So I persuaded them to give up smoking

What does an independent financial adviser really do? Michael Royde talks about his work in the first of a series

Andy was the manager of a shop where the owners of the business were already existing clients of mine. Andy and his wife lived in west London in housing association accommodation, paying rent, and wished to move out of London where Andy could share travelling arrangements with the owners of the business. He was apprehensive about the cost of the mortgage but was able to put down a deposit of 10 per cent. Both he and his wife were heavy smokers.

The difference in cost between his rent and the mortgage costs equated to the cost of smoking. I persuaded both of them to give up smoking to fund the mortgage and two years down the road they are both non-smokers and extremely pleased about the decision. I also advised that a pension policy to repay the mortgage was the best buy for them, especially as their employers offered to pay the premiums on a pension plan for them by deducting the costs from their salary cheques. That in turn made a saving in National Insurance contributions which halved the gross cost of the pension.

With a discounted-rate mortgage to start with, they were well ahead financially, as the figures show.

The rent had been pounds 200 per month and the cost of smoking pounds 225 per month, a total of pounds 425. The mortgage discount rate was pounds 251 a month (full rate pounds 360) and the pension policy premium was pounds 64 gross (pounds 34 net per month). This gave total outgoings of pounds 285 a month with the discount or pounds 394 a month at full rate.

The second case involves Bryan and his wife. Bryan is a researcher for a large City firm and unusually was paid half his income as pounds 30,000 salary, and the other half as a bonus of pounds 30,000, paid on a quarterly basis. Mortgage lenders will not treat bonus payments on the same basis as normal salary but allow only a single multiple (ie it is only possible to borrow three times your annual income and one time any bonus payments.)

Because of this problem, under the normal rules Bryan's borrowing capacity was limited to pounds 120,000,and because his wife had only recently started her own business almost no account would have been taken of her income. Initially, a mortgage of pounds l90,000 was required. Fortunately, both sets of parents had reasonable levels of income and agreed to act as guarantors for the mortgage. As a consequence the mortgage went through, by-passing the normal criteria and the house was purchased.

The third case involved Chris, who wished to buy a derelict barn in Oxfordshire. He had little capital but a good income. Normally the maximum mortgage loan available for the purchase of a property for conversion is two thirds of the purchase price and two thirds of the building cost. The remainder would have to be found from his own resources. Chris simply did not have the capital for this project, although we had an estimated final value and knew that at the end of the day it would be possible to borrow sufficient funds to complete the exercise.

Fortunately, I knew Chris's father as he was already an existing client. Chris's father had an unmortgaged house, and I asked him if he would lend his house as security for the duration of the building project. This he agreed to do and as a consequence there was sufficient collateral for the loan. Once the building work had been completed, the house was revalued. As this was sufficient for the mortgage because normal lending criteria now applied, the father's house was released.

The arithmetic was as follows. The purchase price was pounds 130,000 and building works cost pounds 70,000, a total of pounds 200,000. Capital available was pounds 10,000 and normal lending would provide pounds 85,000 on the barn and pounds 45, 000 for the building work, a total of pounds 130,000, leaving a shortfall of pounds 60,000. The father's house was worth pounds 100,000, on which normal lending would provide pounds 75,000. This made up the shortfall. The valuation on completion was pounds 260,000, on which normal lending was pounds l95,000, allowing the father's house to be released.

I frequently find that mortgages that are difficult may be obtained by re-arranging assets or income to satisfy the criteria of different building societies. Some societies will not lend for business purposes, others will not take into account additional security.

I find that the smaller societies are generally more helpful and one does not have to go through the appalling bureaucracy of the larger societies. Some societies will accept endowment policies as additional security, which can help towards negative equity. Others will provide "non-status" mortgages that exceed normal lending criteria, usually at higher rates. In one case I obtained a rate reduction for a publisher whose income was overseas by showing the quality of his work to the building society.

Michael Royde is a London-based independent financial adviser. 0171- 792-3700.