Personal Finance: Financial Makeover - Keep your home for happy returns

NAMES: CYNTHIA AND ANDY KEMISH AGES: 30 AND 41 OCCUPATIONS: STAFF NURSE AND ANALYTICAL TEAM LEADER
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The Independent Online
Andy and Cynthia are expecting to spend around five years in Switzerland, but Andy's position is open-ended and they could remain for longer. However they certainly intend to return to the UK at some stage with their 8-month-old daughter, Charlotte .

Meanwhile, the couple have a property in the UK, presently worth about pounds 100,000, secured through an pounds 80,000 mortgage. The couple are considering renting their home while they are away. But they wonder whether this is a smart way of going about things. If they do rent out the home, what mortgage should they have?

They also need guidance on issues relating to pensions, savings and credit cards.

The adviser: Ray Boulger, independent financial adviser at John Charcol, the mortgage and financial advice firm, 10-12 Great Queen Street, London WC2B 5DD (0171 611 6000)

The advice: As UK property prices seem likely to continue to rise over the medium term by at least as much as inflation, and in the short term well above the current inflation rate, it makes sense to retain a UK property. Additionally, one has to recognise that it's always possible things may not work out as well as expected for Cynthia and Andy in Switzerland, and they may return to the UK sooner than they expect. Whenever they do return, it will be easier to have their own property to come back to.

Cynthia and Andy anticipate their property will generate a rental income of around pounds 6,600 a year. This represents a comparatively low yield (6.6 per cent). But the costs of buying a similarly-priced property to garner a higher rent, would negate much of the benefit of the higher rent. This, together with the additional hassle involved, suggests that they should hang on to their house.

Their current mortgage is part-fixed and part-capped. Both elements of the mortgage still have a little over 3 years to run and significant redemption penalties would be incurred if they change lenders.

It therefore makes sense to retain the existing mortgage until the end of the redemption penalty period and then reassess the options.

Both Cynthia and Andy currently have occupational pension schemes and Andy is also paying additional contributions into an AVC, a top-up scheme. While they are overseas, although their respective pension funds will not be able to receive any additional contributions, the money already invested will continue to grow.

Andy's employer offers a pension scheme in Switzerland and so he will continue to have monies invested for his pension. He will need to assess his options in respect of this Swiss pension when he returns to the UK and he should take advice about that prior to returning to the UK, particularly on the tax.

If Cynthia takes up a job in Switzerland she should consider investing in an offshore savings account. As with Andy she should take advice on her investment, particularly in respect of the tax consequences of returning to the UK.

The couple have some modest credit card debts, which are nearly matched by their savings. It would be sensible to repay as much credit card debt as possible prior to moving to Switzerland.

They should retain their UK credit cards for use when they are in the UK, but also obtain a local card in Switzerland so that they will be billed in Swiss francs and avoid paying the 2.75 per cent foreign exchange charge which would be applied on transactions if they used a UK card in Switzerland. They will need to retain their UK bank account to receive their rent and pay their mortgage.

It will be very expensive in bank charges to remit a modest amount each month to their UK account. I would recommend paying in some sterling funds when they are in the UK, as they will need to obtain pounds for these visits anyway.

Cynthia and Andy are currently saving about pounds 150 a month for their newly- born daughter Charlotte, who is eight months old. This investment should remain in the UK, as interest rates in Switzerland are minute.

However, it would be worth considering investing this money in one or two building societies as opposed to the bank in which it is currently being invested. Some building societies will still open children's accounts with a fairly small opening balance.

While Cynthia and Andy have selected a bank which pays a good rate of interest, the possibility of their child getting a windfall from a building society during the next five years makes it worthwhile switching their investment, even if it means a lower interest rate.

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