The latest FT house price index shows that prices in some areas of the UK have started to fall as a result of increasingly expense mortgage costs. London, though, is the exception. In boroughs such as Westminster and the City, prices are continuing to boom.

So, for potential first-time buyers living in the capital, such as 30-year-old assistant TV producer Caroline MacKenzie, the rampant house-price inflation presents a seemingly insurmountable problem.

“I assume I am better off putting my savings into property rather than leaving them in cash forever,” she says. “I also work pretty hard and am keen to have a base and the stability of my own home. But I’m concerned that rising interest rates and house-price uncertainty will mean it is too difficult a time to buy.”

MacKenzie’s worries centre on the possibility of house prices dropping or interest rates rising by a significant amount in the near future.

She has researched the possibility of renting out a room to a lodger and has considered shared ownership, but believes the scheme could be financially risky. “There is the government’s open-market home-buy scheme, too,” she says. “But I don’t know if I’d be eligible and, having looked into it, I don’t think the loan amounts are big enough to make a significant difference in affordability for me.”

So far, MacKenzie has saved more than £14,000, which she has split between an internet savings account and cash individual savings account (Isa). She has also accumulated a pension pot of around £3,500, split between her employer’s money-purchase scheme and a personal stakeholder pension. Although the charges on her employer scheme are lower, she has maintained her stakeholder pension on the premise that it is better to spread out her investments.

“The stakeholder pension has guaranteed flexibility in that I can transfer funds in and out”, she says, “and the charges will stay below a certain level so I thought it might come in useful in the future.”

MacKenzie’s priorities are saving enough money for a deposit on a property and ensuring her finances are stable enough to allow for the unreliable nature of media work.

She is aware that a career change may put her in a difficult position regarding a mortgage and is keen not to overstretch herself.

Richard Wadsworth, director at Fitzallan, says that although property is excruciatingly expensive for first-time buyers now, it is a long-term investment – and its exemption from capital gains tax on sale and its value as a place to live should be taken into account.

Based on her salary, the mortgage experts at Fitzallan calculate that an advance between £157,000 and £179,000 might be available if MacKenzie borrows 95 per cent of the value of her property. This would mean she could afford a flat on the outskirts of London.

But the foundations of her financial plans, according to Wadsworth, should start with a careful costing of her budget and retention of a cash sum for emergencies.

He recommends that she looks to fix her mortgage rate for a fairly lengthy period (five years) which will allow her to plan her monthly outgoings more precisely. “This may not work out cheaper than variable rates”, he says, “but it adds valuable security should rates continue to rise.”

Rising interest rates are more of a factor for those who, like MacKenzie, need to borrow a significant percentage of the value of a property – making them most vulnerable to sudden increases in mortgage rates.

Garry Villis, certified financial planner at Paradigm Norton, says MacKenzie has done well to save so much of her salary each month and advises her to continue doing so.

If she does alter her employment, Villis says her mortgage will not be affected, but she must be sure she can afford the repayments, and should consider the loss of other benefits, such as life cover and pension contributions from her employer.

Because she receives an excellent contribution from her employer to a pension scheme, he says: “We recommend that she redirects her contributions from her other personal pension into this scheme because of its low charges.”

Gordon Wilson, chartered financial planner at Thomson Shepherd, believes that in order to achieve her desired retirement income of £20,000 a year in today’s terms, MacKenzie should save an extra £40 per month.

“With pensions, MacKenzie’s time horizon is about 40 years, so she can afford to invest heavily in share-based funds with her pension monies,” he says. “There will inevitably be volatility, but she has time on her side to allow her to relax about the fluctuations.”

Wilson says MacKenzie would benefit from having professional fund managers looking after the funds on her behalf, instead of picking the stocks herself.

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