Wealth Check: Should I switch to a new lender when I move?

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The Independent Online

Alexander Bennett, a book editor, lives with his wife and 18-month-old son in a three-bedroom house in Crawley. The family are comfortably off, but plan to move home next year and have at least three concerns about their finances.

The first issue is what to do about their mortgage when they move. By the time they get round to selling, their Nationwide Building Society two-year discounted variable rate mortgage deal will be coming to an end, so they would be able to move lender without penalty. They are likely to need to borrow more money to move, but should they stick with Nationwide or go elsewhere? One of the Nationwide mortgages is interest-only so this could be more complicated.

Alexander is also anxious that he may not be saving in the best way possible for his son. He used his Child Trust Fund vouchers to open an account with The Children's Mutual, with the money going into a fund run by Insight Investment.

He also contributes £100 a month to a Baillie Gifford savings scheme, which invests in the Edinburgh Worldwide Investment Trust. Is this a good strategy for the future?

Finally, there's the question of Alexander's pension planning. He'd like to retire with a pension of £30,000 to £40,000 in today's money, around two-thirds of his current pay.

We asked three independent financial advisers for their help: David Hollingworth, of London & Country Mortgages; Julie Hedge of Christie Scott's; and Danny Cox, of Hargreaves Lansdown.

Case notes: Alexander Bennett, 34, book editor, Crawley

Salary: £56,000 a year.
Property: home worth £500,000 with mortgage of around £250,000 outstanding.
Savings: Nationwide Building Society cash ISA worth £3,200, plus £2,000 in additional savings in Nationwide account. Child Trust Fund with Children's Mutual and savings plan with Baillie Gifford.
Debts: None
Pension: Member of money purchase pension scheme at work, with contributions from him and his employer totalling 12 per cent of pay.
Monthly spending: Around £2,000 on mortgage, bills and childcare. A further £520 on savings and pension. Around £500 on other costs.

MORTGAGE

David Hollingworth says the Bennetts should find out whether Nationwide can satisfy their borrowing requirements. If not, with no penalties to pay for changing lender, they have the freedom to seek out the best deal in the market.

Hollingworth explains that Alexander will still be able to split the mortgage between interest-only and repayment if he does switch lender. There is always a risk that the repayment vehicle - he can keep the Nationwide ISA - will fail to meet the target amount.

Hollingworth points out that if Alexander increases the interest-only element of the mortgage, he will need to reflect this in the investments he makes in the repayment vehicle.

CHILDREN'S SAVINGS

Alexander has made some decent choices so far in saving for his child, says Julie Hedge. The Child Trust Fund offers good tax advantages and he has rightly chosen to link the investments to the stock market rather than deposit funds. Over 16 years, any short-term dips in the markets should be overcome by longer-term upward growth. The Insight Fund is wholly invested in UK shares while the Baillie Gifford fund is a global equities vehicle. So, it's a good geographical spread, which will help to limit risk.

PENSION

Danny Cox is curious that Alexander's target for a pension in retirement is £30,000 to £40,000 a year. At the top end, this is close to his current net income, but most people's retirement income requirements fall to between half and two-thirds of their working income, once mortgages have been repaid and children are no longer dependent.

Alexander is in a good employer's scheme with a total contribution of 12 per cent a year. He has previous pensions with two former employers to count on, but his current pension could provide £17,000 a year in today's terms at age 65.

Adding in the State Pension and the benefits of the State Second Pension, this should take his retirement income closer to his target. Additional contributions to pensions will qualify for 40 per cent tax relief, though repaying the mortgage and increasing his protection provision are higher priorities, Cox adds.

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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