When Andy and Claire James decided that they wanted a simple life, they didn't
expect achieving it to be quite so complicated.
The couple, both 39, aimed to set themselves up with an idyllic country
lifestyle before they had children. “We want a proper family life,” says
Claire, a fundraiser. “We don't want to be rushing between work, childcare
and home.”
But seven years and two children later, they are still closer to Central
London than rural bliss. Their first choice was conservation work overseas,
but Andy, a former zookeeper, was unable to get the job he wanted. Next,
they checked out Panama. “Too adventurous for me,” Claire says. Then they
fixed on llama-trekking holidays in Spain. “Too expensive,” Claire says.
Four years ago, on holiday in Puglia, in Italy, some stone houses called
trulli caught Andy's eye. The buildings have distinctive conical roofs and
are unique to the area. The couple went back to Puglia together and found
their future: a rundown trulli on six acres, with olive, fruit and nut
trees, and only 20 minutes from the sea - all for £59,000. But four years
later and the renovation is not yet finished. “It has been more work than we
thought, with planning regulations to negotiate and basics to put in, such
as a water supply,” Claire explains.
The property has been transformed into a family home plus a two-bedroom house
and a studio for holiday lets, but the cost, so far, is more than double
their original budget of £95,000. “We have tried to be green and have gone
for more expensive fixtures and fittings,” Claire says. Ultimately, they
expect the combination of rustic authenticity and high-quality accommodation
to pay off.
The family will move in at the end of September and open for holiday lets next
spring. They are not too concerned about job prospects and Claire says: “We
would like to do different things and we have several business ideas.”
She adds that the venture has been made possible by the UK property boom. They
sold their two London properties just before the peak and are now renting.
They have kept a toehold in the UK market with a buy-to-let property in
Worcester. The rental income of £8,340 a year covers the interest on the
£119,000 mortgage.
Pensions have taken a back seat, but they now wonder what to do with their
plans. Claire, who works for TreeHouse, the autism charity, has two ethical
stakeholders. She pays £23 a month into an AXA plan with a fund value of
£6,490 and has a Friends Provident pension through her employer, worth
£11,270. Andy, now a facilities assistant, has a final-salary scheme from
his years at London Zoo.
Claire and Andy also need to pay attention to children's savings. Rosie, 2,
has a Child Trust Fund (CTF) stakeholder with Legal & General, and they
have yet to invest the CTF voucher for Lucas, 3 months.
Their biggest dilemma is whether to use some of their £76,500 savings to pay
for the remaining building costs of €36,000 (£28,500), or take out a
mortgage in Italy.
The Jameses: what the experts say
SAVINGS & INVESTMENT
Mark Dampier, Hargreaves Lansdown
“The best savings account would be Nationwide's e-Savings, which has a
consistently good rate, and they can also open its FlexAccount current
account, which has no charges for withdrawing money abroad. They can then
transfer savings to it from the e-Savings account, as needed.
“They should pay more attention to their long-term investments; neither of
them is saving enough for retirement. Claire's AXA stakeholder is lousy -
AXA appears to have a link to Jupiter Ecology, a better performer, so she
should see if she can switch. She could also look at Aegon's UK ethical fund
which is far better than AXA's.
“For the Child Trust Fund, as it's a small amount of money invested over 18
years, you don't have to play safe. Look at overseas choices from the
Children's Mutual and F&C, or if they prefer UK investments, Invesco
Perpetual's Income Fund is also offered by the Children's Mutual.
“It is almost never beneficial to take out a mortgage or loan and keep
savings, as borrowing rates are usually higher than savings rates.”
Action plan
Open new current and savings accounts.
Aim to increase long-term savings.
Switch to a better ethical fund.
Look for a higher-risk Child Trust Fund.
MONEY TRANSFERS
John Mullens, Moneycorp
“Andy and Claire will have to transfer funds to Italy either as a lump sum or
as smaller payments. Whichever way they choose, they need to make the most
of their money.
“There is still a huge amount of market uncertainty about the sterling/euro
exchange rate and even small fluctuations will have a significant impact on
the amount of euros that Claire and Andy receive.
“For instance, taking May as an example, on a transfer of £76,000 there was a
difference of €3,290 (£2,600) on the exchange over the month, as rates
fluctuated.
“A foreign exchange specialist can help clients to time a transfer well.
A 'forward contract' can allow a client to lock in to favourable exchange
rates for up to two years. To transfer small amounts regularly, a payment
plan can be set up to protect against adverse currency movements.”
Action plan
Pay attention to exchange rate fluctuations.
Consider using a foreign exchange specialist.
MORTGAGES
Ben Maher, Conti Financial Services
“For an Italian mortgage, Italian banks need at least a year's history of
employment, or two years' accounts and tax returns for the self-employed. If
Claire's accountant can show that she can continue her freelance business
from her Italian property, then the Italian banks may consider a mortgage
based on her income.
“The minimum loan amount that Italian banks generally consider is €50,000
(£39,500). Provided that the property in Puglia is fully habitable and the
Jameses can provide invoices and receipts for the work, they could apply
retrospectively for a loan for the renovation work to make the property
habitable.”
Action plan
Check employment status meets requirements for an Italian mortgage.
Apply retrospectively for loan to cover the renovation work.
PENSIONS
Jeanette Cottrell, Bestinvest
“Andy and Claire can simply keep their pension plans in place to continue to
grow tax-free and when they draw a pension these can be paid overseas. If
you leave the UK you can maintain contributions into an existing stakeholder
for five years.
“Andy's final-salary pension scheme comes with valuable guarantees, so it is
unlikely to be worth transferring.
“Claire's stakeholders could be transferred to an Italian scheme if it is a
qualifying recognised overseas pension scheme - a list is available from
Revenue & Customs. There are no transfer penalties but they should
consider local tax and residency rules to obtain local tax benefits.
“As for Claire's funds, many ethical funds have underperformed recently,
including those from AXA and Friends Provident, because they do not invest
in the natural resources stocks that have strongly outperformed the market
over the past year. We do not recommend any AXA ethical funds, but some of
the Friends Provident funds are run by Ted Scott, who achieved a three-star
rating for his funds at F&C. But these can restrict themselves to UK
investments, whereas we recommend investing worldwide for a balanced
portfolio.”
Action plan
Keep final-salary scheme.
Leave other pension plans in place until settled, then look into transferring
stakeholder schemes.
Claire's response
“The advice from our Money MoTs has been invaluable. As a result, we have made
good decisions about financing an ambitious project while safeguarding our
savings. It has taken a long time, but our home is almost complete, and this
MoT inspired us to finish our website at rusticpuglia.com.
“The downturn in the exchange rate has made this project thousands of
pounds more expensive. We would feel nervous about transferring all our
money into euros now and investing it locally, so we will look at dividing
our money between the UK and Italy.
“We understand that it is advisable to pay off debt before saving, but the
advice about the possibility of retrospective funding to pay for the rest of
the work is worth checking.
“The comments about my AXA pension are worrying and I will investigate
switching. And we'll open a Child Trust Fund for Lucas.”
Would you like a financial makeover? Write to Money, The Times, Times House, 1
Pennington Street, London E98 1TB, marking your envelope Money MoT, or e-mail
moneymot@thetimes.co.uk. Please include current finances, short and
long-term goals and a daytime phone number. You must be prepared to disclose
your income and be photographed.
