Dt: Career-Focused 22 Year-Old Saves £2,000 A Month And Is Desperate To Buy In London. Can She?

[Fairyland]

Career-focused 22 year-old saves £2,000 a month and is desperate to buy in London. Can she?

By James Connington

8:03AM GMT 08 Jan 2016

112 Comments

Compared to the average 22 year old graduate, Jessica Manning – an engineering masters graduate from the University of Cambridge – is in a seriously strong financial position.

Her graduate job in management consultancy pays over 50pc more than a typical graduate starting salary, and as she lives at home with her parents for free, she is able to save around £2,000 monthly.

Her ability to save is enhanced by substantial periods of overseas work during which all of her travel, accommodation and food costs are covered.

Currently Jessica has just under £30,000 saved toward a deposit.

She will also receive £5,000 from one of her grandparents toward stamp duty and fees.

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Despite the strong position she is in for her age, buying in the areas she likes poses a challenge. She is targeting a one-bedroom flat in the Stockwell or Clapham areas of London, due to proximity to work and friends.

In a bid to take her financial security to the next level, Jessica plans to become a buy to let landlord in her mid to late twenties by purchasing a second property after a few years in order to rent out the first.

In her words, Jessica is “aggressively” going after a property and ideally hopes to buy within the next six months, before house prices “get so far out of my price range that I am forced to rent for the rest of my life.”

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She acknowledges that she has to be realistic with what she can afford, but is set on buying in a desirable area.

She said: “I know I have to compromise – I don’t mind living somewhere really small."

Her parents earn good salaries but don’t have spare cash to hand. Instead, they are willing to act as guarantors or to buy with her to increase her mortgage potential.

An alternative option Jessica is considering is to buy a two-bed property in the same areas with a friend, who has a similar deposit amount saved but a lower salary.

"Her greatest challenge is her low salary for the areas she wants to buy in."

Andrew Boast

She is avoiding Help to Buy schemes, as the equity loan type applies only to newly-built properties, which she does not want. And with a sufficiently large deposit she does not require a mortgage guarantee-type scheme, either.

Jessica's savings are currently spread across various Lloyds accounts and Isas, including a Halifax Help to Buy Isa, and are mostly earning a good rate of interest.

She also contributes 5pc of her salary to a workplace pension, which is matched by 6pc from her employer.

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Andrew Boast MAAT, co-founder of Share a Mortgage, said:

Jessica is doing really well. Her greatest challenge is her "low" salary relative to the areas she wants to buy in. But she can do it by sharing.

Jessica has decided she doesn't want to use Government Help to Buy schemes and so she needs to secure a minimum 10pc deposit.

At present, a one-bed flat in the areas she’d like to live in sells for around £300,000 (£30,000 deposit) and upwards; and a two-bed flat sells for around £400,000 (£40,000 deposit) and upwards.

Based on her salary multiples, her buying power alone is estimated at just over £220,000, almost £80,000 short of the sum she is going to need.

It is very apparent that although Jessica has a 10pc deposit she doesn’t have a large enough salary to make up the difference by herself.

The simplest way for Jessica to buy would be to jointly purchase a property with her parents. As they have good salaries, they'll be able to add their annual incomes to Jessica's salary to increase their joint mortgage potential.

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The challenges to be aware of are that mortgage lenders provide shorter length mortgages when the applicants are older.

Jessica and her parents would be well advised to draw up a legal agreement such as Shared Ownership Protection to protect their separate interests if they choose to jointly own.

Alternatively, Jessica states that her parents, although they don’t have spare cash, are prepared to be guarantors to help her access a larger mortgage.

They would normally need to own at least a 25pc equity share in their own property to do this. She would need to get a mortgage for around £260,000 which is more than her mortgage multiples allow, however her parents would guarantee the difference with the mortgage lender.

This can work as long as Jessica keeps up her mortgage repayments. If she defaulted, and her parents were unable to find the ready money themselves, they may need to re-mortgage their own property or at worst, face repossession.

"It is very apparent that although Jessica has a 10pc deposit she doesn’t have a large enough salary to make up the difference by herself."

