Question $1$

Liam and Sarah live in a flat in Stoke on Trent which they bought in October $2022.$ The

purchase price for the flat was $130,000$ and they had a deposit of $30,000,$ borrowing the

remaining $100,000$ with a repayment mortgage with a $25$ year term. They had $1500$ in an

ISA, $500$ in their current account and a credit card debt balance of $500$ that they had used

to buy some things for the flat, which they intended to pay off over the next few months.

At the time of purchase Liam had a net monthly income of $1300$ and Sarah had a net

monthly income of $1400.$ Their average household monthly expenditure was $2300.$ Their

household balance sheet just after purchasing the flat is shown below.

In February $2024,$ the flat was estimated to have fallen in value to $117,000,$ and the balance

on their mortgage had fallen to $96,410.$ It has been quite a tough year with Liam's hours

being cut at his job, so his net monthly income is now only $950$ per month while Sarah's has

risen to $1500$ per month and the cost$-$of$-$living crisis has led them to spending on average

$2500$ per month. They have had to borrow on a credit card to make ends meet with a credit

card debt in February $2024$ being $2000.$ They also have an overdraft of $1000$ and have

withdrawn all of their savings in the ISA. They have $300$ in their current account. With the

cost of living increasing, their average monthly expenditure is now $2500.$

Table $1$ shows Sarah and Liam's balance sheet and financial ratios in October $2022.$ Table $1$ Sarah and Liam's household balance sheet $-$ October $2022$ Short$-$term liabilities

$500$

Overdraft

Credit card

Other short$-$term liabilities

Other liabilities

Personal loans

Mortgage

Ratios

Net worth $/$ wealth

Current asset ratio

Leverage ratio

$500$

$0$

$100,000$

$100,000$

$4\mathrm{.}00$

$76\mathrm{.}141\mathrm{.}1$ Explain factors that Sarah and Liam might have considered in choosing a repayment

mortgage over an interest$-$only mortgage in $2022.(3$ marks$)$

$1\mathrm{.}2$ Using the information provided above, complete Sarah and Liam's balance sheet for

February $2024.$ Include the financial ratios. $(4$ marks$)$

$1\mathrm{.}3$ Using the financial ratios and other relevant information, compare their financial situation

in October $2022$ to that in February $2024.(4$ marks$)$

$1\mathrm{.}4$ Briefly explain two possible actions Sarah and Liam could take to improve their financial

situation. $(4$ marks$)1\mathrm{.}1$ Explain factors that Sarah and Liam might have considered in choosing a repayment mortgage over an interest$-$only mortgage in $2022.(3$ marks$)$

$1\mathrm{.}2$Using the information provided above, complete Sarah and Liam$$s balance sheet for February $2024.$ Include the financial ratios. $(4$ marks$)$

$1\mathrm{.}3$Using the financial ratios and other relevant information, compare their financial situation in October $2022$ to that in February $2024.(4$ marks$)$

$1\mathrm{.}4$Briefly explain two possible actions Sarah and Liam could take to improve their financial situation. $(4$ marks$)$