ISAS: Is this a good way to pay for your home?

If you have been using a PEP as the vehicle to pay off the capital on your interest-only mortgage then beware the individual savings account.

The ISA has replaced the PEP but the transition is causing havoc - and experts warn it could leave thousands of borrowers failing to pay off the capital on their mortgages.

All PEP holders will have received letters from their fund managers informing them that monthly contributions can no longer go into a PEP. Most fund managers have offered their clients the opportunity to transfer their payment into an ISA simply by signing a new direct debit mandate.

The theory is that the ISA will pick up where the PEP left off. But many argue that the ISA as a repayment vehicle may prove unreliable.

The first problem is that thousands of people are now without any repayment vehicle at all. PEP providers say around 20 per cent of clients haven't signed up to transfer payments. Fund managers have had to suspend the direct debits.

Barry Williams, of independent financial advice firm Donnellsons, says: "If someone were not to realise for a year that their direct debit had been stopped, it would have serious implications for their ability to pay off the capital on their mortgage."

The Consumers' Association is also concerned. Senior policy researcher Philip Telford says: "Nobody wants a situation in 15 years' time where thousands of people have their houses repossessed because they didn't realise that their payments were cancelled in April 1999."

There are still obstacles when the fund manager has permission to transfer funds into an ISA. Robert Guy, technical director at independent mortgage brokers John Charcol, says: "The real problem with the ISA as a repayment vehicle is that it requires you to know what your circumstances are going to be in 12 months. If someone takes out a mini ISA because their monthly payment is less than pounds 250, but comes into more money later in the year and wants to put this into a maxi ISA, they will not be able to do so."

If you don't feel confident using an ISA to pay off the mortgage then IFA Barry Williams offers an alternative. "Most PEPs have outperformed their projections," he says. "For some people it might be worth cashing in their PEP to pay off some of the capital on their mortgage and transferring to a repayment mortgage."

However, to give the ISA mortgage a fair crack you need to sit tight and see how the market develops. Legal & General and Norwich Union have launched packaged ISA mortgages and many lenders are expected to follow soon.

Contacts: Legal & General, 0800 092 0092; Norwich Union, 0800 056 2450.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea