The Mortgage Bible 2009.pdf

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Content

Sixth Edition February 2009
Copyright © 1999 Mortgage Watchdog


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

The Mortgage Bible© - author - Monty Burn

Contents
1. Contents
2. Introduction
3. The Mortgage Players
4. Disclosure of fees
5. Who’s responsible
6. The importance of C.I.D.
7. Your employment status
8. Can I obtain a loan on any property?
9. Loan To Value (LTV)
10. The role of solicitors
11. The legalities of remortgaging your home
12. The legalities of purchasing your home
13. Paying off your mortgage
14. Interest rates
15. House valuation
16. Redemption penalties
17. Bank statements
18. Credit history
19. Consolidating loans
20. Protecting your home against repossession
21. ASU Payments and T&C’s
22. What if I can’t afford to make my mortgage payments
23. Scams
24. Step by step guide to taking out a mortgage/remortgage
25. The Ideal Mortgage
26. Documents you may need
27. Beware cold calling
28. Jargon Buster

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

The text of this publication or any part thereof may not be reproduced or transmitted in any form or by any
means, electronic or mechanical, including photocopying, recording, storage in any information retrieval
system, 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 cover
other than that in which it is published and without a similar condition including this condition being
imposed on the subsequent purchaser.

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The Mortgage Bible© - author - Monty Burn

The Mortgage Bible
INTRODUCTION
Save thousands of pounds - The main aim of this report is to secure you a good
mortgage that could save you thousands of pounds, give you peace of mind and
prevent you being ripped off. You will get expert advice from an expert in the field of
mortgages 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 you
the consumer.
The solution: Bring the “conflict of interests” to the attention of consumers by
education of the mortgage process.
To summarise the main objectives of the report:
• To provide you with sufficient knowledge to 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 thousands
of pounds and heartache.
• To save you paying out extortionate fees.
Let’s make it easy - Look at it this way, if you were a mechanic and you bought a
second hand car it is highly unlikely that you would end up being sold a “rubbish” car.
You wouldn’t be mis-sold as you would know what to look for when buying a car. The
exact same principle lies with mortgages, learn what the game is about and it will be
extremely difficult for anyone to rip you off. It’s easy when you know how and YOU will
know how if you read this report.
Impartiality - Try and accept that obtaining “impartial” mortgage advice from mortgage
advisers is almost Mission Impossible due to a “conflict of interests” (COI) so you need
to know what you are doing.
The conflict of interest (COI) - is brought about by the right type of mortgage for you
is normally the wrong type of mortgage for the adviser because of the low commission
paid for the type of mortgage you need.
Subsequently the right mortgage for the adviser with high commission, results in a
poor mortgage for you. Perhaps that is why so many consumers were sold endowment
type mortgages that paid high commissions in the past.
You take control - By learning the mortgage process YOU take control of the situation
instead 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 often
find yourself at a disadvantage when dealing with a mortgage lender/adviser, due to
lack of knowledge.

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The Mortgage Bible© - author - Monty Burn

The Mortgage players
Options - There are a number of options available when taking out a mortgage. Here
is a list of those available; you need to be aware of their differing roles.
Lenders
Lenders are the banks and building societies. The lenders also buy in a lot of the
money they loan to you with a profit margin built into the Interest rate the same as
there would be for any other product you may buy. The lenders are still the major
players in the mortgage business. In other words the majority of people still go to these
institutions to borrow money for a mortgage. The bank’s reliance upon mortgage
brokers bringing in their business is fast dwindling as they step up their marketing on
the TV and Internet.
Loyalty often doesn’t pay - You must realise your bank is a business and they are
duty bound to their shareholders to make as much money as possible. To prove the
point, if you have a mortgage with a bank they are not going to tell you the best rates
available 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 if
you want to move to the lower rate. There is still a dual rate system, a low one to
induce new customers and a higher one for loyal long-standing customers. So much
for 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 money
but 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 their
products to choose from. It’s not as though you’re walking into a superstore with a
wide variety. You wouldn’t consider shopping at a shop with only one product line
when you have the option to shop at a superstore with the full range of products. Yet
that is precisely what you do when making probably the biggest purchase of your life
when you walk into your high street bank. Perhaps it’s time you had a rethink and
considered 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 adequately
“qualified” they could lack experience. There are some selling mortgages that haven’t
a clue about the mortgage process. Sure they have passed the mortgage exam but
that was then and now they just want to make money, as much as possible.
These Advisers are unable to sell regulated investment products that come under the
FSA (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 more
contacts with lenders.
Disadvantages
• You need to see a qualified financial adviser, IFA, for associated mortgage
insurance products.

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The Mortgage Bible© - author - Monty Burn

IFA (Independent Financial Adviser).
IFA’s are regulated by the FSA (Financial Services Authority) and qualified to sell
regulated products as defined under the Financial Services Act 1986. This includes
endowments and pensions; they are also able to sell mortgage products. An IFA may
be equally knowledgeable in mortgages as the mortgage adviser, if not more so in
many cases, and can offer advice and process a total mortgage package.
Advantages
• Must hold qualifications Financial Planning Certificates (FPC’s), and is more closely
monitored than a mortgage adviser.
• Should have a better understanding of the Financial Services industry than their
mortgage adviser counterparts.
• Able to handle all aspects of the mortgage process including regulated insurance
products.
Disadvantages
• As they are qualified in the Financial Services industry they may not have the
specialised knowledge or lender contacts of those specialising solely in mortgages.
• May be more interested in selling you insurance products than the best mortgage
products.
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 or
tied) at the earliest opportunity. They also have to justify why they have sold a
particular 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 to
learn 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 don’t be
afraid to “haggle” for a fee/commission reduction. Some mortgage insurance deals can
yield a lot of commission so there can be plenty of scope for a negotiated reduction in
fees.
Direct Mortgages
One way of eliminating high fees paid as a commission is to deal with the increasing
number of “Direct” mortgage brokers (you can arrange your mortgage over the phone
or online). They offer the full mortgage service without you leaving the comfort of your
home, or having someone come into your home. The same as lenders in as much as
they will only offer you their range of products. However, these are worth your
consideration.

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The Mortgage Bible© - author - Monty Burn

Disclosure of fees



The provider has a duty to disclose “At the outset, we will tell you if we receive a
fee 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 what
if 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 mortgage
products to their family and friends just to get a higher proc. fee. So what chance do
you have? There are advisers who will admit that if they told clients the true cost
implications of the mortgage package they’d sell far fewer mortgages.
The onus for giving impartial advice doesn’t lie entirely with the advisers. Lenders and
package companies encourage this type of practice by offering high proc. fees in
return for products that favour both the lender and adviser.
Packagers’ fees
Some packagers (and brokers) set up deals with both solicitors and surveyors so they
get a “kick back” on all business placed with them. So what’s new!
“Packagers” also get a fee from the lenders, which is separate from any proc. fee an
adviser gets. This fee should be disclosed as it may well have an influence on what
product the “packager” is offering. All fees that affect the mortgage process should be
disclosed.
Avoid paying any fees up front except a valuation fee. Many people have experienced
great difficulty in retrieving fees paid up front. See Scams for 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 “preferential”
terms.
• Valuation fee, showing the breakdown of commissions added for
packagers/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 any
insurance policy, be it for an endowment - life - term assurance - buildings and
contents or ASU policy that relates to the mortgage transaction.
• Search fees.
You should realise the importance of disclosure and “transparency” as the amount of
the fee can influence both the advice and product/s you are offered. Do not be afraid
to ask what the fees are and ask for a breakdown!
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The Mortgage Bible© - author - Monty Burn

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 not
be added to your loan or charged to you.
A broker/adviser fee.
A fee charged by the broker/adviser, some will add it to the loan, some will charge you
up 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 solicitor’s fee.
Commission on insurances.

There are some companies/individuals turning their attention to the mortgage industry
as they view it as an easy way of achieving large incomes due to the lack of
knowledge by the consumer. Although FSA regulation is now enforced, this will not
address the main problem of “conflict of interest” or one of educating the consumer in
the mortgage process.

