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MONEY BOX LIVE

Presenter:	VINCENT DUGGLEBY


TRANSMISSION	25 APRIL 2005       1500-1530 BST     
RADIO 4



DUGGLEBY:	Good afternoon.  Are interest rates set to go up 
after the election or not?  The housing market would love to know the 
answer to that one so as to remove a major uncertainty, which has put a 
damper on the usual springtime activity - as good a reason as any to talk 
about mortgages on this Money Box Live.  The election campaign itself 
has concentrated on stamp duty with the Conservatives offering relief 
up to £250,000 as against £150,000 with the Liberal Democrats and 
£120,000 from Labour.  £1200 up to £2,500 in hand sounds good, but 
that could easily be swallowed up by higher mortgage repayments; and 
cynics might say lower stamp duty will simply lead to higher house 
prices.  Even though prices have stabilised, and in some areas fallen 
slightly, it’s still a struggle for first time buyers to get onto the housing 
ladder, and for those who bought two or three years ago the increase in 
value has been tempered by the prospect of higher monthly repayments 
as fixed deals run out.  It’s not just the headline rate of interest you need 
to look at.  The trend over the past few months has been towards higher 
arrangement and redemption fees, which can add hundreds of pounds to 
the total cost.  So what can be done?  Is it worth switching your existing 
loan?  What are the advantages and drawbacks of fixed as against 
capped or discounted variable rates, cash backs, interest only and offset 
mortgages - not forgetting those who might be seeking a loan for buy to 
let?  Should you commit yourself for say five or even ten years or keep 
your options open and hope for lower rates in a couple of years time?  
And I have two brokers on the programme with me: Ray Boulger from 
Charcol; and James Cotton from London and Country.  The Money Box 
Live number is 08700 100 444.  And Sue in Aldershot, you’ve got the 
first call.

SUE:		My question is my daughter wants to get on the 
property ladder and she wants to know how much she should get a 
mortgage for, what sort of mortgage and who with?

DUGGLEBY:	She’s working obviously?

SUE:		Yes.

DUGGLEBY:	And her income?

SUE:		It’s just under £18,000..

DUGGLEBY:	Well it’s a little bit of a low income Ray for a 
mortgage, I suspect, in the Aldershot area?

BOULGER:	It is.  I’m not that familiar with property prices 
in Aldershot, but typically first time buyers can borrow four times 
income fairly easily; more if the credit status is good but particularly if 
the income is higher.  So a lot will depend on how much deposit is 
available.  If there is not enough deposit to get a reasonable property, 
then the one option you might want to consider, Sue, is whether you 
either go on the mortgage with your daughter or act as a guarantor.

SUE:		Right.

DUGGLEBY:	Does £70,000 sound enough, Sue, for the sort of 
property that she might want?
SUE:	Sorry, £70,000?

DUGGLEBY:	£70,000.  I’m just doing the multiple that Ray’s 
given us.

SUE:		Not really.  You’d be lucky to get anything 
much under £100,000 around here.

DUGGLEBY:	I feared so, which brings us then James to some 
additional form of support.

COTTON:		Yes.  Sue, does she have a deposit?

SUE:		Yes, she’s got savings of about £15,000.

COTTON:		Right, so that will certainly help her in this 
situation, but it may still be … As Vincent said, you’re looking at 
perhaps borrowing £70,000 to £80,000, so with a deposit on top of that, 
she’d be unable on her own to buy a property for above £100,000.  You 
could, as Ray said, act as a guarantor for her, and that would mean that 
the lenders would look at your income rather than your daughter’s, or 
perhaps even a combination of the two.

SUE:		Right.

DUGGLEBY:	Sue, have you got a property of your own?

SUE:		Yes, we have.

DUGGLEBY:	Is that mortgaged?

SUE:		Yes.

DUGGLEBY:	I imagine it’s been mortgaged for some time, so 
you may have a lot of equity in it?

SUE:		We’ve got about 13 years left on it.

