The problem: Can I save enough to buy my first home?

Cathy Green, 26, faces a challenge familiar to many young professionals.

She wants to get on the property ladder in the next year but fears that rising interest rates and sky-high prices will pull the bottom rung out of reach.

“My parents have offered to help out with the deposit, and I have been told I can get an interest-only mortgage of 120,000 at a fixed rate for three or five years,” she says. “With this in mind, I’m looking at properties up to 170,000 in south-east London.”

Cathy earns around 25,000 a year as a trainee clinical psychologist, and is in the first year of a three-year course at King’s College London. For now, she is fortunate to be able to rent a room for 300 a month in a flat owned by her father in Chelsea.

However, she has debts to deal with. On top of 10,000 in student loans, she owes 4,000 on an MBNA credit card, paying interest at an annual percentage rate (APR) of 15.9 per cent.

“I am not actively using a credit card at the moment,” says Cathy. “I put 100 a month towards paying off this debt, although it’s a struggle.”

On the plus side, she has 5,000 in a Nationwide Building Society instant access cash individual savings account (ISA), earning 5.1 per cent.

Another 5,000 was invested on her behalf 10 years ago and is split between shares in Boots, ITV, the Bankers Investment Trust and the Merchant Trust. She has no idea what this investment is worth.

Cathy pays 6 per cent of her wages into the NHS final salary pension scheme.

The cure: Cut out luxuries and start putting cash aside

While Cathy is lucky to get parental help to buy her first home, our panel of independent financial advisers (IFAs) agree that she still needs to work out a budget - and stick to it - to save as much as possible towards the property purchase.

“With a monthly income after tax of around 1,500 and regular outgoings of about 600, she is spending about 900 on living costs - and can afford to save more,” says Keith Churchouse of IFA Churchouse Financial Planning.

Property

A 50,000 deposit should give Cathy access to some of the best mortgage deals, says Ben Yearsley of IFA Hargreaves Lansdown, and mean that she avoids the higher lending charge levied by some banks and building societies to protect themselves if borrowers have only a small amount of equity in a property.

As she’s on a tight budget, a fixed-rate mortgage, giving her set monthly repayments, is a good option. At the moment, a loan of 120,000 taken out over 25 years at 6 per cent would cost about 600 a month on an interest-only basis.

But Mr Yearsley warns that with this type of mortgage, she will not be paying off any of the capital, and urges her to switch to a repayment deal once she qualifies as a psychologist and her income has increased.

Sadly, she may find it tricky to find a one-bedroom flat in London for 170,000 unless she is prepared to be flexible about the location and the standard of property she is seeking.

Debt

If possible, Cathy should put more than 100 a month towards paying off her credit card debt, says Mr Yearsley, who also urges her to cut up her credit card.

Frances Goldspink of IFA Lucas Fettes suggests she transfer her balance on to a new card offering an interest-free deal. With Barclaycard, for example, she wouldn’t have to pay interest on debt transferred from another card until July 2008.

Since the interest rate on student loans is linked to inflation - and stands at only 2.4 per cent - Cathy should not worry about clearing this debt immediately, Mr Churchouse adds.

Savings/investments

Cathy already has the “bare bones of an investment portfolio” with her investment trusts and shares, Ms Goldspink notes. However, she may be better off selling her shares, using this money to pay off her credit card debt and then putting the remainder into an ISA.

“The only bright spark in the investments she holds are the Boots shares, which have performed well recently thanks to several takeover offers,” says Mr Yearsley.

“But if you are going to hold a portfolio of shares, you really need to have 15 to 20 different companies to get a reasonable spread.”

Retirement

Cathy is fortunate to have access to the NHS final salary pension plan.

“This is a great pension to have,” Mr Churchouse says. “She should review how much she contributes in the future when her financial situation is more settled - to ensure that she is making the most of it.”

If you would like a makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk

WASHINGTON - The heads of trade groups representing mortgage bankers and brokers traded barbs Tuesday over who’s to blame for the housing market’s woes.

The head of the mortgage banking industry’s trade group claimed brokers profited from a home loan boom but didn’t do enough to examine whether borrowers could repay.

Amid increasing evidence of financial distress for homeowners with weak, or subprime, credit histories, John Robbins, chairman of the Mortgage Bankers Association, says he is “mad as hell” at “a few unethical actors” that have sullied his profession’s reputation.

“Who made this mess?” Robbins asked. “The short-term folks. People who get a commission when the deal happens. For them, it’s the number of loans that counts. Good loan? Bad loan? Who cares? For them it’s all about their commission,” he added.

In reaction, the president of the National Association of Mortgage Brokers, e-mailed a statement that said: “It is truly unfortunate (Robbins) has attempted to shift blame away from Wall street, federally chartered banks, state-chartered lenders and underwriters for the subprime situation we find ourselves in today.”

