Last summer Helen Thompson and Matt Duncan arrived back from holiday to find
that severe flooding had wrecked the ground floor of their two-bedroom
terraced home in Hull.
After months of negotiations, the claim on their insurance policy was finally
rubber-stamped in January and repairs were carried out over the following
six months while the couple stayed with family and friends.
Helen says: “Equity Red Star, our insurer, messed us around for months and we
were eventually offered a cash settlement of £25,000. It said that was an
average of all the estimates it took from builders for the work that was
needed to our house. We took the cash settlement and managed to get the job
done for £20,000.”
The couple saved the remaining £5,000 and have added it to their pot of
savings. They have £15,000 in a Halifax Guaranteed Saver account, £3,600 in
a Yorkshire Building Society Isa, £3,600 in a Scarborough Building Society
Isa and £3,000 in a Skipton Building Society Isa.
With the work on their house now finished, they are looking forward to next
year. Matt, 26, and Helen, 24, plan to spend £12,000 on getting married in
April and hope to move into a larger house and start a family soon.
However, there are a number of financial hurdles ahead of them in the run-up
to their wedding.
Their buildings and contents insurance is up for renewal next month and they
fear that it will jump in cost because their claim for flood damage was
processed at the beginning of this year.
In the same month, their three-year fixed-rate mortgage deal with Yorkshire
Building Society will also come to an end and they will need to remortgage
or face paying the more costly standard variable rate.
Helen and Matt took out the £81,500 loan for 100 per cent of the value of
their property in 2005. When the fixed-rate deal comes to an end on December
31 the rate will jump to 6.9 per cent and they will have to stump up an
extra £70 a month in repayments.
Helen says: “We would like to start a family soon but I am worried that if I
stop working to have a baby we will not be able to afford a new mortgage
deal, if we can find one.”
She adds: “We just don't know what to do about the mortgage. We are not
confident about making decisions and not sure whether we should use our
spare cash to pay down our mortgage.”
Helen works as a senior manager at a specialist college for young people with
learning difficulties and earns about £30,000 a year.
Two months ago she started contributing to a pension plan with Scottish Widows
and pays in 8 per cent of her salary each month. Her employer pays 2 per
cent. She would like advice on whether she should be contributing more to
her pension.
Matt is a newly qualified accountant and earns £21,000 a year working for a
local company. He doesn't have a pension plan and would like to know whether
it is time to start a private one of his own.
Another debt the couple owe is £2,000 on Matt's credit card, which he has been
moving between 0 per cent deals for two years. Helen also owes £12,000 in
student loans.
Helen and Matt: what the experts say
INSURANCE
Darren Black, Confused.com
“There is a 1 in 75 chance of Helen and Matt suffering further flood damage to
their house and there is no guarantee that they will be offered a policy
renewal; if it is renewed, it is likely that the cost will increase
excessively.
“As they live in a ‘high risk' area
- a point accentuated by their successful £25,000 claim last year - they are
classed by insurers as being ‘non-standard' risks. As a result, they need to
opt for a more bespoke insurance policy.
“Another possible solution is to take out a home insurance policy that
excludes flood risk. This high-risk strategy may be worth considering, not
least because the Environmental Agency is tipped to re-evaluate Hull's flood
risk, due to a much-improved Humber Barrier. For more information they
should call Floodline on 0845 988118. If they decide to go ahead, the money
they will save could be used to strengthen the flood defences on their
house. But it is vital to obtain the approval of their mortgage provider.”
Action plan
- Look for a bespoke policy.
- Consider a standard policy by excluding flood risk; call Floodline for
detailed information.
PENSIONS & INVESTMENT
Mark Dampier, Hargreaves Lansdown
“Helen has a Scottish Widows pension but with this type of pension the choice
of funds is crucial. She won't be retiring for another 30 years so she can
afford to be slightly more aggressive with her investment choices. I believe
that these should include Invesco Perpetual's Income fund and an emerging
markets fund, which is where the most growth should come from over the next 20
years.
“She shouldn't worry about stock market volatility. She should actually be
glad that the markets have fallen because she will be buying cheaper units.
“Matt should set up a private pension just to get into the habit of regular
saving for retirement, starting with about £50 a month.
“Helen and Matt won't be able to obtain another 100 per cent mortgage deal and
might be in negative equity, so I suggest that they use some of their
significant cash savings to pay down the home loan and also put any spare
cash they have towards the mortgage.”
Action plan
- Strengthen position by using savings to reduce mortgage.
- Opt for riskier investment funds within pension plans.
MORTGAGE
Jonathan Cornell, Hamptons International
“Helen and Matt should wait until after their wedding before they remortgage.
Yorkshire Building Society's standard variable rate (SVR) may well go down
if there is a base-rate cut. If this happened, their mortgage payments would
increase by only £50 a month and if there are further base-rate cuts before
the end of the year this may be even less.
“There are always extra costs attached to remortgaging, even on ‘fee free'
deals. Matt and Helen
could end up paying twice if they remortgage and then move in the spring.
After the wedding they will have a better idea of how much money they have
left over to use as a deposit.
“One way that they can keep saving and also pay off their mortgage at the same
time is to have an offset or current account mortgage. Any savings help to
reduce the balance of the mortgage, which means that even if they keep their
payments the same they will still pay off their mortgage more quickly - and
the savings are easily accessible if they need them.”
Action plan
- Wait and remortgage after the wedding.
- Consider an offset mortgage.
FINANCIAL PLANNING
Dennis Hall, Yellowtail Financial Planning
“The best investment they can make right now is to repay their debts as
quickly as possible. Matt should repay the £2,000 on his credit card from
their savings and keep the card only for emergencies. The mortgage is the
next priority, while Helen's student loans should be the last to be repaid
as they are the cheapest.
“The general threat of unemployment and redundancy appears to be higher, so
they should look at covering their mortgage expenses with accident, sickness
and unemployment insurance.
“Weddings are great occasions, but expensive. Perhaps they could reduce their
planned £12,000 expenditure and put the savings towards other goals. An
additional lump sum used as a deposit on a larger home would have
long-lasting benefits.”
Action plan
- Focus on paying off debts, starting with Matt's credit card.
- Reduce wedding costs and use savings for a larger deposit.
Helen's response
“It is interesting to hear that our mortgage repayments shouldn't rise by much
when
our fixed-rate deal comes to an end in December. Looking at the local property
market, it is unlikely that we are in negative equity, so moving house in
the spring is still our plan. After the wedding we will also look into
paying off more of our mortgage with our savings.
“It hadn't occurred to me that a stock-market downturn could be positive for
my pension pot. I would be interested in switching to a 'high-risk' scheme
to gain from the growth in the developing markets. Matt will certainly look
at starting a pension plan and consider the advice to choose a more risky
investment portfolio, although it goes against his instincts as an
accountant.
“We will look into the cost of bespoke home insurance cover.”
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