DUGGLEBY:	So have you got … I mean your mortgage must 
be quite low, I would have thought, compared with the value of the 
property?

SUE:		Yes.

DUGGLEBY:	Ray, this could open up the possibility of a 
remortgage on that one, maybe?

BOULGER:	Well that’s certainly a possibility.  I think one 
needs to look at this in a lot more detail.  If, for example, Sue’s 
daughter is likely to have enough income to support the mortgage 
herself in a couple of years time, rather than Sue raise some money on 
her mortgage for a short term it may be better for her to act as a 
guarantor.  It depends a lot on whether she needs long term help, short 
term help.  Is she going to buy a one or two bed property, Sue?

SUE:		I guess she’d like a two bed, but it very much 
depends what we can find.

BOULGER:	Because what people sometimes do is buy a two 
bed property with the help of their parents, either going on a joint 
mortgage with them or acting as a guarantor, get a lodger in.  The 
income from the lodger will often pay half the mortgage.  So the parent 
has to be prepared to stand behind their son or daughter, but in reality 
the son or daughter could probably afford to pay the mortgage.  So 
that’s another option you might want to consider if your daughter’s 
prepared to take in a lodger.

SUE:		Yes.  What about these council ones that are on 
offer now where … sort of half share?

BOULGER:	Yeah, well shared ownership mortgages - 
housing associations tend to be the main people where you find a 
property.  I think the big problem with that is that your choice of 
property is limited, but it’s well worth exploring the options.  Talk to 
local housing associations, which you can get details of through the 
council, and see what they’ve got.  See if they’ve got something 
suitable and your daughter could then start off by buying perhaps 75% 
of a property and trade up later.

DUGGLEBY:	Okay, thanks for that call.  Lorna, you’ve got 
the next one.  You’re ringing us from Coventry.

LORNA:		Hello, yes.  Our 4.2% capped rate mortgage is 
due to run out in December and my husband has an idea to change to an 
interest only mortgage and top up then with a maxi or mini ISA for 
what we would normally spend on our normal repayment.  I want to 
know whether that’s a sensible idea or not because logically it seems 
like quite a good idea, but it does seem rather unconventional.

DUGGLEBY:	Yes, the necessity of course to save for the 
mortgage is quite important.  Some people don’t realise that the 
mortgage has to be paid off in the long-term and you’ve got to start 
saving some time.  But you’re saying in December this mortgage runs 
out?

LORNA:		Yeah.

DUGGLEBY:	I suspect, James, you won’t really want to 
commit yourself on rates that far ahead?  I mean they could change an 
awful lot before December.  But give us the general trend on fixes at the 
moment.

COTTON:		Yes, rates certainly could change.  I would 
perhaps recommend looking at maybe two, perhaps even three months 
in advance of December – have a look around at that point and see what 
sort of deals you can get.  What that means is you’ll be able to get a 
deal in place and hopefully avoid paying too much of your existing 
lender’s standard variable rate and get a rate in place pretty much 
straightaway.

DUGGLEBY:	Have you got a penalty free option to finish 
after the two years?  You haven’t got any sort of run on, have you?

LORNA:		No, no.

DUGGLEBY:	Okay.  Who’s the lender at the moment?

LORNA:		Coventry Building Society.

DUGGLEBY:	Coventry – 4.19.  I doubt you can replicate that 
with the Coventry or anybody else, can you Ray, at the moment?

BOULGER:	You certainly won’t get a rate as cheap as that.  
If you like capped rates Lorna, Coventry are the best lender in the 
market for capped rates.  They have a good selection.  Talk to them to 
see what they’re prepared to offer you when you come off that deal and 
then see what else is available in the market.  But in terms of your 
general point about whether you should link it to an ISA, the sums there 
depend very much on how much income and capital gain you may get 
from the ISA and compare that with a mortgage.  Now you can relate 
this very much to endowment mortgages.  What you’re talking about is 
an interest only mortgage, which you’ll repay from the proceeds of the 
ISA.  With a mini cash ISA it’s unlikely you’re going to get an interest 
rate higher than what you’re paying on the mortgage.  If you can, it will 
only be minimal so it won’t really achieve very much.  With a maxi 
ISA, if you make the right choice and you invest in the right fund at the 
right time, then clearly you may get a better return from the stock 
market than the interest you’re paying.  But that’s your decision.  Do 
you want to take the investment risk?  If you do, fine; if not, stick to a 
straightforward repayment mortgage.