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The Mortgage Bible© - author - Monty Burn

Who’s responsible?
When taking advice from an adviser, establish right from the outset who is taking
responsibility for the mortgage product you may be about to purchase. If the adviser
leaves the company, the company can just say, “The adviser has left the company and
we cannot be held responsible for his actions”. Whilst this is not true, it can be a “foboff”.
Too many times the consumer is given advice by an adviser then gets the offer direct
from the lender without further contact by the adviser. This cannot be right. The
adviser should take responsibility for the transaction including comparing the PC
(Product Confirmation) with the lender’s offer. After all you dealing with an adviser not
the lender.
Ultimately, the responsibility is yours when signing a contract; therefore you need to be
satisfied that you understand all the details and implications. The final mortgage offer
may not be what you want, so check it thoroughly and ask someone capable (a
solicitor or accountant) to check it on your behalf in addition to your adviser.

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The Mortgage Bible© - author - Monty Burn

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 CCJ’s (County Court Judgements)
against your name or are currently in debt – the bank wants to know about it. Believe
me there is no hiding place as the lender will do a credit search on you and find out if
you have “history”. The more history you have the higher the interest rate or the less
chance you have of getting your mortgage.
I - Income – This component is arguably the most important of the three components
as it represents your ability to pay back the loan (mortgage). The higher the income
the more you can borrow (generally). Nowadays it is more about disposable income
than net income. In other words how much money do you have at your disposal once
you subtract other loan payments and financial obligations?
D - Deposit – The more deposit you have in relation to the house price the better as
lender’s work to a LTV (Loan To Value) calculation. In days gone by you could get a
100% 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 more
likelihood of you securing a mortgage with a decent interest rate.
How much can you borrow? - The amount you can borrow is determined by a simple
calculation referred to as the “income multiplier”, and varies from lender to lender, so
you 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 individual’s ability to pay
the monthly payments.
Lenders will normally let you borrow between 2.75 - 5 times your gross salary. If there
are two people on the deeds, they will consider both incomes.
Overtime - On top of your basic salary, the lender may also consider “guaranteed”
overtime. This normally applies where the overtime forms part of your terms of
employment and is stated as such in your employment contract. Lenders will almost
certainly want this substantiated by a P60 and pay slips, plus confirmation from your
employer that it is a permanent arrangement.
Generally, additional earnings may be considered by some lenders as shown here:
1.
2.
3.
4.

Guaranteed overtime
Regular overtime
Guaranteed commission
Income from other jobs

at 100%.
at 50%.
at 50%.
at 50%.

Substantiation - The above figures should only be used as a guide as they do vary
from lender to lender. All of the above will need to be substantiated by documentation;
the lender won’t take your word for it. However, viewed positively, this substantiation is
a safety check for both lender and borrower alike. It prevents the borrower from over
borrowing, which could cause hardship and even repossession of your home, should
your financial circumstances not be what you claim. This worse case scenario is not in
either party’s interests.
Out-goings - Another factor, which is considered in calculating the loan amount
permissible by lenders, is the current levels of outgoings repaying loans/debts. For
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The Mortgage Bible© - author - Monty Burn

example:
1. Payments on your car = £100 p.m. x 12 (mths)
2. Payments on double-glazing = £60 p.m. x 12 (mths)
3. Credit cards, with a current balance of £2,000 x 5% (which is the
minimum payment) = £100 p.m. x 12 (mths)
4. Payments for catalogue goods = £40 p.m. x 12 (mths)
Total per annum

= £1,200.
= £720.
= £1,200.
= £480.
= £3,600.

This £3,600 would be deducted from your income. Therefore if your joint incomes were
£15,000 deduct the £3,600 = £11,400. This is now the figure you use for the “income
multiplier”. So using an example of 2.75 joint multiplier, £11,400 x 2.75 = £31,350 is
the maximum you could borrow. To do the calculation correctly, you should offset the
specific debt against the named party and deduct it from that individual’s income. So,
for example, if the applicant with an income of £10,000 has all the above debts in their
name, 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 amount
required 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 ability
to repay, normally it should be okay as the lender will want to safeguard their
investment in you. But once again err on the side of caution.
Note: Affordability – Is it worth it?
Monty’s advice would be to keep the amount of borrowing to a sensible and
comfortable level; a rule of thumb is that your monthly mortgage payments should not
exceed 25% of your net monthly income. It may mean you can’t have the house of
your 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. The
same people may end up living miserable lives by financial constraints, as they can’t
afford the other pleasures of life due to high mortgage payments. You need to ask
yourself, “Is it really worth it?”
Err on the side of caution - If you wanted to be cautious when calculating how much
you can comfortably afford to pay each month for your mortgage, we suggest you
consider using a calculation, which adds at least 2% on to the SVR (Standard
Variable 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 may
have opted for a fixed or discount that is already 2% lower than the SVR.
Do not base your budget or mortgage payment calculations on an interest rate lower
than 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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The Mortgage Bible© - author - Monty Burn

Your employment status
Employed and self employed - A lender will want to see a stable employment record
when considering making a loan available. Whilst this varies from lender to lender we
offer 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 you
should not be in a “probationary” period. If you are in a “probationary” period wait
until it ends before applying for a mortgage.
2. You should ideally have a minimum 12 months continuous employment prior to your
application.
3. If you are in work and are thinking of both going self employed and taking out a
mortgage, take the mortgage out whilst you are still in employment if you really want
that mortgage. The options if you apply when you are self employed will be to pay
higher rates on (this is where you have to furnish business accounts to substantiate
your income) or be rejected as you don’t fall within the norm, normally being:
A minimum of 1 year’s accounts, but ideally 3 years or more. Any decline in net profits
could also affect getting a loan. Most lenders prefer to base self-employed’s loans on
the average of the last 3 year’s accounts, showing an increase in profits year on year.

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The Mortgage Bible© - author - Monty Burn

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 of
property to offer a loan:
1.
2.
3.
4.

Prefabricated buildings.
Mobile homes and houseboats.
Freehold flats or maisonettes.
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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The Mortgage Bible© - author - Monty Burn

Loan To Value (LTV)
1. The loan is the amount you wish to borrow.
2. The value is the price the lenders surveyor values the property.
The relationship between the two is that it informs the lender how much equity there is
in the house. This is important to know as it also gives the lender an indication of the
risk element in affording you the loan. The less equity, or the higher the LTV the
greater the risk to both lender and borrower alike.
If you failed to make your mortgage payments and the lender had to repossess the
property, the risk is reduced if there is a lot of equity in the house. As a reward for this
equity the lender will often as not offer a better interest rate with more favourable
conditions attached.
It is important you have an idea of the LTV of the property, as a high LTV can exclude
the majority of the best deals available. You may for example learn about a mortgage
deal 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 won’t
be 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 you
can 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 fees
such as lenders arrangement fee, legal fees, survey fees etc. unless you wish to pay
these additional costs separately. Whenever possible try and keep these fees off the
loan, as you don’t want to be paying interest on these fees for the duration of the
mortgage.
Establishing the value can be more difficult (unless it’s a new house). Most people
over - value their property and this can eventually lead to problems. If you believe the
value of the property you want as being greater than the lender’s surveyor values it, it
could mean you end up borrowing more than you’d planned. It could, and often does
mean you will pay a higher interest rate.
You can of course always secure the services of an independent local surveyor who
will 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.) Let’s hope
we have managed to convey the significance of the LTV involved in the mortgage
transaction before you go marching on to become a homeowner.

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The Mortgage Bible© - author - Monty Burn

The Role Of Solicitors
The solicitor is likely to be acting for both you and the lender, with separate obligations
to both. Once again a possible “conflict of interests”.
There are solicitors who permit packagers and advisers alike to add a sum of money to
their fees to keep as a commission. This fee is almost always added to the loan and
the adviser receives their solicitors’ fee (kickback) at “disbursement” time.
You may think that as you are paying the solicitor they will check the mortgage details
on your behalf to ensure you are getting a good and fair deal. This is not generally the
case as it is not the solicitors “brief” (pardon the pun). You may be under the
impression that you have engaged the services of the solicitor to act as your legal
“adviser”. The reality is that the solicitor is there to process the legal aspects of the
mortgage documents. Often as not, they do not have access to the mortgage and
insurance 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 you
engage one. Some solicitors work far more closely with the packager/adviser than their
client; 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 the
fee 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 the
“system” in place. Some solicitors may not realise that the consumer conceives their
role far differently than is actually the case. Solicitors should play their part in
“transparency” as far as both services provided and hidden fees/commissions are
concerned.

