Consuming Issues: Mortgages

David guides you through the mortgage maze

David Hollingworth from L&C Mortgages answers your questions.

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Hazel Parker is trying to find out where to get the best interest-only mortgage on her property if she releases equity in it. She's about to turn 60 and has no family.

Generally lenders have been cautious about lending to older borrowers and have wanted the mortgage to be repaid by retirement age.

However, these days there are more mortgage lenders (Halifax and Nationwide for example) that can now consider lending on an interest-only basis over a longer term to the older borrower, as long as they can see that the borrower has the income to cover the mortgage.

Trish Moynihan in West Sussex would like to know if there are benefits in keeping a small amount in a mortgage account or is it best to pay it off if you can? Also, once fully paid, should you pay to store your house deeds somewhere?

It is important that you do keep the deeds in a safe place rather than file them in a shoebox under the bed. Banks and solicitors will offer deed storage services but there will usually be a charge.

However, as your lender already holds the deeds, keeping a nominal amount in the mortgage account means that they will continue to store them safely for you so this is a good idea. Ask your lender how their system works.

Mark Elliott, Hove in Sussex says: "My fiancé and I earn £51,000 between us. However, we just can't get near the first rung on the housing market. Our rent is around £650 per month and we have loans which wipe out our wages.

"I have been looking at Housing Association deals but as we earn, are not disabled and won't be suitable for a local authority list, we are not eligible. So, do private investors exist that offer a similar scheme?"

Housing Associations often operate shared ownership schemes which means that you initially purchase a percentage (say 25 or 50%) of the property and pay a rent on the remaining share that continues to be owned by the Housing Association.

This enables you to get a foothold on the ladder and then work up to full ownership over time. Different housing associations will have different eligibility rules so it is a case of doing your research with different associations.

There is also a government scheme for key workers that can offer an interest free "equity loan". There are no monthly payments to be made but if you receive 25% of the purchase price, say, you will have to repay 25% of the sale price when you come to sell the property.

Again there are clear criteria for eligibility and unfortunately at the moment there are no similar schemes from private investors.

Ruth Owens asks: "Isn't one of the main reasons for not taking out a fixed rate mortgage the penalties incurred if you have to move house and change your mortgage. But very few people stay in one house for 25 years - is there a way round this?"

Redemption penalties are certainly one of the biggest things to look out for when selecting a mortgage, whether it's fixed or discounted.

This is certainly the case if you are looking at a long term fixed rate, as most will carry a penalty during the fixed rate period.

You're absolutely right that most people's borrowing requirement will alter and that is certainly a big reason why long term fixed rates haven't taken off - borrowers do not wish to tie themselves.

Most deals are portable to a new property but there is no guarantee on what the lender will offer you on any additional borrowing. The best way round this is to try and coincide your lock-in with any foreseeable changes (such as moving home) or better still opt for a deal with no penalties at any time, although these are few and far between where fixed rates are concerned.

Nelson Bowker from Kent says: "In the mid 1950s my boss had a fixed rate mortgage of 4.255% instead of the variable 4% (if I remember rightly) but when rates rose to above 4.25% the company foreclosed his mortgage and offered him a new one at the higher rate. What's to stop this happening again?"

During the mortgage application process you will receive a formal offer from the lender, which lays out not only how much they will lend you but also all the terms and conditions of the deal that you are plumping for - effectively the contractual terms.

It is therefore important to not only read the terms carefully but to keep hold of the offer so that you can check back in the event of any future disagreement over the terms.

You certainly shouldn't find that a lender tries to pull out of the terms of the original deal.

Gareth Westlake in South Glamorgan asks: "My mortgage company (Eagle Star, now Zurich) has admitted in writing, mis-selling to me, but says that because I have paid my mortgage I do not qualify for compensation. Surely this is wrong as I will still face a financial shortfall on current projections?"

The question of whether a policy is mis-sold or not lies not on whether it has underperformed but on whether you were made fully aware of the nature of the contract that you entered into - in other words that as an equity based contract the final payout would be dependant on the underlying performance of stocks and shares.

This means the policy could pay out more, or as many are now finding less than the target amount. The fact that you have paid off the mortgage is largely irrelevant, any mis-selling claim should be hinged on whether or not you were told about the risks of this contract.

If you are unhappy with the response you have been given (and it sounds like you are) ask for the matter to be referred to the ombudsman for arbitration - that is your right.

