Money: Mortgage Makeover - The First Act of a property play

A specialist broker offers advice on finding a mortgage or bettering your home loan. This week: buying a first flat

The borrower:

Julia Pascal is a playwright and theatre director. At 48, she is just about to buy her first flat in north London from Camden Council. Previously she has always rented, although in 1994 she married a Frenchman who has his own apartment in France. Julia's income is low but she is getting a "massive" discount on the one-bedroomed property. The flat is worth pounds 64,000 and she is looking for a mortgage for pounds 23,750. Julia says the jargon of mortgages "horrifies and confuses" her and is concerned to keep mortgage costs down given that she is paying just pounds 50 a week in rent at present.

The advice:

Julia is self-employed with an income of around pounds 15,000 or so - a figure that can be confirmed by her accountant. This is enough for a pounds 24,000 mortgage. Some lenders would lend up to 80 per cent of the value of her property, or around pounds 50,000. But since Julia has no desire to have too much debt and does not wish to upgrade the property substantially at this stage, a loan for pounds 26,000 - which would pay for the property plus give some help with other costs - seems appropriate.

Julia is keen to pay off the debt as soon as possible and has requested a 10-year repayment-style mortgage.

Compared with endowments and the like, a repayment mortgage offers an absolute guarantee that the loan will be paid off at a known date.

Since Julia has been paying rent for a long time and is used to a steady cost for her housing, a fixed-rate loan would seem ideal. A fix would ensure she knows exactly what she will have to pay. A 10-year fix is possible but may prove relatively poor value if, as suggested in some quarters, interest rates come right down with EMU membership. So a five-year fix seems a better idea.

Using a traditional lender is a sensible move for a long-time local authority tenant making her first step into home ownership. The recommendation, therefore, is a five-year fixed rate at 6.69 per cent from the Woolwich.

On a repayment basis this equates to around pounds 305 a month. Miras tax relief is worth around pounds 20 a month, bringing the cost down to pounds 285, or around pounds 65 a week. This is just pounds 15 a week more than her current rent. But if even that increase is too much of a strain on her budget, the mortgage term could be extended to 15 or 20 years to reduce the weekly cost.

The Woolwich will charge a completion fee of pounds 350, which would normally be added to the loan, and a valuation fee on the property of pounds 165. Julia will also need to fund her own legal costs.

Overall, the idea of this recommendation is to provide a sensible and conservative package that suits a home buyer with a variable income who is looking to repay the debt as soon as possible.

q Julia Pascal was talking to Chase de Vere Mortgage Management (0171- 930 7242).

If you want to be considered for a mortgage makeover, or a wider financial makeover, for publication - including a photograph - write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, or fax: 0171-293 2096 or 2098; or e-mail: S.Lodge@independent.co.uk. Include details of your financial position, a daytime telephone number, and say why you think you need a makeover.

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