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The Mortgage Bible© - author - Monty Burn

The legalities of remortgaging your home (Pre Home Information Packs – H.I.P.’s)
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 may
affect the property. If the search reveals anything untoward the solicitor will advise
both parties.
5. Your solicitor or adviser may at this stage inform you everything is now ready to
carry out a survey.
6. Providing the survey is okay, the lender will then issue a written offer with mortgage
instructions attached. I.e. there may be conditions attached such as a coal mining
search may be required. There may also be property repairs to be carried out
before the loan is released.
7. Only when all the conditions have been satisfied and the Local Authority Search is
received will the solicitor proceed to complete the relevant paperwork.
8. The solicitor may require any existing or new insurance policies which are to be
assigned 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 to
bankruptcy 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 entries
revealed 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. This
generally comes out at “fact find” with your adviser and is also asked on the
mortgage application form.
• Details of any occupants at your property over the age of 17 years must be
disclosed 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 joint
names 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 sole
name of the husband.
• If the property is applied for in joint names, and the property is being registered in
one name only, then either the property is legally transferred into joint names, or the
party 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 Mortgage Bible© - author - Monty Burn

The legalities of Purchasing Your Home
1.
2.
3.
4.
5.
6.
7.
8.

You instruct a solicitor to act on your behalf.
Your solicitor will contact the seller’s solicitor for a draft contract.
Your solicitor will carry out a local search.
On receipt of the searches and a satisfactory mortgage offer, your solicitor will
advise you what documentation is required, and discuss the completion date.
Contracts will then be exchanged and the completion (your move date) will be fixed,
and you will pay a deposit.
Your solicitor will then request release of the money (the loan) to purchase the
property.
On completion, your solicitor will register your title to the property and that of your
lender at the Land registry.
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 of
purchase).

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 to
English Law and legal procedures. These notes are written without consideration of
Home Information Packs (H.I.P.’s)

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The Mortgage Bible© - author - Monty Burn

