Wealth Check: 'My savings have gone down under'

We give 'Independent on Sunday' readers a financial makeover
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Sarah Ridley is starting all over again after the break-up of a relationship that took her to live in Australia for two years.

The cost of her move back to Britain has thrown her finances into sharp relief. Since April, she has been paying £1,000 to rent a two-bedroom flat in south London. Previously, she owned a £250,000 two-bedroom cottage in Twickenham but sold it to free up some cash for her life down under.

"The money gained from the sale has now more or less dwindled away," she says.

With £8,000 earning 5 per cent interest in an ING Direct savings account and £1,000 in premium bonds, Sarah is building up a deposit to help get her back on the property ladder.

A mortgage needing a lower deposit would be welcome and she hasn't ruled out looking at shared- ownership schemes.

Sarah has no big debts or loans to worry about, and is applying to switch an outstanding Barclaycard balance to Egg's 0 per cent deal (with a 2 per cent transfer fee).

Before departing for Australia, she had been paying £150 a month into a personal pension with Royal & SunAlliance (R&SA) for three years.

"Now that I'm back, I'm keen to start making pension contributions once again," she says.

She has no protection policies.

Interview: Esther Shaw

The patient

Sarah Ridley, 35, from Battersea, south-west London.

Job: freelance business consultant.

Income: £40,000.

Savings: £8,000 in a savings account and £1,000 in premium bonds.

Investments: none.

Goal: to get back on the property ladder and pay into a pension again.

The cure

Although Sarah is having to rethink her finances at 35, her robust income will "likely exceed her spending and give scope to plan for the future", says Patrick Connolly of independent financial adviser (IFA) John Scott & Partners.

In the next 12 months, she has a great chance to build on her £9,000 deposit and get back on the housing ladder, adds Ben Yearsley from IFA Hargreaves Lansdown. "This should tie in with mortgage rates falling."

Savings and debts

Mike Pendergast from IFA The One Group says that ING Direct offers a good deal for Sarah's savings, though as a higher-rate taxpayer, she is liable for 40 per cent on the interest.

To this end, she should take advantage of her mini cash individual savings account (ISA) allowance, which lets savers put aside up to £3,000 a year tax-free. For example, Alliance & Leicester pays interest at 5.4 per cent, he adds.

Property

"Shared ownership may be the best way forward if she has a limited deposit," says Mr Pendergast. This would involve her buying a share of a property while paying rent on the rest to a housing association. Gradually she could buy a bigger stake until she owned her home outright.

Sarah could get a 100 per cent mortgage, adds Mr Yearsley, but the interest would be higher.

As a self-employed person with little earnings history since returning from Australia, it may also be difficult for her to obtain a mortgage without a bigger deposit.

Retirement

The performance of the R&SA fund has "not been wonderful", says Mr Pendergast. The provider is closed to new business and Sarah could be better off switching her pension, though watching out for any transfer penalty.

She could go for a stakeholder pension, says Mr Connolly. "This has low charges and she can vary her payments to suit her circumstances."

Insurance

As Sarah is self-employed, she should consider an income protection policy, adds Mr Connolly. "Her finances would suffer severely if she were unable to work."

If you would like a makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk

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