LORNA:		Well we’re not terribly risky people, we don’t 
have any other debt, but my husband obviously has an idea that this is 
quite a good thing to do long-term because we have 23 years left to pay 
and I just want to know how risky it is in the short-term.  Obviously we 
were thinking that if we were paying more interest on an interest only 
mortgage, at least that would be offset by the fact that our savings were 
earning more interest as well.

DUGGLEBY:	James?

COTTON:		Lorna, I think Ray’s hit on the main point of 
just being aware of the risk.  You’re going from a repayment vehicle, 
which is essentially a risk free way of paying back your mortgage, to 
one where you are going to be open to the ups and downs of the stock 
market.  If you do have 23 years to go, then it’s certainly a decent 
length of time and over the long-term you’d hope that you would build 
up a decent amount not only to pay off the mortgage but perhaps have a 
bit more.  However, that was the idea with endowments and we’ve seen 
that they have caused a lot of problems recently.  So just be aware of 
the risk that you may be taking on and be happy with that.

DUGGLEBY:	We’ve got a couple of e-mails on this question 
of paying off part of the mortgage, Ray, and they’re both actually 
asking about the merits of offset mortgages.  In one case they’ve got 
this offset mortgage and they’ve got £3,000 in savings and they’re 
wondering whether the £3,000 should go into an ISA paying 4½ % or 
whether it should go into the mortgage, which is costing them 5.59%.  
It seems like a no-brainer, but is there a catch?

BOULGER:	No, no, it really is a no-brainer.  The question 
here is very similar to the one we’ve just been discussing.  If the interest 
you can earn on the ISA is less than the interest you’re paying on the 
mortgage, then you should put the money into the offset mortgage and 
forget the ISA.

DUGGLEBY:	And Ella in Edinburgh says she’s got a 
mortgage of £90,000.  She wants to renegotiate and is wondering 
whether the offset could be for her.  Now this couple have got £45,000 
in savings to which they want to get access, not necessarily all of it.  So 
would a lender be interested in giving them a £90,000 mortgage, so 
they immediately put £45,000 in and then draw it down as and when 
they need?  Is that a runner?

BOULGER:	That’s absolutely a runner and this is a classic 
case when an offset mortgage would work very well - either an offset 
mortgage or a mortgage that’s fully flexible.  Offset has the benefit of 
being a bit more convenient.  You need to compare the different rates, 
but you can certainly get offset mortgages with rates of bank base plus a 
half – 5¼% - not that much more than an ordinary mortgage, and in this 
case it would be well worthwhile.

DUGGLEBY:	With whom, by the way?

BOUGLER:	Well Newcastle, Abbey, Clydesdale all offer 
offset mortgages at around that level.

DUGGLEBY:	And this other one you talked about, what was it 
called?

BOULGER:	The alternative is a fully flexible mortgage.  
Now you have to be careful because different lenders use the term 
flexible to mean different things, but there are some mortgages which 
will allow you to pay in an unlimited amount - some restrict you to 10% 
- and then having paid that money in, you can get access to it by way of 
a lump sum.  Relatively few flexible mortgages let you do that, but 
there are some that will.  

DUGGLEBY:	Who?

BOULGER:	Well Northern Rock for example is one.  
They’ve got a range of fixed rates at 5.19%.  So clearly one of the 
considerations here is do you want a fixed rate or do you want a 
variable rate?

DUGGLEBY:	So it’s very much of a consideration for people 
with savings that they don’t want to sort of completely lose, they want 
to keep themselves flexible, their options open.  James, a quick 
comment from you.