Paying off your mortgage
There are basically two methods of paying off your mortgage, Interest only and the
conventional repayment mortgage, which is “capital and interest”.
Interest only:
With this type of mortgage you pay only the interest to the lender for the period of the
mortgage. The period of the loan can vary but the shorter the period the less interest
you will pay, so this is a major consideration. There still remains the myth that the term
has 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 will
repay the capital sum borrowed at the end of the mortgage term. There are various
ways 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 amount
for the duration of the mortgage.
Let’s 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 repay
the capital on an interest only type mortgage. No doubt there are still those with the
same belief today. So strong is the belief that many refer to an interest only mortgage
as an endowment mortgage. Perhaps this is because those arranging interest only
mortgages received high commissions for selling endowment policies and little for
advising alternative means. See scams for further details on endowments.
The premiums you pay for on an endowment have two distinctive functions; part of the
premium goes towards buying life assurance which pays off the mortgage in the event
of death of the borrower. The other part of the premium is invested by the insurance
company with the aim of paying off the capital sum.
There are no guarantees however with any investment programme and it can depend
on how the markets perform as to whether or not there will be sufficient money to pay
off the capital sum. So no matter how small the risk may be, you are still gambling with
the most important material possession in your life - your home.
In the past (particularly the boom times of the 1980’s) endowments enjoyed buoyant
markets and most performed well. However, world markets have much closer links now
and 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 surplus
of funds, which led to bonuses being paid to the investors. However, where there are
winners there are usually losers, and this has meant that for some there will be a short
fall, which will have to be met by the borrower. To this end most companies have fund
managers, which regularly monitor the performance of policies. They will, if necessary,
advise policyholders to increase their premiums to ensure sufficient funds are available
at 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 would
illustrate the investment “returns” on endowments; this led to many over-estimating the
growth 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 was
sold was, failure to keep the policy paid up, for the full term could result in significant
financial loss.
If the policy is surrendered for whatever reason and you cash it in you will often be
extremely disappointed that you get less than you have paid in to the scheme. This is
often 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 insurance
company to whom you pay the premiums. There are a number of specialist companies
who will pay as much as 35% more than you might get as a “surrender” value from
your insurance company.
However, it is safe to say that you should try to avoid cashing in your endowment
unless absolutely necessary.
Advantages of the endowment mortgage
• Life assurance is included in the cost and this will pay off the mortgage in event of
death to the policy holder/s.
• Depending on the performance and the type of policy there may be a surplus at the
end of the mortgage term.
Disadvantages of the endowment
• There is no flexibility in an endowment. If you pay a lump sum off your mortgage
you will still have to pay premiums for the original sum, in effect for “unnecessary”
cover.
• If the policy under-performs you could be left with a short fall in the capital sum in
which 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 equity
in your house is reliant on house price increases. A dormant property market can
mean no increase in equity.
ISA Mortgages
The ISA is another form of repayment vehicle for an interest only mortgage. ISA
stands for Individual Savings Accounts and are a tax-free Government approved
th
savings account. These became available on the 6 April 1999 and replaced the PEP
(Personal Equity Plan). ISA’s have been designed to offer a wide range of investment
options, and are available in two basic types, Mini and Maxi ISA’s. They will be made
up of one or more of the following categories of investment depending on the type you
choose.
• Stocks and shares (including Unit Trusts, Investment Trusts and Open Ended
Investment Companies)
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• Cash
• Life Assurance
You can invest a maximum of £5,000 in ISAs (this limit is raised to £7,000 in the first
year). 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 a
different manager for each component, and you choose one manager to administer
your account for simplicity. With the maxi you also have the choice of investing the full
allowance 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 review
after 7 years. The Government has established a benchmark as a standard called
CAT:
• Reasonable Charges
• Easy
Access
• Fair
Terms
We advise you seek further details regarding the suitability of ISA’s due to the financial
climate.
Advantages of the ISA Mortgage
• 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 the
investment.
• You can include life assurance within the ISA.
• The Government will probably ensure regular reviews are carried out to ensure
sufficient 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.
Disadvantages of the ISA or Interest only mortgage
• As with any investment there are no guarantees there will be sufficient funds to
repay the capital. Therefore, you are in effect gambling with the security of your
home.
• As the mortgage is “interest only” the loan amount remains the same for the term
and 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 to
repay the capital. Therefore in effect you are gambling with the security of your
home.
• 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.
• Unless you notify the company your ISA is to pay off your mortgage, there may not
be any reviews of its performance.
Pension Plan Mortgages
Once again we are talking about an “interest only” mortgage and a pension can be the
repayment vehicle. The basic idea of this plan is that you are paying into the plan to
secure 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 fund
via 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 couldn’t get this level of return on
many types of investment wherever you searched.
Sounds almost too good to be true so let us look at the advantages and
disadvantages.
Advantages of the Pension Mortgage.
• The tax benefits are extremely attractive, so the fund should grow faster than most
types of investment.
• One payment can pay for both pension and repayment of mortgage capital.
Disadvantages of the Pension Mortgage.
• As with any investment there are no guarantees there will be sufficient funds to
repay the capital. Therefore in effect you are gambling with the security of your
home.
• 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 on
your pension income.
• As current laws don’t permit pensions being paid until at least 50 years old, this
could 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 risk attached to relying on a separate
investment 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 the
mortgage. So many fail to grasp this until they redeem the mortgage to move, only to
find out they have paid “all” those payments and still owe the same amount, even after
25 years.
Note:
For those who live in areas of low employment where property prices don’t increase so
much, 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 need
to 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 mortgage
payment to the lender. This repayment method guarantees that your mortgage will be
paid off at the end of the term, providing you keep up the agreed monthly mortgage
payments. Conventionally the lender only deducts the interest you pay each month
from your loan once a year. In the early years, your monthly payments pay off more
interest than the capital sum; this changes as the years go by. You only pay interest on
the reduced balance, unlike the interest only type. You are more likely to achieve
equity 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 you
should check that you are not financially penalised for changing the size of your
payments, 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 paid
off at the end of the term, providing you keep up the agreed mortgage payments. With
a repayment mortgage you are paying off the capital sum and therefore gaining equity
in your home, slowly to start gradually increasing as time goes on.
You may wish to consider taking out Mortgage Protection assurance as the level of
cover reduces in line with the mortgage debt. This ensures the mortgage debt is repaid
on 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 policyholder
survives the term of the policy.
Advantages of the Repayment Mortgage. (Capital and Interest)
• Eliminates the risk of the loan being paid off providing payments are made at the
correct 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.
Disadvantages of the Repayment Mortgage
• You need to arrange life assurance at additional cost. However it generally works
out that the mortgage payments with related insurances are the same as an
“interest only” mortgage.
• The loan decreases slowly in the early years.
However there are a variety of ways now available in paying off your mortgage. The
changes are slowing beginning to appear. These products appear to be the type of
st
mortgage payment method developed for the 21 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 says
on the tin, more “flexible” for the consumer and can save thousands of pounds in
interest and can be extremely convenient. The lenders recognise the need for
developing new products have created a range of “flexible” mortgages. This allows the
consumer 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 rates are 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 essential
you read and understand this section, as getting the decision wrong when choosing
the 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 a
variety of rates nowadays. As the name SVR suggests the rates can vary, therefore
rates can go up or down during the course of the mortgage term. External as well as
internal forces can influence the changes. The global economy means that economic
problems in the Pacific basin or even in South America can have an influence on
Britain’s financial Institutions.
If you have a SVR you may find that each time the Bank of England increases the
interest rate, your mortgage payment will increase. However, this is not necessarily so
as some lenders use the “swings and roundabouts” principle. The lender will review
the rates annually and set the rate accordingly for the whole year.
The advantages of the SVR.
• Generally there are no redemption penalties, (you need to check as this can vary
from lender to lender) giving you flexibility and freedom to 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 you
money.
The disadvantages of the SVR.
• 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 payments
would 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 90’s
and the same is happening today.
• You are unable to budget.
Fixed rates.
Fixed rates have in recent times become the most popular type of interest rate. A fixed
rate is where the borrower pays a “fixed” rate for an agreed term of anywhere between
six months and the full term of the mortgage. The average term though is 2-5 years. At
the end of the fixed term the rate reverts back to the SVR. There are quite naturally
advantages and disadvantages to the fixed rate. Let’s take a look at the advantages
first.
The advantages of the fixed rate:
• Number one advantage, it takes the risk out of increased rates putting you in a
position where you cannot afford the increased monthly payment.
• Another attraction of the fixed rate is that you know what your monthly mortgage
payments 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 rate
is lower than the SVR, saving you money and thereby reducing your monthly
outgoings.
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The disadvantages of the fixed rate.
• Generally the lender will impose early redemption penalties. (Refer to redemption
penalties from contents.) This basically means that you are tied to the
lender/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 normal
premiums.
• 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. This
is 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 won’t be quite as competitive as those with the penalty, but you will have the
benefit of not being tied. This will leave you free to negotiate and move to any better
deals in the future.
Discount rate.
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 the
fixed rate, the rate reverts back to the SVR after the agreed term. Generally the total
amount of the discount is the same over the term of the discount. You can either have
a long term with a small discount or a short term with a big discount. The “savings”
over the term will normally equate to the same amount. It is important you understand
this as you could well be forgiven for being attracted to a big discount opposed to a
small 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 highlight
major defects.
2. A house/ flat buyer’s report would be carried out for the purchase of a home as
opposed to a re-mortgage. This survey entails a visual inspection of both a
structural nature and for lack of maintenance and is for the consumer’s benefit.
3. A structural survey is the most wide-ranging check. Although the most expensive
of the three it offers the greatest amount of protection should any major defects
surface in the future. This survey report will contain the most information and will
cover against negligence by the surveyor.
Note: You should check that the surveyor is a member of the Royal Institution of
Chartered Surveyors (RICS) or the Incorporated Society of Valuers and Auctioneers
(ISVA).
On a new house the valuation process is generally fairly straight forward, as the
builders of the houses invariably know what the lenders will value the house at. So
when you seek to raise a mortgage on a new house and request a valuation it will
more than likely be valued at the price the builder is asking. As the new house carries
a 10-year NHBC (National House Builders Certificate) the lender will only require a
“mortgage valuation”.
However with a re-mortgage the valuation process is a little more meaningful as it can
have a major effect on the LTV (loan to value). You may value your home a lot more
than a surveyor, which could have an adverse effect on how much you can borrow. If
you 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), insist
on a copy of the report and a written receipt stating the cost of the valuation, not
including possible administration charges. Some lenders will pay for the valuation if
you take out a SVR, but normally you pick up the tab if it’s a fixed/discount interest
rate.
If the lender’s valuation differs greatly from your valuation, you can always write to the
lender and dispute it. Naturally you would need to base the dispute on hard evidence
and documentation. For example if the house next door to you was similar in all
aspects and sold recently for a greater sum this could possibly justify a review by the
lender, but don’t bank on it. Shop around and try and get a free valuation, and if you
have to pay up front, give written instructions for the valuation to be carried out after a
D.I.P. (decision in principle). If you’re anxious to determine the value of the property
before all the formalities; you have the option to instruct the lender to conduct the
valuation immediately.
Word of caution: Do not confuse an estate agent’s valuation with a mortgage
valuation. Some estate agents will “over value” your property in order to get it on their
books. Once your home is on their books the estate agent will then advise you to lower
the 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 trendy
“special rates” (rates other than a SVR) “fixed - and discount” interest rates available
nowadays. 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 condition
attached to your mortgage contract. It is set by the lender to ensure you fulfil the term
of the mortgage contract. When re-mortgaging you may have two redemption
penalties to consider. One with your current loan and one with the new loan. Generally
redemption 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 1980’s when so many people lost their
homes, 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% of
a £50,000 loan is of course £2,500) so it can be a significant amount. There are some
lenders 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 to
be in the minority of cases. Some lenders charge 6 months interest at the SVR, not
the fixed rate you are currently enjoying if you redeem early. Again this can be
available on a sliding scale, i.e. 6 months for the first year and reducing by 1% each
year.
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. Percentages
or months won’t necessarily mean a lot to the average person, but an amount in £’s
will. You may think differently if you think a “move” will cost you £2500, whereas 5% of
the loan may not bring home the message adequately.
Term
This can be measured in years, being the duration of the penalty. Some may impose
an “overhang” which is a period going beyond the fixed term. I.e. You may agree a 3
year fixed interest rate term, but the redemption term may be 5 years, “overhanging”
the fixed term by 2 years. This means if you redeem your mortgage within the
redemption term you must pay a penalty of 5% of the total loan or 6 months interest
(as an example).
Even if you don’t redeem your mortgage during the fixed term, it means that you are
stuck with the 2-year “overhang” period, or incur the 5% (example) penalty if you
redeem during this 2-year period.
Why is it so important to be aware of redemption clauses? One thing you must be
quite clear about, both lenders and your own mortgage adviser will be in no hurry to
point out any of the negative or down sides to their product. The word is “transparency”
which of course is lacking in most types of selling. There is little doubt that redemption
penalties are seen by all parties (lender/adviser and you the consumer) as a down side
to the mortgage product. The salesman/adviser is bound to give much greater
emphasis 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 last
house, car or what ever, did you go out of your way to sell the down side of what you
were selling? Of course not, as it would be a conflict of interest. Remember, your
mortgage lender/adviser is in the same position.
There are many reasons why people “redeem” their mortgage early and the “costs and
term” involved can have significant consequences. Listed below are a number of
reasons why people may “redeem” their mortgage early:
• Statistically people move home once every 7 years. This can be for any one of
many 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 job
location 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 you
redeem early.
• If there is a two-year overhang and you were put onto a SVR you would be at risk
of 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 to
your house.
• Having to pay the redemption amount could make the difference in you not having
sufficient capital to change lenders.
No doubt you could add to the list given time to think of the various scenarios. The
advice is to take “very seriously” the implications of any redemption clause/penalty
attached to your mortgage offer. Could there be a better deal, which doesn’t tie you
into a redemption penalty?

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Bank Statements
Bank statements
Lenders 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 show
you are forever in “over-draft” this may jeopardise your loan application.
Your statement may highlight arrears in a credit transaction. And if, for example you
have missed payments and there are lots of debits to “Bargain Booze” off-licence for
example, it wouldn’t be viewed favourably.
For those seeking a re-mortgage it will confirm along with your lenders annual
statement, your ability and willingness to repay your mortgage. For instance if there
was money in the account and you failed to make mortgage repayments, that would
hardly 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” of
your financial habits.

