The Daily Telegraph - Saturday - Money
‘I’ve £53k. Can I buy a house in five years?’
An accountant with a five-year plan asks Amelia Murray for help with his savings
Ismael Delgado, a 26-yearold accountant, has been a savvy saver since he was in his teens. Starting with the €2,000 he received from friends and family in Spain for his First Holy Communion when he was 14, he has built up a pot of £52,569. He wants to maximise this over the next five years to buy his first property with a minimal mortgage.
Almost £9,000 of his portfolio is held in six high-street bank accounts and the rest is invested in 34 funds with varying degrees of risk. While he is in his 20s, he feels he should take the most risk with his money as he only has to take care of himself.
His plan is to buy a two or threebedroom property outside the M25, where many of the major accountancy firms are now located.
He estimates such properties cost between £250,000 and £300,000 but appreciates this could all change in five years.
He is currently single. If he does not have a partner or family when he buys, he will rent out rooms under the Government’s Rent a Room scheme.
Mr Delgado has recently started a new job in Hemel Hempstead and is at the higher end of the basic-rate tax bracket. He anticipates getting further accountancy qualifications in the future, which he thinks could boost his salary to £50,000 in five years.
Mr Delgado saves between £900 and £1,000 a month into stocks and shares and £200 a month into a Help to Buy Isa, and tries to keep at least £7,000 in cash at all times.
Each month he spends £500 on renting a shared house and his outgoings amount to £350.
Mr Delgado pays 6pc of his wages into a company pension via salary sacrifice. His employer contributes 8pc. He has two pensions from previous jobs totalling around £900. provide any assistance for house purchase in five years. However, the pension may well be the most efficient method of long-term saving, particularly as his employer is also contributing.
It may be worth Mr Delgado checking if his employer offers any additional contributions. Mr Delgado wisely splits his spare income between investments for the longer term and savings for the short term, which means he is unlikely to get caught without funds for an emergency.
Five years is a useful time frame to work with and will give him room for manoeuvre. At the moment, the next year or so looks rather uncertain so a longer time frame definitely helps.
It is pleasing to see that he already has a lot of investment funds in his portfolio – perhaps too many as 34 funds can be hard to keep track of. But as this is long-term investment, it is less of a concern.
If he does plan to use these funds in five years, he might want to reduce the risk a little. But if he is keeping this portfolio for the long term after buying a house, this should be less of an issue, assuming he remains flexible about when he buys the house.
The portfolio has delivered an
‘If he invests £1,000 a month he would have £135,800 in five years for a deposit’
average return of 13.4pc a year over the past three years against 4.9pc for the MSCI UK total return index, which is a 100pc equity index.
We would not assume this level of returns in the future as markets are currently volatile.
Were he to continue to invest £1,000 per month into this portfolio at a more cautious 5pc annual growth, after fees, he would accumulate £135,800 in five years, which he could use as a deposit.
Mr Delgado should ensure as much of his portfolio as possible is in an Isa. Any investment income outside of this will be subject to tax, and he will pay capital gains tax at the higher rate when he sells once he is earning £50,000. This is 20pc from 2016-17 if his gains exceed the £11,100 allowance in that year.
His £12,000 a year savings should go into the Isa, in addition to the £2,400 a year he is putting into his Help to Buy Isa.
He should then use any remaining Isa allowance to move money from his non-Isa account into the Isa. This is known as “Bed and Isa” and incurs a stamp duty charge of 1pc of the value transferred if the funds are not sold and then bought again.
He should also consider that his salary sacrifice pension contributions of 6pc will be taken off his income by the mortgage company when they calculate how much he can afford.