Kirsten lives in a one-bedroom flat in Dumfries. She works as a full-time nurse. When she bought the flat in February 2021, the mortgage broker talked her through repayment and interest-only mortgages. She decided to use her savings as a deposit and chose a repayment mortgage which, by February 2023, had an outstanding balance of £135,000. The original purchase price in 2021 was £175,000 and the market value of her flat has increased by 2% over this time period.

In February 2023, Kirsten earns a net monthly income of £1,796 and her expenditure has averaged £1,800 a month over the last two years. In February 2023, a loan to put in a new kitchen when she moved into her flat is down from £3,000 to £1,500, but her current account balance has dropped to zero. She has no cash and she has an overdraft on her current account of £1,000. Meanwhile, her savings account holds just £150 and she also owes £2,000 on a credit card.

She is reviewing her finances as she would like to buy a new central heating system.

Table 1 shows her balance sheet and financial ratios in February 2021.

Table 1 Kirsten’s household balance sheet – February 2021

	February 2021 (£)
Assets (Total)	177,650
Liquid assets	2,650
Cash	350
Current account	1,800
Instant access savings account(s)	500
Other liquid assets	0
Other assets	175,000
Home	175,000
Liabilities (Total)	169,000
Short-term liabilities	1,000
Overdraft	0
Credit card	1,000
Other short-term liabilities	0
Other liabilities	168,000
Personal loans	3,000
Mortgage	165,000
Ratios
Net worth / wealth	8,650
Current asset ratio	2.65
Leverage ratio	95.13

1.1 Using the information provided above, complete Kirsten’s balance sheet for February 2023.

1.2 Explain the factors Kirsten might have considered in choosing a repayment mortgage over an interest-only mortgage in 2020. (

1.3 Using the financial ratios and other relevant information, compare Kirsten’s financial situation in February 2021 and February 2023. 

1.4 Briefly explain two other possible actions Kirsten could take to improve her financial situation.