The Daily Telegraph - Saturday - Money
‘How do I move from flat to my dream home?’
Property company boss made sacrifices to grow the business, but now wants to upgrade her own abode. By Mattie Brignal
Melissa Lewis, 32, set up her own business five years ago after becoming fed up with being an employee. “I was working as a senior HR officer,” she said. “I hated having a job. I hated working for someone.”
Her company, ML Property Venture, matches potential investors to properties, and has two full- time employees. Becoming a business owner was a step into the unknown.
“My parents didn’t tell me where to go or what to do. I just worked it out myself,” Ms Lewis said.
Despite being “happy and proud” of how far her business has come, she has made sacrifices to get there.
“In a way I’ve missed out on what other people have. I don’t have a partner, I don’t have kids.
“My business is my life, which on one hand feels really sad; but on the other, I really can’t believe I’ve achieved this.”
In 2017, Ms Lewis bought a flat for £138,000 in Purfleet, Essex, using savings she had accumulated since she was 16.
“I feel a bit embarrassed. As a business- owner in the property sector I should be saying, ‘Come over to my mansion, guys.’”
She now wants to move on to the next rung of the property ladder. Her dream home would have a games room with a pool table, foosball table, and arcade games. “I’d like an office with a double screen, a nice living space to entertain and a big kitchen.”
Her more realistic ambition is to buy a three-bed house – or a four-bed, “if I meet someone” – for between £450,000 and £500,000.
She pays herself a salary of between £1,600 and £1,800 a month. But with outgoings of about £1,400 a month, she is struggling to save up quickly enough to make her dream a reality.
She has £ 5,000 in a pension pot from her last job, and £ 3,000 in cash savings, along with about £ 30,000 of student debt. She pays £ 100 a month to service £4,000 of credit card debt, and £553 towards her £111,000 mortgage.
Henrietta Grimston Associate director of financial planning at wealth managers Evelyn Partners
We would recommend that Ms Lewis takes a good look at her overall financial situation. It is admirable and exciting that she owns a growth business and is investing in it by living frugally. We’d encourage her to assess whether now is a good time to take on a significant amount of new debt.
As her total outgoings currently leave her between £200 to £400 leeway a month (assuming the income quoted is post- tax), a big increase in mortgage payments could be a challenge. Even if it was affordable at current levels, it would leave little headroom for any change in living costs or interest rates.
First, we would recommend paying down her credit card debt as swiftly as possible, and making sure she is on the lowest interest rate she can find, which might mean switching to a 0pc balance transfer card. It sounds like her income is not at a level where she is being asked to repay her student loan, and it is probably best to keep it that way, and begin repayments when they are asked for.
Second, it’s good that Ms Lewis has a couple of months’ outgoings in savings, but ideally she should work towards having a minimum of six months’ worth, plus money to cover any known upcoming costs. As savings account interest rates are quite favourable, and inflation is coming down, having a decent cash savings buffer makes sense.
Third, ideally Ms Lewis would resume saving into a pension, even if she can only pay in a small amount each month. These contributions could be made from the business and is a tax-efficient way to pass on profits to directors. Depending on the conditions around her legacy £5,000 workplace pot, she may be able to contribute to that plan, or it may be sensible to start a new plan.
Finally, with regard to her business and how she pays herself, we’d recommend that Ms Lewis makes sure she is doing so in the most tax- efficient way. This might mean using a combination of dividends and salary, in order to use both personal allowances – that for income tax and that for dividends.
Karen Noye Mortgage expert at Quilter
Ms Lewis is aiming to move up the property ladder. She currently draws a modest salary of £1,600 to £1,800 a month from her successful property matching business, living with expenses of about £1,400 monthly. Despite her business success, her personal take-home pay is relatively low, although this a common scenario for self- employed individuals prioritising business growth over personal income, and may also top- up income with dividends.
Ms Lewis aims to buy a house priced between £450,000 to £500,000. Her current salary might not support the mortgage she would need to obtain that. However, for entrepreneurs like Ms Lewis, some lenders consider retained profits in the business when assessing loan affordability. This is a relatively niche part of the market and it would be best if she seeks help from a mortgage adviser that specialises in self-employed applications to maximise how much she can borrow.
This is because her finances are tight, with only £3,000 in savings, alongside £30,000 of student debt and £4,000 on credit cards. These factors will be considered in her mortgage application, affecting her borrowing potential.
The key to Ms Lewis’s property ambitions might lie in the equity of her current flat, purchased for £138,000 in 2017 with £111,000 remaining on the mortgage. If the flat’s value has increased, the equity could serve as a deposit for her next house. Selling the flat, converting all the equity into a deposit for her new home, plus covering the moving costs and fees, could offer a simple solution if all the figures add up.
Another consideration, if feasible, is a let-to-buy, which is a strategy where a homeowner rents out their current property and uses the equity in the existing property to support a mortgage application and deposit requirements for a new home. This allows the homeowner to keep their existing property as an investment while moving into a different property.
If she opts for a let-to-buy scheme, she must ensure sufficient equity remains in the flat, bearing in mind the higher costs, such as additional stamp duty.
Regarding retirement and protection, it’s crucial for Ms Lewis, especially as a self-employed individual, to bolster her pension contributions and ensure that she has adequate financial protection in place.
At 32, she still has plenty of time to save for retirement, but because of the magic of compounding, starting now will give her the best chance of achieving the retirement that she aspires to.