The Mortgage Bible 2009 Non Used Version

8/13/2019 The Mortgage Bible 2009 Non Used Version

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TheMortgage Bible

Mortgage WatchdogSixth Edition February 2009

Copyright 1999 Mortgage Watchdog

ISBN 0 9536572 0 5www.mortgagewatchdog.co.uk


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The Mortgage Bible- author - Monty Burn

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CONTENTS

Page1. Contents 12. Introduction 2

3. The Mortgage Players 3/44. Disclosure of fees 5/65. Whos responsible 76. The importance of C.I.D. 8/97. Your employment status 108. Can I obtain a loan on any property? 119. Loan To Value (LTV) 1210. The role of solicitors 1311. The legalities of remortgaging your home 1412. The legalities of purchasing your home 1513. Paying off your mortgage 16/2014. Interest rates 21/2215. House valuation 23

16. Redemption penalties 24/2517. Bank statements 2618. Credit history 2719. Consolidating loans 2820. Protecting your home against repossession 29/3221. ASU Payments and T&Cs 33/3422. What if I cant afford to make my mortgage payments 3523. Scams 36/4024. Step by step guide to taking out a mortgage/remortgage 4125. The Ideal Mortgage 4226. Documents you may need 4327. Beware cold calling 44/4528. Jargon Buster 46

WARNING: The details published in this report are intended as information onlyandshould not be construed as advice under the Financial Services Authorities Act 1986.We strongly advise you take appropriate professional and legal advice before enteringinto any legally binding contract. Additionally, whilst we have taken every precaution toensure facts and statements in this report are correct, we accept no liability for anyerrors contained herein, which may result in any loss from actions taken as a result ofthis report.

The text of this publication or any part thereof may not be reproduced or transmitted in any form or by anymeans, electronic or mechanical, including photocopying, recording, storage in any information retrievalsystem, or otherwise, without the written permission of the publisher.

This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold,hired out or otherwise circulated without the prior consent of the publisher in any form of binding or coverother than that in which it is published and without a similar condition including this condition beingimposed on the subsequent purchaser.


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INTRODUCTION

Save thousands of pounds - The main aim of this report is to secure you a goodmortgage that could save you thousands of pounds, give you peace of mind andprevent you being ripped off. You will get expert advice from an expert in the field ofmortgages and below is a brief summary of what you will learn from this report:

The problem:There is a conflict of interests between the mortgage adviser and youthe consumer.

The solution: Bring the conflict of interests to the attention of consumers by

educationof the mortgage process.

To summarise the main objectives of the report:

To provide you with sufficient knowledgeto secure a good mortgage.

To minimise the possibility of you having your home repossessed.

To expose the scams within the industry, that has caused consumers thousandsof pounds and heartache.

To save youpaying out extortionate fees.

Lets make it easy - Look at it this way, if you were a mechanic and you bought asecond hand car it is highly unlikely that you would end up being sold a rubbish car.You wouldnt be mis-sold as you would know what to look for when buying a car. Theexact same principle lies with mortgages, learn what the game is about and it will beextremely difficult for anyone to rip you off. Its easy when you know how and YOU willknow how if you read this report.

Impartiality- Try and accept that obtaining impartial mortgage advice from mortgageadvisers is almost Mission Impossible due to a conflict of interests (COI) so you needto know what you are doing.

The conflict of interest (COI)- is brought about by the right type of mortgage for youis normally the wrong type of mortgage for the adviser because of the low commissionpaid for the type of mortgage you need.

Subsequently the right mortgage for the adviser with high commission, results in apoor mortgage for you. Perhaps that is why so many consumers were sold endowmenttype mortgages that paid high commissions in the past.

You take control- By learning the mortgage process YOUtake control of the situationinstead of relying on those whose interests may come before your own.

Benefits- Without the aid of a report such as this, you, the consumer will quite oftenfind yourself at a disadvantage when dealing with a mortgage lender/adviser, due tolack of knowledge.


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The Mortgage players

Options- There are a number of options available when taking out a mortgage. Hereis a list of those available; you need to be aware of their differing roles.

LendersLenders are the banks and building societies. The lenders also buy in a lot of themoney they loan to you with a profit margin built into the Interest rate the same asthere would be for any other product you may buy. The lenders are still the majorplayers in the mortgage business. In other words the majority of people still go to theseinstitutions to borrow money for a mortgage. The banks reliance upon mortgagebrokers bringing in their business is fast dwindling as they step up their marketing onthe TV and Internet.

Loyalty often doesnt pay - You must realise your bank is a business and they areduty bound to their shareholders to make as much money as possible. To prove thepoint, if you have a mortgage with a bank they are not going to tell you the best ratesavailable as it is a conflict of interests. As an example, if your current mortgage interest

rate is 6% and the banks most competitive rate is 4% they are not going to ask you ifyou want to move to the lower rate. There is still a dual rate system, a low one toinduce new customers and a higher one for loyal long-standing customers. So muchfor loyalty, you can actually pay more for staying loyal to a bank.

Most people believe that the safest thing to do is entrust the banks with their moneybut if the above rates example is anything to go by, what do you think?

Another thing to bear in mind is that with most high street lenders, you only have theirproducts to choose from. Its not as though youre walking into a superstore with awide variety. You wouldnt consider shopping at a shop with only one product linewhen you have the option to shop at a superstore with the full range of products. Yetthat is precisely what you do when making probably the biggest purchase of your lifewhen you walk into your high street bank. Perhaps its time you had a rethink andconsidered an Independent product provider or go online and do some surfing.

The Mortgage Adviser

This is someone who specialises in mortgages and whilst some may be adequatelyqualified they could lack experience. There are some selling mortgages that haventa clue about the mortgage process. Sure they have passed the mortgage exam butthat was then and now they just want to make money, as much as possible.

These Advisersare unable to sell regulated investment products that come under theFSA (Financial Services Act). The mortgage adviser is however, able to sell Building

and Contents Insurance - and accident and sickness insurance.

Advantages

Specialising in mortgages they may have more mortgage knowledge and morecontacts with lenders.

Disadvantages

You need to see a qualified financial adviser, IFA, for associated mortgageinsurance products.


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IFA(Independent Financial Adviser).IFAs are regulated by the FSA (Financial Services Authority) and qualified to sellregulated products as defined under the Financial Services Act 1986. This includesendowments and pensions; they are also able to sell mortgage products. An IFA maybe equally knowledgeable in mortgages as the mortgage adviser, if not more so inmany cases, and can offer advice andprocess a total mortgage package.

Advantages

Must hold qualifications Financial Planning Certificates (FPCs), and is more closelymonitored than a mortgage adviser.

Should have a better understanding of the Financial Services industry than theirmortgage adviser counterparts.

Able to handle all aspects of the mortgage process including regulated insuranceproducts.

Disadvantages

As they are qualified in the Financial Services industry they may not have thespecialised knowledge or lender contacts of those specialising solely in mortgages.

May be more interested in selling you insurance products than the best mortgageproducts.

Tied Agents

A tied agent can only sell the products of the Insurance Co. they are tied to. However,the tied agent has a duty of responsibility to inform you of his status (independent ortied) at the earliest opportunity. They also have to justify why they have sold aparticular product over a range of others.

Advantages

Providing the product/s they sell on behalf of the company are competitive, they

should have a sound knowledge of their product as they have a limited number tolearn about.

Disadvantages

Limited range of products therefore may not be highly competitive.

All categories have a duty to disclose all fees/commissions paid to them; so dont beafraid to haggle for a fee/commission reduction. Some mortgage insurance deals canyield a lot of commission so there can be plenty of scope for a negotiated reduction infees.

Direct Mortgages

One way of eliminating high fees paid as a commission is to deal with the increasingnumber of Direct mortgage brokers (you can arrange your mortgage over the phoneor online). They offer the full mortgage service without you leaving the comfort of yourhome, or having someone come into your home. The same as lenders in as much asthey will only offer you their range of products. However, these are worth yourconsideration.


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Disclosure of fees

The provider has a duty to disclose At the outset, we will tell you if we receive afee for arranging your mortgage.

We will tell you the charges for any other service or product before or when it is

provided or at any time you ask.

