Wealth Check: A house is the magnum opus of an opera singer
Sunday 03 September 2006
The problem: Should an Aussie buy a home in the UK?
Australian-born opera singer Daniella Ehrlich, in the UK on a "highly-skilled work permit", is seeking to invest savings built up over the past few years in a first home.
But the full-time Welsh National Opera (WNO) chorus singer faces a dilemma: should she buy here or wait until she returns to Sydney?
Daniella, 34, has been renting in Cardiff for two years and plans to stay in the UK until 2008. "I've found a property I like [here] for £130,000, but if I buy, I would either have to sell my home when I come to leave or rent it out," she says. "I wonder if buying in Australia might turn out to be a better investment, and might make more sense if I decide to go back there when I leave the UK."
She is also toying with the idea of going to continental Europe to try to find work as a freelance soloist. "If I do this, I worry whether I'll be able to afford my mortgage," she adds.
"I have many decisions to make about my life - let alone my finances - and wonder if I should hold fire on buying until I know what my future holds."
Daniella earns around £29,000 a year with the WNO, and another £10,000 from extra performances and teaching.
She has been disciplined about building up her savings and has £12,000 in a Lloyds TSB offshore international savings account, paying 1.65 per cent.
She has also taken steps to clear her debts. "I spent two years in New York doing my masters of music degree, but I don't have any student debt remaining as I managed to pay [it] off by working as a waitress and a bartender."
Daniella is currently paying £475 a month in rent, not including bills, and is a member of her company pension scheme, contributing £22 a week. She has no protection policies in place.
The cure: Keep the property in the wings but save smarter
Buying a property may not be the best idea for Daniella at the moment, says Keith Churchouse of independent financial adviser (IFA) Churchouse Financial Planning. "I suggest she stays renting to give her flexibility while she considers what she wants to do next. A quick jump on the property ladder now may tie her down in future decisions."
Justin Modray at IFA Best-invest agrees: "Daniella needs to think very carefully about buying, especially as she may well move overseas in the next couple of years, and may also go freelance. Two years is too short a period to view the property as an investment."
Should she try to sell in this time, she would be gambling on the home rising enough in value to offset the considerable fees of both purchasing and selling.
Savings and debts
Mr Modray says there is no advantage for Daniella in holding an offshore account. "She is a UK tax resident and must pay income tax on the interest received from savings - regardless of whether they are onshore or offshore." He recommends she move her money to a higher-paying account such as Bradford & Bingley's eSavings 2, which offers a rate of 4.85 per cent.
Mr Churchouse urges Daniella to make use of her annual £3,000 tax-free mini cash individual savings account (ISA) allowance. "National Savings & Investments is currently paying 5.3 per cent on its Direct ISA, and Yorkshire building society is paying 5.25 per cent," he says. "An equity ISA is a medium- to long-term investment, and not suitable for Daniella as she may leave the country in the next few years."
If Daniella does buy the Cardiff property for £130,000 and takes out a mortgage for £123,000, say, she could expect to make monthly repayments of around £700, says Amanda Davidson at IFA Baigrie Davies. "This is £225 more than she is paying in rent.
"Looking at her budget, it seems she could afford this, but she needs to decide if she is happy to pay the extra amount."
If Daniella opts to let her home out, she must ensure the rent covers the mortgage payments, adds Ms Davidson.
With her employer's contribution, Daniella's monthly pension payments work out at around 8 per cent of her salary. "She should look to increase this up to about 20 per cent if she wants to retire on a reasonable income," says Ms Davidson.
When Daniella goes back to Australia, she must act quickly to turn her British retirement funds into an Australian pension. "She needs to make [a pension] transfer within six months of returning or suffer additional tax payments."
Mr Modray recommends that Daniella find out what protection policies, if any, are offered by her employer. If none, it could be worth taking out income protection insurance, although "it's not cheap".
These policies vary enormously. Some pay out on a claim if you can't carry on your chosen profession because of illness or injury, while others will pay out only if you can't do any job.
Daniella must take specialist advice to make sure she is aware of her options.
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