Having recently split from his long-term girlfriend, Arron Ling, 26, is
adjusting to being on his own again - and getting to grips with exactly how
the change will affect him, both personally and financially.
One of the biggest changes for Arron has been his living arrangements, having
taken the decision to buy his girlfriend's share of their two-bedroom
bungalow in the village of Wenhaston, near Norwich.
“We bought our home three years ago and took out a joint mortgage,” he says.
“This meant that there was a bit of financial upheaval after we
separated at the end of last year, as we agreed that I would go on living
there and take on the mortgage on my own.”
Last month, Arron switched the home loan from GE Money to Norwich &
Peterborough (N&P) Building Society, to enable him to borrow extra money
to give a lump sum to his ex-girlfriend. He has taken out a three-year
fixed-rate deal with N&P at 5.59 per cent. This is a repayment mortgage
and there are no tie-ins at the end of the three-year period. Arron says:
“My monthly payments have risen from £650 to £724. It's a bit of a jump, but
still affordable. The property is now worth about £150,000 and there is
about £102,000 left on the mortgage.”
Arron also had to raid his savings accounts to pool enough money to buy out
his girlfriend. “I had money put by in Premium Bonds and other savings
accounts,” he says, “but I have taken it all out so I could afford to take
on the mortgage on my own.” His remaining savings are £6,000 in a
stakeholder cash Isa with N&P, paying 4.85 per cent.
Apart from these changes, Arron has also been through some big changes at
work, going from being self-employed to an employee. He explains: “I work as
a 'rope access technician', which means abseiling down big buildings to
build, restore or repair them.”
He has worked on the Eden Project, in Cornwall, and at the Natural History
Museum, in London, and his job has also taken him around the world: “I spent
six months in Saudi Arabia and three months in the US, plus a lot of time in
Europe.”
After five years of self-employment, Arron was taken on as an employee about
nine months ago on a salary of £38,000, although this is up for review. And
now that he has an employer, he is keen to start retirement planning,
saying: “As I have been self-employed, I have not really thought about
starting a pension, but now I'm up for a new contract I will going to focus
on this.”
At the same time, Arron is in the fortunate position of having no debts. “I do
have a credit card, but I pay this off in full each month,” he says.
While he has no dependants, he pays £40 a month for a life insurance and
critical-illness policy with Legal & General, arranged by N&P when
he took out his mortgage.
Arron admits that he has not paid much attention to his finances in the past,
but he is now keen to do things differently. “Having been through some big
changes in the past few months, my aim is to get more savings together,” he
says. In the longer term he would like to upgrade his house. “But I think
that's still a few years away,” he adds.
Arron Ling: what the experts say
MORTGAGES
Nick Parkhouse, Savills Private Finance
“Arron has made a good choice of mortgage. The 5.59 per cent rate is
competitive in the current market and a three-year fix was prudent because,
being solely responsible for his mortgage repayments, he has the security of
knowing what his monthly outgoings will be.
“He also mentions that he may wish to upgrade the house in future. If he
decides to do this within the existing fixed-rate period, he could consider
a ‘home improvement loan' with his mortgage lender. It is important when
considering additional borrowing on a mortgage to choose the interest rate
carefully and to ensure any ‘early repayment charge' period does not extend
beyond the date of any existing product. This ensures that Arron retains the
option of reviewing his mortgage when his fixed rate ends.
“While Arron is comfortable with his mortgage repayments, if his home remains
unoccupied for long periods while his work takes him all over the world, he
might wish to consider letting his spare room under the Rent a Room scheme.
This allows homeowners to receive up to £4,250 a year in tax-free rental
income and could provide Arron with a monthly contribution towards his
mortgage repayments.”
Action plan
Sit tight with current mortgage until fixed-rate period ends.
Work out the best way of paying for home improvements.
Consider renting out a room to boost income.
SAVINGS & INVESTMENTS
Philippa Gee, Torquil Clark
“Arron has managed his debts well, but he needs to give his assets much more
attention. Clearly, he has been through a tough time, yet this is an ideal
opportunity to look forward.
“First, as his current Isa deal is not competitive, he should consider
switching. Alliance & Leicester is paying 6.25 per cent on its Direct
Isa Issue 4, although this includes a
1 per cent bonus until May next year, so he should switch again when this
ends. Elsewhere, Nationwide Building Society is paying 6.15 per cent on its
one-year fixed-rate bond Isa.
“Arron then needs to commit additional amounts to his savings. He could set up
a monthly payment, say £100, to a cash account such as the Principality
Building Society Monthly Saver, which currently pays 6 per cent. For the
longer term I would suggest investing in an equity Isa, using a global
managed fund such as Jupiter Global Managed or Artemis Global Growth. To
give his savings a strong foundation, he should also look at a more cautious
fund, such
as JPM Cautious Total Return and CF Midas Balanced Income.
“I would suggest that he puts £175 a month into the volatile global fund and
£75 into the lower-risk fund. It is also worth noting that the flexible
nature of an Isa means that payments can be stopped and started if his
circumstances change.”
Action plan
Switch to better Isa deal.
Start regular savings.
Consider an equity Isa for longer-term saving.
PENSION & FINANCIAL PLANNING
Jason Witcombe, Evolve Financial Planning
“It is well worth Arron checking details of his employer's pension scheme.
Many pay in a percentage of salary as standard and some also match
employees' payments, up to
5 per cent or 10 per cent of salary. This is a fantastic benefit, as it
basically equates to free money.
“Any pension contributions that Arron makes will attract tax relief. His
earnings are currently just below the higher-rate tax threshold, but as his
salary is up for review, I would recommend that he delays making any
additional pension contributions until he is a higher-rate taxpayer and can
obtain 40 per cent income tax relief. In the meantime, he could put excess
income towards overpaying the mortgage.
“As Arron is single with no children, the main financial risk that he faces is
being unable to work for a protracted period through illness or disability.
This is where an income protection or a critical-illness policy can help.
Many employers offer income protection of up to 75 per cent of salary, so
Arron should check this before looking at personal cover. Because of the
hazardous nature of his job, insurers are unlikely to cover him on standard
rates, but many employer-sponsored schemes do not require individual
underwriting. Many employers also offer death-in-service life assurance
cover of four times salary.
“Although critical-illness cover is important, I would question whether Arron
needs life assurance now that he has split from his girlfriend and has no
dependants. It may be a condition of his mortgage, but I doubt it.”
Action plan
Check the details of employer's pension scheme.
Review his protection policies to check that they are all required.
Arron's response
“The advice from the experts has helped to confirm that I need to think
more about saving for the short and longer term.
“I have not been too interested in saving and investing in the past, but I am
definitely going to start looking at some of the recommendations on where I
should be putting my money and how much I should be trying to put away each
month. I do like the idea of investing in a mix of cash and equities.
“The pensions advice was also really useful, as I am very aware that I have
nothing in place at the moment. I hope that this will spur me on to take
action.
“I am also pleased to hear that I made the right decision about the type of
mortgage that I chose when I bought out my girlfriend, and I'm also happy to
have it confirmed that I obtained a good rate.”
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