Commissions/fees- Why should this be so important? Let me give you this scenario:

If an adviser is paid a procuration fee of 500 for product a, and 100 for product b,which product do you think they will try to sell the most? Naturally product (a). But whatif the terms and conditions of product (b) are more favourable to you?

The truth- There must be many cases where advisers have even sold poor mortgageproducts to their family and friends just to get a higher proc. fee. So what chance doyou have? There are advisers who will admit that if they told clients the true costimplications of the mortgage package theyd sell far fewer mortgages.

The onus for giving impartial advice doesnt lie entirely with the advisers. Lenders andpackage companies encourage this type of practice by offering high proc. fees inreturn for products that favour both the lender and adviser.

Packagers fees

Some packagers (and brokers) set up deals with both solicitors and surveyors so theyget a kick back on all business placed with them. So whats new!

Packagers also get a fee from the lenders, which is separate from any proc. fee anadviser gets. This fee should be disclosed as it may well have an influence on whatproduct the packager is offering. Allfees that affect the mortgage process should be

disclosed.

Avoid paying any fees up front except a valuation fee. Many people have experiencedgreat difficulty in retrieving fees paid up front. See Scamsfor further details.

These are fees that should be disclosed and detailed:

Any fee the broker/adviser charges for advice.

Any arrangement fee charged by the lender to set up the mortgage.

Any booking fee the lender may charge to secure your loan on preferentialterms.

Valuation fee, showing the breakdown of commissions added forpackagers/advisers.

Any fee/commission paid by a lender - packager - broker, to the adviser.

Legal fee inc. any fee/commission paid by a solicitor to the packager/broker/lender.

Any fee/commission paid by a surveyor to the packager - broker or adviser.

Any fee/commission received by the packager - broker or adviser for the sale of anyinsurance policy, be it for an endowment - life - term assurance - buildings andcontents or ASU policy that relates to the mortgage transaction.

Search fees.You should realise the importance of disclosure and transparency as the amount ofthe fee can influence both the advice and product/s you are offered. Do not be afraidto ask what the fees are and ask for a breakdown!


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Note:

Broker/adviser fees.There are two different fees a broker/adviser can receive for arranging your mortgage:

A procuration(proc) fee.A fee paid by the lender direct or through a packager to the adviser. This fee will notbe added to your loan or charged to you.

Abroker/adviser fee.A fee charged by the broker/adviser, some will add it to the loan, some will charge youup front, others on completion.

Ways in which brokers/advisers can earn remuneration for their advice:

A proc. fee/commission.

A broker/adviser fee/commission.

Commission on a valuation fee.

Commission on solicitors fee. Commission on insurances.

There are some companies/individuals turning their attention to the mortgage industryas they view it as an easy way of achieving large incomes due to the lack ofknowledge by the consumer. Although FSA regulation is now enforced, this will notaddress the main problem of conflict of interest or one of educating the consumer inthe mortgage process.


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Whos responsible?

When taking advice from an adviser, establish right from the outset who is takingresponsibility for the mortgage product you may be about to purchase. If the adviserleaves the company, the company can just say, The adviser has left the company andwe cannot be held responsible for his actions. Whilst this is not true, it can be a fob-off.

Too many times the consumer is given advice by an adviser then gets the offer directfrom the lender without further contact by the adviser. This cannot be right. Theadviser should take responsibility for the transaction including comparing the PC(Product Confirmation) with the lenders offer. After all you dealing with an adviser notthe lender.

Ultimately, the responsibility is yours when signing a contract; therefore you need to besatisfied that you understand all the details and implications. The final mortgage offermay not be what you want, so check it thoroughly and ask someone capable (asolicitor or accountant) to check it on your behalf in addition to your adviser.


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The importance of C.I.D.

C.I.D. - There are three important components that a lender considers when lending

money and you can remember the three by this memory aid: C.I.D.

C - stands for Credit history If you have any CCJs (County Court Judgements)

against your name or are currently in debt the bank wants to know about it. Believeme there is no hiding place as the lender will do a credit search on you and find out ifyou have history. The more history you have the higher the interest rate or the lesschance you have of getting your mortgage.

I - Income This component is arguably the most important of the three componentsas it represents your ability to pay back the loan (mortgage). The higher the incomethe more you can borrow (generally). Nowadays it is more about disposable incomethan net income. In other words how much money do you have at your disposal onceyou subtract other loan payments and financial obligations?

D - Deposit The more deposit you have in relation to the house price the better as

lenders work to a LTV (Loan To Value) calculation. In days gone by you could get a100% LTV meaning you required no deposit as at time of writing the norm is c 75%LTV or 25% deposit. The lower the LTV the lower the risk to the lender and the morelikelihood of you securing a mortgage with a decent interest rate.

How much can you borrow?- The amount you can borrow is determined by a simplecalculation referred to as the income multiplier, and varies from lender to lender, soyou need to check what the multiplier figure is with the eventual lender of your choice.There are some lenders who will base the loan amount on the individuals ability to paythe monthly payments.

Lenders will normally let you borrow between 2.75 - 5 times your gross salary. If thereare two people on the deeds, they will consider both incomes.

Overtime - On top of your basic salary, the lender may also consider guaranteedovertime. This normally applies where the overtime forms part of your terms ofemployment and is stated as such in your employment contract. Lenders will almostcertainly want this substantiated by a P60 and pay slips, plus confirmation from youremployer that it is a permanent arrangement.Generally, additional earnings may be considered by some lenders as shown here:

1. Guaranteed overtime at 100%.2. Regular overtime at 50%.3. Guaranteed commission at 50%.4. Income from other jobs at 50%.

Substantiation - The above figures should only be used as a guide as they do varyfrom lender to lender. All of the above will need to be substantiated by documentation;the lender wont take your word for it. However, viewed positively, this substantiation isa safety check for both lender and borrower alike. It prevents the borrower from overborrowing, which could cause hardship and even repossession of your home, shouldyour financial circumstances not be what you claim. This worse case scenario is not ineither partys interests.

Out-goings - Another factor, which is considered in calculating the loan amountpermissible by lenders, is the current levels of outgoings repaying loans/debts. For


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example:1. Payments on your car = 100 p.m. x 12 (mths) = 1,200.2. Payments on double-glazing = 60 p.m. x 12 (mths) = 720.3. Credit cards, with a current balance of 2,000 x 5% (which is theminimum payment) = 100 p.m. x 12 (mths) = 1,200.4. Payments for catalogue goods = 40 p.m. x 12 (mths) = 480.

Total per annum = 3,600.

This 3,600 would be deducted from your income. Therefore if your joint incomes were15,000 deduct the 3,600 = 11,400. This is now the figure you use for the incomemultiplier. So using an example of 2.75 joint multiplier, 11,400 x 2.75 = 31,350 isthe maximum you could borrow. To do the calculation correctly, you should offset thespecific debt against the named party and deduct it from that individuals income. So,for example, if the applicant with an income of 10,000 has all the above debts in theirname, the sum of 3,600 would be deducted from their income.

Some lenders will apply what is termed as an income stretch if the loan amountrequired falls slightly above the amount calculated, to accommodate an applicant.

However, you need to ask yourself if this will over stretch (no pun intended) your abilityto repay, normally it should be okay as the lender will want to safeguard theirinvestment in you. But once again err on the side of caution.

Note:Affordability Is it worth it?Montys advice would be to keep the amount of borrowing to a sensible andcomfortable level; a rule of thumb is that your monthly mortgage payments should notexceed 25% of your netmonthly income. It may mean you cant have the house ofyour dreams, but there are those who over borrow to get the house of their dreams,only to end up losing it due to their inability to keep up the mortgage payments. Thesame people may end up living miserable lives by financial constraints, as they cantafford the other pleasures of life due to high mortgage payments. You need to askyourself, Is it really worth it?

Err on the side of caution- If you wanted to be cautious when calculating how muchyou can comfortably afford to pay each month for your mortgage, we suggest youconsider using a calculation, which adds at least 2% on to the SVR (StandardVariable Rate) at the time of application to give you a margin, should rates increase.Note we said 2% onto the SVR not the current rate you may borrow at, as you mayhave opted for a fixed or discount that is already 2% lower than the SVR.

Donotbase your budget or mortgage payment calculations on an interest rate lowerthan the current SVR.

