't
thrilling," says Ms Gee, suggesting instead a cash mini ISA
that pays a competitive rate of interest free of tax.
Abbey's 5.1 per cent postal ISA offers the best deal with instant
access, says Mr Higgins.
Again, Ben should check with his employer before switching his
money, since Britannia may offer staff a generous cash ISA rate,
says Mr Anderson.
Investment
Ms Gee thinks Ben should concentrate on clearing his debt, saving
regularly and buying a home before going into stocks and shares.
But if he can stretch his savings, Mr Anderson recommends he put
cash each month into an equity ISA instead of persisting with
a deposit account; he suggests Liontrust First Growth.
Retirement
Ben is lucky to be in a final salary pension scheme, says Mr
Anderson. In most cases, these plans guarantee an annual income
for life in retirement, based on earnings and length of service.
Although raising contributions is often seen as a sound investment,
there would be "little advantage" at the moment since
Ben has other priorities, adds Mr Anderson.
