thinking bigger: Stephen & Rosie

Stephen & Rosie* were planning to move house with their three children Charlie, George and Amelia.

Once Charlie’s secondary school was settled, they wanted to choose an area nearby which was also close to  the schools George and Amelia might attend.

Stephen & Rosie wanted a ‘forever’ house for their children to grow up in.  As the family all loved tennis, a large garden and a court (or space to build one) was on their wish list too.

When they did their first Future Perfect Financial Life Plan in 2007 we assumed a purchase price of £2m for two years hence, the summer before Charlie would start secondary school.

reduced purchase price?

Subsequent to this meeting, the property market in their area seemed to be softening, with far fewer buyers and fewer sales.

A year later, in our Annual Planning Meeting, Stephen felt that, in the market context, they could lower the purchase price to £1.5m and still buy a property that met their requirements, though Rosie wasn’t so sure.

Stephen was also worried about the size of the mortgage required to fund the purchase and the higher running costs of a bigger property.

property decisions

How could Stephen & Rosie decide what was a sensible and affordable purchase price in their particular financial circumstances?

Some people base this decision on the maximum amount they can borrow and over stretch themselves. Others, like Stephen & Rosie, are at risk of being overly cautious.

We suggested to Stephen & Rosie that to compromise and not buy a house with the right attributes to be a ‘forever’ house was a false economy. This was because of the costs associated with moving a second time, which might be required if they compromised now.

Also, the life-long cash flow forecast that we had prepared, based upon prudent assumptions about Stephen’s earnings and also their expenditure, reassured Stephen that, in the context of his earnings and their overall finances, a house purchase at £2m was not excessive.

cost effective borrowing

In addition, we showed how structuring most of his borrowing for the property through his tax-deductible partner loan facility was a cost effective approach.

family’s financial security assured

Lastly, we showed Stephen & Rosie how their family’s finances would fare in the event that Stephen was ill and no longer able to work or if he were to die prematurely with this new house and higher outgoings.

This cash flow forecast included their personally held life protection plans, but also the various income protection, life cover and spouse/dependent benefits available through Stephen’s partnership.

This analysis showed a gap in Stephen’s life cover, which he was able to increase simply through an internal partnership life cover scheme.

the outcome

Stephen & Rosie did buy their house with a 4 acre garden, at a purchase price of £2.1m in the summer of 2009.

They subsequently embarked upon a significant renovation of the property, including new heating/plumbing system, re-wiring, new kitchen and bathrooms and, of course, the tennis court. Although the costs for the work done on the house were substantial, Stephen could see that, in the context of his overall financial situation, it was affordable.

Stephen & Rosie have been enjoying their new home over the last few years and often remark to us how glad they are that they extended themselves a little more than felt comfortable at the time.

a financial life plan for you

Would you like to feel the way Stephen & Rosie do – confident that you are making informed financial and life decisions that will benefit you, now and in the future?

We would be delighted to help.  Just email Nick on nick@futureperfectfp.co.uk.

*these are real stories – names and some details have been changed to preserve our clients’ anonymity.