E.g. If you needed a loan of 31,350 and the SVR was 6% ask what the payments

would be on 8%, and base your ability to make your payments on the 8% rate.Note: In 1989 interest rates soared to over 15%.


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Your employment status

Employed and self employed - A lender will want to see a stable employment recordwhen considering making a loan available. Whilst this varies from lender to lender weoffer a rough guide to the criteria needed to satisfy securing a loan at normal rates.

1. Minimum requirement is 3 months employment with your current employer, and youshould not be in a probationary period. If you are in a probationary period waituntil it ends before applying for a mortgage.

2. You should ideally have a minimum 12 months continuous employment prior to yourapplication.

3. If you are in work and are thinking of both going self employed and taking out amortgage, take the mortgage out whilst you are still in employment if you really wantthat mortgage. The options if you apply when you are self employed will be to payhigher rates on (this is where you have to furnish business accounts to substantiateyour income) or be rejected as you dont fall within the norm, normally being:

A minimum of 1 years accounts, but ideally 3 years or more. Any decline in net profits

could also affect getting a loan. Most lenders prefer to base self-employeds loans onthe average of the last 3 years accounts, showing an increase in profits year on year.


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Can I obtain a loan on any type of property?As a generalisation, you will find that most lenders will not favour the following types ofproperty to offer a loan:

1. Prefabricated buildings.2. Mobile homes and houseboats.3. Freehold flats or maisonettes.4. Property in an area of ex-local authority housing with an owner occupied rate of less

than 50.5. Property with an element of agricultural restriction or an agricultural tie.6. Property which is suitable for multi-occupation - i.e. multiple kitchens etc.7. Flats above four stories.8. Steel framed property.9. Property of concrete construction.10. Properties under 10 years old without NHBC/architects certificate.


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Loan To Value (LTV)

1. The loanis the amount you wish to borrow.2. Thevalueis the price the lenders surveyor values the property.

The relationship between the two is that it informs the lender how much equity there isin the house. This is important to know as it also gives the lender an indication of therisk element in affording you the loan. The less equity, or the higher the LTV thegreater the risk to both lender and borrower alike.

If you failed to make your mortgage payments and the lender had to repossess theproperty, the risk is reduced if there is a lot of equity in the house. As a reward for thisequity the lender will often as not offer a better interest rate with more favourableconditions attached.

It is important you have an idea of the LTV of the property, as a high LTV can excludethe majority of the best deals available. You may for example learn about a mortgagedeal available with an interest rate of 3.5% fixed for 3 years with no redemption and no

arrangement fee, up to 70% LTV. If your property has a LTV of 75%, this product wontbe available to you. So you need to get an idea of the LTV.

The LTV % figure is found by dividing the loan by the house value. I.e.

The LTV of a 45000 loan on a property valued at 50,000 is 90%. For simplicity youcan just divide 45 by 50 = 0.9 that is 90%.

To establish the loan you need to decide how much you need then add on any feessuch as lenders arrangement fee, legal fees, survey fees etc. unless you wish to paythese additional costs separately. Whenever possible try and keep these fees off theloan, as you dont want to be paying interest on these fees for the duration of themortgage.

Establishing the value can be more difficult (unless its a new house). Most peopleover - value their property and this can eventually lead to problems. If you believe thevalue of the property you want as being greater than the lenders surveyor values it, itcould mean you end up borrowing more than youd planned. It could, and often doesmean you will pay a higher interest rate.

You can of course always secure the services of an independent local surveyor whowill give you a good idea as to a realistic value. You will have to pay 100 min.depending on the value of the house; (a survey fee is tiered to the value.) Lets hopewe have managed to convey the significance of the LTV involved in the mortgagetransaction before you go marching on to become a homeowner.


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The Role OfSolicitors

The solicitor is likely to be acting for both you and the lender, with separate obligationsto both. Once again a possible conflict of interests.

There are solicitors who permit packagers and advisers alike to add a sum of money totheir fees to keep as a commission. This fee is almost always added to the loan andthe adviser receives their solicitors fee (kickback) at disbursement time.

You may think that as you are paying the solicitor they will check the mortgage detailson your behalf to ensure you are getting a good and fair deal. This is not generally thecase as it is not the solicitors brief (pardon the pun). You may be under theimpression that you have engaged the services of the solicitor to act as your legaladviser. The reality is that the solicitor is there to process the legal aspects of themortgage documents. Often as not, they do not have access to the mortgage andinsurance products to check or give advice on and most are not qualified to do so.

This role is far removed from the role you may conceive it to be. In fact you should be

made aware of the role your solicitor plays on your behalf by the solicitor when youengage one. Some solicitors work far more closely with the packager/adviser than theirclient; after all in many cases they are the ones who placed your business with them.Ask your solicitor what services they are providing for their fee, and if any part of thefee is paid as a commission to the mortgage packager/broker/adviser, and how much.

These comments are not directed solely at the solicitors, but equally as much at thesystem in place. Some solicitors may not realise that the consumer conceives theirrole far differently than is actually the case. Solicitors should play their part intransparency as far as both services provided and hidden fees/commissions areconcerned.


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The legalities of remortgaging your home (Pre Home Information Packs Hips)1. You instruct your solicitor to act on your behalf.2. The solicitor will request the Title Deeds from your current lender.3. The solicitor will then apply to your local authority for a search to be carried out.4. On receipt of the search, the information contained within will assist your solicitor on

advising both you and the new lender if there are any developments, which mayaffect the property. If the search reveals anything untoward the solicitor will adviseboth parties.

5. Your solicitor or adviser may at this stage inform you everything is now ready tocarry out a survey.

6. Providing the survey is okay, the lender will then issue a written offer with mortgageinstructions attached. I.e. there may be conditions attached such as a coal miningsearch may be required. There may also be property repairs to be carried outbefore the loan is released.

7. Only when all the conditions have been satisfied and the Local Authority Search isreceived will the solicitor proceed to complete the relevant paperwork.

8. The solicitor may require any existing or new insurance policies which are to beassigned to the mortgage (your adviser normally collects these, or at least all the

details from the policies).9. The solicitor will then request the money from the lender by completing a Report on

Title form, which will contain details concerning the property, and policy details.10.The solicitor will on your behalf lodge searches at:

The Land Charges Registry (This will disclose any entries made against you due tobankruptcy proceedings).

The Land Registry will reveal any further mortgages that may have been registered.

The results of both searches must be with your solicitor in writing and any entriesrevealed must be dealt with prior to completion.

11. The solicitor will request a final settlement figure from your current lender.12. On completion your solicitor will register your new mortgage against your property.

Special notes

All loans registered against your property must be known and dealt with. Thisgenerally comes out at fact find with your adviser and is also asked on themortgage application form.

Details of any occupants at your property over the age of 17 years must bedisclosed to your solicitor.

If you were not married when the property was purchased and are now married,your solicitor will need your marriage certificate.

If only the husband has applied for the new mortgage and the property is in jointnames of husband and wife, then a new written offer of mortgage must be issued,

or alternatively a Deed of Transfer executed transferring the property in the solename of the husband.

If the property is applied for in joint names, and the property is being registered inone name only, then either the property is legally transferred into joint names, or theparty who is not registered on the deeds must sign a consent form.

These notes are written without consideration of Home Information Packs (H.I.P.s)


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The legalities of Purchasing Your Home

1. You instruct a solicitor to act on your behalf.2. Your solicitor will contact the sellers solicitor for a draft contract.3. Your solicitor will carry out a local search.4. On receipt of the searches and a satisfactory mortgage offer, your solicitor will

advise you what documentation is required, and discuss the completion date.5. Contracts will then be exchanged and the completion (your move date) will be fixed,

and you will pay a deposit.6. Your solicitor will then request release of the money (the loan) to purchase the

property.7. On completion, your solicitor will register your title to the property and that of your

lender at the Land registry.8. Stamp duty of 1% will be payable to HM paymaster on purchases above 60000.

(The stamp duty amount can change at budget time, so please check at time ofpurchase).

All the above notes are intended as a guide only to the legal process and may vary

from solicitor and Local Authority alike. Scottish Law differs in many respects toEnglish Law and legal procedures. These notes are written without consideration ofHome Information Packs (H.I.P.s)


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Paying off your mortgage

There are basically two methods of paying off your mortgage, Interest onlyand theconventionalrepaymentmortgage, which is capital andinterest.