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Credit history
Before a lender will offer you a substantial amount of money as a loan they will carry
out a credit check on you. The lender needs to be satisfied that their money is going to
be 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 own
status. This will give you an in-sight into satisfying various lenders criteria. Lenders
vary in how they credit score people and this can influence the decision on whether or
not you will be offered a loan and at what terms.
If you have any CCJ’s (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 own
interests to endeavour to “satisfy” these CCJ’s by paying off the debts. Obtain a
“satisfied” letter from your debtor, then notify the credit reference agencies in writing
(enclose “satisfied” documentation as proof of payment) and request they remove that
C.C.J. from your record.
By requesting a copy of your credit record you may find that you have been
designated a credit black mark that you were not aware of. This can be caused by a
number of things. It can be caused by a dispute between you and a debtor, and it can
also be the result of you taking possession of a house where the previous occupants
shared 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 lower
interest rate by changing an unsecured loan to a secured loan, i.e. secured on your
property through a mortgage. Naturally by reducing the interest rate and extending the
term of the loan it will inevitably reduce the amount you have to pay out each month on
that loan. Therefore the less you pay out each month the more you have to spend
each 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 fixed
term ends you will be faced with an increase in mortgage payments, as your
mortgage amount has been increased along with your interest rate.
2. You’ll need to consider the impact on your associated insurances, like life
insurance, an endowment policy, (if its an interest only mortgage using an
endowment vehicle), and possible extra Accident - sickness and unemployment
cover.
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 going
to accumulate more debt thereby increasing your monthly outgoings beyond what
they were before consolidation.
So many people fall for this “short termism”, the “easy fix” and then end up regretting it
for the rest of the mortgage term.
OFT Guidelines - Consolidated Loans
Paragraph 27 of the OFT Guidelines provides that “Brokers and salespersons should
not encourage the borrower to take out a loan for an amount above the current limit for
regulated 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 the
property, unless this is clearly in the best interests of the borrower and is explained
fully to the borrower.

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Protecting your home against repossession.
For some unknown reason the majority of mortgage holders fail to insure their most
valuable financial asset, their homes, against mortgage arrears. Lose your ability to
earn through accident sickness or unemployment, and you could have your home
repossessed. However, taking steps to prevent your home being repossessed is a little
more complex than merely taking out an insurance policy.
Consideration should be given at the outset to the amount you can comfortably afford
should any of a number of things occur. You don’t have to become unemployed to get
into financial difficulties; you may be demoted at work and have to accept a lower
income. If you depend on a female partner’s income to pay the mortgage and they
become pregnant, they may have to give up work either temporarily or permanently
and lose their earning ability. If you have children who are taken ill you may have to
give up work to look after them. The same may even apply to a family member, your
parents or brother/sister; once again this could result in a loss of income.
Things you have little or no control over that can affect your ability to make your
mortgage payments:





Unemployment.
Sickness and illness.
Demotion at work.
Taking a job with a lower income than you are used to getting.

But what of the things you do have some control over:
• Interest rates - You can control or have a say in the type of interest rate you have to
reduce the risk of increased mortgage payments.
• Taking a loan at a comfortable level to allow for the unexpected. This may well
mean settling for a lesser house than you would ideally like.
• Whatever your income, ensure you don’t spend more than you earn. The key word
is “budget”.
• When buying a house remember the 3 most important things - location - location and location. Try to avoid buying in an area that hasn’t easy access to employment.
This may sound obvious but a lot of people don’t realise that employment has a
major effect on property prices. Most houses in negative equity are in depressed
areas. Choosing the right area to live can assist in gaining employment, reducing
the risk of mortgage arrears.
It’s as though you need a crystal ball to see or anticipate what is going to happen in
the future. But what happened in the early 1990’s is happening yet again, “boom
and bust.”
We have been unable to establish the precise reasons why so many people have their
house repossessed. However, you can purchase insurance cover referred to as MPPI
(Mortgage Payment Protection Insurance) or ASU (Accident Sickness &
Unemployment) as it is also known as, to minimise the risk. To remain consistent with
terminology we will herein refer to it as ASU.
Most people would have seen the warning on most mortgage literature “Your home is
at risk if you do not keep up the repayments on a mortgage or other loan secured
on it”.
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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 may
think, “It won’t happen to me!” No one can legislate for either accident sickness or
redundancy; 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 they
incorporate terms and conditions that will meet the requirements of the mortgage
holder.
Although it is a good idea (we would argue essential) to have ASU it remains an
option. It is not compulsory although many in the industry believe either the Govt. or
lenders will make it mandatory. The Govt. to ease the strain on State aid and the
lenders to protect their loan to you.
To-date only 1 in 5 people has ASU. Yet currently more than 1.5 million people are off
work 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 can
have on a family. Rather make your own provisions than rely on the Govt. Imagine
having to rely on the State to provide you with “temporary” accommodation, which
could consist of bed and breakfast in the home of a complete stranger. Never mind the
effect 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 your
mortgage payments? Along with the advice given above (things you have some
control over) there are 4 options, let’s 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's
Allowance or income-related Employment & Support Allowance and you are a
homeowner, your benefit may include additional support for mortgage interest (SMI).
Payments can be made towards a customer's mortgage interest payments for loans
taken out to purchase the property or for specific home improvement loans. No
guarantee can be made that the Department will meet a loan prior to it being taken
out. No help can be provided towards housing costs such as payments of capital owed
on a loan, insurance premiums or mortgage arrears.
From 5 January 2009, a temporary package of measures was introduced to provide
extra help to new customers in light of the economic downturn. These changes will be
reviewed when the housing market recovers.
Rules that apply to new claims from 5 January 2009
For 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 eligible
mortgage interest. The capital limit up to which mortgage interest can be met is
£200,000.
There is a two year time limit on payment of mortgage interest but only for new
Jobseeker's Allowance claims. The changes will also help those who are already
receiving benefit, but are still in a waiting period (under the old rules) for help with their
mortgage interest at 4 January 2009:
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Those who have served 13 weeks or more of their waiting period by 4 January 2009
will 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 help
at the point at which they will have served a full 13 weeks.
Vulnerable people who fall into certain specific groups, and people with mortgages
taken out before October 2 1995, receive help at the 50% rate on capital up to
£100,000 after waiting 8 weeks, and then they will receive the full rate on capital up to
£200,000 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 year
time limit for those on Jobseeker's Allowance.
Customers in receipt of help with mortgages over £100,000 under the new rules will
keep the higher capital limit when they move onto State Pension Credit from a working
age 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 2009
If you are already receiving help with your mortgage before 5 January 2009, the help
you receive will not be changed, and you will be treated under the old rules. If you stop
claiming and a future claim links to your previous claim under the department's linking
rules, you will be treated under the old rules. The old rules are as follows:
After Oct 2 1995
Different rules apply depending on whether the loan was taken out before or after Oct
2 1995
For loans to purchase the property (& home improvement loans) taken out after 2
October 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 loan
taken 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 mortgage
interest from week 27. The capital limit up to which mortgage interest can be met is
£100,000.
Rate of interest
SMI assists people with the interest on their mortgage. The rate is currently based on a
standard 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 it
takes time to adapt our IT systems, but we are taking urgent action to ensure that
customers 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 an
increase in their benefit to compensate them for the earlier reduction. Then, from 9
March, benefit will be readjusted to the correct level with the standard interest rate set
at 6.08%.
It is possible that the reduction in benefit could have a knock-on effect for those people
who are also claiming Council Tax Benefit. This is because entitlement to certain
benefits can carry with it a linked entitlement to Council Tax Benefit. We are working
hard with local authorities to ensure that Council Tax Benefit is not affected. If this
affects you and you require further advice, you can contact your local authority or
Jobcentre Plus office.
This information is not a full statement of the law, but only a guide, and does not
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cover every circumstance.
Option 2- ASU cover
This 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 an
accident, fall sick or become unemployed. Just pause for thought for one minute and
ask yourself how 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 I’ve got a good deal/policy?
3. What do I look out for?
1. Where do I buy it
Online is the easiest and best way. Try and keep your actual mortgage separate from
all mortgage-related insurances.
2. How do I know if I’ve got a good deal/policy

The same as any other Insurance there will be differing Terms and Conditions. It is
imperative that you check and understand these, as you may have a false sense of
security. 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 the
policyholder is unable to work through accident or sickness. The same basic principle
of 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 protection
You can insure up to 75% of your normal income to cover both the mortgage
payments and other out of pocket expenses.
The ASU benefit split
This is one aspect you need to give careful consideration to. If you select to have
£400/month cover, whose income do you want to cover? Where there is just one
person 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 highest
income - the stability of the jobs - the possible risk of accident in each job etc. Then
you can determine what percentage of the £400 benefit you want to attribute to each
person.
In simple terms: If Mr Smith earns £300 per week and Mrs Smith £100 per week, you
may decide to split the benefit 75% on Mr Smith and 25% on Mrs Smith. That means if
Mr Smith claims, the benefit paid will be 75% of £400 = £300, and £100 if Mrs Smith
claims. Naturally if both claim at the same time, i.e. A car accident, the full £400 should
be payable.

