Door shuts on a home payments holiday: The fine print of a flexible mortgage nearly cost a couple their house

WHEN Julie Curtis and her partner, James McDade, opted for an Open Door mortgage through Cannon Lincoln, the insurance broker, at the beginning of last year, they thought they were signing up for a truly flexible and revolutionary loan.

Prospective borrowers were told that the scheme 'unlocks the value in your home and enables you to use this investment, during your lifetime, to plan your finances and realise your dreams and ambitions'.

But a few days ago Mrs Curtis and Mr McDade narrowly escaped having their home repossessed by C & G Guardian, the division of Cheltenham & Gloucester Building Society that devised the mortgage and provided the funds.

The couple remortgaged their four-bedroom house in Essex in April 1991 through the Open Door scheme after a Cannon Lincoln salesman, Michael Dansey, whom they met socially, persuaded them of its apparent advantages. One of the main attractions was that the term could be as long as 99 years. Users of the scheme to remortgage could borrow up to 85 per cent of their property's value, but there was a draw-down facility allowing them to borrow instantly in future.

Mrs Curtis and Mr McDade borrowed pounds 60,000 with the option to draw down up to pounds 101,000.

Two other features of Open Door that appealed were that borrowers could defer payments and even take a one-year payment holiday.

When Mrs Curtis and Mr McDade arranged the remortgage they had a loan with another company backed by an endowment from MGM. But, they say, the Cannon Lincoln salesman told them to cash in that endowment because his was better. They received no surrender value from the MGM endowment, because it had not been in place long enough.

Cannon Lincoln was recently fined pounds 50,000 by Lautro, the insurance regulator, for 'churning' people out of other companies' endowments into its own. The couple's quarrel, however, is more about the difficulties they encountered when they tried to take up the option of a payment holiday.

Mr McDade is a builder and Mrs Curtis a property consultant; both are usually self-employed. At the beginning of this year they realised that work would soon be scarce. 'We thought that if we took six months off payments we would be able to put some money aside,' Mrs Curtis explains.

Their attempts to arrange this with C & G Guardian fell on stony ground, according to Mrs Curtis. The society told them that they were not entitled to a payment holiday because they were in arrears.

'I said: 'We are in arrears because as far as we are concerned we are on a payment holiday,' Mrs Curtis said.

She then contacted Mr Dansey at Cannon Lincoln, but he said he could not do anything. The loan was with the C & G and the couple had to deal with the society.

At the end of August, the couple received a summons for repossession.

Only after this, says Mrs Curtis, did she receive from C & G a guide detailing the conditions attached to the Open Door mortgage. It states: 'After one year's satisfactory conduct of the account, a borrower with a debt not exceeding 70 per cent of the current valuation can apply for a suspension of payments for up to 12 months.'

The promotional brochure states that it should be read in conjunction with the guide. Mrs Curtis says that she asked the Cannon Lincoln salesman if she could see this, but he reassured her that he had explained everything.

The couple started receiving benefit from the Department of Social Security in August to pay part of the mortgage.

C & G Guardian has agreed to suspend repossession proceedings, but Mrs Curtis intends to fight to have the arrears classified as a payment holiday. She believes she was misled by Cannon Lincoln and C&G.

A spokeswoman for C & G said the guides, now available to borrowers, were originally only available to financial advisers selling the loans.

She added that the society was not inclined to back down over the arrears. She said that Cannon Lincoln should have done more to help the couple and even if they felt they had been misled, this was not an excuse to run into arrears.

Loans similar to Open Door are still being sold by C & G Guardian under other brand- names.

The Independent on Sunday spoke to Mr Dansey, but he said he was unable to comment, and referred us to a Cannon Lincoln press spokesman.

Eugene McCormack, the marketing director at Cannon Lincoln, said: 'There may be some cause for concern about churning in this case. We are investigating. If we find churning has taken place, obviously we will take steps to provide recompense.'

Mr McCormack said he did not know Mr Dansey, and he was unable to comment specifically on how he advised Mrs Curtis when she asked for help in sorting out a payment holiday.

He also said that he would expect the salesman to have ensured that Mrs Curtis had a full understanding of the terms of the loan before committing herself. He said the mortgage guide for advisers would have been available for her to look at.

Mr McCormack defended the Open Door plan. 'It really is an excellent product. It's incredibly flexible.'

When he launched it to the company's sales representatives, he said, he had stressed that it needed to be targeted at the financially sophisticated.

(Photograph omitted)