Interest only:With this type of mortgage you pay only the interest to the lender for the period of themortgage. The period of the loan can vary but the shorter the period the less interestyou will pay, so this is a major consideration. There still remains the myth that the termhas to be 25 years but this can be virtually any period you care to nominate,depending on age and financial status.

As you are paying the interest only on the loan you need to consider how you willrepay the capital sum borrowed at the end of the mortgage term. There are variousways you can achieve this, it can be paid off by an endowment policy, a pension,PEPS or an ISA, and of course by lump sum from an inheritance or gift from someone.As the capital sum never reduces, you are paying interest on the original loan amountfor the duration of the mortgage.

Lets take a look at some repayment vehicles in greater detail.

The Interest Only Mortgage

For many years borrowers believed that an endowment was the only option to repaythe capital on an interest only type mortgage. No doubt there are still those with thesame belief today. So strong is the belief that many refer to an interest only mortgageas an endowment mortgage. Perhaps this is because those arranging interest onlymortgages received high commissions for selling endowment policies and little foradvising alternative means. Seescamsfor further details on endowments.

The premiums you pay for on an endowment have two distinctive functions, part of thepremium goes towards buying life assurance which pays off the mortgage in the eventof death of the borrower. The other part of the premium is invested by the insurancecompany with the aim of paying off the capital sum.

There are no guarantees however with any investment programme and it can dependon how the markets perform as to whether or not there will be sufficient money to payoff the capital sum. So no matter how small the risk may be, you are still gambling withthe most important material possession in your life - your home.

In the past (particularly the boom times of the 1980s) endowments enjoyed buoyantmarkets and most performed well. However, world markets have much closer links nowand the global economy make the endowment/stock markets a possible greater risk

than in the past.

For those companies that did perform well it meant in some cases there was a surplusof funds, which led to bonuses being paid to the investors. However, where there arewinners there are usually losers, and this has meant that for some there will be a shortfall, which will have to be met by the borrower. To this end most companies have fundmanagers, which regularly monitor the performance of policies. They will, if necessary,advise policyholders to increase their premiums to ensure sufficient funds are availableat the end of the term to pay off the capital sum. This has happened in recent times.

A major change in the insurance industry has been the birth of the Financial Services


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Act (The FSA) in 1986. Pre FSA, advisers were not regulated as to how they wouldillustrate the investment returns on endowments, this led to many over-estimating thegrowth rate.

Not all advisers explained the risks involved in endowment policies, or their inflexibility.But the most significant aspect advisers failed to address at the time the policy wassold was, failure to keep the policy paid up, for the full term could result in significantfinancial loss.

If the policy is surrendered for whatever reason and you cash it in you will often beextremely disappointed that you get less than you have paid in to the scheme. This isoften the case in the first ten years of the policy being taken out.

However, there is an alternative to cashing the endowment in with the insurancecompany to whom you pay the premiums. There are a number of specialist companieswho will pay as much as 35% more than you might get as a surrender value fromyour insurance company.

However, it is safe to say that you should try to avoid cashing in your endowmentunless absolutely necessary.

Advantages of the endowment mortgage

Life assurance is included in the cost and this will pay off the mortgage in event ofdeath to the policy holder/s.

Depending on the performance and the type of policy there may be a surplus at theend of the mortgage term.

Disadvantages of the endowment

There is no flexibility in an endowment. If you pay a lump sum off your mortgageyou will still have to pay premiums for the original sum, in effect for unnecessarycover.

If the policy under-performs you could be left with a short fall in the capital sum inwhich to pay off the mortgage.

The older you are when taking out a policy the more expensive the policy.Premiums are also loaded for smokers, as are those in ill health.

The capital sum remains the same for the duration and never reduces, so the equityin your house is reliant on house price increases. A dormant property market canmean no increase in equity.

ISA Mortgages

The ISA is another form of repayment vehicle for an interest only mortgage. ISAstands for Individual Savings Accounts and are a tax-free Government approvedsavings account. These became available on the 6

thApril 1999 and replaced the PEP

(Personal Equity Plan). ISAs have been designed to offer a wide range of investmentoptions, and are available in two basic types, Mini and Maxi ISAs. They will be madeup of one or more of the following categories of investment depending on the type youchoose.

Stocks and shares (including Unit Trusts, Investment Trusts and Open EndedInvestment Companies)


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Cash

Life AssuranceYou can invest a maximum of 5,000 in ISAs (this limit is raised to 7,000 in the firstyear). There are certain restrictions on the amount you can invest in each component,i.e. you can only have a certain percentage in stocks - cash - Life Assurance.

The basic difference between a mini and a maxi ISA is, with a mini you can choose adifferent manager for each component, and you choose one manager to administeryour account for simplicity. With the maxi you also have the choice of investing the fullallowance each year in stocks and shares if you so wish.

The Government stated that the ISA will be available for at least 10 years with a reviewafter 7 years. The Government has established a benchmark as a standard calledCAT:

Reasonable Charges

Easy Access

Fair Terms

We advise you seek further details regarding the suitability of ISAs due to the financialclimate.

Advantagesof the ISAMortgage

As the ISA is tax-free it could grow faster than other types of investment.

The ISA is transferable when you move lenders so there is no interruption in theinvestment.

You can include life assurance within the ISA.

The Government will probably ensure regular reviews are carried out to ensuresufficient funds are available to pay back the capital sum on mortgages.

Depending on the future success of the ISA there may be a surplus payable at the

end of the term.

Disadvantagesof the ISAor Interest only mortgage

As with any investment there are no guarantees there will be sufficient funds torepay the capital. Therefore, you are in effect gambling with the security of yourhome.

As the mortgage is interest only the loan amount remains the same for the termand you have to rely on the property market to gain any equity in your home.

As with any investment there are no guarantees there will be sufficient funds torepay the capital. Therefore in effect you are gambling with the security of yourhome.

As the loan is interest only the loan amount remains same for the term and youhave to rely on the property market to gain any equity in your home.

You need to take out separate life assurance at an additional cost.

Unless you notify the company your ISA is to pay off your mortgage, there may notbe any reviews of its performance.

Pension Plan Mortgages

Once again we are talking about an interest only mortgage and a pension can be therepayment vehicle. The basic idea of this plan is that you are paying into the plan tosecure your pension and at the same time having sufficient money to repay the capital


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sum. There are definite tax advantages as the Government contributes to your fundvia tax relief at the rate of tax you pay. So for someone on the maximum of say 40%tax they receive 40 for every 100 tax paid. You couldnt get this level of return onmany types of investment wherever you searched.

Sounds almost too good to be true so let us look at the advantages anddisadvantages.Advantagesof the PensionMortgage.

The tax benefits are extremely attractive, so the fund should grow faster than mosttypes of investment.

One payment can pay for both pension and repayment of mortgage capital.

Disadvantagesof the PensionMortgage.

As with any investment there are no guarantees there will be sufficient funds torepay the capital. Therefore in effect you are gambling with the security of yourhome.

As the loan is interest only the loan amount remains same for the term and you

have to rely on the property market to gain any equity in your home. You need to take out separate life assurance at an additional cost.

The amount of the fund used to pay off the capital sum could leave you short onyour pension income.

As current laws dont permit pensions being paid until at least 50 years old, thiscould mean taking a mortgage out for a longer period than would be normal.

To summarise on the interest only type mortgage

It is extremely important to realise that there is riskattached to relying on a separateinvestment vehicle to pay off your mortgage at the end of the term.

It is also important to realise that the loan amount does not reduce over the term of themortgage. So many fail to grasp this until they redeem the mortgage to move, only tofind out they have paid all those payments and still owe the same amount, even after25 years.

Note:For those who live in areas of low employment where property prices dont increase somuch, this can have a significant effect, as you are not gaining equity in the house.Why is equity so important? To enable most to move up the property ladder, they needto gain equity from their current home to finance the move up.

