Money: Deals that are as safe as houses

In the first of a series on finding the right mortgage, plots a route through the bewildering variety of deals on offer in the market

MOVING HOUSE ranks as one of life's most stressful experiences. But if the practicalities of the move itself give you a headache, expect a migraine when you look for a mortgage.

There are now around 1,600 mortgage deals on the market. In theory, competition brings costs down, so this should be in the interests of the borrower. But terms can be complicated and confusing.

The stakes are high. Choosing an expensive deal could mean paying thousands of pounds more than necessary. For example, research from the Consumers Association shows that building societies that converted to banks can charge higher rates. On a pounds 50,000 loan, people paying the standard variable rate with the Abbey National, Alliance & Leicester, Bristol & West, Halifax, Northern Rock and Woolwich paid between pounds 367 and pounds 441 more during 1996 and 1997 than similar borrowers with Yorkshire Building Society, the association says.

The first step with a mortgage is to work out how much to borrow. As a rule, lenders will not lend more than three times your gross salary. Couples can either borrow up to 2.75 times their joint income, or three times the higher salary plus one times the lower.

"A lender will not lend you more than you can afford to repay, but, if you want to be more comfortable than that, you might want to borrow less," says Pam O'Keeffe, of the Building Societies' Association.

If you need the security of knowing exactly how much the mortgage payments are going to be every month, fixed-rate mortgages can be a good idea. Capped rates put a ceiling on the interest rate you pay, while allowing you to take advantage of any falls in rates.

If you opt for the standard variable rate, the lender may offer an incentive in the form of "cashback". But bear in mind just how much interest rates could rise and how this would inflate your monthly payments.

Flexible mortgages are relatively new, but can be ideal given changing work patterns. If you suddenly decide to start a business or take maternity leave, this type of mortgage could give you a break from payments for a few months.

Should you opt for a repayment mortgage or an interest-only loan? Interest- only mortgages are usually coupled with an investment vehicle which you pay into at the same time. This might be an endowment policy, a PEP or a pension plan and is designed to repay the capital at the end of the term. One of the main attractions here is the hope that the investment could perform so well that you end up with an extra lump sum.

Endowment mortgages were particularly popular in the Eighties. However, problems have since emerged - investment returns have not been as high as some insurance companies forecast, and many policy-holders have now been asked to increase premiums.

The more straightforward repayment mortgages are making a comeback. According to Siobhan Hotten, who is marketing manager at the independent financial advisers John Charcol, this is partly because the choice of investment vehicle is becoming more limited, with PEPs due to be replaced by investment savings accounts next April.

Whichever deal attracts you, check the small print, as many lenders charge onerous penalties if you pay off any extra capital early. Remortgaging often makes sense in today's marketplace, and being tied to one mortgage by the threat of penalties can leave you paying interest at a rate that is no longer competitive.

Whether taking out a first mortgage or remortgaging, getting independent advice saves a lot of legwork. Independent advisers or specialist mortgage brokers have information on every deal going through computer networks.

But how objective is their advice? Could they be swayed by the commission they receive on investment vehicles such as endowment policies? Some advisers work on the basis that you pay them a fee, and the Consumers Association says its research showed that these advisers were most likely to offer unbiased advice.

John Charcol charges a fee of up to 1 per cent of the loan amount, depending how complex the case is. "Where we do earn commission, we'd generally discount the commission from the fee," says Ms Hotten.

The Council of Mortgage Lenders has published a code of practice. Under its terms, mortgage advisers have to say what level of advice they are giving. Where they recommend a particular mortgage, they should give written reasons. Check if your adviser has signed up to the code.

You can do your own research. The personal finance pages of The Independent on Saturday and The Independent on Sunday contain lists of the best mortgage rates on offer. Financial data publication MoneyFacts contains detailed information on individual deals.

`MoneyFacts': 01603 476100; John Charcol: 0171-611 7000; Council of Mortgage Lenders: 0171-437 0655

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
British musician Mark Ronson arrives for the UK premiere of the film 'Mortdecai'
music
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
Sport
footballBrighton vs Arsenal match report
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
people
News
Finacial products from our partners
Property search

Simon Read: Frozen in time - the expat British pensioners who deserve a better deal

I had dinner with the pensions minister Steve Webb this week. There was a wide-ranging discussion about the new pensions freedoms starting in April, and changes to the state pension. Crucially, I also got to ask Mr Webb whether he had any plans to have another look at the injustice that is frozen pensions.

Mark Dampier: We always bring down Britain. But there's plenty in the tank

While the health of the economy is not insignificant, Mark Dampier finds it incredibly unpredictable in terms of its impact on the stock market

If you haven’t switched supplier or tariff in the last 12 months then you could almost certainly save money by doing so

There are easier ways to save hundreds on your energy bills

A new free app is aimed at the three-fifths of Brits who have never switched supplier

Worse hit are loyal customers with long-standing accounts – their loyalty is rewarded with lower interest rates than more recently-launched accounts

Savers are being let down by banks and building societies, says Financial Conduct Authority

Regulator’s investigation into the market found that around £160bn was held in easy access savings accounts that pay interest lower or equal to BoE base rate

What to do if you're facing repossession: However far you fall, you're not on your own

Helen Fisher had to become a 24-hour carer, and then she faced repossession. But going to the right places for help changed everything, writes Simon Read

Simon Read: Information is power. And it's in the wrong hands when people are cold-called by companies that know they're in debt

In debt? You're likely to be targeted by unscrupulous companies that hope to profit from your misfortune. They may try to pretend to be your friend by offering what they call "help" – but almost certainly that help will come with a cost and leave you worse off than you were before they got in touch.

Mark Dampier: So you've got pension freedom... will it end up as a cold shower?

In less than three months' time radical changes to pensions will take effect, providing investors with more freedom. Yet for those who prefer to make their own investment decisions, the choice of funds available is overwhelming. And an income drawdown account is also not particularly easy to manage.

The move marks the culmination of a long campaign by debt charities and insolvency firms and follows a call for evidence launched by the Minister last August

Bankruptcy rules to change, Business Minister announces

The minimum amount for which you can be forced into bankruptcy is being raised from £750 to £5,000

Three-quarters of parents say being unable to afford to heat their home adequately is hitting the health of their children

Family well-being and health hit by heating costs

A shock report reveals that fuel poverty is affecting desperate families – and their children

Many people have no understanding of pensions

Are you ready for pensions reforms?

Most people are too confused to know how to use their pensions for a secure income

At a rate of 7.5 per cent, the wind is blowing behind ethical investors

A new initiative has financial and ethical virtues, says Simon Read
Ticket to cry: many passengers have been penalised with exorbitant and unnecessary rises

Simon Read: Inflation is riding the slow train. So why have we been given a one-way ticket to travel on the fares express?

I struck a chord with many of you when I wrote a piece earlier this week about rising train fares. It seems there is an army of travellers who feel they've been ripped off by increased transport costs.

Your money: Let’s hope for a fairer, more honest 2015

Poor service from banks and energy companies has sadly been a theme this year

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
    Michael Calvin: How we need more Eric Cantonas to knock some sense into us

    Michael Calvin's Last Word

    How we need more Eric Cantonas to knock some sense into us