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Donna and Dan live in Dewsbury. Donna is a police officer and Dan works part-time in a warehouse. When they bought a three-bedroom house in September 2018 the mortgage broker talked them through repayment and interest-only mortgages. They decided to use their savings as a deposit and chose a repayment mortgage, which by September 2020 was standing at 110,000. The market value of their house had increased by 2% over this time period on the original purchasing price of 144,000.

Together, in September 2020 the couple earn a net monthly income of 3,000 and their expenditure has averaged 3,300 a month over the last two years. In September 2020 a loan to conduct initial refurbishment (putting up new fences) is down from 2,000 to 1,000, their current account balance has dropped to zero and they have an overdraft on their current account of 1,800. Meanwhile their savings account holds just 100. They also owe 2,500 on a credit card. The rest of their balance sheet has not changed since September 2018.

They are reviewing their finances as they consider further home improvements.

Table 1 shows their balance sheet and financial ratios in September 2018.

Table 1 Donna and Dans household balance sheet September 2018

	September 2018
Assets (Total)	146,080
Liquid assets	2,080
Cash	80
Current account	1,500
Instant access savings account(s)	500
Other liquid assets	0
Other assets	144,000
Home	144,000
Liabilities (Total)	118,500
Short-term liabilities	1,500
Overdraft	0
Credit card	1,500
Other short-term liabilities	0
Other liabilities	117,000
Personal loans	2,000
Mortgage	115,000
Ratios
Net worth / wealth	27,580
Current asset ratio	1.39
Leverage ratio	81.12

1.1Using the information provided in Table 1, complete the couples balance sheet for September 2020.

1.2Explain the factors Donna and Dan might have considered in choosing a repayment mortgage over an interest-only mortgage in 2018.

1.3Using the financial ratios and other relevant information, compare the couples financial situation in September 2018 and September 2020, and explain whether you lean towards their home improvement idea.

1.4Briefly explain two other possible actions they could take to improve their financial situation.

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