Wealth Check: 'I'm painted into a corner by debt and low income'

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Mary Delmage moved to the UK from Canada a year ago and lives in Totnes, Devon, with her two children, Patrick, 18, and Ciaran, 13.

Mary does not earn a regular income, and wants to reduce her outgoings. She gets £200 a week in child support from her children's father, and also claims child benefit and working family tax credit totalling £185. "This is supplemented by money from teaching or selling paintings – but this is only occasional," she says.

Mary goes over her budget every week. "I owe family members £30,000, but this is interest-free and to be repaid when I can."

Mary, a British and Canadian citizen, is paying £800 a month in rent. "I have been looking for somewhere cheaper, but have not found anywhere," she says. "I have considered buying a cheap flat – under £170,000 – as a way to reduce my outgoings. I can borrow a further £100,000 interest-free from family members – but would need to make up the difference with a loan from a financial institution." However, she is struggling to take out a mortgage as she has little UK credit history.

Mary owns a house in Canada worth £140,000, which she lets out. She does not have a mortgage on it, but a line of credit secured against the house is up to its maximum of £47,000.

Mary is unsure whether to sell this house to free cash to live on while she seeks to stabilise her life in the UK and lose it as an investment, or whether she should extend her loan on it. She has no other investments, pension or protection policies. She does have a will.

We asked three financial advisers for their suggestions: Keith Churchouse from Churchouse Financial Planning, Anna Sofat from AJS Wealth Management and Chris Wicks from the Alexander Beard Group.

Case notes

Mary Delmage, 50, self-employed artist and teacher

Income: About £1,500 a month, but varies considerably
Pension: None
Savings: None
Property: Owns a house in Canada worth about £140,000 and pays £800 a month to rent in the UK
Debts: £30,000 owed to family and friends; £180 a month on a loan from Allied Irish Bank; £900 overdraft on her NatWest current account
Outgoings: £2,100 a month

Debts

"A key issue for Mary is reducing the gap between her income and expenditure of about £500 a month," Sofat says. Churchouse adds that Mary needs to consider part-time work to narrow the gap, and to concentrate on paying off her debts.

Property

Wicks warns that Mary will find it very hard to raise a mortgage in the UK, not just because of her short residency, but also due to her earnings. That said, it is a good idea to buy a property in the UK: "Your family will lend you £100,000; you will then need a further £70,000 plus legal costs and other expenses," he says.

He suggests that instead of the family members lending Mary money, they could share ownership. "By doing this, they benefit from the growth in the investment and you don't have to make any monthly payments."

Sofat adds that a property here would also be an asset later on in life. "If she can get the interest-free loan and the mortgage, my advice would be to buy."

Churchouse, on the other hand, says owning a property here could place Mary and her family in greater financial stress if she's unable to make the repayments. He suggests she consider extending her line of credit on the Canadian house, or selling it. "If Mary extends her line of credit, then to cover the additional money borrowed she would have to consider raising the rental income," he says. "Depending on the current lease, she may not be able to do this."

Investment

If Mary sells her "investment" property in Canada, this would leave her without a property "back home", says Churchouse, but he adds that she should consider selling if she's intending to stay longer in the UK.

"If she invested the money released from the sale, this could provide her with the additional monthly income she needs towards her budget," he says. But Sofat "strongly advises" her to resist this. "It is her only asset, and it could provide her with an income or capital in retirement," she says. "Given that she has no other savings, I think this is pretty key."

Pension

Mary should consider paying into a pension, says Churchouse. "But on such an overstretched budget, this would be difficult. Mary should be eligible for a UK state pension at 65 if she decides to stay in the UK, and any benefits she has accrued in Canada can be transferred to the UK."

Protection

If Mary sells the property in Canada, Churchouse recommends taking out some life assurance, as this will protect her family.

To find an independent financial adviser in your area, visit www.unbiased.co.uk. For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

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