CLAIRE and Dave Goodwin, both scientific divers, are the fortunate
beneficiaries of a sum that they hope will keep them afloat in the future.
“I recently inherited £40,000 from my grandfather,” says Claire, 29.
“The trouble is that we tend to have a laissez faire attitude to money and he
was emphatic that it was spent wisely. As he was an avid Times reader,
I thought I would turn to you for advice.”
The couple are from Bangor, in Co Down, and Claire, a marine biologist, is
currently investigating the distribution of rare species on dives around the
coast of Northern Ireland. “I earn £22,500 with Ulster Museum,” she says.
“It is a yearly contract dependent on me obtaining funding, but I expect to
be renewed in May. I also earn £5,000 a year as a consultant.”
Her husband, Dave, 28, earns £13,944, in the Northern Ireland Office as a
forensic scientist, recovering trace evidence from exhibits submitted by the
police. He can also earn up to £300 a week on call, on a one-week-in-five
rota, to assist at crime scenes.
“At the moment we are comfortably off,” says Claire. “We should budget, but to
be honest we find money a bit boring. But if we start a family, one of us
would give up work, so our initial thought was to invest the inheritance to
use in this event. But would it be better to pay off some of our mortgage,
or switch to an offset mortgage, to reduce outgoings and then build up
savings? We would also like to extend our house in the next couple of years,
which would cost up to £20,000, but we want to ensure that we are left with
a cash buffer.”
The Goodwins live in a three-bedroom semidetached house and have a £93,000
Halifax mortgage on a two-year fix at 6.79 per cent until 2009. “We added a
£6,000 loan to this to buy our boat, Cally,” Claire says. The
latter is on a five-year fix at 5.79 per cent until 2012, bringing the
monthly repayments to £703.79. Both have student loans. Claire owes £4,500,
which she pays off at £100 a month, but Dave is below the repayment
threshold.
Other monthly outgoings include £150 on household bills, £270 on food, £100
socialising, £40 for membership of the local yacht and sub-aqua club, plus
£100 in marina fees and £50 for the boat’s upkeep. They spend £200 on petrol
and Claire says: “Our Subaru estate, needed for towing the boat and lugging
dive kit, guzzles petrol on Dave’s 40-mile commute.”
Claire also pays for her camera kit for work, plus insurance of £17.50 a
month. “My next purchase is likely to be a £700 fish-eye lens,” she adds.
They are both in the Principal Civil Service Pension, a final-salary scheme,
with 3.5 per cent member contribution. Claire says: “We do not have life
insurance because we were unable to find a decent quote, but we didn’t try
any brokers. However, we have no dependents, so we do not feel the need for
it and the Civil Service Pension Scheme pays out a lump sum on death.”
Claire has £2,900 in a Halifax Web Saver account at 5.01 per cent, but says:
“£1,400 of this is to pay my tax and the rest is for holidays. We want a
couple of weeks in Scotland on the boat. I also hope to do a survey for work
in the Falklands and stop off in Chile for some diving afterwards.”
Financial CV Earnings: Joint income £41,444.
Mortgage: £93,000, fixed at 6.79 per cent until 2009, plus £6,000 boat
loan, fixed at 5.79 per cent until 2012.
Savings: £2,900 in Halifax Web Saver, paying 5.1 per cent, plus
£40,000 inheritance money yet to be invested.
Pensions: Final-salary schemes.
Objectives: To decide how best to follow grandfather’s wish that the
inheritance money is used wisely.
The Goodwins: what the experts say
SAVINGS & INVESTMENTS 1
Mark Dampier, Hargreaves Landsdown
“The Goodwins’ laissez faire attitude to money is evident: their mortgage is
fixed at a high 6.79 per cent, when a typical current two-year fix is 5.5
per cent.
“They say they are ‘comfortably off’, but Claire is on a one-year contract, so
has no job security, while Dave has job security but earns little. If Claire
were out of work for a prolonged period, I doubt that they could pay the
mortgage. If they have children, their income will drop while expenses will
rocket. They need to budget and build an emergency fund of at least £10,000.
They could start by each opening a cash Isa, such as one from Kent Reliance
Building Society, which pays 6.05 per cent.