Andrew Boast

Another great option is to share purchasing a property with someone else. By joining forces, Jessica and her friend increase their salary multiples and both benefit from each other’s deposit funds.

Their total deposit savings are around £60,000 but her friend has a lower salary.

Even if they just used £50,000 of their deposit (they’ll need the £10,000 for fees and costs), they will still require a £350,000 mortgage. Using a four and a half times mortgage multiple, their joint salary will need to be at least £78,000.

Jessica is right to take the view that financial investments at present are unlikely to be as cost effective as buying a property.

She should however look at potentially lucrative areas to buy near Clapham and Stockwell, where prices are cheaper but increasing at equally fast rates. For example, prices in neighbouring Brixton increased by 12pc last year.

Buying in a more affordable area and not overstretching allow you to save or have a cushion for unexpected events: boiler repairs can be costly!

It is great to see Jessica planning her route to becoming a buy-to-let landlord in the future while buying a second property and with diligent financial planning she may see this happen.

The Government, however, is bringing in hurdles to curb private landlords, increasing the stamp duty payable on second home purchases from April 1st. Jessica will also need a minimum 25pc equity in her rental property to qualify for a buy to let mortgage.

• Go to Share a Mortgage here

Jonothan McColgan, director at Combined Financial Strategies, said:

If you do look at buying a property now it looks like you will be unlikely to do so without either your friend or parents' involvement, in which case you need to protect yourself (and them) legally and financially.

The two main types of protection important in your scenario would be mortgage protection and income protection.

Mortgage protection is basically life assurance taken out for the same value as your mortgage. It lasts the same term and reduces at a similar rate annually as you repay the mortgage.

As a 22 year old you may think that life assurance is not necessary, but most 22 year olds will not have debts of £100,000 or more that will need to be repaid on their death.

If your parents are guarantors or you take out a joint mortgage then the debt would fall on them should anything happen to you, and it is not always as straightforward as just selling the property.

If you bought a flat with parents as guarantors and a mortgage of £264,000, mortgage protection would cost less than £10 per month, or £15 per month if you bought with a friend with a £350,000 mortgage.

Buying in Brixton is more affordable and potentially lucrative Photo: Getty News

Make sure that you both have a policy (or a joint policy) and name each other as the beneficiaries of the plan.

It is also important that you think about ensuring that you can afford to live if you are unable to work through ill health or injury.

I know that when we mentioned this you were worried that “income protection” sounded like a scam but all it does is provide an income stream should an accident or illness stop you from working.

On your current earnings you could get cover that would pay out £2,000pm net to the age of 67 (your state retirement age) that increases by inflation annually.

When this policy pays out has a massive bearing on cost. If you have six months savings and can afford to defer this type of policy for the full six months it might only cost you £25 monthly or £40 monthly for a policy with a one month deferral period.

I know that you are concerned about getting on the property ladder whilst you can but it is important to realise that just like any other asset or investment, property will have bad times when values can fall quickly.

"You could invest your deposit and regular savings over the next five years to help build a much larger deposit with which to attack the property market."

Jonothan McColgan

Also, by jumping on the property ladder at this early stage in your career you may prematurely bind yourself to a location. You have mentioned that you travel a lot with work, so you may find that your future career prospects are global rather than local.

A property in London owned with a friend may be difficult to get your money out of when you need to.

You could invest your deposit and regular savings over the next five years to help build a much larger deposit with which to attack the property market.

Now, five years at home might just be pushing your parent’s generosity a little far but you could rent a one bedroom flat in Clapham for about £1,000pm including bills.

This would allow you to try out living in the area and to save an additional £1,000pm to invest along with your existing saved deposit.

Assuming annual investment growth of 5pc after fees and the effect of inflation over five years you could have a deposit of approximately £106,000.

Of course all investments carry risk. You may end up with a smaller deposit than you hoped for, or need to wait a little longer for investments to go back up.

Edited January 8, 2016 by Fairyland

[Guest]

No she can't. And after 5 years of saving prices in 'cheaper' Clapham or Stockwell will probably have risen more than she can possibly save, anyway. That's what's happened over the last five years.

These financial advisers are both delusional and greedy. Income protection certainly is a scam. And someone who can save 2k a month shouldn't need a guarantor.