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ASU Payments and T&C’s
For full ASU cover for all 3, Accident, Sickness, and Unemployment, you should pay in
the order of £5.25/£100. As an example if your mortgage and related Insurances
comes to £400 per month, you might consider taking Insurance cover of £400. So 4 x
£5.25 = £21 per month standalone payment. (The £21p.m. will not be subject to any
future mortgage interest rate increases, and you can easily increase or decrease the
cover if your circumstances change.) Also, if any better deals come along it can be
easy 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 the
lender/adviser. If you don’t have ASU cover, don’t you think it’s time you had?
Below is a guide to 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 policy
Terms 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 age
restrictions ask for your policy to be reviewed.
2. Residency. You may only be covered whilst permanently resident in the UK. If you
work 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 of
12 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 - self
employed - 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 payment
plus related insurances. Ask if you can build in extra to allow for an increase in
interest rates, particularly if you are on a fixed or discount rate. Remember that
interest rates are quite low at present; they may not always remain so.
8. False information. If you knowingly or otherwise give wrongful information this
could render your policy null and void.
9. Two policies. It is possible to pay into two different ASU schemes, but it is doubtful
whether or not you will be able to claim from two, so don’t waste your money.
Insurers don’t like to see people “profit” from claims. I.e. get more benefits than
when they are at work. You also need to check with the DSS if your policy will affect
any 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 have
received 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 reducing
the possibility of having your home repossessed. Other associated mortgage products
can 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 this
section as a guide, making you aware and alert of what to expect. You must make
sure you are going to be covered when you most need it.

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What if I can’t afford to make my mortgage payment?
Try not to over stretch yourself when taking out your mortgage. Remember that
interest rates can rise (in 1989 interest rates reached 15%) even if you are taking a
fixed rate mortgage, consider what will happen when the fixed rate finishes.
However, no matter how careful you are there may be circumstances beyond your
control that could place you in difficulty. The first thing to do if experiencing difficulties
in meeting your payments is to talk to your lender.
Usually lenders will be sympathetic and as helpful as possible. They will try to come to
an arrangement with you where a reduced payment may be acceptable for a period of
time. The length of the term will vary from lender to lender and will be based on your
personal circumstances. If you have a Repayment mortgage you may be able to
extend 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 your
Repayment 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 measure
until your financial circumstances improve. DO NOT IGNORE THE PROBLEM - TALK
TO YOUR LENDER.
Other useful contacts if you experience financial mortgage difficulties:
• Citizen’s Advice Bureaux - Check your local phone directory.
• Shelter - Check your local phone directory.

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SCAMS
Contents
1. Alluring advertisements
2. Lack of information/advice
3. Packagers
4. State Aid Rule Changes
5. Up front fees
6. Redeemable vouchers
7. “Savings”
8. Benefit Package
9. Fee refunds
10.Estate Agents
11.RTB (Right to Buy)
There are a number of scams so make yourself aware of them all and you could well
save yourself a lot of grief as well as thousands of pounds. We’ll start with the alluring
advertisements.
1. Alluring advertisements
Most of us have seen the alluring advertisements to re-mortgage or take out a new
mortgage. However as the saying goes “If it seems too good to be true” then it
probably is. There are usually strings attached in the form of strict criteria - high
redemption penalties - arrangement fees etc.
The marketing ploy is to get you sufficiently interested to enable the companies to sell
you a product, any product. You need to make sure you get the product that caught
your interest in the first place.
2. Lack of Information/advice
Considering a mortgage is such an important transaction there is still a major lack of
information in the process and costs involved. The way the system operates at
present, you agree on buying a product then wait for weeks to learn whether or not
you have been successful with your purchase.
When the mortgage “offer” arrives it may not bear any resemblance to what you
thought you had bought, detailed on the product confirmation (The PC) form. Unless
you know the “game” you may not realise the major differences. It is common for
lenders 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 against
the 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.
• Employer’s references/income substantiation.
• Credit references.
• Current lenders reference.
• Confirmation that the information you have provided on the fact find and application
form is both true and accurate. (So don’t tell any little “porkies” as you’ll 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 in
writing.
You should always try to allow a minimum time scale of 4-6 months for the final
mortgage offer. This should give you sufficient time to submit another application if the
first offer isn’t acceptable. On average a mortgage takes 6-8 weeks to complete
depending on a variety of things. Unfortunately for many, they allow insufficient time
between offer and exchange. This can result in being forced into accepting mortgage
terms and conditions inferior to those you had budgeted for.
So many people get their mortgage offer days before exchange, which for most is
unacceptable.
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 be
signed 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 as
the P.C..
It is relatively easy to gain a D.I.P. (decision in principle) within 48 hours, some
companies offer a D.I.P. within 15 minutes. Then at least you know whether or not you
are in the frame for the mortgage.
The P.C. should be formatted in a similar style to the “offer” to enable you to easily
compare one with the other. It should be your adviser’s responsibility to check these
details with you, after all what are you paying them for? Might we suggest that if the
P.C. and “offer” do not compare favourably that you give serious consideration to
proceeding with the mortgage. If you don’t you may suffer from buyer’s remorse, “Act
in haste, repent at leisure”.
If you walk into your local computer store and state which computer you want you
would expect and get a written confirmation of the product you selected, to compare it
with the computer spec. once it’s delivered. Why should it differ for a mortgage?
3. Packagers
A packager is a company that specialises in processing mortgages and have become
much more prevalent in recent times. The packager works on behalf of various lenders
and, therefore, the mortgage packages they offer can favour the lender and adviser
more than the consumer.
Some cynics might even suggest that packagers have been put in place by the lenders
as a “front”. Packagers don’t have to be as transparent as the lender. By utilising
packagers, lenders can “dump” the worst products they have (high redemption
penalties etc.) on the consumer by using a ploy of paying both the packager and the
adviser inflated commissions. This method of marketing distances the
banks/institutions from the consumer.
The problem is there is no specific provision for the packager or the adviser to disclose
the fees a packager receives from the lender. This is not in the consumer’s interests as
the 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 for
processing a mortgage application. However, it should be understood that this fee
relates to a contract between the packager and the adviser and you should not have to
pay this fee if the application is not successful. The adviser should pay this fee to the
packager. This may encourage the adviser to write better business.
Some packagers deduct this fee from the valuation fee you have paid up front, and
repay you the balance. This practice should be addressed by the CML (Council of
Mortgage Lenders). If your mortgage is unsuccessful (rejected) you should not have to
pay £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 the
high street lenders, double in some cases and fail to disclose this to the consumer.
4. Up front fees
There is no good reason for paying any fees “up front”, and the regulating bodies
should outlaw this practise without delay. One of the worst scams are the mortgage
advisers who are making a living out of taking on mortgages they know won’t be
accepted. They make their money out of charging up front fees and keeping the fee
when the application is ultimately rejected. There are also those who delay mortgages
intentionally (sometimes for months on end) in order to use the up front fees for both
personal and possibly other business reasons.
Avoid paying any fee other than a valuation fee up front, and ask that the valuation be
carried out after a D.I.P (decision in principle) from a reputable lender. Never pay any
fees in cash and always obtain a receipt on headed paper stating specifically what the
fee is for. Make cheques payable to the lender or the surveyor, never to an individual.
Consumer Credit Act 1974 Section 155 - Many people experience great difficulty in
retrieving fees paid up front. However, the Consumer Credit Act 1974 Section 155
covers this and can offer protection. Notifying the OFT (Office of Fair Trading) in
writing, can lead to the consistent offender having their consumer credit licence
revoked and subsequently restrict the offenders trade.
Final words try to avoid paying any fee “up front”.
5. “Savings”
Do not be either confused or misled by the term “savings” when reviewing a remortgage offer. There are many advisers who refer to a reduction in your monthly
mortgage payments as “savings”. There is a big difference in a short-term reduction in
payments and actual “savings” made.
You need to consider all the costs involved, such as:
• Broker/adviser fees.
• Lenders arrangement fees.
• Legal fees.
• Redemption penalties.
• Search fees.
• Valuation fees.
• Additional Insurances.
• Existing lenders reference fee.