Repayment Mortgage

This is where you pay both interest and the capital sum off in your monthly mortgagepayment to the lender. This repayment method guarantees that your mortgage will bepaid off at the end of the term, providing you keep up the agreed monthly mortgagepayments. Conventionally the lender only deducts the interest you pay each monthfrom your loan once a year. In the early years, your monthly payments pay off moreinterest than the capital sum; this changes as the years go by. You only pay interest onthe reduced balance, unlike the interest only type. You are more likely to achieveequity in your home with this method as the capital sum is reducing.

With this type of mortgage you may have the flexibility of increasing your payments in


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order to pay off your loan early. However this does vary from lender to lender and youshould check that you are not financially penalised for changing the size of yourpayments, particularly if you have a special rate like a fixed or discount interest rate.

With a repayment mortgage you are eliminating the risk of your house not being paidoff at the end of the term, providing you keep up the agreed mortgage payments. Witha repayment mortgage you are paying off the capital sum and therefore gaining equityin your home, slowly to start gradually increasing as time goes on. You may wish to consider taking out Mortgage Protectionassurance as the level ofcover reduces in line with the mortgage debt. This ensures the mortgage debt is repaidon the death of the policyholder providing death occurs within the term of the policy.This is an inexpensive method of assurance as there is no pay out if the policyholdersurvives the term of the policy.

Advantagesof the RepaymentMortgage. (Capital and Interest)

Eliminates the riskof the loan being paid off providing payments are made at thecorrect level.

The loan reduces giving you equity in your home. Flexible in enabling a change of payments - increase or decrease with lenders

agreement/permission required.

Uncomplicated, you pay your premiums and the loan is paid off.

You can reduce the term of the loan if you move lender or re-mortgage.

Disadvantagesof the RepaymentMortgage

You need to arrange life assurance at additional cost. However it generally worksout that the mortgage payments with related insurances are the same as aninterest only mortgage.

The loan decreases slowly in the early years.

However there are a variety of ways now available in paying off your mortgage. Thechanges are slowing beginning to appear. These products appear to be the type ofmortgage payment method developed for the 21

st century, leaving behind the

archaic/inflexible conventional mortgage repayment methods.

Flexible mortgages.

These are we believe the mortgage repayment plans of the future. They are as it sayson the tin, more flexible for the consumer and can save thousands of pounds ininterest and can be extremely convenient. The lenders recognise the need fordeveloping new products have created a range of flexible mortgages. This allows theconsumer to adjust payments in line with their current employment circumstances.

Summary of benefits of the Flexible Mortgage

Make extra payments - of any amount - as and when it suits you.

Save thousands of pounds of interest and pay off your loan early - if you wish.

Interest normally calculated daily as opposed to annually.

Facility to take mortgage payment holidays.

Some lenders do not impose any redemption penalty.


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Interest rates

Interest ratesare probably the biggest single attraction to those taking out a mortgage,yet the effect they can have is potentially the most damaging. It is therefore essentialyou read and understand this section, as getting the decision wrong when choosingthe interest rate could cost you dearly.

SVR(Standard Variable Rate)Until recent years the main type of interest rate was a SVR (standard variable rate).However the mortgage market has become more competitive and most lenders offer avariety of rates nowadays. As the name SVR suggests the rates can vary, thereforerates can go up or down during the course of the mortgage term. External as well asinternal forces can influence the changes. The global economy means that economicproblems in the Pacific basin or even in South America can have an influence onBritains financial Institutions.

If you have a SVR you may find that each time the Bank of England increases theinterest rate, your mortgage payment will increase. However, this is not necessarily so

as some lenders use the swings and roundabouts principle. The lender will reviewthe rates annually and set the rate accordingly for the whole year.

Theadvantagesof the SVR.

Generally there are no redemption penalties, (you need to check as this can varyfrom lender to lender) giving you flexibility and freedomto move to better deals.

You may benefit if interest rates are reduced.

You may benefit from interest charged daily as opposed to once a year, saving youmoney.

The disadvantages of theSVR.

You are at risk of increased interest rates. (In 1989 rates soared to 15% and

above.) If interest rates increased by 50% this would mean your monthly paymentswould increase by 50%. This could mean you being unable to pay your mortgage,which caused hundreds of thousands of people to lose their homes in the early 90sand the same is happening today.

You are unable to budget.

Fixedrates.Fixed rates have in recent times become the most popular type of interest rate. A fixedrate is where the borrower pays a fixed rate for an agreed term of anywhere betweensix months and the full term of the mortgage. The average term though is 2-5 years. Atthe end of the fixed term the rate reverts back to the SVR. There are quite naturallyadvantages and disadvantages to the fixed rate. Lets take a look at the advantagesfirst.

Theadvantages of thefixedrate:

Number one advantage, it takes the risk out of increased rates putting you in aposition where you cannot afford the increased monthly payment.

Another attraction of the fixed rate is that you know what your monthly mortgagepayments are going to be for the duration of the fixed term.

It also means that in many cases (depending on your financial status), a fixed rateis lower than the SVR, saving you money and thereby reducing your monthlyoutgoings.


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Thedisadvantagesof the fixedrate.

Generally the lender will impose early redemption penalties. (Refer to redemption

penalties from contents.) This basically means that you are tied to thelender/product, as it would be uneconomic to change lenders.

The lender may impose certain insurance policies such as buildings and contents or

Accident Sickness and Unemployment insurance (ASU) at higher than normalpremiums.

If interest rates fall it could mean you paying more than you have to.

You may have to go on to the SVR for a period after the fixed rate term ends. Thisis called an overhang and exposes you to the risk of high interest rates.

You may incur the expense of a booking fee and/or an arrangement fee.There are a few lenders however, who offer fixed rates without any penalty. Naturally,the rates wont be quite as competitive as those with the penalty, but you will have thebenefit of not being tied. This will leave you free to negotiate and move to any betterdeals in the future.

Discountrate.This is where the lender offers a rate at a discount linked to the SVR. So, if the SVR is

8% and you get a 2% discount, you pay interest at the rate of 8 -2 = 6%. As with thefixed rate, the rate reverts back to the SVR after the agreed term. Generally the totalamount of the discount is the same over the term of the discount. You can either havea long term with a small discount or a short term with a big discount. The savingsover the term will normally equate to the same amount. It is important you understandthis as you could well be forgiven for being attracted to a big discount opposed to asmall discount. The same conditions will apply to the discount as with the fixed.


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House Valuation

There are three levels or types of house valuation:1. A standard mortgage valuation is an inspection of the house carried out for the

benefit of the lender. This is an inspection not a survey and would only highlightmajor defects.

2. A house/ flat buyers reportwould be carried out for the purchase of a home asopposed to a re-mortgage. This survey entails a visual inspection of both astructural nature and for lack of maintenance and is for the consumers benefit.

3. A structural survey is the most wide-ranging check. Although the most expensiveof the three it offers the greatest amount of protection should any major defectssurface in the future. This survey report will contain the most information and willcover against negligence by the surveyor.

Note: You should check that the surveyor is a member of the Royal Institution ofChartered Surveyors (RICS) or the Incorporated Society of Valuers and Auctioneers(ISVA).

On a new house the valuation process is generally fairly straight forward, as thebuilders of the houses invariably know what the lenders will value the house at. Sowhen you seek to raise a mortgage on a new house and request a valuation it willmore than likely be valued at the price the builder is asking. As the new house carriesa 10-year NHBC (National House Builders Certificate) the lender will only require amortgage valuation.

However with a re-mortgage the valuation process is a little more meaningful as it canhave a major effect on the LTV (loan to value). You may value your home a lot morethan a surveyor, which could have an adverse effect on how much you can borrow. Ifyou have a value in mind and revolve your pending re-mortgage around that value,and it fails to realise your value, it could mean you borrowing more than you intended.

If you pay for the house valuation (as opposed to a freebie paid by the lender), insiston a copy of the report and a written receipt stating the cost of the valuation, notincluding possible administration charges. Some lenders will pay for the valuation ifyou take out a SVR, but normally you pick up the tab if its a fixed/discount interestrate.

If the lenders valuation differs greatly from your valuation, you can always write to thelender and dispute it. Naturally you would need to base the dispute on hard evidenceand documentation. For example if the house next door to you was similar in allaspects and sold recently for a greater sum this could possibly justify a review by thelender, but dont bank on it. Shop around and try and get a free valuation, and if youhave to pay up front, give written instructions for the valuation to be carried out after a

D.I.P. (decision in principle). If youre anxious to determine the value of the propertybefore all the formalities; you have the option to instruct the lender to conduct thevaluation immediately.

