‘I’m 27. Can I buy a flat in Lon­don by 30?’

The Daily Telegraph - Your Money - - FRONT PAGE -

Tom Bloom is sin­gle, self-em­ployed and trav­els of­ten. Can he get a foot on the prop­erty lad­der? By Harry Bren­nan

In­flated house prices and ex­or­bi­tant rents in Lon­don have led to scores of younger peo­ple be­ing priced out of the cap­i­tal. For many, get­ting a foot on the hous­ing lad­der seems an in­sur­mount­able task. Tom Bloom, a 27-year-old dig­i­tal de­signer, has set him­self the chal­lenge of buy­ing a one-bed­room flat in Lon­don by the time he turns 30. He is sav­ing for a de­posit by putting away around £1,000 a month. He aims to have £20,000 by the end of this year and more than £30,000 by the end of 2019.

How­ever, Mr Bloom is un­sure if he is sav­ing enough or if he will qual­ify for a mort­gage at all.

“I am a young pro­fes­sional in Lon­don and for the first time in my life I have found my­self debt-free, apart from my stu­dent loan, and ac­tu­ally able to save some­thing,” he said. “Un­for­tu­nately my par­ents are un­able to sup­port me fi­nan­cially or put any­thing to­wards my first home, as a lot of my friends’ par­ents have.

“Also, I am sin­gle so I’m sav­ing on my own, whereas a lot of my friends have been able to buy a place with their part­ners.”

Mr Bloom started to work free­lance this year and es­ti­mated that his an­nual net salary would range from £40,000 to £45,000. He is un­sure whether be­ing self-em­ployed will hurt his mort­gage ap­pli­ca­tion.

As he will have to travel for some of his work, Mr Bloom said he would like to rent out his fu­ture prop­erty from time to time. He won­dered whether this would make him in­el­i­gi­ble for the Help to Buy scheme.

The bulk of his sav­ings are held in a Life­time Isa (Lisa) via Nut­meg, an app-based “robo” (com­put­erised) ad­viser. He makes the max­i­mum £4,000 an­nual con­tri­bu­tion to take ad­van­tage of the 25pc govern­ment bonus, giv­ing him an ex­tra £1,000 a year.

Mr Bloom has some pen­sion sav­ings, also on Nut­meg, and some ad­di­tional money in­vested in a stocks and share Isa on Money­box, an­other in­vest­ment app.

“I like the robo ad­vis­ers and pre­made port­fo­lios be­cause I can just put my money there and don’t have to worry about it too much. I am cau­tious about how and where I save my money and try to have a few dif­fer­ent pots, but within those I am happy to in­vest at a higher risk level over a longer pe­riod,” he said.

“A few of my friends do their own in­vest­ing and it’s some­thing I would like to learn more about.” Mr Bloom is clearly al­ready switched on in terms of his sav­ings, and max­imis­ing the govern­ment bonus on his Lisa will help to boost his funds for a de­posit. How­ever, if he is plan­ning to buy a prop­erty by the time he is 30 he will need ac­cess to his money within around two years and should con­sider mov­ing all his cur­rent in­vest­ments into cash or a short du­ra­tion fixedterm bond ac­count to avoid the risk of any fall in the fi­nan­cial mar­kets.

Mort­gage op­tions for free­lance con­trac­tors have im­proved over the past few years and, al­though some lenders would treat Mr Bloom as self­em­ployed, an in­creas­ing num­ber have spe­cial schemes in place. To qual­ify for th­ese types of mort­gage, ap­pli­cants are re­quired to have a con­sis­tent track record of at least a year of con­tract­ing and a cur­rent con­tract with at least six months re­main­ing.

By the time he has saved enough for a de­posit, Mr Bloom should be able to meet th­ese cri­te­ria, but his cur­rent in­ten­tion of trav­el­ling for large chunks of the year is likely to com­pro­mise his mort­gage op­tions. From a mort­gage per­spec­tive it would be help­ful if he lim­ited his trav­el­ling to no more than six weeks a year while he is sav­ing up for his de­posit.

Lon­don house prices are very high and Mr Bloom may strug­gle to buy on his own. He could qual­ify for a 5pc-de­posit mort­gage, but will have to fac­tor in legal ex­penses and 5pc stamp duty on the slice of the price be­tween £300,000 and £500,000, as he’s a first-time buyer. For ex­am­ple, he could buy a £400,000 prop­erty with a de­posit of £20,000, leav­ing him with some sav­ings to spare. How­ever, I es­ti­mate that he would need to be earn­ing around £84,000 a Would you like a Money Makeover? If you’d like to (as much de­tail be con­sid­ered, as pos­si­ble please email please), de­tails money@ of any debts tele­graph.co.uk (in­clud­ing with the mort­gages) header “Give and how you me a Money would de­scribe Makeover”, your at­ti­tude pro­vid­ing to in­vest­ment the fol­low­ing risk. in­for­ma­tion:

Your name, age and tele­phone num­ber (we will not share this with any­one).

Your main fi­nan­cial goals

Your cur­rent in­vest­ments, in­clud­ing cash and prop­erty.

You must be will­ing to be pho­tographed for the article. year to qual­ify for a £380,000 loan.

The Help to Buy scheme would in­crease his op­tions, al­low­ing him to bor­row 40pc of the pur­chase price on an “eq­uity share” ba­sis with no in­ter­est to pay for the first five years, mas­sively re­duc­ing costs. How­ever, bor­row­ers who use the scheme are not al­lowed to rent out their prop­erty, so Mr Bloom would have to re­think his work­ing ar­range­ments. There is no doubt that Mr Bloom’s gen­er­a­tion is chal­lenged when it come to buy­ing a first home – the av­er­age price of a one-bed­room prop­erty in Lon­don is now £472,000. By the time he is 30 this could have risen in line with cur­rent mar­ket growth to £546,000.

While Mr Bloom is sav­ing ag­gres­sively, he may strug­gle to build up a large enough de­posit for a de­sir­able prop­erty in the time frame he wants. While he does not cur­rently have a part­ner, I won­der if he would con­sider buy­ing with a friend in a sim­i­lar po­si­tion.

He also needs to be aware that not all lenders will al­low him to rent out the prop­erty and those that do will al­low it only for a lim­ited amount of time – prob­a­bly a max­i­mum of three months a year. If he is in­tent on let­ting the prop­erty he will also need to in­form his in­sur­ers, as rent­ing out a prop­erty will prob­a­bly af­fect the pre­mium and may re­quire a spe­cial­ist pol­icy.

While buy­ing a prop­erty is his main goal, it is en­cour­ag­ing that Mr Bloom is think­ing about grow­ing his wealth over the long term.

He could ben­e­fit from en­gag­ing more with his in­vest­ments and pen­sion ar­range­ments. I sus­pect the pre-made port­fo­lios he in­vests in are made up of “multi-as­set” funds, with a mix of as­set types that may not be best suited to his needs.

He needs to think care­fully about choos­ing his funds. For his pen­sion I would rec­om­mend that he take on a higher level of in­vest­ment risk as he is a long way from tak­ing his re­tire­ment ben­e­fits.

From my ex­pe­ri­ence, peo­ple who do not en­gage with their in­vest­ments are of­ten dis­ap­pointed with their re­turns. I sug­gest he re­views his Isa and pen­sion at least yearly.

‘My par­ents can’t help me fi­nan­cially. And I’m sin­gle, so I’m sav­ing on my own’

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