Isabella bought her first flat for £90,000 using a repayment mortgage of £63,000 in 2017 (Table 1). Her parents paid for the deposit on the flat. She is living on her own and bought a two-bedroom flat. She also decided to train to be a plumber and took out a personal loan from an auntie to pay for the training. She is now working as a plumber. She has a net monthly income of £1,750 and she spends on average £1,800 a month.

In 2019, Isabella’s financial situation has changed in a number of ways. In the area where she lives, property prices have fallen by 6%. Her current account balance has fallen to zero, she now has a £100 overdraft and her credit card debt has risen fivefold. Her savings in her instant access savings accounts have dropped by £600 and she now has £35 cash. The value of her repayment mortgage is now £58,000. Her mortgage repayments are £350 per month. She still owes her aunt £5000.

Isabella is considering making changes to address her financial situation. One option that she is considering is to let her spare room to gain extra income, subject to approval from her mortgage provider. Another option is for her to try and sell her flat and move back into her parents’ house.

Table 1  Isabella’s balance sheet 2017 2019 Assets 91,620 Liquid assets 1620 Cash 70 Current account 700 Instant access savings account(s) 850 Other liquid assets 0 Other assets 90,000 Home 90,000 Liabilities 68,300 Short-term liabilities 300 Overdraft 0 Credit card 300 Other short-term liabilities 0 Other liabilities 68,000 Personal loans 5000 Mortgage 63,000 Ratios Net worth / wealth 23,320 Current asset ratio 5.40 Leverage ratio 74.55%

1.1  Using the information provided in Table 1 and the Balance sheet analyser financial tool, complete Isabella’s balance sheet for 2019. (4 marks)

1.2  Explain why, despite the property price falling by 6%, the mortgage value has fallen by 8%. (3 marks)

1.3  Using the information in Table 1, compare Isabella’s financial situation between 2017 and 2019. Comment on her proposed strategies for dealing with her financial situation. (4 marks)

1.4  Briefly explain two other possible actions that Isabella could take. (4 marks)

(Total marks available for Question 1: 15 marks)

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