[Fairyland]

If banks are lending her £220K then her salary must be close to £50K. If an Engineering masters degree holder, £50K earner, 30K deposit holder can't afford to buy in London then who can??? Who is buying???

[Sawitcoming]

She seems smug enough to qualify for BTL. I sincerely hope she get what she wants deserves.

[Guest]

I missed the bit where she's aiming to become a landlord before the age of 30. Now I'm not so sympathetic.

What a ridiculous situation. Catch the property boat and become one of the new landed class, complete with serfs. Or miss it and rent forever.

Jessica is a few years too young. The boat has sailed. Will she continue to support the system that has impoverished her generation?

[pl1]

So what about all those poor mugs who can't live with their parents or whose parents live in the middle of nowhere?

Even in this best of cases scenarios, she's still pretty screwed. Just thirty years ago a blue collar worker in London would have been better off.

[Sawitcoming]

Even in this best of cases scenarios, she's still pretty screwed. Just thirty years ago a blue collar worker in London would have been better off.

My mum was a waitress in an hotel. She could afford a very nice 5 bed victorian stone semi at 30 in the 1980s. Im a senior professional bod and I am envious of social housing tenants.

I think we've been had.

[dances with sheeple]

If banks are lending her £220K then her salary must be close to £50K. If an Engineering masters degree holder, £50K earner, 30K deposit holder can't afford to buy in London then who can??? Who is buying???

Isn`t it more a case of Who isn`t selling and thus the asking price indexes look healthy? Zero rates have protected many who over-stretched....so far.

[mattyboy1973]

If banks are lending her £220K then her salary must be close to £50K. If an Engineering masters degree holder, £50K earner, 30K deposit holder can't afford to buy in London then who can??? Who is buying???

That's the nub of it. And she's trying to buy a one bedder in Stockwell, FFS! How much longer can this possibly go on?

My mum was a waitress in an hotel. She could afford a very nice 5 bed victorian stone semi at 30 in the 1980s. Im a senior professional bod and I am envious of social housing tenants.

I think we've been had.

We have.

[EssKay]

So what about all those poor mugs who can't live with their parents or whose parents live in the middle of nowhere?

Even in this best of cases scenarios, she's still pretty screwed. Just thirty years ago a blue collar worker in London would have been better off.

A 22 year old blue collar worker in London could afford to buy 30 years ago? I doubt it..

Jessica really needs to live a little and not be so hung up on buying straight away. Like others have pointed out, at that age she doesn't know where her career might take her

I think the giveaway to her real motivation though is "wants a BTL a few years down the line". Clearly Jessica has been brought up in the church of forever HPI and just wants to get on the bandwagon as soon as she can

[The Knimbies who say No]

Some consultant, not even aware of the impending tax relief reduction which will torpedo her BTL ambitions from the off.

Insight worth paying for, eh?

[mattyboy1973]

A 22 year old blue collar worker in London could afford to buy 30 years ago? I doubt it..

Yes, most certainly - 20 years ago at least. A lot of my friends from school were doing just that whilst I wasted my time at university.

Someone in her position could have bought a 2/3 bedder in a "nice" part of town, or even a house somewhere less grotty than Stockwell.

Edited January 8, 2016 by mattyboy1973

[justthisbloke]

Now, five years at home might just be pushing your parent’s generosity a little far

It shouldn't be. And guaranteeing a massive mortgage would be a damn sight more generous.

My sprog's living at home and saving. Not a graduate and no 50% above average salary but still putting aside over £1k a month (after chipping in to household costs[1]). Welcome to stay as long as necessary / wanted.

[1] £200 a month. Not necessary for us but hopefully will avoid development of freeloading mentality - and can always be regarded as enforced saving as she'll get it back one day.

[Motor_Blade]

Buying now for her in the way she seems to want to would be crazy - and its that sort of craziness that fuels HPI. Why are some people so desperate to tie themselves into the rat race so they can "own" a hopelessly overpriced property? Based on that savings rate she could buy somewhere in a cheap area outright and have a decent amount of cash leftover, so instead of working all the hours God sends to pay the mortgage she could actually do something a bit more interesting.....