Word of caution: Do not confuse an estate agents valuation with a mortgagevaluation. Some estate agents will over value your property in order to get it on theirbooks. Once your home is on their books the estate agent will then advise you to lowerthe price of your house in order to get a sale.


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Redemption penalties

Redemption clauses are for the most, common practice when securing the trendyspecial rates (rates other than a SVR) fixed - and discount interest rates availablenowadays. Make yourself fully aware of the impact a penalty can have on you.

A redemption clause normally consists of a financial penalty and is a conditionattached to your mortgage contract. It is set by the lender to ensure you fulfil the termof the mortgage contract. When re-mortgaging you may have two redemptionpenalties to consider. One with your current loan and one with the new loan. Generallyredemption penalties are attached to special rates and not normally with a SVR.

The SVR was until recent years the most common rate available from lenders.However since the property crash of the late 1980s when so many people lost theirhomes, it has become the fashion to take a fixed interest rate.

What are the penalties?

There are two aspects to a penalty, cost and term.Cost.This can be measured in s and can represent as much as 5% of the total loan, (5% ofa 50,000 loan is of course 2,500) so it can be a significant amount. There are somelenders who structure a reducing penalty, i.e. 5% for the first year reducing by 1%each year for the duration of the redemption period. But currently this only appears tobe in the minority of cases. Some lenders charge 6 months interest at the SVR, notthe fixed rate you are currently enjoying if you redeem early. Again this can beavailable on a sliding scale, i.e. 6 months for the first year and reducing by 1% eachyear.

Whilst this can be a complex calculation as lenders calculate differently, the adviser

should still give an indication basing the calculation on the current SVR. Percentagesor months wont necessarily mean a lot to the average person, but an amount in swill. You may think differently if you think a move will cost you 2500, whereas 5% ofthe loan may not bring home the message adequately.

TermThis can be measured in years, being the duration of the penalty. Some may imposean overhang which is a period going beyond the fixed term. I.e. You may agree a 3year fixed interest rate term, but the redemption term may be 5 years, overhangingthe fixed term by 2 years. This means if you redeem your mortgage within theredemption term you must pay a penalty of 5% of the total loan or 6 months interest(as an example).

Even if you dont redeem your mortgage during the fixed term, it means that you arestuck with the 2-year overhang period, or incur the 5% (example) penalty if youredeem during this 2-year period.

Why is it so important to be aware of redemption clauses?One thing you must bequite clear about, both lenders and your own mortgage adviser will be in no hurry topoint out any of the negative or down sides to their product. The word is transparencywhich of course is lacking in most types of selling. There is little doubt that redemptionpenalties are seen by all parties (lender/adviser and you the consumer) as a down sideto the mortgage product. The salesman/adviser is bound to give much greateremphasis to the up side or selling points than the down sides, this is a fact and of


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course perfectly natural.

Just think about the last time you sold something to someone, whether it was your lasthouse, car or what ever, did you go out of your way to sell the down side of what youwere selling? Of course not, as it would be a conflict of interest. Remember, yourmortgage lender/adviser is in the same position.

There are many reasons why people redeem their mortgage early and the costs andterm involved can have significant consequences. Listed below are a number ofreasons why people may redeem their mortgage early:

Statistically people move home once every 7 years. This can be for any one ofmany reasons, the need for a bigger or smaller home, moving to a better location,moving away from those neighbours from hell, moving because of a change of joblocation and so on.

Divorce is on the increase and quite often results in having to sell the family home.

Redundancies and unemployment can force people to sell their homes.

New mortgage deals are on the increase and people want to take advantage of

them. When people realise they are paying far too much for tied insurance products

attached to their current mortgage they decide to change lenders.

So what are the consequences of a redemption penalty?We list a number below:

The redemption amount could wipe out all the equity you have in your home if youredeem early.

If there is a two-year overhang and you were put onto a SVR you would be at riskof increased interest rates for the period of the overhang.

Having to pay the redemption amount could make the difference in you not having

sufficient capital to move home. The redemption costs could effectively tie you toyour house.

Having to pay the redemption amount could make the difference in you not havingsufficient capital to change lenders.

No doubt you could add to the list given time to think of the various scenarios. Theadvice is to take very seriously the implications of any redemption clause/penaltyattached to your mortgage offer. Could there be a better deal, which doesnt tie youinto a redemption penalty?


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Bank Statements

Bank statementsLenders will normally ask for the last 12 months bank statements with your application.Be aware that the lender can read a lot into your statements. Your statements can

indicate your earnings and your spending habits. If, for example, your statements showyou are forever in over-draft this may jeopardise your loan application.

Your statement may highlight arrears in a credit transaction. And if, for example youhave missed payments and there are lots of debits to Bargain Booze off-licence forexample, it wouldnt be viewed favourably.

For those seeking a re-mortgage it will confirm along with your lenders annualstatement, your ability and willingness to repay your mortgage. For instance if therewas money in the account and you failed to make mortgage repayments, that wouldhardly be acceptable.

It is also a double check as to what you claim you are earning, although of course a lot

of people will not always bank what they earn. Your lender is looking for positive signs,consistency in income and repayments, so your bank statements are a barometer ofyour financial habits.


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Credit history

Before a lender will offer you a substantial amount of money as a loan they will carryout a credit check on you. The lender needs to be satisfied that their money is going tobe repaid, and will want a history of how you have treated any past loans/credit.

There are a number of credit reference agencies where you can check your ownstatus. This will give you an in-sight into satisfying various lenders criteria. Lendersvary in how they credit score people and this can influence the decision on whether ornot you will be offered a loan and at what terms.

If you have any CCJs (County Court Judgements) for poor credit payments these will,no doubt, have a significant influence on the terms you will be offered. It is in your owninterests to endeavour to satisfy these CCJs by paying off the debts. Obtain asatisfied letter from your debtor, then notify the credit reference agencies in writing(enclose satisfied documentation as proof of payment) and request they remove thatC.C.J. from your record.

By requesting a copy of your credit record you may find that you have beendesignated a credit black mark that you were not aware of. This can be caused by anumber of things. It can be caused by a dispute between you and a debtor, and it canalso be the result of you taking possession of a house where the previous occupantsshared the same name as you.

You can obtain a credit report online.


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Consolidating Loans

Consolidating loans sounds in theory to be a neat idea. You basically pay a lowerinterest rate by changing an unsecured loan to a secured loan, i.e. secured on yourproperty through a mortgage. Naturally by reducing the interest rate and extending theterm of the loan it will inevitably reduce the amount you have to pay out each month onthat loan. Therefore the less you pay out each month the more you have to spendeach month, which is just brilliant. Or is it?

Consider these long-term implications:

1. If the reduced payments are made by way of a fixed rate, as soon as the fixedterm ends you will be faced with an increase in mortgage payments, as yourmortgage amount has been increased along with your interest rate.

2. Youll need to consider the impact on your associated insurances, like lifeinsurance, an endowment policy, (if its an interest only mortgage using anendowment vehicle), and possible extra Accident - sickness and unemploymentcover.

3. It also has the effect of reducing the equity in your home.4. Last but not least. If for example you have accumulated 5,000 credit debt, are you

really going to stop using your credit facilities? If not, as is most likely, you are goingto accumulate more debt thereby increasing your monthly outgoings beyond whatthey were before consolidation.

So many people fall for this short termism, the easy fix and then end up regretting itfor the rest of the mortgage term.

OFT Guidelines - Consolidated Loans

Paragraph 27 of the OFT Guidelines provides that Brokers and salespersons shouldnot encourage the borrower to take out a loan for an amount above the current limit forregulated agreements in order to avoid the provisions of the Consumer Credit Act.They should not encourage the borrower to replace unsecured debt with secured debt,or to consolidate other debts in order that the lender may obtain a first charge over theproperty, unless this is clearly in the best interests of the borrower and is explainedfully to the borrower.


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Yet how many people stop to think of the under-lying message behind the statement?Perhaps some feel it is just another insurance being thrust upon them, others maythink, It wont happen to me! No one can legislate for either accident sickness orredundancy; so let no one kid himself or herself.

