Help me get on the property ladder

Julie Lever is a 29-year-old nursery assistant from Wood Green in north London. Following several years working as a retail manager, Julie decided to take the plunge and change career. She now works part-time while studying to gain a qualification that will enable her to pursue her ambition of combining childcare with her background in dance and performing.

She currently takes home around £618.68 a month, and her salary will increase to around £22,000 when she qualifies. At the moment, she lives with her parents, paying them £100 a month towards bills.

Julie has built up substantial savings: £30,000 in premium bonds; £7,465 across three individual savings accounts (ISAs); £1,000 in an easy saver account with Britannia; and £1,552 worth of index-linked savings certificates with NS&I on five-year terms.

Her main financial goal is to use this year’s ISA allowance to build up a deposit to buy her first home. “I want to make the most of my money, so I’m considering investing in bonds and shares,” she explains. “I’m also wondering whether I need life insurance, and I’m concerned that working part-time has affected my pension situation because of my reduced state pension contributions.”

Money Makeover

Adrian Kidd, an independent financial adviser from Unleash Advice Partnership in London, was impressed by Julie’s financial situation and attitude towards money.

“She’s a savvy young woman, and has clearly received excellent guidance from her parents,” Kidd comments. “She has not run up any debts, so despite retraining as a nursery assistant, she has managed to give herself a great platform for financial success.”

With some careful planning, Kidd is confident that Julie can fulfil her priority to buy her first home. “She is looking to pay in the region of £200,000. On her current salary, this is way out of her league, but it will be more realistic when she qualifies and her salary increases,” he says.

Julie currently has £30,000 to put down as a deposit and has looked into the option of taking out a guarantor mortgage, which would involve her parents agreeing to be responsible for the mortgage if she struggles with the repayments.

“She should also consider the government’s HomeBuy Direct scheme,” advises Kidd.

HomeBuy Direct is a shared-equity scheme designed to help first-time buyers into affordable home ownership. First-time buyers who qualify for the scheme (if they have a combined income of less than £60,000) will receive an equity loan of up to 30% of a property’s purchase price, equally funded by the government and the property developer. Julie would be required to contribute the remaining equity – a minimum of 70% - through a mortgage and deposit.

There’s no fee for the first five years of the loan, but a charge is levied from year six onwards. Julie would be able to redeem the equity loan in instalments, purchasing up to 100% equity after the initial purchase by buying additional equity at the market rate.

“HomeBuy Direct is a great way for Julie to afford her first home; it would help her overcome the hurdles of high mortgage costs and large deposits,” says Kidd.

As Julie’s main priority is to get on the property ladder, her main focus should be to look into this option and increase her deposit. Despite the fact that she has expressed an interest in investing, Kidd advises Julie to keep most of her cash ready for instant access whenever the time is right to buy her new home.

However, he suggests she considers transferring her savings into a cash ISA to achieve a much better rate than the measly 1.85% she currently receives with Barclays.

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Another of Julie’s goals is to find a decent regular savings account she can put her cash into after she has used her ISA allowance for this year. Kidd advises her to approach her bank, NatWest, about its regular saver account.

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Next on the agenda is Julie’s pension planning. “She has missed quite a few years of contributions, but as she’s still only 29, there’s plenty of time to sort this out. But it would be worthwhile to start doing this now,” says Kidd. “While she will no doubt have access to her employer’s pension scheme when she’s fully qualified, there are benefits to having a few other options in place.”

Kidd says paying more into equity-based investments over a long period of time is the best route: “Julie agrees that with her current income she can afford a monthly net contribution of £40.”

Based on her age and the amount of time she has until retirement, Julie is comfortable taking a relatively high degree of risk. Kidd recommends a stakeholder pension from Scottish Widows to give her the best fund in terms of yield and size. He advises including some absolute return funds, commodities, ethical funds, some fixed income and a few global equity funds.

Read Moneywise's guide to keeping your retirement savings on track whatever your age

Life insurance was another of Julie’s concerns. But at this stage in her life (being single, with no dependants), Kidd says life insurance is not a priority. When she takes on a mortgage, he suggests that an income protection policy or critical illness insurance policy will be much more suited to her needs.

“Income protection is vital – we all tend to overestimate our earning potential, and what we would do if we couldn’t work,” explains Kidd.

An income protection plan will pay out a tax-free monthly sum until retirement if Julie were unable to work due to illness or injury.

Critical illness cover is designed to pay out a tax-free lump sum if she were to contract any one of a wide range of specified serious illnesses including certain types of cancer, heart attack or stroke.

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Kidd believes Julie’s goals for the future are very realistic and that she is completely on track to achieve them.

“Adrian was fabulous,” says Julie. “I left the meeting feeling very motivated and confident about the financial choices I had already made, with increased clarity about how to reach my goals.”

Julie’s To–Do List:

Look into government’s 
HomeBuy Direct scheme
Transfer cash ISAs to a
more competitive account
Take out regular saver account
Start contributing to a private pension
Consider income protection
 and critical illness cover

Adrian Kidd is an independent financial adviser at Unleash Advice Partnership in London
Visit or call 020 7193 1097