‘Should we buy a house or start a busi­ness?’

The Daily Telegraph - Your Money - - MONEY MAKEOVER -

This cou­ple want se­cu­rity – but how can they achieve it? Olivia Rudgard re­ports

Mar­ried cou­ple Veron­ica Ochoa and Jamie Wat­son have some big de­ci­sions to make. In their early 30s, both are high earn­ers, al­though Ms Ochoa is tem­po­rar­ily out of work. They want the fi­nan­cial se­cu­rity that comes from own­ing ei­ther a home or their own busi­ness.

The cou­ple, aged 32 and 33, live in Lon­don. Both are engi­neers. Mr Wat­son is a higher-rate tax­payer, and when in work Ms Ochoa has tended to earn only slightly less than her hus­band. She is go­ing for in­ter­views and hopes to be back in work within a month.

They are try­ing to de­cide whether to buy a flat in Lon­don or es­tab­lish a small busi­ness, such as a restau­rant or café, to give them the se­cu­rity of ex­tra in­come when one or both of them is be­tween jobs.

“We don’t know if we should first fo­cus on buy­ing a flat or a busi­ness,” said Ms Ochoa. “If we buy a flat we’re not go­ing to be mak­ing any money on it. But if we start the busi­ness we’ll be pay­ing two rents.”

They think they have the funds to do one or the other, but not both. They cur­rently rent a one-bed­room flat in King’s Cross for £1,170 a month and own no prop­erty.

Ms Ochoa’s sav­ings and in­vest­ments in­clude £9,000 in a San­tander 123 cur­rent ac­count and £23,300 in a stocks and shares Isa with NatWest, into which she pays £300 per month. The money is in­vested in a fund with a mix­ture of Bri­tish, Euro­pean and Amer­i­can shares. Her pen­sion from her first job, which is held in a Scot­tish Wid­ows fund, is val­ued at £8,400. She also has a very small pen­sion from her sec­ond job, worth around £500.

Mr Wat­son’s to­tal sav­ings of £44,500 are split be­tween a cash Isa, San­tander 123 cur­rent ac­count and other sav­ings ac­counts. His pen­sion pot is worth £20,000. Ms Ochoa and Mr Wat­son’s cash sav­ings are earn­ing de­cent in­ter­est via the San­tander 123 ac­count. They can each have a 123 ac­count and also a joint one. This would shel­ter all of their cash sav­ings.

They should also look at Help to Buy Isas if they are look­ing to buy a prop­erty worth up to £450,000. Hal­i­fax of­fers an at­trac­tive one that pays 2.5pc in­ter­est plus the 25pc bonus from the Gov­ern­ment.

There are few busi­nesses that can be run “on the side” while you hold down a main job, and a restau­rant or café is def­i­nitely not one of these.

Restau­rants and cafés are cap­i­tal in­ten­sive – you need to spend on prop­erty and staff – and many fail each year. It’s not some­thing to go into with­out a de­tailed busi­ness plan and risk assess­ment.

Given the as­sets they have, my ad­vice would be not to risk it on a busi­ness they have no ex­pe­ri­ence of and which would be dif­fi­cult to com­bine with their main jobs.

In­stead, they should look to buy a flat. They can com­mit £70,000 towards this and would be able to bor­row a fur­ther £200,000 to £250,000 based on Mr Wat­son’s earn­ings, and prob­a­bly up to £400,000 on joint in­come. They need to fac­tor in other costs of £7,000£12,000, de­pend­ing on the price.

This gives them a bud­get of

‘Restau­rants and cafés are cap­i­tal in­ten­sive and many fail each year’

£300,000 to £450,000. A mort­gage of £300,000 over 30 years at 1.5pc would cost £1,050 a month and at £450,000 would cost £1,560 a month.

If they do com­mit to buy­ing a prop­erty, Ms Ochoa should with­draw the money ac­cu­mu­lated in her stocks and share Isas now, al­though she could con­tinue with her monthly con­tri­bu­tions. If she is com­fort­able with man­ag­ing the in­vest­ments her­self I would look to move away from NatWest to an in­vest­ment “plat­form” such as AJ Bell.

For fu­ture con­tri­bu­tions a pas­sive fund that tracks ei­ther the UK or global stock mar­kets, such as the Le­gal & Gen­eral FTSE All Share fund or the L&G In­ter­na­tional fund, might not be a bad op­tion.

If she does not want to self-man­age she can use an on­line in­vest­ment ser­vice such as Nut­meg, which pro­vides ac­cess to a num­ber of port­fo­lios tai­lored to the investor’s risk tol­er­ance.

In terms of pen­sions, Ms Ochoa’s Scot­tish Wid­ows fund has had only av­er­age per­for­mance over the past few years, so she could prob­a­bly do bet­ter.

Again, she could man­age the pen­sion her­self, us­ing providers such as AJ Bell or Al­liance Trust.

Given her age, I would choose a pas­sive global stock mar­ket fund; the Van­guard LifeS­trat­egy 100pc Eq­uity fund is not a bad op­tion.

Veron­ica Ochoa and Jamie Wat­son could af­ford a £450,000 prop­erty

Off the prop­erty lad­der Gareth Gates

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