Going abroad hit my finances hard

Sheila Tolley
Age 40
Lives in Manchester
Occupation Regeneration manager
Earns ?31,000
Mortgage ?20,000
Debts ?14,750
Investments None
Pensions 12 years' contributions
Aims to Reduce debt and reorganise housing

Two years ago, Sheila Tolley packed in her long-standing job with a housing association and flew to South Africa. She hoped to find work in a township but had nothing lined up: 'I went out not knowing what to expect.' She landed up in Ivory Park, a large township between Johannesburg and Pretoria, managing a project to transform tin shacks into homes. They completed 450 in a year. But then funding ran out and she felt that because of the political tension she should return home.

Sheila now has a six-year contract working on urban regeneration in Salford but earns £2,000 a year less than the housing association paid, with no company car or health insurance. Her budget is tight because, while abroad, she earned a local wage and her debts, including £5,300 on her Visa card, grew.

Her main worry is her own housing. When a relationship broke up some years ago, she had to sell a jointly-owned semi, leaving insufficient funds to buy a place on her own. So she chose a two-bedroomed flat on a shared equity basis. She bought half the flat in 1989 for £24,500 with a £5,000 deposit. Four years ago, she borrowed another £6,000 to put in a new bathroom and kitchen. 'I have no desire to move but I am contemplating whether to buy the other half or perhaps an additional quarter share.'

She is not convinced this is right, given her earnings and debts, but fears it will become too expensive if she delays: 'The price of the additional share will rise, as flat prices in Manchester are fairly buoyant.'

Buying more would push up her mortgage repayments but reduce the rent on the remainder. She also has to pay for the valuation and remortgaging costs but can offset the money spent on improvements. Another option is to keep just half and buy a small investment property to rent out.

Housing is not the only call on her spare money: 'I would like to pay some extra money into my pension and clear my credit card bill.' She also owes her parents £1,500; £750 to a previous employer for half the course fees for an uncompleted masters degree, and £200 a month for her car for the next three years.

She wonders if she should pay the National Insurance contributions she missed while abroad. 'My desire is to get back into overseas development work, perhaps in a position which allows me to continue to live in the UK or an overseas job that pays me sufficiently to allow me to keep my home in the UK without having to rent it out.' But, realistically, she says: 'Both options will be difficult to achieve, as salaries in the sector are poor and because I went into this line of work late in life at the age of 38.'

Adviser 1: Danielle Leich

Purchasing the remaining half of her flat
doubles Sheila's outgoings - a big jump for
anyone - but she can afford another quarter share
and to repay her debts faster. It is important to
clear the debts quickly.

She should check her Visa APR as rates vary and
she may find lower rates by transferring the debt
to another card. Barclays charges only 5.9 per
cent on transferred balances. Many credit card
companies offer introductory rates, such as
Nationwide's 3.5 per cent, for the first six months,
but she should check what rate applies after this.
Sheila might consolidate her debts to one lender
at lower interest, but she should continue paying
the same amount to repay the debt faster.

Everyone can miss five years National Insurance
contributions and still qualify for the maximum
pension. To work out if catching up is worthwhile
she should complete form BR19 (available from
any Benefits Agency, or call 0191 218 7585). The
Agency forecasts pension entitlement, details
missed payments over the last six tax years, and
advises what is needed to make up these
contributions. They will show the impact that
missing payments have on the final pension.

For a second property, she needs a deposit and
money for conveyancing. Mortgage rates are
higher for investment property. Rental income is
taxable and she faces capital gains tax when the
property is sold.

• Danielle Leich works for PriceWaterhouseCoopers.

Adviser 2: Ian Millward

Sheila has ?400 a month to spare, which allows
her to pay off her debts and boost her pension. As
she owns only half her flat, she will earn just 50
per cent of any rise in property value which
suggests that she should buy more as soon as
possible. On paper at least, she can afford the
mortgage on her present income.

It is important she clears her debts and, when
increasing her home loan, she might be able to
roll her expensive short-term debt into the
mortgage. She would pay more interest in the
long run but her monthly outgoings would be
minimised now. With a fixed-rate mortgage she
knows exactly what her outgoings are for a few
years.

As she was working while in South Africa, she
can pay class II National Insurance contributions
at ?2 a week to make up the shortfall. This has
recently been reduced and will cover sickness,
health pay, maternity leave and the state pension,
so could be worth doing.

If she does work abroad again, she probably
cannot afford the flat without renting it out, so she
should check rent levels. If the rent would meet
her new higher mortgage payments, she knows
that the costs of her home could be met from
rental income.

It is sensible to increase pension contributions,
either as added years or through AVCs, to protect
her future security.

• Ian Millward works for Bath-based financial adviser
Chase de Vere.

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