Wealth Check: 'What should we do with our £140,000 profit?'

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The Independent Online

The patients

Iain Bertram and Sharon Crane, from Lancaster, are eager to make the most of the £140,000 profit from the sale of their first home.

"We intend to put £120,000 towards an extension and improvements on our new home, and then pay off debt and save the remainder - keeping about £5,000 in cash and putting £10,000 in longer-term investments," says Sharon, 45, a Phd student at Lancaster University.

They hope to start the works on their new home in around six months, creating an open-plan kitchen and living area. Meanwhile, they want to know where best to store this cash.

Despite owning their three-bed semi since last September, which they bought for £230,000, it was only recently they sold their first home, for £202,000. After paying off the remaining mortgage on that property, they were left with £140,000 from the sale.

On the new property they are paying £695 a month for a £170,000 interest-only mortgage. The deal is with Direct Line on a five-year fixed rate of 4.89 per cent.

Iain, 39, is a physics lecturer at Lancaster University and earns £44,000. Sharon is getting £10,000 a year during her course.

The couple have a Nationwide e-Savings account, paying 5.3 per cent. They also have £6,000 in a mini cash individual savings account (ISA) with Barclays, at 4.75 per cent, and £1,500 in a child trust fund with Nationwide for their three-year-old son, Alexander.

They have a small debt to contend with, paying £220 a month for a £3,000 personal loan with Nationwide at 6.3 per cent.

The couple are now keen to get saving for the future. "We want to start paying off the house, accumulating and diversifying investments, and planning for possible university fees."

Sharon does not pay into a pension, but Iain has been putting 6 per cent of his salary into the University Superannuation Scheme, a final salary plan, for eight years. They have no life cover.

The cure

Happily, the family are in a sound financial position, agree our special panel of independent financial advisers (IFAs). "But they are missing sufficient life insurance, which is so important for a young family," warns Kevin Anderson of IFA Budge & Co.

Savings/investments

Putting the £140,000 lump sum in an instant access savings account paying a high rate is the best idea, as they will need to get their hands on the money to pay for the building work.

Their Nationwide e-Savings account is competitive, although there are other deals offering higher rates. For example, Icesave is paying 5.95 per cent on its instant access savings account.

After clearing the debt and keeping a cash reserve, the £10,000 they want to invest could be put in a maxi ISA for exposure to the markets; they could each use their allowances for this.

Retirement

Iain and Sharon should check their state pension entitlement by filling in form BR19, available at www.thepensionservice.gov.uk. Iain is lucky to be in a final salary pension scheme. Sharon could contribute as little as £20 a month to a stakeholder plan.

Property

They have a "fabulously low fix at 4.89 per cent," says Nick Lincoln of IFA Wilson Dean. "With base rates at 5.5 per cent and high-paying deposit accounts on offer, they would be mad to think about paying back any of the capital on the mortgage for the moment."

Protection

"I would recommend they consider as a minimum £200,000 of life cover," says Keith Churchouse of IFA Churchouse Financial Planning. On a joint-life basis over 15 years, this could cost around £38 a month. Ian and Sharon should both check whether their employers already offer cover.

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