COTTON:		Yes, absolutely right.  But, as Ray mentioned, 
you also do have to look at the sort of rate that you would like to get as 
well.  Typically it’s been very difficult to get a fixed rate on these sorts 
of flexible and offset deals, so you have had to perhaps give up that 
security.  However, now we are seeing a few people like Clydesdale 
Bank, like Yorkshire as well, that are offering fixed rates with the 
ability to draw back and offset your savings as well.

DUGGLEBY:	Okay.  George, you’re next.  Sorry to have kept 
you waiting.  You’re ringing us from Mulsey.

GEORGE:		Yes, I appear to be in a checkmate position and 
I’m looking for a move out, please.  I bought this property when I was 
unmarried.  I’ve now married and I want to put my wife on the 
mortgage and it’s getting to be a very complicated process.  I got the 
certificate of transfer from the IRS and then I went to the land registry 
office to put her name on the deeds, and they say you can’t do it 
because it’s a mortgage and I have to have their permission.  So I went 
to the Scarborough and they said, yes, but you have to cancel the 
existing mortgage and take out a completely new mortgage with a new 
survey, new legal hassle and all the rest of it, and it costs about £500 
just to type in somebody’s name on the mortgage.  It just seems 
excessive.  So really that’s it.

DUGGLEBY:	Okay, well there may be a reason for this.  I 
know there are costs involved but, Ray, this is probably a legal matter, I 
suppose?

BOULGER:	Well it sounds to me George as if you’ve been 
taken to a jobsworth in their call centre because, yes, there are legal 
issues here - anybody who’s on the property deeds must be on the 
mortgage, so before your wife can go on the property deeds she must go 
on the mortgage - but most lenders would add somebody else to the 
mortgage without any difficulty providing there’s no reason why she 
shouldn’t be added such as having some adverse credit.  So I suspect 
that perhaps you need to escalate this at Scarborough and I suspect that 
you will then find it can be resolved because this just doesn’t make any 
sense at all, frankly.  Scarborough will not want to lose you as a 
customer, but clearly they’re going the right way to do so.

DUGGLEBY:	As a matter of interest, George, what sort of a 
deal have you got with the Scarborough?  I mean is it a kind of 
compellingly good rate of interest?

GEORGE:		Yes, it’s about par for the course.  You’ve got to 
be a mathematician, it seems, to pick out the best.

DUGGLEBY:	Is it a variable rate?

GEORGE:	Yes it is variable.  The property’s worth at least 
a quarter of a million and it’s only a £70,000 mortgage.

DUGGLEBY:	Indeed, but I’ve got a couple of brokers in here 
who I’m sure are just dying to know what you’re paying for it because I 
bet they’ll come up and say we could do a lot better for you anyway.

GEORGE:	Well I have interest only at 343 a month.  If 
they can beat that, send me a letter.

DUGGLEBY:	On £70,000.

BOULGER:	I mean do you have any early repayment 
charges, George?

GEORGE:		No.

BOULGER:	You don’t.  Okay well that would be a simple 
solution, simply to remortgage.  Then you wouldn’t have any of this 
hassle.

GEORGE:		Okay.

BOULGER:	But I would just go back to Scarborough if 
you’re keen to stay with them.  But if you were to remortgage, you need 
a deal that gives you a free evaluation and free legals.  Somebody like 
Nationwide would give you a rate of bank base plus 0.04 – i.e. 4.79% - 
and it will cost you an arrangement fee of about £480.

DUGGLEBY:	Okay, well you know it’s worth bearing in 
mind.  And I think if you waved a big stick at the Scarborough and said, 
“I might take my custom elsewhere”, I think you’d be surprised at how 
quickly the charges would evaporate.  Okay.

BOULGER:	Call Scarborough and ask for Sean Murphy.  I 
think he might be able to help you out.

DUGGLEBY:	Okay, well there’s a tip straight from the horse’s 
mouth.  Right, Arabella in Wootton, your call now.