“I would then advise using the inheritance to pay off as much of the mortgage
as possible because their income looks precarious. This would incur
penalties while on a fixed rate, so until the fix ends the cash should go in
a good building society account, such as the Birmingham Midshires Direct
Telephone Savings Account, at 5.75 per cent. Alternatively, they could lock
it out of temptation’s way in a one-year bond. Rates are changing rapidly,
but look for about 6.9 per cent gross. I wouldn’t lock it away for any
longer because they want to extend the house.”
Action Plan
Build a £10,000 emergency fund.
Each start a cash Isa.
Put the inheritance in a building society savings account for now
Pay off a chunk of the mortgage, as soon as current fix ends.
SAVINGS & INVESTMENTS 2
Anna Bowes, AWD Chase de Vere
“Even though money bores Claire and Dave, it is worth drawing up a detailed
budget plan to monitor and alter according to circumstances.
“I would advise using some of the inheritance to pay off some of the mortgage,
but there is likely to be a hefty penalty for extra repayment before the fix
ends. So for now they could tuck the money in a one-year fixed-rate bond –
London Scottish Bank offers 6.85 per cent.
“Their Civil Service Pension Scheme is very valuable, but they should review
pension benefits regularly, especially if they have a career break.
“As for savings, they can do better than their 5.1 per cent gross – only 4.10
net – by each investing £3,000 in an Isa this tax year (£3,600 from April
6). The Icesave Cash Isa pays a competitive 6.1 per cent tax-free.”
Action plan
Draw up a budget plan.
Invest inheritance in one-year bond.
Move savings to cash Isas.
MORTGAGE
Nick Parkhouse, Savills Private Finance
“An offset mortgage would suit the Goodwins. They could use the inheritance
lump sum to reduce the interest they pay on the mortgage. This is preferable
to overpaying on their existing mortgage, as they would still be able to
access their money – very useful if they start a family.
“However, even though they are currently paying a relatively high rate of
interest, they should wait until the fix ends before remortgaging, otherwise
they are likely to incur charges for early repayment. Likewise, the boat
loan should be left until the fix ends in 2012.
“In the meantime, Claire and Dave should put their inheritance money into cash
Isas and easy-access savings accounts to earn interest before withdrawing it
to put in an offset mortgage in October next year.
“They should also keep funds available for emergencies because they have no
protection other than that provided by their employers. They need to
consider life cover, particularly if they start a family.”
Action Plan
Remortgage to an offset loan when current fixed rate ends.
Meanwhile, research a short-term home for inheritance money.
Look into life cover.
LIFE INSURANCE
Kevin Carr, Lifesearch
“With £100,000 of debts and the likelihood of children around the corner, it
is a good time to consider financial protection.
“For £100,000 of life cover over 22 years, to tie in with the
mortgage and provide for any children to the age of 21, a basic premium
would cost about £6 a month per person. But as Claire and Dave take part in
scientific and recreational diving, this could increase the basic premium by
as much as £15 to £20 a month.
“However, not all insurers are the same, so using an independent financial
adviser or a broker to shop around can save thousands of pounds over the
policy term.
“Any life cover should be written in trust and on a single-life basis because
this provides better value for money. The Goodwins should also consider
paying for long-term income protection.”
Action Plan
Consult a broker to find the best deal on life cover.
Consider long-term income cover.
LINKS
Savills Private Finance: 0870 9007762, www.spf.co.uk
; Hargreaves Lansdown: 0117-900 9000, www.h-l.co.uk
; AWD Chase de Vere: 0845 140140, www.awdchasedevere.co.uk
; Lifesearch: 0800 3164242, www.lifesearch.co.uk
.
Claire’s response
“The experts confirmed what we suspected: that the best use for the
inheritance would be to reduce our mortgage.
“We will consider moving to an offset deal when our current one ends, but we
will also examine the possibility of making overpayments – our current deal
allows 10 per cent overpayments a year. Although the mortgage does not
compare well with present fixed rates, it was competitive when we took it
out. We did do some research! We wanted a fix as we suspected that rates
would go up.
“We will use our Isa allowances to build an emergency fund and transfer the
rest of the inheritance to a high-interest building society account or a
short-term fixed bond while we decide what to do with it.
“We don’t think that life cover is a priority, but we will reconsider if we
start a family.”
Would you like a financial makeover? Write to Money, The Times, Times
House, 1 Pennington Street, London E98 1TB, marking your envelope Money MoT,
or e-mail moneymot@thetimes.co.uk. Please include current finances, short
and long-term goals and a daytime phone number. You must be prepared to
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