The CML (Council of Mortgage Lenders) and the ABI (Association of British Insurers)have set out benchmark guidelines for Insurance underwriters to ensure theyincorporate terms and conditions that will meet the requirements of the mortgageholder.

Although it is a good idea (we would argue essential) to have ASU it remains anoption. It is notcompulsory although many in the industry believe either the Govt. orlenders will make it mandatory. The Govt. to ease the strain on State aid and thelenders to protect their loan to you.

To-date only 1 in 5 people has ASU. Yet currently more than 1.5 million people are offwork for more than 6 months due to Accident or sickness.

This part of the report is to raise the awareness of the affect losing your home canhave on a family. Rather make your own provisions than rely on the Govt. Imaginehaving to rely on the State to provide you with temporary accommodation, whichcould consist of bed and breakfast in the home of a complete stranger. Never mind theeffect on you, what sort of effect might it have on your children?

We have highlighted the problems, so what is the solution to keeping up yourmortgage payments? Along with the advice given above (things you have somecontrol over) there are 4 options, lets look at State aid as the first option:

Support for mortgage interest

Option 1 State aid- If you are claiming Income Support, income-based Jobseeker'sAllowance or income-related Employment & Support Allowance and you are ahomeowner, your benefit may include additional support for mortgage interest (SMI).

Payments can be made towards a customer's mortgage interest payments for loanstaken out to purchase the property or for specific home improvement loans. Noguarantee can be made that the Department will meet a loan prior to it being takenout. No help can be provided towards housing costs such as payments of capital owedon a loan, insurance premiums or mortgage arrears.

From 5 January 2009, a temporary package of measures was introduced to provideextra help to new customers in light of the economic downturn. These changes will bereviewed when the housing market recovers.

Rules that apply to new claims from 5 January 2009For customers making a new claim to benefit from 5 January 2009:There is a waiting period of 13 weeks before help is provided at 100% of eligiblemortgage interest. The capital limit up to which mortgage interest can be met is200,000.

There is a two year time limit on payment of mortgage interest but only for newJobseeker's Allowance claims. The changes will also help those who are alreadyreceiving benefit, but are still in a waiting period (under the old rules) for help with theirmortgage interest at 4 January 2009:


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Those who have served 13 weeks or more of their waiting period by 4 January 2009will be entitled to help with mortgage interest from 5 January.

Those who have served a period of less than 13 weeks at 4 January will receive helpat the point at which they will have served a full 13 weeks.

Vulnerable people who fall into certain specific groups, and people with mortgagestaken out before October 2 1995, receive help at the 50% rate on capital up to100,000 after waiting 8 weeks, and then they will receive the full rate on capital up to200,000 after 13 weeks from their date of claim.

The higher capital limit of 200,000 will apply to these groups as well as the two yeartime limit for those on Jobseeker's Allowance.

Customers in receipt of help with mortgages over 100,000 under the new rules willkeep the higher capital limit when they move onto State Pension Credit from a workingage benefit for as long as they remain entitled to State Pension Credit.

Rules that apply to customers in receipt of help prior to 5 January 2009If you are already receiving help with your mortgage before 5 January 2009, the helpyou receive will not be changed, and you will be treated under the old rules. If you stopclaiming and a future claim links to your previous claim under the department's linkingrules, you will be treated under the old rules. The old rules are as follows:

After Oct 2 1995Different rules apply depending on whether the loan was taken out before or after Oct2 1995For loans to purchase the property (& home improvement loans) taken out after 2October 1995, there is a waiting period of 39 weeks before help is provided, and 100%of eligible mortgage interest is paid from week 40.

Vulnerable people who fall into certain specific groups, and customers with a loantaken out prior to 2 October 1995, receive no help for the first 8 weeks of their claim,50% of eligible interest for a further 18 weeks and 100% of their eligible mortgageinterest from week 27. The capital limit up to which mortgage interest can be met is100,000.

Rate of interestSMI assists people with the interest on their mortgage. The rate is currently based on astandard interest rate of 6.08 per cent for six months from November 2008.Some people will experience a temporary drop below 6.08 per cent. This is because ittakes time to adapt our IT systems, but we are taking urgent action to ensure thatcustomers do not lose out. A corrective adjustment will take place, for a period of five

weeks, from 2 February to 8 March 2009. During this time, people will receive anincrease in their benefit to compensate them for the earlier reduction. Then, from 9March, benefit will be readjusted to the correct level with the standard interest rate setat 6.08%.

It is possible that the reduction in benefit could have a knock-on effect for those peoplewho are also claiming Council Tax Benefit. This is because entitlement to certainbenefits can carry with it a linked entitlement to Council Tax Benefit. We are workinghard with local authorities to ensure that Council Tax Benefit is not affected. If thisaffects you and you require further advice, you can contact your local authority orJobcentre Plus office.


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This information is not a full statement of the law, but only a guide, and does not

cover every circumstance.

Option 2- ASU coverThis insurance will provide sufficient funds to pay your monthly mortgage payments,

and if you elect to do so, other mortgage associated costs, should you have anaccident, fall sick or become unemployed. Just pause for thought for one minute andask yourselfhow you would cope without ASU.

So you decide maybe this ASU is a good idea:

1. Where do I buy it?2. How do I know if Ive got a good deal/policy?3. What do I look out for?

1. Where do I buy itOnline is the easiest and best way. Try and keep your actual mortgage separate fromall mortgage-related insurances.

2. How do I know if Ive got a good deal/policyThe same as any other Insurance there will be differing Terms and Conditions. It isimperative that you check and understand these, as you may have a false sense ofsecurity. You may think you are covered and when it comes to claim, you are not.

Option 3 - Permanent Health Insurance - (PHI)A type of insurance which will pay a percentage of normal income in the event that thepolicyholder is unable to work through accident or sickness. The same basic principleof the ASU policy, but cover lasts until either you return to work or retirement age.Naturally these are much better policies but are expensive in comparison to ASU.

Option 4 Income protectionYou can insure up to 75% of your normal income to cover both the mortgagepayments and other out of pocket expenses.

The ASU benefit splitThis is one aspect you need to give careful consideration to. If you select to have400/month cover, whose income do you want to cover? Where there is just oneperson on the deeds the cover will be 100% on the applicant.

Where there are two people on the deeds you need to asses who has the highestincome - the stability of the jobs - the possible risk of accident in each job etc. Thenyou can determine what percentage of the 400 benefit you want to attribute to eachperson.

In simple terms: If Mr Smith earns 300 per week and Mrs Smith 100 per week, youmay decide to split the benefit 75% on Mr Smith and 25% on Mrs Smith. That means ifMr Smith claims, the benefit paid will be 75% of 400 = 300, and 100 if Mrs Smithclaims. Naturally if both claim at the same time, i.e. A car accident, the full 400 shouldbe payable.


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ASU Payments and T&Cs

For full ASU cover for all 3, Accident, Sickness, and Unemployment, you should pay inthe order of 5.25/100. As an example if your mortgage and related Insurancescomes to 400 per month, you might consider taking Insurance cover of 400. So 4 x5.25 = 21 per month standalone payment. (The 21p.m. will not be subject to anyfuture mortgage interest rate increases, and you can easily increase or decrease thecover if your circumstances change.) Also, if any better deals come along it can beeasy to change over to another insurance company.

Ask these questions about ASU:1. What is the cost per 100 of cover?2. What are the terms and exclusions?

You are entitled to this information as it can influence the product/s being sold by thelender/adviser. If you dont have ASU cover, dont you think its time you had?

Below is a guideto the terms and conditions you will need to be aware of.

Terms and Conditions.

Naturally these vary from policy to policy. It is your responsibility to check policyTerms and Conditions and exclusions not the underwriter or anyone else.

1. Age. Some policies only cover 18 years to 60 years. If you fall outside these agerestrictions ask for your policy to be reviewed.

2. Residency. You may only be covered whilst permanently resident in the UK. If youwork or travel overseas check if you will be covered. Request it in writing.

3. Term of cover. This can vary from 6-24 months. You should insist on a minimum of12 months.

4. Commencement of cover. Commencement can vary from 1-90 days.5. Range of cover. This can vary from Accident and Sickness and Unemployment -Unemployment only - Accident and Sickness only.