ARABELLA:	Yes, hi.  My situation is that my husband and I 
are going to be first time buyers here in England.  I’m English, we lived 
abroad, we’ve moved here.  And the thing is my husband, who is the 
primary breadwinner, is 50, and we’re hoping that there will be lenders 
out there (as there are in America) where you can get a 25 year 
mortgage rather than just 15.

DUGGLEBY:	So you’re first time buyers here?

ARABELLA:	Yes.

DUGGLEBY:	What sort of deposit have you got?

ARABELLA:	Possibly up to about 20%.

DUGGLEBY:	20% deposit.  That’s okay, but you’re 50 now.  
This would involve a mortgage which presumably you’ll want to finish 
before he retires?

ARABELLA:	That’s correct.  Well yes, I mean …

DUGGLEBY:	I’m just interested in this point.  I mean James 
will comment on it, but I think at 50 what sort of term would most 
lenders be looking to accept?

COTTON:		Well at age 50 it is possible to get a mortgage of 
a 25 year term.  However, lenders will want to make sure that you can 
afford that loan – not only now with the income that you earn from any 
occupation but also going into retirement.  So although you feel you 
may have sufficient income or your husband has sufficient income now, 
lenders will typically ask him to also prove that there is pension income 
so that he can afford that loan into retirement as well.  I mean is that the 
case at the moment?

ARABELLA:	Well I’m not really sure.  I mean there might be 
you know more money as time goes on.  I mean I’m self-employed at 
the moment.  But going into getting a mortgage at this point, I think you 
know we’d be more comfortable with a longer one rather than shorter.

DUGGLEBY:	I think that you might be well served by using a 
broker for this exercise, Arabella.

ARABELLA:	Okay.

DUGGLEBY:	When you’ve got slightly special circumstances, 
Ray – I mean I’m slightly blowing your own trumpet – but you’ve got a 
little bit more muscle to know what’s necessary, what lenders need to 
know and what they want to hear.

BOULGER:	That’s right and there are different ways of 
looking at this.  For example, you’ve suggested you want a 25 year 
mortgage, Arabella.  Is that because you’re just used to 25 year 
mortgages or because you need 25 years to keep it affordable?

ARABELLA:	Yes, to keep it affordable.  Unfortunately we 
live in the Cotswolds in Gloucestershire.

BOULGER:	Okay because one of the things you obviously 
do need to think about, and no doubt you have, is if your husband 
retires at 65 or 70 or whatever age he retires, once he has retired it’s not 
only a question of satisfying the lender you can afford the mortgage 
when you retire but you need to be comfortable you can afford it 
yourself.   If you are, then the chances are one could persuade a lender, 
but you need to just make sure you’re comfortable having a mortgage 
into retirement.

ARABELLA:	Okay.

BOULGER:	It may be of course that you start off with a 25 
year mortgage and then as your circumstances change you can make 
some extra payments and you can ultimately bring it down to pay it 
back earlier.

ARABELLA:	I think that’s what we would expect to do.

BOULGER:	And did you want a 25 year fixed rate or … ?  
Was that why you mentioned 25 years?
 
ARABELLA:	Well we haven’t got as far as looking as looking 
into the variables.

BOULGER:	Okay.

ARABELLA:	But you suggest a broker?

DUGGLEBY:	Yes, I mean all brokers now have to be 
supervised by the Financial Services Authority, so you know you go to 
an authorised broker and you will get a deal from them.  And you’ll 
find on our website the names of various brokers that are available in 
the market or you can contact … presumably the FSA will tell you the 
names that are available.  But there are national firms that deal with 
these sorts of things every day of their lives.  Now then, Stuart in 
Chatham - your call.

STUART:		Hi there.  My existing lender and my discount 
has just come up for its two years, so I’m in the process of trying to 
look around and find out what the best deals are for me.  The rate that 
I’ve got with the previous lender was 4.09% and I know that a lot of 
rates have all gone up but I just don’t know which one to go for at the 
moment, whether to go for a fixed one or a discounted rate.

