Wealth Check: When will we be able to afford our own home?

Mike Miller, 24, and Victoria Hill, 23, from Southampton, dream of their own house and car, and are keen to take advantage of the low prices currently on offer. But with a combined income of £40,000 they need to save a large proportion of their income quickly, but have yet to save anything.

"We want to save for a deposit for a house, and buy a car as quickly as possible while the economic climate has depressed their values," they say. "We need to be able to save meticulously and find the best accounts for saving quickly."

Case notes

Income: Mike and Victoria earn around £40,000 a year between them, bringing in around £2,800 after tax and national insurance contributions
Monthly outgoings: The couple spends around £1,000 on basic costs including rent, utility bills and food, with the rest going on paying off the student loan and socialising.
Savings: £0
Debt: Mike has a student loan that is currently interest free as it tracks the Retail Prices Index (RPI), which is currently 0 per cent.
Mortgage: £0
Pension: £0.

Three independent financial advisers offer Mike and Victoria their suggestions this week: Keith Snelling of Brunning Newman Houghton, Danny Cox at Hargreaves Lansdown and Darius McDermott of Chelsea Financial Services.

Savings

All three advisers are impressed that the couple have largely avoided huge university debts and have a solid foundation on which to build their financial plans. But achieving their goals will be challenging to say the least.

"Mike and Victoria are right to try to exploit the current economic climate," says Keith Snelling, "but they also need to build up capital before they can start spending. As an absolute basic, they need to build up an emergency fund of at least three months household spending, especially in tough times like this." Then they can focus on their financial goals without worrying unduly about the chance of losing their jobs.

The first thing to do is set an achievable goal, says Danny Cox. "Between them, Mike and Victoria are taking home around £2,800 per month after tax and after essential bills they have around £1,800 to cover leisure social and debt costs. They should set themselves a monthly savings target and do their best to stick to it. That target should be tough enough so their savings build quickly but not so difficult that they become despondent," he adds.

The advisers agree with couple's plans to save into a tax free ISA as they build up their deposit, and suggest Barclays for a best buy rate of 3.61 per cent for up to £3,600 a year each. After that, the HSBC 10 per cent regular saver account is a great deal for its customers, but only accepts monthly deposits of up to £250.

Property

"These days the average deposit needs to be 25 per cent of the property value at the very least," warns Darius McDermott, "anything else and the lender will laugh at you. The Open Market HomeBuy is a low-cost government-backed home-ownership programme that aims to help people to secure 100 per cent funding of the value of their first home.

The scheme is a flexible equity loan scheme designed to help households earning up to a maximum household income of £60,000 a year to buy their own homes on the open market, and could certainly be worth investigating when they are ready to buy. More information is available at: www.housingcorp.gov.uk/ server/show/nav.212.

Meanwhile, the couple should carefully research the price of houses locally to work out their savings goals.

Buying a car

With little or no savings, and all their attention on a property, the couple will either need to delay their car buying plans, or take out a loan, Snelling suggests. "Car loan interest rates are typically between 7.3 and 7.9 per cent at the moment, so £10,000 over three years would cost around £310 a month.

"But remember that anything the couple spend on a car loan will be taken into account by a mortgage lender and could reduce the maximum they can borrow," he warns.

Pension

Mike and Victoria want to retire early, but the advisers warn that with no pension saving to date, they are dreaming. "That Mike and Victoria dream of an early retirement really indicates how removed we are as a nation from the looming pensions disaster that we face," McDermott warns. "The reality is that Mike and Victoria need to start contributing as much and as often as possible if they want any quality of living once retired."

To receive their current joint income of £40,000 they would need to contribute £790 each per month if they plan to retire at 55. Even to achieve that, the couple will have to invest in fairly high risk investments and this calculation doesn't take into account income-sapping inflation, McDermott adds.

"Mike should join his employer's pension scheme as soon as possible," advises Snelling, "and contribute as much as he can to maximise his employer's contribution. Victoria should do the same, and try to save between 5 and 10 per cent of her salary into the scheme."

Once they have achieved their current savings goals they should then increase their contributions as far as possible to make their retirement as comfortable as possible.

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS; or email wealthcheck@independent.co.uk