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You also need to consider the effect of any future redemption penalties and, of course,
the cost of your mortgage payments once you come out of any “special rate” scheme.
The sum total of all these costs, and how much your payments will be for the duration
of the mortgage, needs to be measured against the reduction in your current monthly
payments. Remember you will normally pay a higher rate, and be exposed to the risk
of a SVR once the “special rate” period is over.
To calculate (approximately) if you are going to make actual “savings” or temporarily
reduce your current payments by re-mortgaging:
Calculate how much the re-mortgage will cost, adding all the costs as detailed under
the heading “costs involved” and call this “costs”. Then, using the figure quoted by the
adviser for your new monthly payments, calculate how much this will be over the term
of the fixed/discount term (or the term of the mortgage in the case of a SVR). Call this
amount “new payments”.
Calculate what you would pay over the same term as above staying as you are and
call this amount “current payments”.
Add the “costs” to the “new payment” and if this is less than the “current payments”
you might consider this as a saving. However, you should consider three other major
factors:
• How much have the “costs” added to your original loan amount?
• What penalties will you incur if you move either house or lender?
• How much will your monthly payments be after any fixed period?
Everyone would like to make “savings”. Just make sure you are making savings and
not just reducing your monthly payments for a short period. Refer to loan consolidation
section for more facts to consider on the subject of “savings”.
6. Fee Refunds
Should you for any reason abort your mortgage application or it fails to complete you
are entitled to a full refund of any fees paid up front minus any “professional fees” plus
£5. Some advisers try to get round the Consumer Credit Act (CCA) 1974 Section 155,
by obtaining the signature of the mortgage applicant on a “fee agreement.” A fee
agreement will generally state “in the event of the mortgage not completing we the
undersigned agree to pay the sum of x£’s and accept that all fees paid up front are
non refundable”.
The enforcement of these “agreements” is breaking the law. No private agreement can
over write the law of the land. The above CCA act (which is law) states “You can
charge your customer for your services as a credit broker, but you cannot retain more
than £5 as a fee or commission for your services if no agreement for the credit or hire
is entered into within six months of your introduction to a prospective source. It does
not matter why the customer does not enter into the agreement.”
“A customer who has already paid more than £5 is entitled to a refund of the excess
and can sue you for it if you refuse to pay it.” If you have experienced this type of
problem, you can:
• Write to the OFT at: Office of Fair Trading PO Box 366 Hayes UB3 1XB or
telephone the Consumer help line on 0345 224499.
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• Call your local Trading Standards Office.
• Notify the Financial Ombudsman Services South Quay Plaza 183 Marsh Wall
London E14 9SR tel. 0207 964 1000
Note: Professional fees are deemed as those paid to a Chartered surveyor in the
execution of a house survey or a solicitor carrying out land searches.
7. Estate Agents
The majority of estate agents either have their own financial adviser or an arrangement
with an adviser. Either way you can be pressured into using the services of either.
When the estate agent uses an external adviser they normally get an “introducer fee”
from the adviser. The adviser may well have to add the fee they pay to the estate
agent onto the fee they charge you.
Another scam that is currently doing the rounds, both builders and estate agents make
it a condition of your offer to at least speak to the adviser of their choice, and in some
cases to take out the mortgage with their nominated adviser.
The Estate Agents (Undesirable Practices [No. 2]) Order 1991
Article 2(b) Schedule 2 - Arrangement and Performance of Services
1. Discrimination against a prospective purchaser by an estate agent on the grounds
that that purchaser will not, or is unlikely to be, accepting services.
The OEA Code of Practice - Ombudsman Estate Agents (OEA) Tel: 01722 333306
5.
Offers - 5(b) You must not discriminate, or threaten to discriminate against a
prospective purchaser of your Client’s property because that person refuses to
agree that you will (directly or indirectly) provide services to them.
The National Assn. of Estate Agents - Code of Practice - Tel: 01926 496800
5.

Offers - 5(b)

The wording is exactly as above in the OEA code of Practice.

8. Right to Buy
Those who live in council owned properties are normally eligible to purchase the house
at a considerable discount. The theory is sound, providing the occupants realise all the
implications. The Councils or the Govt. should provide a leaflet explaining the pros and
cons. Many council tenants are regarded as easy prey to some mortgage brokers, with
offers of lump sums for remortgaging.
It is easy to illustrate “benefits” without illustrating the future cost implications. Some
brokers indicate lower monthly payments by buying, than the current rent. However,
most are sold discount rates or fixed rates, which are considerably lower than the SVR.
No explanation is given for the monthly cost after the “honeymoon” period of the
special rate.
Buyers beware. Seek financial advice from your Council first.

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Step by step guide to taking out a mortgage/re-mortgage
Read this report at least twice to ensure you understand the basics.
1. Ensure you have a good reason for wanting the mortgage/re-mortgage. Is it going
to save you money, offer greater security, and lower your monthly payments? Write
down the potential benefits against the cost implications there will be.
2. Determine how much deposit you can put down. The more the better as you will
ultimately save a lot of money in interest payments.
3. With a remortgage, determine what the LTV is as this may affect the mortgage
product you are offered. The lower the LTV the better the deal you can secure.
4. Determine how much you can comfortably afford to pay in mortgage payments each
month. Paying fortnightly can be best as you can save thousands of pounds, but
this incurs an extra “months” payment per year.
5. Decide on the type of interest rate you want, SVR - fixed - capped or discount.
Refer to “Interest Rates”.
6. Decide how you want to repay the mortgage, repayment or “interest only” and the
method of repaying, Flexible – Offest etc. Refer to the index for a review of “Paying
off your mortgage”.
7. Contact lender/adviser and apply for the loan you can afford. If you feel comfortable
with what you have learned from this report stipulate the type of mortgage and
conditions you want. Ask for a D.I.P. before the valuation is conducted.
8. When mortgage offer arrives, compare it against the P.C. with your adviser then get
your solicitor or accountant to check the details.
9. When satisfied the “mortgage offer” is what you want, sign it and return it to the
lender.
10.Allow plenty of time to receive the offer prior to exchange date.
• Whether negotiating a mortgage on the phone or in person, request that you are
given in writing the product discussed and agreed (refer to this as the P.C., product
confirmation) subject to valuation and references. You also want the Terms of
Business and “Reasons Why” letter.
• Confirm that if it’s a “special deal” that the deal will still be available at the time of
the “mortgage offer”.
• Request that you be notified in writing, as soon as is practicable, should the
*product details alter, the specific reasons why and what effect they will have on the
“mortgage offer”. I.e. you want sufficient notice before exchange date, to avoid
being pressured into taking a product that you don’t want, and possibly can’t afford.
*The product can alter for many reasons including, insufficient income, a down
valuation or poor credit reference.
• Check that the same details that appear on the P.C. are on the “mortgage offer”
and that they compare. Seek professional advice before entering any contract.
Finally: You can also get some useful and impartial info here from the FSA:
http://www.moneymadeclear.fsa.gov.uk

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The Mortgage Bible© - author - Monty Burn

The Ideal Mortgage
What is the ideal mortgage? This quite naturally is dependent on many factors, but
here are a few guidelines:
1. It needs to be flexible. “Over” or certain “under” payments should not incur a
penalty.
2. The interest should be calculated daily and charged in arrears, ideally quarterly or
monthly.
3. Pay fortnightly if possible where interest is calculated daily on a reducing balance.
4. To avoid the risk of the mortgage not being paid off at the end of the term, take a
capital repayment mortgage. Providing you keep up the required payments on time,
the mortgage is guaranteed to be paid off.
5. No redemption penalties.
6. Free legals. (The lender pays the Conveyance fee)
7. Free valuation. (the lender pays the fee)
8. Keep the repayment term as low as suits your budget, or pay over payments
whenever you can afford it.
9. No tied insurances. Keep the mortgage a stand-alone entity.
10.Try and secure a low fixed rate to give you security against high rates.
11.Avoid broker commissions; go for a flat fee when possible.
12.Make sure the mortgage is fully portable.
If you use this as a “guideline” to secure a mortgage you will be pretty close to the
mark.