DUGGLEBY:	Just a few details, Stuart.  Who’s it with?

STUART:		It’s with the Abbey National.

DUGGLEBY:	The Abbey National.  Okay, two year fixed.  No 
redemption penalties?

STUART:		No.

DUGGLEBY:	Okay.  And what’s the size of the loan?

STUART:		It’s for £80,000.

DUGGLEBY:	£80,000.  Well that sounds like a bread and 
butter job for one of you.  Who’s going to take it first?  Ray?

BOULGER:	Sure.  Abbey National’s policy is not to offer 
existing customers their new business rates in general.  They may offer 
you one soon but in general they won’t, so to get another good rate you 
will have to remortgage.

STUART:		Yes.

BOULGER:	And for a relatively small mortgage – although 
it may not seem small to you – you know a key consideration is what 
the setting up costs are going to be.  So with a mortgage of that size 
generally, I’d advise you to look for a deal where the lender gives you a 
free evaluation and free legals.  Ideally no arrangement fee, but there 
aren’t too many of those around, so you need to weigh that up, if you 
can find a deal with no arrangement fee, with the interest rate.  But the 
key question and probably the most important one is should you go for 
a discount/tracker or a fixed rate.  And if you need the comfort of a 
fixed rate because you just like to know what you’re going to pay each 
month, you like to be able to budget or you can’t take a chance on rates 
going up, then go for a fixed rate.  If the question is which is likely to 
cost you less over the next two or three years, I personally think interest 
rates will probably edge down later this year and we’ll see some 
cheaper fixed rates.  But I don’t think it will make a huge difference, so 
at the end of the day you have to take a view on that.  But that would be 
my judgement.

STUART:	So would the discounted rate be more preferable 
in my case then rather than fixed for the period of the term?

DUGGLEBY:	Let’s get an opinion from James on that.

COTTON:	Mike, I presume you had this same deal last 
year as well.  At that time we saw Bank of England raise rates a number 
of times, four times in that year.  How was that for you when you got 
the letter through saying your payments were going to go up each 
month?  Could you handle that in terms of your income?

STUART:		Sort of, but I mean I was on fixed … this is a 
fixed rate that I’ve got at the moment.

DUGGLEBY:	Yeah, but the point is you’re not going to get 
the fixed rate that you had before.  

STUART:		No I’m not, am I?

DUGGLEBY:	What I think James is getting at is did it scare 
you or were you very comforted by the fact that you had a fixed rate?

STUART:		Yes.

DUGGLEBY:	So you’re tending to tell me that you want 
certainty.

STUART:		Possibly, yes.

COTTON:	If you do value that certainty, then even though 
you might have to pay a slightly higher rate than other deals available, 
you might find it’s going to be worth it at the end of the two or three 
years.

DUGGLEBY:	Okay, we must move on to Mike in Durham.

MIKE:		Hi.

DUGGLEBY:	Hi, Mike.

MIKE:		My daughter, she’s 23, is looking to buy a flat 
or small house with a friend of hers, and I was just wondering what 
pitfalls we should look out for when buying a property with a friend.

DUGGLEBY:	This is presumably a platonic friendship, is it?

MIKE:		Yes, it is.

DUGGLEBY:	It’s not a live-in obviously?

MIKE:		No, it’s an old school friend.

DUGGLEBY:	Okay, well it can be done.  James, would you 
like to sort of start us off?

COTTON:		Yeah.  Well it’s certainly been quite a popular 
option for a lot of people recently, particularly first time buyers.  It’s 
been a way that they can continue almost living as if they’re renting but 
starting to actually own a property.  But there certainly are pitfalls.  The 
main thing to be aware of is that everyone on that mortgage is going to 
be jointly and severally liable for the whole loan, so everyone has a 
responsibility to maintain the mortgage payments.  If anyone was to 
move out or just to simply refuse to pay the mortgage, then the lender 
can rightly chase anyone in that house for the payments, so that’s 
definitely one thing to be aware of.

