Mortgage matters

Adam, Adrian and Patrick talk mortgages

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Patrick Bunton of London & Country Mortgages, answers your mortgage questions.

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Richard Sandford has a mortgage endowment plan with AXA. In November last year he received a letter from them which said he could be certain that the proceeds of the plan would cover the intended loan amount, but then over the summer he received a letter from a financial services company writing on behalf of AXA saying there was potential for a shortfall at maturity.

Is this change possible?

The first thing to do is get to the bottom of why AXA wrote to you last year and why another financial services company has now written on their behalf.

It is AXA who are in the position to provide an anticipated maturity value and I would therefore forward the second letter to them asking them to verify the figures.

It is possible that a policy may have been on target but begun to fall behind. But the short time frame does strike me as a little bit odd. AXA's view should be sought in writing before you make any decisions.

A useful booklet on endowments is available from the Financial Services Authority website on www.fsa.gov.uk.

Peter Corneck was sold a mortgage by the NatWest in 1992 at a fixed rate of 10.2%.

He wants to know who decides whether a mortgage has been mis-sold and what powers do they have?

Mr Corneck should go back to the documentation provided at the time he took out the mortgage.

A rate of 10.2% looks very high now, given that interest rates today are typically 6.25% or less.

But in 1992 typical standard variable rates fluctuated between 9.29% and 11.50%. Set in this context the rate seems fair.

The risk you always run with fixed rates is that you can pay more than others if interest rates fall.

The flip side is that if rates go up then you do not suffer - just 2 years before in 1990 typical standard variable rates peaked at 15.40%.

This should have been explained when you took the mortgage out. If you believe that this was not covered at that time or, that it was mis-sold to you, then you should formally complain in writing to the lender.

But remember they cannot be found at fault simply because rates have fallen.

Fortunately once the fixed period runs out you can usually renegotiate your mortgage without penalty.

Tony Barker is 57-years old and retired. He wants to buy a property in Majorca, which he will sometimes rent out. What kind of mortgage can he get and what deposit will he need?

If Mr Barker has enough equity in his property he can raise the capital against it here by re-mortgaging and then be a cash buyer in Majorca.

In the event that he doesn't or can't do this, and that he wants to take out a mortgage on that property then he will need a deposit of about 20%. I strongly recommend he takes specialist advice from a firm that understands Spanish lending and property law.

A good starting point would be the Spanish office of one of the major UK banks.

Alan Westwood from Midlothian has an endowment mortgage and is considering paying off some of it with a lump sum. If this leads to a surplus at the termination of his policy will he be taxed on it?

Alan Westwood is considering paying off some of his mortgage with a lump sum

There is no tax liability upon the maturity of a qualifying endowment policy like this, so any surplus at maturity will be tax free.

With all of the question marks hanging over endowment underperformance, making overpayments like this can be a really good idea.

Mrs Lowe from Nottingham asks what kind of rate should she be paying on an ordinary variable rate repayment mortgage. She notes the Bank of England has reduced interest rates to 4.5% - but she is paying 6.49%.

There is not a lot to be gained by following and second guessing the Bank of England's interest rate decisions.

The key to getting a good mortgage is to settle on a product type that suits you best, i.e. fixed or variable payments, and then to shop around to make sure you get the best of that particular type of mortgage.

The difference between the best and worst rates is massive.

For example the best two year fixed rate is 4.44% (from Britannia) and the worst is 6.09% (from RBS). This is a difference in monthly payments of £110 per month.

Karen Daniels from Essex wants to know if it is possible to sell off the endowment part of her mortgage? If so, who to and how much is she likely to get? The endowment is meant to be £30 000 in 5 years time.

Karen Daniels: Is it possible to sell off the endowment part of a mortgage?

An endowment mortgage is simply one where you have borrowed the money and only pay back interest each month.

The debt remains constant and is repaid in one fell swoop when the endowment policy matures.

It is possible to sell an endowment policy on the second-hand endowment market and any proceeds could then be used to pay off a chunk of the mortgage.

This is unlikely to be anything like the £30,000 borrowed and given that there are only 5 years to go it is very hard to contemplate any scenario where sitting tight would not be the best thing.

Ask your product provider for a projected maturity value as it may well be that your policy is on or ahead of schedule, particularly as it has presumably been running for many years in the past when the investment returns achieved were higher than now.

Alison Dicken has just taken out a flexible repayment mortgage which she describes as a "rather large overdraft" on her current account.

She wants to know if these kinds of mortgages are really any better than standard mortgages?

They are not really better but do suit certain sorts of people.

They are really only good value if you are financially disciplined and do not just use the flexible mortgage as a way of putting off paying back the loan.

The key is that they can really work for people whose monthly income often exceeds monthly expenditure by a large amount.

Where it doesn't, you will normally be better off with a traditional mortgage at a lower rate.

Ashley Gilmour from Belfast says he intends to redeem his mortgage nearly four years early.

Is there any point in getting a solicitor to look after the transaction and if so what might the charge be?

No. There is no need to involve a lawyer as they will bring nothing to the deal - apart from another bill for you to pay!

All you need to do is write to your lender and request a redemption statement. They will send this to you and on it you will find the amount you still need to pay.

As long as you send them a cheque for this amount within the specified timescale they will redeem your mortgage, handle all of the paperwork and send you or your solicitor the property deeds for safekeeping.

Lenders don't do this out of the kindness of their hearts. They will typically add £50 - £150 on to the redemption figure to cover their administration costs.

Louise Holder wants to know what a non-status mortgage is and which banks and building societies offer them?

Do they involve a higher interest rates?

A non-status mortgage is simply the term used to denote a mortgage where the lender will not carry out all of its normal status checks. For example they will not ask for an employers reference or ask you to provide proof of income.

In return for this the lender will generally charge you a higher rate so only take one if you cannot proceed on a normal status disclosed basis.

Some lenders, like Halifax, will proceed without income verification and without loading the interest rate.

Generally, you will need to have a large deposit (25%) and the sort of job that they would associate with the income you quote them.

If for example you said you were a road-sweep earning £500,000 a year they probably wouldn't believe you.

Russell Fitt from Buckinghamshire says he hasn't seen any adverts for 'cash back' mortgages recently.

Are they still on offer and if so are there any drawbacks?

They are still available and you can typically get a cash-back of around 5% of the loan value.

The downside is that the cash-back is generally repayable in full if you don't stay with that lender on their full variable base rate for typically five-years.

Unless you really need the cash-back to clear expensive short-term borrowings you will get better value by taking a discount instead.

It's that old adage that you never get something for nothing.