[dances with sheeple]

Some consultant, not even aware of the impending tax relief reduction which will torpedo her BTL ambitions from the off.

Insight worth paying for, eh?

Made up article in my opinion. People click/read property articles that`s all, any thought or analysis tends to blow these sorts of puff pieces to bits. Saving 2k a month and got free digs, PLUS a job/qualification that seems to be in demand? Anyone spoiling that by taking on a massive mortgage to live in massively over-priced property is indeed an utter diddy IMO. Save, invest, see the world, have quality time with your parents, come in for cash when it all goes South, but don`t join the Ponzi at this late collapse imminent stage FFS.

[Si1]

Buying now for her in the way she seems to want to would be crazy - and its that sort of craziness that fuels HPI. Why are some people so desperate to tie themselves into the rat race so they can "own" a hopelessly overpriced property? Based on that savings rate she could buy somewhere in a cheap area outright and have a decent amount of cash leftover, so instead of working all the hours God sends to pay the mortgage she could actually do something a bit more interesting.....

Plus her parents appear to be planning on acting as mortgage guarantors, so not only could she lose everything, so could her parents! Spectacular.

[The Spaniard]

Does a Cambridge degree still automatically morph into a masters (MA Cantab.) after a year or two?

What class of batchelor's degree did Jessica receive from Cambridge?

For lucrative jobs in the City, where is she in the pecking order of her graduation year?

[Stateless]

The biggest fool. Buys last

[Si1]

The biggest fool. Buys last

With her parents as guarantors

[the_duke_of_hazzard]

My mum was a waitress in an hotel. She could afford a very nice 5 bed victorian stone semi at 30 in the 1980s.

I'm saying nothing.

[SillyBilly]

Sympathy extended to as far as the bit out about her wanting to be a landlord. I can't understand the mentality of these people. We have a national obsession developing where the pinnacle in life is buying a property to mug another one of your countrymen off with. Its disgusting. I long for the day where a hard day's work once again becomes the road to riches. Seems like a fantasy land at the moment (and how odd it is to say that).

[MARTINX9]

Two bed flat with Garden in Chadwell Heath for £150k. Bus service direct to two Crossrail stations and a zone 4 central line station and close to a forest and green belt. And Boris is still in charge.

http://www.rightmove.co.uk/property-for-sale/property-37928433.html?premiumA=true

Of course she can afford to buy in London - just not in Clapham. She just needs to lower her expectations.

Yes it's a bit of a dump but then so is Stockwell.

Edited January 8, 2016 by MARTINX9

[Motor_Blade]

Two bed flat with Garden in Chadwell Heath for £150k. Bus service direct to two Crossrail stations and a zone 4 central line station and close to a forest and green belt. And Boris is still in charge.

http://www.rightmove.co.uk/property-for-sale/property-37928433.html?premiumA=true

Of course she can afford to buy in London - just not in Clapham. She just needs to lower her expectations.

Yes it's a bit of a dump but then so is Stockwell.

I get the impression she's not interested in lowering her expectations - as seems to be the case with a lot of the younger generation.

[Guest]

I get the impression she's not interested in lowering her expectations - as seems to be the case with a lot of the younger generation.

Why should she? A member of the previous generation in her position wouldn't have bought in Chadwell Heath. They would have easily bought a flat in Stockwell.

She's a professional earning a good deal more than the average wage. If even she's struggling, how far will less wealthy members of her cohort have to lower their expectations? Should I expect my niece and nephew to settle for a converted garage? A cardboard box?

The correct response to crashing living standards is not to 'lower your expectations' but to protest the injustice. Or are we all to be homeless while smug, privileged homeowners tut about how it's all our own fault for arranging to be born too late?

[mattyboy1973]

Of course she can afford to buy in London - just not in Clapham. She just needs to lower her expectations.

Stockwell is a total crap hole, or at least it was the last time I was there. The idea that a young professional on well above the average wage should lower her expectations from a one-bedder there is frankly the sort of crap that the boomers come out with. Really? Save 2 grand a month for five years, sign up to a mortgage that will take half her wages for most of the rest of her working life, and lower her expectations from a one-bedder in Stockwell? I really do despair.