Mike asks: "Due to being orphaned when we were younger, looking after my younger brother and myself left me with a debt of £17,000. I can't afford a house but would like to buy a houseboat for £19,000 and am looking for a company that will allow me to combine the two amounts, while still leaving me with about two thirds of my monthly wage to cover moorings, insurance, travel etc.

"My monthly take home pay is £1,030. I'm a civil servant aged 28. IFAs seem unwilling to help - I'd like a longer term than 10 years, which works out too expensive."

Specialist finance is required to purchase any type of boat including houseboats so you won't get a standard mortgage deal from your local building society, although there are some lenders, for example, Barclays that do offer marine finance.

A marine mortgage will still work in a similar way though and be secured against the value of the houseboat and the lender will only lend a certain percentage of the property so you will need to put down a deposit of typically 20% and certainly more than the usual 5% that would be required on a house.

Rod Bates from Shropshire would like to know: "Now the pension black hole has reduced from £160bn to £100bn, will the endowment mortgage black hole also reduce?"

The endowment shortfall problem stems from the downturn in investment performance over recent years, which has affected the projected returns on these policies and led to shortfalls on the original target.

As endowment performance is dependent on the underlying performance of stocks and shares prospects could improve with continued recovery of the markets.

Jasvir Ladher in Bedfordshire says: "I am a student from Leicester looking at buying a property with a sitting tenant (Assured Tenancy Agreement) as an investment. But does the tenant have any rights to buy the property?"

You should establish what terms apply to the tenancy although from the terminology you use, it sounds like there is a standard assured short hold tenancy agreement in place. This shouldn't give the tenant any right to purchase the property.

Graham Webb asks: "I have just bought a new property with my partner. We want a life assurance-type policy to cover the outstanding mortgage in case one of us dies but not one that ONLY pays on death. We'd like an investment type policy which also grows and will have a maturity value. We both have Isas already but want something more substantial."

It sounds like you are thinking about a 'whole of life' policy but you may be better to take a separate approach to your life cover and your investments.

As with most things it is generally better to take single products designed to do specific jobs, rather than go for a "jack of all trades" package.

Term assurance (straightforward life cover) is relatively inexpensive andleaves you free to tackle your investment strategy separately.

Linda Street in South Yorkshire says: "I'm in the process of buying a house with my partner and I will be putting down the deposit as he has no savings at the moment. We've been advised to get an agreement drawn up by a solicitor in case we ever break up but as funds are limited and could be used elsewhere, could we draw a binding agreement up ourselves?"

It's easy to assume that you will be looking at a huge bill when solicitors are mentioned but this should be a relatively simple issue and inexpensive and could be money well spent. Importantly, you can seek advice from a solicitor on the areas that you might want to cover.

At the end of the day the money saved by going down the DIY route could pale into insignificance if things do go wrong and you haven't covered everything.

Abbas Ishaq in Avon says: "I received a letter from Standard Life saying there's going to be a shortfall on my mortgage. I believe I've been mis-sold the endowment, so I went to see the Halifax, who I got the mortgage from. They're saying it's nothing to do with them and to contact Standard Life. Which is it?"

A mis-selling complaint needs to be made in the first instance to the person that actually sold you the policy. In this case that could be Halifax (who did sell Standard Life policies) or Standard Life or could have been an adviser from another company.

Try to dig out the policy information that you were given when you bought it to see exactly who sold the policy to you and then you can make a formal written complaint to them to set the process in motion.

Michelle Gooch says: "I've just been to a seminar on buying to let. The Inside Track Company offer a service where you can buy investment properties off plan at a minimum discount of 15% of market value. It sounds too good to be true - are they a reputable company?"

While not possible to comment on an individual firm and their investment scheme it is absolutely vital that you know exactly what you are getting into and what is involved when considering getting involved in any investment so do your homework carefully and be sure its right for you.

It is an old adage but if something seems too good to be true then there is a good chance that it is.

Lynn Goodreid from Cheshire asks: "My house is mortgage free but I want to raise £30,000 against a house value of £15,000 with an offset mortgage. I am 60 but receive pensions of £14,000 gross per year. I want the mortgage to run for 10 years (capital and Interest repayment). I've been turned down by my bank (Natwest) as I'm retired - where can I go?"

Some lenders are naturally hesitant when it comes to borrowing beyond retirement and it is a case of shopping around to find the right one with the right rate.

Lenders will want to see that you have sufficient income to cover the new mortgage on their standard income multiples but they will take your personal pension income into account.

With offset mortgages widely available these days you should be able to find someone that can come up with what you need.

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The opinions expressed are David's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.