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