How to change both a career and a home?
Luci McQuitty has some big financial decisions ahead of her as she is planning to make a career change within the next two years.
While she is close to securing a permanent job at her current firm next month - a public relations agency where she is providing maternity cover on a salary of £37,500 as an account director - her longer-term aim is to start her own business as a personal pilates instructor.
"I have applied to do a pilates teacher training course at a cost of £3,700," she says. "My aim is to take on a full-time job for the next few years while I train, and then to move to Hastings to set up the business."
Just as Luci, 33, is getting ready to overhaul her working life, she is also planning to do the same with her living arrangements.
At the moment, she shares a two-bedroom flat in west London with her brother. They each have a 50-50 share of the £180,000 mortgage on their home, which they took out with Cheltenham & Gloucester in February 2004. This is a discounted repayment loan fixed at 0.39 per cent above base rate (currently 4.89 per cent) until December 2007.
Luci is now keen to live on her own and wants to stay based fairly centrally in London for the time being.
She has the option of either borrowing £10,000 from her parents to buy her brother out of the flat (and then rent out a room), or selling the flat altogether and going into rented accommodation for six months until she can afford to buy a place of her own.
Alternatively, she is considering buying a one-bedroom flat further out of London which she could afford more easily - but in an area she might not like as much.
Luci has been disciplined in building up her funds: she has £6,070 in a mini cash individual savings account (ISA) with Smile, paying 4.65 per cent; £2,200 in a second Smile savings account, paying 4 per cent; and £5,740 in an online savings product with Egg, paying 4.5 per cent. At present, she has no investments, but nor has she any debts or loans to worry about.
Saving for the distant future is another of Luci's priorities, as she is currently not paying into a pension.
"I am concerned that I have started and stopped several pensions in recent years, including a frozen company scheme which I paid into for two years, and a stakeholder pension which I paid into for one year."
She has no protection policies in place.
Make sure you tone up your savings.
Given that Luci is looking to make a career change, she needs to organise her finances accordingly, says Justin Modray from independent financial adviser (IFA) Bestinvest.
"This means avoiding long-term commitments and keeping plenty of 'rainy day' cash aside until her new career generates a stable income."
He recommends she delay any decision on her flat until she knows if she has secured the job at the public relations firm.
"If Luci takes a pay cut in the future when becoming a self-employed pilates teacher," he adds, "this will affect her ability to pay the mortgage."
Savings and debts
Mr Modray says Luci is holding her savings with providers that pay competitive rates, but he recommends she transfer the savings in her Egg account to the mini cash ISA, to make use of her annual tax-free allowance of £3,000.
Given Luci's uncertain career and property plans, Mr Modray says she is best off keeping her money in cash for the time being.
"But when her life is more settled, Luci should consider regular saving into a stock market-based investment, because returns are likely to be more exciting than cash in the longer term."
Based on her earnings, Luci will struggle to buy a flat in central London, as prices remain high, says Mr Modray.
If she wants to maximise her income, then buying out her brother with a loan from her family (at low or nil interest) and having a room to rent out would generate a quick and effective return, says Colin Rothery at IFA Throgmorton Financial Services.
"Given that she doesn't want to move to an area she might not like - which could also incur greater travel costs - Luci would be better off finding a nice lodger to cover the additional mortgage payments."
As a higher-rate taxpayer, he recommends that Luci use the Revenue & Customs "rent a room" scheme. This offers a tax-free allowance of £4,250 a year.
Mr Rothery also points out that if she and her brother sell now, there may be redemption penalties for early repayment, because their mortgage deal with Cheltenham & Gloucester runs until 2007.
Luci should wait and see whether the permanent job comes off, says Mike Pendergast from IFA Zen Financial Services, and if so, she should join the occupational scheme.
"If she is going to stay with this company, she can then transfer her old pension schemes into the new one - if the trustees will allow," he says.
"If not, she should look at her stakeholder pension - particularly as her job is quite fluid - because this will allow her to take her pension with her wherever she is working."
Mr Modray says that because Luci has "little pension provision to date", she should make further payments into her stakeholder when she can afford it.
As Luci has no dependants, life insurance is superfluous, says Mr Modray.
But when she is self-employed as a pilates teacher, she should look at some firm of income protection because she will not be paid if she is off work through illness, says Mr Pendergast.
As a single person, he adds, she should also consider critical illness cover.
Interview by Esther Shaw
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