The personal way to pay off a 100 per cent mortgage

SARA DAY and her husband, David Allardice, have decided to repay their mortgage by investing in a personal equity plan, writes Clare Arthur.

Just before Christmas the couple bought a four-bedroom house in Highgate, London, for pounds 185,000. Although they had some money already saved in PEPs, they were reluctant to encash the plans, which had only been running for one year. Instead, the couple chose to borrow 100 per cent of the value of their property.

Their independent financial adviser, Colin Beverley of mortgage brokers John Charcol, advised them to borrow the first 75 per cent from Hypobank MSL, a subsidiary of Birmingham Midshires Building Society. The remaining 25 per cent was borrowed from Norwich Union through a scheme exclusive to John Charcol - the professional top-up mortgage. This scheme has a higher interest rate than normal loans - 10.45 per cent compared with 5.75 per cent for Hypobank.

But Sara says Norwich Union does not require borrowers to buy mortgage indemnity insurance. This cover, which protects the lender should it be forced to repossess the property and sell it at a loss, often costs thousands of pounds.

One condition is that the couple invest in a Norwich Union savings product. Sara says: "We were paying into a PEP so froze it and started another with Norwich Union. We like PEPs because they are tax- free and have potential for big returns."