DUGGLEBY:	So you’ve got to have an absolutely rock solid 
agreement as to what happens if one of the parties leaves?

COTTON:		Absolutely.  And it’s certainly worth actually 
getting that written up legally, to get a solicitor to note the course.

MIKE:		And are there any standard sort of agreements 
or is it something we’d have to go to a solicitor and draw up on an 
individual basis?

COTTON:		There are.   The overall agreement is standard, 
but obviously you can change that well depending to your own 
circumstances.  So, for example, if one person has put in more deposit 
than the other, that can be reflected in there.  Depending on if you’ve 
got different people with different incomes, you can say that one person 
is going to pay more of the mortgage.  But at least you can set out 
exactly what is going to happen in the event of someone wanting to 
move out, to sell up or any sort of eventuality.

DUGGLEBY:	But I think I’m right in saying, Ray, that at the 
end of the day the building society doesn’t mind who goes in, stays out, 
pays what as long as they’ve got everybody on that mortgage deed and 
they can pursue the lot of them?

BOULGER:	Yes, that’s absolutely right.  Whether you’re 
buying as a couple or as friends is not relevant to the lender.  You will 
get the same deal either way.  And all the points James has made are 
very relevant and I particularly stress the joint and several liability bit.  
It’s absolutely crucial one understands that.  You also need to give 
serious thought to what happens if one person wants to sell up, perhaps 
go and buy with somebody else or move away.  How do they deal with 
things there?  If both people are putting in the same deposit and they’re 
both paying the same share of the mortgage, that makes life easy, but 
sometimes it doesn’t work out like that.  There is a mortgage on the 
market that Britannia launched some time ago with a company called 
Graduate Network, which does have some special legal agreements all 
thrown in with the mortgage, but it’s really designed for three or four 
people buying together.  But in answer to your question if there’s any 
specific legal agreements, that’s one area that you might want to have a 
look at.

DUGGLEBY:	Will most lenders look favourably upon joint 
mortgages of this kind?

BOULGER:	Oh absolutely.  You need to make sure the 
property is bought as tenants in common, so each person will own their 
share of the property, which doesn’t have to be fifty-fifty; but if it’s not, 
clearly you need to decide exactly how any proceeds are going to be 
dealt with when you sell the property if they put in different deposits.

DUGGLEBY:	But above all, I think the question you just have 
to ask yourself is two years down the line, somebody changes job, 
somebody moves out, says I’m going – you know are you absolutely 
clear you know what you’re going to do in those circumstances, 
because if you’re not, don’t do it.

BOULGER:	Absolutely.

DUGGLEBY:	Right, Wendy in Walthamstow, your call now.

WENDY:		Hello.  My question’s about APR.  If I see an 
advert for a 4.85% 2 year discounted rate and a 6.1% APR, am I correct 
in saying that this 4.8% is no better than my existing standard variable 
rate of 5.9%?

DUGGLEBY:	There are lies, damn lies and statistics and there 
are also costs of mortgage payments, Ray.   I don’t know how you work 
out what’s what, but you’d manage it.

BOULGER:	Well I thought Vincent you were going to say 
there are lies, damn lies and there are APR’s.

DUGGLEBY:	I could have said that, yeah.

BOULGER:	APR’s are grossly misleading, Wendy.  They 
only are useful if you plan to keep the mortgage on the same terms you 
took it out.  So let’s say you’re taking out a 2 year deal, it’s a 25 year 
mortgage, and after the 2 years you stay with the lender on their 
standard variable rate for 23 years, which of course nobody in their 
right mind does these days.  So APR’s are completely misleading.  It’s 
an interesting fact that the FSA requires all mortgage adverts to include 
an APR and we have to say it’s the overall cost for comparison.  And 
that misleads most people, so straightaway that means that the 
requirement for adverts to be true, fair and not misleading can’t be 
complied with.  It’s catch-22.  So don’t be misled by the APR.  Look at 
the actual interest rate.  Look at what happens when you come to the 
end of the deal because there are some lenders actually who have a 
good rate after the initial deal.  Alliance and Leicester have some deals 
whereby you revert to bank base plus .75.  Now that’s not brilliant, but 
it’s a lot better than the standard variable rate.  Decide what you’re 
going to do when you come to the end of the deal and work out what 
the cost is going to be to you over the period you plan to keep that 
particular deal.  Take an account of the costs of getting in and the costs 
of getting out.

