Frank Sturgess, 36, specialises in engineering and construction, but for a long time has chosen not to pour money into any solid foundations for his financial future. A mining engineer from Colchester, Frank has never owned property as he has worked around the country, moving every two or three years.

But after a succession of jobs, he now wants to settle down in his current position as production manager with a FTSE-listed resources group and buy his first home with girlfriend Bella, a healthcare worker.

Frank says a recent experience helped focus his decision to get on the property ladder. “I am in the Territorial Army and was sent to Iraq for six months from March to September this year,” he says. “It certainly gave me some time to focus on what I was doing.”

Frank has been an active investor in the stock market since 1996, managing to save £100,000 which he now intends to use as the majority payment to buy his first property.

“But I wonder if my capital is being used as effectively as possible by investing it all in a property to live in?” he asks.

His short-term horizon is also complicated by plans to study for an MBA, which could shave a further £40,000 off his savings.

Even though there is a strong emotional pull to buy one’s own home, Derek Parry, certified financial planner with Cathedral Financial Planning, urges Frank to stay renting for now. “There too many indications at present that we are somewhere close to the top of a bubble in house prices,” says Parry.

“Do Frank and Bella really want to find themselves trapped [by potentially buying overvalued property] or would they prefer to carry on renting and thus allow themselves maximum flexibility?”

While dismissive of residential property, Parry suggests Frank consider a modest investment in commercial property instead. However, he says the sector would only be appropriate for cash which the couple do not expect to need to draw on for at least five years.

The other advisors did not have such a bearish view about residential property.

Duncan Glassey, certified financial planner with Acumen Financial Planning, suggests Frank, who wants to spend about £200,000 on his first home, take out an interest-only mortgage for £160,000.

“The difference in monthly cost between a capital-and-interest mortgage and interest-only mortgage is £364.78 (based on a 5.5 per cent interest rate),” says Glassey. “Assuming this difference was invested, based on an annual growth rate of 6 per cent, this would allow you to repay your mortgage six months earlier. Increasing the monthly investment to £400 (and assuming a 6 per cent return) would allow you to repay the mortgage 18 months earlier, saving £13,109.76 in interest payments.”

Roddy Kohn, certified financial planner with Kohn Cougar, suggests an offset mortgage, which allows savings or current account deposits to be offset against mortgage debt, would be best.

“It allows Frank to get a great return on his capital while being in a strong position to take care of market weakness or job losses,” says Kohn. “As a compromise, Frank could place enough money in the offset account to cover his deposit and MBA fees and still leave some capital for the stock market.”

While these measures may help make Frank’s savings work harder, Parry says the engineer needs to correct a potentially costly flaw in his portfolio.

“Frank has fallen into a common trap: at present his earnings, pension and his preferred investments are all in a single industry sector – extraction industries,” says Parry. “Because he studied mining engineering, and is therefore an expert on the sector, his concentration is understandable. Nevertheless, it is highly dangerous! Any severe downturn in the sector could simultaneously affect his job, his pension and his investments. Ouch!”

Given his “fairly risky” investment approach, Parry suggest Frank shelter £7,000 in equity Isas, with suitable funds including emerging market, Asia-Pacific or, because of their inherent resilience to market falls, relatively high-yielding UK equity income funds.

Glassey, who calculates that Frank will have £46,000 in spare cash after setting aside £40,000 for a house deposit and £40,000 for the MBA, has his own suggestions.

“Frank’s attitude to risk indicates a high exposure to equity-backed collective investment funds (80 per cent with the balance spread between gilts, corporate bond and commercial property funds),” he says. “Up to £7,000 of this portfolio can be held in an Isa wrapper in the current 2005/06 tax year.

“This portfolio will provide Frank with the flexibility to decide whether to repay his mortgage early, use it to top up his final salary pension income throughout retirement or help fund future expenses such as school fees.”

The advisers urged the couple to review their existing company pension schemes, for entitlements to benefits such as term assurance.

Names have been changed to protect privacy

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