Wealth Check: A drive to find the best road ahead

His classic MG is precious to him but he really wants to know how to use his steady income to buy a house with his girlfriend - and to get another car

Edward Douglas's pride and joy is a 1975 MGB GT V8 sports car, which he bought from his father last year. Fortunately, his father owns five other MGs so he did not miss it too much. "We think they're fantastic cars," the 21-year old machine operator says. "My dad has always had an interest in them and I suppose he has passed it on to me."

Edward Douglas's pride and joy is a 1975 MGB GT V8 sports car, which he bought from his father last year. Fortunately, his father owns five other MGs so he did not miss it too much. "We think they're fantastic cars," the 21-year old machine operator says. "My dad has always had an interest in them and I suppose he has passed it on to me."

After attending Malvern college, Mr Douglas travelled in Europe for a few months by mountain bike. When he returned, he joined Priority Mailing, a magazine printer in Wiltshire, as a machine operator. They produce titles such as Investor's Chronicle, Autotrader and Marketing Week. In good weather Mr Douglas drives to work in his MG, but when it is raining he takes his other car, a Honda Civic.

He works day and night shifts. "I'm happy on the shop floor," Mr Douglas says. "But some days I wish I was upstairs behind a desk in the office. I get paid hourly and I can work overtime, so I can do more shifts if I need the money." Including overtime, he takes home £26,000 a year. Mr Douglas contributes £60 a month to a company stakeholder scheme, invested with Standard Life.

He lives at his parents' home in Fordingbridge, Hampshire, paying £200 a month rent. He is buying a £150,000 three-bedroom semi-detached in nearby Aldershot with his girlfriend, Gemma Monks, a 22-year-old nursery nurse. They have been together for three years. Mr Douglas has £1,500 in an HSBC account, £4,000 in a Tesco account and £10,000 in a Threadneedle unit trust. He plans to use these, plus a loan from his parents, for a deposit and they will take out a £110,000 mortgage.

"My dad told me I had to buy a house before I bought another car since there's no more room at their house," Mr Douglas says. "My aims are now to buy another car and pay off the mortgage as soon as possible."

He also has £3,000 in shares; 493 in Compass, 575 in Tesco and 176 in Shell. "I was a nervous investing in shares to begin with, but I seem to have done all right," he says. "What is the best place for my savings in the long term?"

We put his case to Catherine Haines of Finance for Women at Millfield in Cambridge, Charlie Ansdell, of Inter-Alliance Group in London, David Bitner, head of product operations for The MarketPlace at Bradford and Bingley in London and Frank Cochran, managing director of FSC Investment Services in Wolverhampton.

Profile

Edward Douglas, 21

Family: Partner Gemma Monks, 22;

Occupation: Machine operator for printing firm in Wiltshire;

Education: Malvern College; nine GCSEs, two A-levels;

Car: MGB GT V8 and Honda Civic CRX

Debts: None;

Salary: £26,000, including shift allowance and overtime;

Savings: £1,500 in HSBC account; £4,000 in Tesco account; £10,000 in Threadneedle UK Growth unit trust (all for buying property);

Pension: £60 a month to company stakeholder scheme with Standard Life;

Shares: Compass 493; Tesco 575; Shell 176 (total value £3,000);

Property: Living with parents; buying for £150,000, on mortgage of £110,000;

Outgoings:(Per month) rent £200; going out and food £50 to £60; petrol £30; phone £35; holidays £500 a year.

'Sell the spare car and build on pension and savings'

Solution 1: House

Mr Ansdell thinks Mr Douglas should take out an Isa mortgage. The borrower pays only the interest on the loan and sets up an investment plan, using tax-efficient Isas, to pay off the outstanding capital. With markets low, an Isa mortgage could benefit substantially from any growth. Also, the risk is reduced due to the longer investment term, which is typically 25 years.

Mr Bitner recommends a repayment mortgage so Mr Douglas would not be dependent on the stock market or other repayment vehicles to pay the loan. Experts predict base rate will remain low in the foreseeable future so discount and tracker mortgages are good value.

Ms Haines says as Mr Douglas and Ms Monks are buying together they should consider the legal implications. Non-married couples may be better buying as "tenants in common" rather than "joint tenants" and this would mean their own share of the property would pass to their nominated beneficiaries on death, which may be other members of the family. If they are buying unequal shares of the property this could be useful. They also need to check whether they have life or sickness cover through work and arrange some if not.

Solution 2: Savings

Mr Cochran thinks Mr Douglas should use his annual Isa allowance to save for a car and pay off his mortgage early. He recommends the Cofund, Skandia, or Celestia multi-manager Isas and Mr Douglas should be selective about which funds he decides on. The Fidelity Special Situations and Credit Suisse High-Income funds are good long-term bets.

Mr Ansdell says that after Mr Douglas has settled into his new home, he should build cash savings to deal with potential contingencies. For instant access, Abbey National's online eSaver offers 4.25 per cent. On 60 days' notice, Safeway's bank offers 4.3 per cent in their postal account. He should also put as much as he can in his company stakeholder scheme.

Ms Haines says Mr Douglas could increase his pension contributions, because earlier-year payments are valuable. He should also consider diversifying his pension investment so it is not entirely with one company.

Solution 3: Shares

Mr Ansdell says Mr Douglas's shares are in strong companies, although investment in single equities is high-risk. Shell could benefit from oil price rises in any invasion of Iraq, Tesco remains a strong longer-term bet and Compass looks worth holding onto since it sold off the Travelodge and Little Chef parts of its business.

Mr Bitner says Mr Douglas should hold on to the shares until long-term confidence returns to the market. If he is confident in dealing with individual shares then this is fine. But he may want to consider transferring the shares into a managed investment such as a unit trust or an Isa investing in UK equities where the risk can be lessened through diversification.

Mr Cochran says direct owner-ship of shares, even blue-chip stocks, is not cost-efficient since one does not have the advantage of the tax breaks you would get through Isas or single premium investment bonds. He should consider "exchanging" the shares for units within the Scottish Widows Property Fund.

Solution 4: New Car

Mr Ansdell says having two cars is an expensive luxury. Most cars depreciate with age, but classic ones can hold their value. It makes sense to get rid of the Honda Civic. Mr Bitner says the MG may benefit from classic car insurance, if he has not taken it out already.

Ms Haines thinks if Mr Douglas opts for the right mortgage he could finance a car on more preferential rates, but he should be wary about increasing debt. Mr Douglas should make savings, protection and retirement planning his priorities, rather than a car, she believes.

If you would like to be given a financial health check-up, please write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS,or e-mail cash@independent.co.uk.