DUGGLEBY:	I mentioned at the beginning of course these 
redemption fees and arrangement fees and so on.  How do they affect 
the sums then, James?

COTTON:		Well we were saying earlier it’s important to 
look at it in terms of pounds and pence as well and these will certainly 
affect the deal.  You’ve got arrangement fees upfront, but also now 
you’re starting to get an increase in deeds release fees, which are a back 
end charge.  The difficulty with that is knowing exactly how much 
you’re going to have to pay when you come to the end of your deal 
because obviously lenders can change at any time, they’re not set at the 
beginning.  So it’s just another cost that you should really take into 
account.

DUGGLEBY:	So at the end of the day, is there any one figure 
you can rely on?  It seems to me there isn’t, is there?

BOULGER:	As James says, you can’t be certain what the 
actual fee’s going to be, but work out the cost over the period you’re 
going to keep the mortgage.  And the most important thing though is to 
decide whether you want a fixed rate or a discount or tracker.

DUGGLEBY:	And whether you can afford the monthly 
repayments.

BOULGER:	Of course.

DUGGLEBY:	Right final call.  Jenny in Portsmouth, yours …

JENNY:		Oh good afternoon.  Our mortgage has recently 
been taken over by Derbyshire Home Loans Ltd. from another company 
called Platform Funding.  The initial letter said ‘we aren’t changing the 
terms’, but within days we got another letter saying that the mortgage 
interest will rise.  Well since there hasn’t been a bank interest rise in 
that month, we’re wondering why they’re entitled to do this.

DUGGLEBY:	Well usually because there’s unless you’ve got 
a fixed rate, it’s a variable rate and it can be varied.  Ray …

BOULGER:	Yes on the face of it, Jenny, this does sound 
odd.  Lenders do sometimes change their rate when there’s not a base 
rate change, but Derbyshire will have to keep to the terms of the 
original deal with Platform.  Have a look at that and see what scope that 
gave.  If it was Platform, I suspect it was linked to London Inter Bank 
Offered Rate (LIBOR) rather than bank base rate, and you’ll probably 
find the rate changes every three months.  So that could be what’s 
happened.

DUGGLEBY:	Last word from you, James.

COTTON:		Yes, I think Ray’s absolutely rate there.  The 
LIBOR rate is one you should keep aware of.  But unfortunately this is 
one of the downsides of looking at rates that are linked to a bank’s rate 
rather than the actual Bank of England.  They can change it at will.

DUGGLEBY:	And I suppose the ultimate answer is that if 
there’s no redemption penalty and the lender switches, then you just try 
and move somewhere else?

BOULGER:	I’m sure there will be an early repayment 
charge.  Derbyshire won’t have bought that book if there aren’t early 
repayment charges probably for two or three years.

DUGGLEBY:	Nasty sting in the tail there.  Okay, well I’m 
afraid we’ve run out of time for this Money Box Live.  Thank you for 
all your calls and don’t forget our Action Line on 0800 044 044 or our 
website, bbc.co.uk/moneybox, which carries transcripts of our recent 
programmes with links to the FSA and other sites of interest.  And, 
incidentally, if you’re concerned about equity release, which is a 
subject we haven’t dealt with today, you should find something on the 
website which will guide you in that direction.  Thanks to James Cotton 
from London and Country, Ray Boulger from Charcol.  Paul Lewis will 
be here with Money Box at noon on Saturday and he’ll be here also 
next Monday afternoon to take your calls on credit, in particular how 
credit scoring works and how to deal with credit reference agencies.


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