6. Status. This relates to employment. Are you direct employed - contract - selfemployed - full or part time? You must notify your Insurer of any change of status.Failure to do so could result in no cover when you try to claim.

7. Amount of Cover. Generally you can cover your full monthly mortgage paymentplus related insurances. Ask if you can build in extra to allow for an increase ininterest rates, particularly if you are on a fixed or discount rate. Remember thatinterest rates are quite low at present; they may not always remain so.

8. False information. If you knowingly or otherwise give wrongful information thiscould render your policy null and void.

9. Two policies.It is possible to pay into two different ASU schemes, but it is doubtfulwhether or not you will be able to claim from two, so dont waste your money.Insurers dont like to see people profit from claims. I.e. get more benefits thanwhen they are at work. You also need to check with the DSS if your policy will affectany benefits from the State.

You need to ensure that your current policy meets your current requirements.

Accident and Sickness (possible exclusions)

You may not be able to claim for:


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1. Disability for any condition you had at the time you took out the policy or if you havereceived treatment for the condition from a doctor in the last 12 months.

2. A self-inflicted injury.3. Alcohol or drug abuse.4. Pregnancy or related conditions.5. Stress/anxiety or depression.6. Aids/HIV related conditions.7. Elective treatment including plastic surgery.

Unemployment (Possible exclusions)

You may not be able to claim:1. If you are made unemployed in the first 6 months after policy commencement of a

re-mortgage.2. If you are made unemployed in the first 30 days of a new mortgage.3. If you were aware of becoming unemployed within 6 months of policy

commencement.4. If you volunteer to become unemployed.

5. If you are dismissed for gross misconduct, or non-performance.6. For a strike or a lock out.7. If you are on a fixed term contract.8. If your work is seasonal.

This report endeavours to highlight the benefits of ASU it can be a means of reducingthe possibility of having your home repossessed. Other associated mortgage productscan be: pensions - life cover - term assurance - buildings - buildings and contents etc.

Final note on ASU cover:Insurance underwriters vary their terms and conditions, so it is important to use thissection as a guide, making you aware and alert of what to expect. Youmust make

sure you are going to be covered when you most need it.


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What if I cant afford to make my mortgage payment?

Try not to over stretch yourself when taking out your mortgage. Remember thatinterest rates can rise (in 1989 interest rates reached 15%) even if you are taking afixed rate mortgage, consider what will happen when the fixed rate finishes.

However, no matter how careful you are there may be circumstances beyond yourcontrol that could place you in difficulty. The first thing to do if experiencing difficultiesin meeting your payments is to talk to your lender.

Usually lenders will be sympathetic and as helpful as possible. They will try to come toan arrangement with you where a reduced payment may be acceptable for a period oftime. The length of the term will vary from lender to lender and will be based on yourpersonal circumstances. If you have a Repayment mortgage you may be able toextend the term over which the mortgage is repaid reducing your monthly payment.

You can also ask for a payment holiday (suspend payments) and/or change yourRepayment mortgage to an Interest Only mortgage to reduce the monthly payment.

However, this really should be as a last resort and should be a short term measureuntil your financial circumstances improve. DO NOT IGNORE THE PROBLEM - TALKTO YOUR LENDER.

Other useful contacts if you experience financial mortgage difficulties:

Citizens Advice Bureaux- Check your local phone directory.

Shelter - Check your local phone directory.


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SCAMS

Contents1. Alluring advertisements2. Lack of information/advice

3. Packagers4. State Aid Rule Changes5. Up front fees6. Redeemable vouchers7. Savings8. Benefit Package9. Fee refunds10.Estate Agents11.RTB (Right to Buy)

There are a number of scams so make yourself aware of them all and you could wellsave yourself a lot of grief as well as thousands of pounds. Well start with the alluringadvertisements.

1. Alluring advertisements

Most of us have seen the alluring advertisements to re-mortgage or take out a newmortgage. However as the saying goes If it seems too good to be true then itprobably is. There are usually strings attached in the form of strict criteria - highredemption penalties - arrangement fees etc.

The marketing ploy is to get you sufficiently interested to enable the companies to sellyou a product, any product. You need to make sure you get the product that caughtyour interest in the first place.

2. Lack of Information/advice

Considering a mortgage is such an important transaction there is still a major lack ofinformation in the process and costs involved. The way the system operates atpresent, you agree on buying a product then wait for weeks to learn whether or notyou have been successful with your purchase.

When the mortgage offer arrives it may not bear any resemblance to what youthought you had bought, detailed on the product confirmation (The PC) form. Unlessyou know the game you may not realise the major differences. It is common forlenders to bypass your adviser and send the offer direct to you to sign and return. One

of the most important functions of your adviser is to compare the offer againstthe product you were sold and advise you to any adverse differences. This is one

of the major reasons you pay your adviser a fee.

The product confirmation (The PC) is always subject to a number of things, such as:

House valuation.

Employers references/income substantiation.

Credit references.

Current lenders reference.

Confirmation that the information you have provided on the fact find and applicationform is both true and accurate. (So dont tell any little porkies as youll be caught out.)


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There may be a legitimate reason for you not receiving the offer of your choice.However, the reasons should be explained to you by your adviser, and left with you inwriting.

You should always try to allow a minimum time scale of 4-6 months for the finalmortgage offer. This should give you sufficient time to submit another application if thefirst offer isnt acceptable. On average a mortgage takes 6-8 weeks to completedepending on a variety of things. Unfortunately for many, they allow insufficient timebetween offer and exchange. This can result in being forced into accepting mortgageterms and conditions inferior to those you had budgeted for.

So many people get their mortgage offer days before exchange, which for most isunacceptable.

Would you not prefer to have a simple check sheet to compare what you are buying,with what you get? Your adviser should give you a P.C. (product confirmation) sheet,which should contain the wording subject to valuation and references and should besigned by your adviser. The offer should contain a reasons why section, which

should detail and explain in simple terms the reasons why the offer is not the same asthe P.C..

It is relatively easy to gain a D.I.P. (decision in principle) within 48 hours, somecompanies offer a D.I.P. within 15 minutes. Then at least you know whether or not youare in the frame for the mortgage.

The P.C. should be formatted in a similar style to the offer to enable you to easilycompare one with the other. It should be your advisers responsibility to check thesedetails with you, after all what are you paying them for? Might we suggest that if theP.C. and offer do not compare favourably that you give serious consideration toproceeding with the mortgage. If you dont you may suffer from buyers remorse, Actin haste, repent at leisure.

If you walk into your local computer store and state which computer you want youwould expect and get a written confirmation of the product you selected, to compare itwith the computer spec. once its delivered. Why should it differ for a mortgage?

3. Packagers

A packager is a company that specialises in processing mortgages and have becomemuch more prevalent in recent times. The packager works on behalf of various lendersand, therefore, the mortgage packages they offer can favour the lender and advisermore than the consumer.

Some cynics might even suggest that packagers have been put in place by the lendersas a front. Packagers dont have to be as transparent as the lender. By utilisingpackagers, lenders can dump the worst products they have (high redemptionpenalties etc.) on the consumer by using a ploy of paying both the packager and theadviser inflated commissions. This method of marketing distances thebanks/institutions from the consumer.

The problem is there is no specific provision for the packager or the adviser to disclosethe fees a packager receives from the lender. This is not in the consumers interests asthe fees the packager receives may influence the products on offer.


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Most packagers will charge between 50 and 100 administration or handling fee forprocessing a mortgage application. However, it should be understood that this feerelates to a contract between the packager and the adviser and you should not have topay this fee if the application is not successful. The adviser should pay this fee to thepackager. This may encourage the adviser to write better business.

Some packagers deduct this fee from the valuation fee you have paid up front, andrepay you the balance. This practice should be addressed by the CML (Council ofMortgage Lenders). If your mortgage is unsuccessful (rejected) you should not have topay 50 - 100 for the privilege, as per Consumer Credit Act 1974 Section 155.

As it is, some packagers charge valuation fees far in excess of fees charged by thehigh street lenders, double in some cases and fail to disclose this to the consumer.

4. Up front fees

There

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