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The Mortgage Bible© - author - Monty Burn

The documents you may need: (These will vary if it’s a mortgage or a re-mortgage)














An annual statement from your lender showing your last 12 months mortgage
payments.
Your current mortgage offer, to establish any redemption penalties. If this is not
shown you need to ask your lender to give you a written statement of the penalty
amount and the term, also the settlement figure.
Your current P60. (Your tax office district and reference details if not shown on
your P60.)
Your last 3-month’s pay slips. Self-employed: last 3 year’s accounts.
Your last 12 months bank statements from the account you pay or will pay your
mortgage from.
The name of the bank manager from which account you pay your mortgage.
Interest only mortgages: Your endowment policy/s details, which will pay off the
capital sum. (Or other capital sum repayment details).
The account numbers and details of all loans - credit cards - bank/building
societies, showing the current balance, and monthly payment. (This applies to all
those going on or are on the mortgage deeds.)
Employer’s name and address and phone number, and contact name.
Buildings and contents insurance details and amount of cover.
Four forms of identification from all applicants. Passport/driving licence/utility bills
etc.

Remember that a mortgage is possibly the biggest single financial transaction you will
make, so be prepared, and arm yourself with knowledge that can be gained from this
book.

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The Mortgage Bible© - author - Monty Burn

Beware Cold Calling
Tele-sales are the current “flavour of the month” marketing tool. Sweet talking sales
people (normally with absolutely no mortgage knowledge at all) will call and sell you
the idea of re-mortgaging. They sell you on what you want to hear:
1.
2.
3.
4.

Lower monthly payments.
Cash in your hand to spend, as you like.
Consolidate all your loans into one single loan.
More security with a fixed rate.

The problem is that these sales pitches don’t reveal the true cost to you. Always
remember these two sayings, “If it sounds too good to be true, then it probably is” and
“there’s no such thing as a free lunch”.
How to deal with cold calls
A mortgage is much too important to conduct from a cold call made to you by a
complete stranger. However, if you do decide to listen to the caller, make it clear you
do not want anyone to call until you receive the following by mail: (they must only call
on receipt of a written **invite from you, any organised company will send you a s.a.e.
with the invite typed out which simply requires your signature).
1. A business card, with the name of the person who will be giving you the advice.
2. Confirm they subscribe to the Mortgage Code Compliance Board and ask for their
registration number.
3. Disclose their status-are they independent or a tied agent.
4. State what level of service they provide, 3.1 a) -b) - c) of The Mortgage Code.
5. Disclose fee structure, this should be specific in its detail.
6. You and your mortgage leaflet.
7. Terms of Business.
**It is unwise to invite strangers into your home, so beware, particularly females and
the elderly or infirm. Always ask for identification and you should have at least two
people present for safety reasons. Set them a time limit for their visit prior to them
calling.
Cold calling - Your legal rights.
As from 4th May 1999 households and businesses have a legal right to protect
themselves from unsolicited phone calls from firms. The scheme is run through
OFTEL, and is called the TPS (Telephone Preference Service) and the FPS (Fax
Preferential Service).
OFTEL have appointed the DMA (Direct Marketing Association) to set up and run the
scheme. The ICO (The Information Commissioner's Office) is responsible for the
ongoing monitoring and evaluation of the scheme. ICO is the UK's independent
authority set up to promote access to official information and to protect personal
information.
Consumers wishing to join the TPS scheme can do so by registering online and is free
to join here: http://www.tpsonline.org.uk/tps/
Organisations that engage in unsolicited direct marketing by phone and fax must not
contact individuals and companies that have registered with the opt-out schemes.
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The Mortgage Bible© - author - Monty Burn

Telesales companies that breach the Regulations could face action by the Data
Protection Registrar. Failure to comply could lead to fines of up to £5000.
OFT Guidelines - Selling.
One of the principles is that “there should be no cold-calling or canvassing off trade
premises without the borrower’s prior consent.”

Monty Burn is the former chief of the mortgage regulator and the former resident
mortgage expert on the Tonight TV programme.
Champion - Sir Trevor McDonald refers to Monty as a “champion of the people”
A hero - The sister paper of the Financial Times (The Financial Adviser) said of Monty,
"Mr Burn may one day be remembered as a hero who shone the bright light of
integrity onto an industry which still needs to put its house in order.”

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The Mortgage Bible© - author - Monty Burn

JARGON MASTER
APR
Annual Percentage Rate. This is meant to be a way of comparing cost of credit. It
takes into account most of the upfront and on-going costs involved in taking out a
mortgage. You cannot always rely on it because lenders work it out in different ways.
ASU
Accident, Sickness and Unemployment insurance. This is referred to in various
mortgage circles as MPPI, Mortgage Payment Protection Insurance. This type of
policy is taken out to protect your monthly mortgage payments.
B&C
Buildings and contents insurance.
BTL
Buy to Let. The purchase of a residential property for the purpose of letting it out.
Capital and Interest mortgage (Repayment type)
Your monthly payments are partly to pay the interest on the amount you borrowed and
partly to repay the outstanding mortgage.
Capped Rate
An interest rate charged for a set period, which can go down with the variable rate, but
cannot go above the capped rate, which is set at commencement.
CCJ
County Court Judgement. A court judgement recorded on a debt.
Cashback
A payment you receive when you take out a mortgage, it can be either a fixed amount
or a percentage of the loan.
Conveyancing
The legal process involved in the buying and selling of property. Normally carried out
by specialist solicitors.
Decreasing Term Assurance
Life assurance designed to protect payments on a capital and repayment mortgage, in
which the level of cover decreases in line with the amount of the loan.
DIP
Decision in principle.
Discounted Rate
A guaranteed reduction in the standard variable rate (SVR) that lasts for an agreed
period.

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The Mortgage Bible© - author - Monty Burn

Endowment
A life assurance policy designed to produce a lump sum sufficient to pay off the capital
of an interest only mortgage. There are a variety of policies to choose from.
Fixed Rate
The interest charged on the mortgage set for an agreed period.
FTB
First Time Buyers. Someone who is buying a property for the first time.
Interest Only
The monthly payments you pay to the lender as interest on the mortgage amount. You
do not pay off any of the capital during the term of the mortgage. The capital sum is
paid off at the end of the term.
Income Multiplier
A calculation used by lenders to determine how much they are prepared to lend an
applicant. Varies from lender to lender, there is not an industry standard.
Level Term Assurance
Life assurance which pays out a lump sum if you die during the term. The amount of
cover stays the same throughout the term.
Local Search
A search made by your solicitor of the Council records of the area in which you are
purchasing property.
LTV
Loan to value. this is the size of the mortgage as a percentage of the value of the
property, or the price you pay for it. Divide the loan by the value x 100% = LTV.
Mortgage
A loan to buy a home where you put up the property as security.
MPPI
Mortgage payment protection insurance - see ASU.
Negative Equity
This is where the money you owe on the mortgage is greater than the value of the
house.
Non-Status
This is a term used for people who don’t fall into the normal criteria for loans by the
high street lenders.
PC
Product confirmation.
PHI
Permanent Health Insurance. An insurance that will pay a proportion of your income
for the duration of the mortgage term.
PII
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The Mortgage Bible© - author - Monty Burn

Professional Indemnity Insurance.
Proc. Fee
Abbreviation of procuration fee - a fee forwarded to the intermediary/broker by the
lender as a payment for the introduction of business.
Redemption Penalty
A financial levy made by the lender if the mortgage is redeemed within an agreed
period.
Remortgage
Moving the mortgage from one lender to another or a re-negotiation of terms with an
existing lender in the form of a new mortgage.
Self-Certification
Mostly used by the self-employed that haven’t got three years accounts. Can also be
used by direct employed to certify their income without the lender requiring further
checks.
SVR
Standard variable rate. The interest a lender charges, which can go up or down.

48

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