How we pioneered the do-it-yourself mortgage: Tim Cockerell had something to crow about after he imported an American idea to sell his house

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The Independent Online
When all the building societies in town had refused our housebuyers a mortgage, we decided to do it ourselves.

Restrictions governing whether a property is mortgageable or not had caused sale proceedings to grind to a halt so, determined not to let ourselves be beaten by red tape, we decided to explore the options offered by a private mortgage.

After all, the house had been around since the 1930s and was pronounced sound under survey.

Despite this the societies, bound by their guidelines relating to timber-framed outer walls, shallow foundations and the proximity of large trees - and therefore roots - could only offer a limited loan.

Our buyers, Roy and Hazel Wyld, had heard of private mortgage deals - where the seller lends the buyer the principal mortgage sum with secured interest repayments under mutually agreed terms and conditions - through friends in Florida.

It appeared private mortgages were common practice in the US and, having established via our solicitors and bankers that it was legally and financially viable in Britain, we set about selling our house.

The most important factor to consider when taking the matter of mortgages and moneylending into your own hands is that there is no third party to mediate. Everything from exchange and completion dates to deposit payment terms, fixed interest rates and collateral assurances must be personally researched and mutually acceptable.

As the idea was totally novel and, as far as we knew, untried in this country, we had no mediator. Fortunately we could all agree on the major points and left the solicitors to handle the legalities.

The agreed selling price for Cornerways - a detached three- bedroom bungalow with large garden close to the sea on the Isle of Wight - was pounds 50,000. Our buyers, having sold their flat, paid pounds 18,000 as a deposit, leaving pounds 32,000 as the principal sum on loan from us by way of a mortgage deed on the property. The deed was drawn up by our solicitors and agreed by all parties.

After taking financial advice we decided on a 10-year term at a fixed interest rate of 12.415 per cent, or pounds 480 a month. At the time this compared favourably, on the buyers' side, with a building society repayment mortgage - a pounds 30,000, 10-year mortgage would have cost pounds 471 a month before tax relief.

From our point of view we compared the return with what we would earn over 10 years from investing pounds 50,000 in a with-profits endowment policy. We were selling a second property and were therefore looking at investment potential.

The pounds 50,000 would have matured at pounds 150,000 and we worked out that the monthly repayment of pounds 480, if invested carefully, would yield the same return.

A double check on this was based on a calculation that the pounds 18,000 deposit, invested at the time, would bring a return in 10 years of pounds 44,000 - a shortfall of around pounds 106,000. We calculated that this would be made up in 10 years by the monthly repayments of pounds 480.

In retrospect, there would have been nothing to prevent the process developing into a private mortgage chain had it been agreeable to other buyers and sellers.

Once the repayment terms had been agreed it was necessary to arrange cover for the mortgage to ensure any outstanding amounts would be paid in the event of death before expiry of the 10-year term.

Collateral life cover was provided by the Wylds through two endowment policies qualified by a clause in the mortgage deed to safeguard the borrowers' policies. They needed assurance that we were only entitled to the outstanding amount in the event of the death of either, and not the whole insurance policy.

This agreed, the only remaining steps necessary were of a more general nature. These covered statutory powers of sale regarding payment default, bankruptcy, repossession and borrowers' and lenders' rights on third party lease or tenancy agreements and states of repair.

Under the terms we hold the relevant Land Registry charge certificate, which qualifies deed of title, until the mortgage is either redeemed or paid off.

The private mortgage has run successfully now for two years. Our financial adviser, John Butt, a consultant with Towry Law Financial Planning, supported our decisions on the basis that, although we were well aware of the possible risks, we were receiving an income that could rival realistic investment policies.

'Also on the plus side is that you sold a house that you otherwise would not have done,' he added.

(Photograph omitted)

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