Harry Dinham, president of the brokers’ group, added that congressional hearings have shown that “most residential mortgage loans are quickly sold into the secondary market in fact most lenders are really just brokering the transaction but afraid or ashamed to admit it,” he added.

In a lunchtime speech at the National Press Club, Robbins called for a national licensing system for mortgage brokers, which would help weed out “scam artists.”

The industry’s woes are confined to a small segment of the market, he said. About 5 percent of homeowners have subprime adjustable-rate loans that feature low “teaser” rates which can move sharply higher later. He estimates about half of those homeowners will be able to avoid default or foreclosure. If so, foreclosures among subprime borrowers will amount to 0.25 percent of U.S. homeowners, Robbins said.

“No seismic financial occurrence is about to overwhelm the U.S. economy,” he said.

Yet RealtyTrac Inc., an industry research firm, said last week that mortgage lenders foreclosed on 62 percent more U.S. homes in April than a year ago.

Home prices are falling too. The national median existing single-family home price in the first quarter was $212,300, down 1.8 percent from a year ago when the median price was $216,100, according to the National Association of Realtors. The median is a typical market price where half the homes sold for more and half the homes sold for less.

Earlier this month, Sen. Charles Schumer, D-N.Y. and two other senators introduced a bill that would mandate tougher federal standards for mortgage lenders. No hearing date has been set and the bill is under review by the Committee on Banking, Housing and Urban Affairs. House lawmakers are talking about introducing their own reform bill this summer.

Robbins warned against an overreaction by lawmakers that could cause the country to “revert to a time when without perfect credit you couldn’t buy a home.”

His speech comes a day after the Mortgage Bankers Association and four other industry trade groups banking industry trade groups endorsed mortgage reform principles.

Any legislation or new regulations should focus on lenders only being permitted to issue high-risk, home loans if they “reasonably believe” at the time the loan is made that borrowers have the ability to repay, the statement said. Mortgage terms should be “clearly disclosed” to consumers, and estimates of monthly payments that could quickly jump in later years should be made clearer, the groups said.

Banks say they are already stepping up efforts to assist borrowers who face default or foreclosure and tightening loan standards.

Federal Reserve Chairman Ben Bernanke last week said the central bank is considering tougher rules to reduce abusive home loan practices even though he believes the economy should escape without significant harm from the problems in the subprime mortgage market.

In March, the Fed and the other four federal agencies that regulate banks, thrifts and credit unions proposed guidelines that call for strict evaluations of a borrower’s ability to repay and caution when lenders make subprime mortgage loans.

The guidelines have not yet been made final. The Fed plans a mid-June hearing on ways to curb abusive lending practices. 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Q. Almost three years ago, my wife took out a fixed-rate mortgage, but we have now had to sell our home. Our lender says there will be an early repayment charge of more than 15,000, even though the fixed period ends in a few months’ time. I don’t see how their costs could be higher than the two repayments of 1,500 we would make if we were staying where we are.

A. You are doing the responsible thing in trading down and buying a cheaper house, so it does seem harsh that you face a large penalty.

There are two ways to look at your case. One is that you knew about the early repayment charges when you took out the loan, so you should be prepared for the penalty. It seems your lender is taking this view. On the other hand, your circumstances have genuinely changed, and your lender’s stance may be unreasonable because of that.

There is a good chance you will be able to avoid paying this charge. According to Ray Boulger, senior technical manager at the mortgage brokers John Charcol, many lenders will waive early redemption penalties, if asked, where a mortgage is redeemed in the last month of the fixed period.

The key words here are “if asked”: they will not do so automatically. So your mortgage broker, or ideally your solicitor, should ask for the penalty to be waived as a matter of urgency.

If, for some reason, the lender refuses, or you need to redeem your mortgage with more than a month left, it gets more complicated. Your first option would be to delay completion of your sale and purchase until you are in the last month.

But if delay might mean losing the sale or your purchase, Boulger suggests that you pay the penalty but then complain to the lender, asking them to repay at least most of it. Your grounds for doing this are strong, because of what your lender has already said about the fee being a “genuine pre-estimate” of their costs.

Boulger says that charging the full penalty with so little time left to run on the mortgage is highly unlikely to reflect their costs. If your case went to the Ombudsman, Boulger thinks it is very likely you would win.

Your case raises some important issues. Anyone can be the victim of changing circumstances, and anyone who might need to repay a mortgage early needs to be very clear about what it will cost them. For anyone taking out a fixed or discounted mortgage today, sliding penalties could be less risky than a mortgage where the penalty is fixed throughout the loan.

Confused about your mortgage options? Foxed by jargon? E-mail mortgageclinic@independent.co.uk

NB: we will not reveal your identity, and we cannot give specific advice