Q. My partner and I are saving up for a deposit for our first house. It is tough and we are really scrimping and saving. Is it still true to say that in the long term buying a house is a financially sound option compared to renting long term?
A. This is a difficult question and there are no definitive answers as it depends on what happens in the future. If we look at historical factors, buying has tended to be financially sensible for most people. The Telegraph recently published the results of a survey of average prices across the regions that showed owning tends to be cheaper than renting in every area of the UK. Assuming a 21% deposit and 79% loan, and a current best-buy mortgage rate, owners paid an average of £82 per month less in the North East (£192 in the South West) with the gap varying by region. But the figures do not take into account the costs of ownership such as insurance and repairs. Long term of course, if you rent, this is payable forever whereas, if you buy, eventually your mortgage is repaid. So on balance, if you can manage to save that deposit it is likely you will be in an improved financial position in the future, with an asset you wouldn’t have otherwise had.
Q. I got a State Pension forecast in 2014 showing that I have 35 years of National insurance Credits. Does this mean I will get the full amount of the new Single Tier State Pension when I reach retirement in 2020?
A. The answer is possibly, but more information is needed to know for sure. The answer depends upon how much time you have spent in the past being contracted out of the State Second Pension, previously known as SERPS. The new State Pension, which will be £155.65 per week for those reaching State Pension Age after 6th April 2016, requires 35 years of NI credits, rather than 30 for the Basic State Pension which would have risen to £119.30 per week from April. Under the existing rules, some people would also have qualified for the second level of state pension in addition to their basic pension figure. However, many people would also have opted out of the State Second Pension, and will have built up a pension elsewhere, either through a personal pension or an employer’s pension scheme. This would result in a deduction of some of the Second level pension (COD – Contracting Out Deduction). For those retiring after April, two calculations will be carried out. The first will be to calculate your entitlement under the existing system. The second will be your calculation under the new system, but deducting the COD. The higher of the two figures will become your “Foundation amount” for the new scheme. If this is higher than the new Single Tier figure, that pension is protected, but you cannot accrue any further State Pension. If it is lower, you can accrue a further £4.44per week for each year of NI credit after April 2016, subject to a maximum of £155.65 per week. The State Pension forecasts being provided now give a better idea of the amount you are likely to get under the new scheme than the one you received recently.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
