Direct Finance: Dial M for a mortgage

Abigail Montrose and Ken Welsby on getting a loan
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The Independent Online
Choosing a new home can be exciting, but marching down the high street in search of the best mortgage deal is not. If you can't face the thought of spending your lunch-times or weekends nipping into local banks and building societies, why not pick up the phone?

More than 20 well-known lenders operate telephone mortgage services, including Abbey National, Cheltenham & Gloucester, Woolwich and Nationwide. Some lenders, such as First Direct, FirstMortgage and Direct Line, offer mortgages only over the phone.

Monday's election announcement triggered a dramatic increase in the volume of calls to many of the direct sellers - most from borrowers looking for long-term fixed rates.

"People don't know what the election means for interest rates, but they are frightened of uncertainty," said Nick Deutsch, chief executive of FirstMortgage. "They want to nail down the rate now for three, four or five years as a precaution.

"Borrowers who went through the pain of rates at 12 and 13 per cent and found themselves struggling to meet their commitments every month don't want to go through that again. They want certainty."

Mr Deutsch believes the move to fixed rates is just one reflection of continuing uncertainty in the housing market. While City analysts and big lenders talk of prices rising by between 7 per cent and 12 per cent this year, he says customers take a dramatically different view: an increase of 2 to 3 per cent, irrespective of which party wins the election.

Calls to direct lenders are often free and their phone lines are usually open in the evenings and at weekends. Once you get through to the lender, you give the operator some basic details about yourself, such as your age and income. In many cases the lender will be able to make you a provisional mortgage offer within minutes, and if you know how much you want to borrow, the lender will be able to work out what the monthly repayments would be.

Some lenders can fill in most of the application form over the phone. This can take from 10 to 30 minutes. A copy of the application is sent to the potential borrower to check, sign and return.

Others prefer the potential borrowers to complete the form themselves, enabling borrowers to take their time over the form and to enter exact details such as income and length of service with an employer.

Telephone mortgages can often be cheaper, since the lender does not have the costs of a branch network. So while most lenders have a standard variable rate (SVR) of around 7.25 per cent, Direct Line has an SVR of 6.3 per cent.

In some cases, where a lender has a telephone arm and a branch network, the SVR is lower through its telephone arm. For example, Bradford & Bingley Building Society charges an SVR on its mortgages of 6.99 per cent. But its telephone mortgage arm, Bradford & Bingley Mortgages Direct, has an SVR of 6.24 per cent.

Probably the most flexible offering comes from Citibank. High earners - pounds 40,000 a year and upwards - can open a Citibank personal reserve account, which offers both secured and unsecured credit lines based on earnings and overall net worth. Once the credit line has been agreed, you can call on it at any time with just one phone call. Rates are variable, calculated at London inter-bank rate (three-month Libor), plus 1.25 per cent, which currently means paying about 7.5 per cent.

Nationwide charges the same rates of interest and offers the same range of mortgages through both its telephone service and its branches. A spokesman for Nationwide says the building society makes no distinction between the two services, as the aim is to let customers choose which service is most suitable and convenient for them.

Several banks and building societies which offer mortgages both direct and through their branches can arrange for a financial adviser to visit you at home.

Some direct lenders offer only repayment mortgages over the phone. Others will offer interest-only mortgages provided that you arrange for the repayment vehicle.

The amount you can borrow may be limited. Some direct lenders require as much as a 25 per cent deposit. But many offer 95 per cent mortgages and some, such as Bank of Scotland Mortgages Direct, offer 100 per cent mortgages, although the rate of interest may be higher.

Buying a home can be a daunting experience and direct lenders find that few of their customers are first-time buyers. But for those who are confident enough to deal over the phone, arranging a mortgage in this way can offer good value and convenience.

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