Take a break, interest-free

Some lenders will offer you a 'holiday' from the financial rat race

Having a baby? Taking time off to do a degree? Are you investing in a personal pension plan? Have you been bankrupt? If the answer to any of these questions is "yes" then the standard endowment or repayment mortgage package may not be the most suitable - or in some cases may not be available at all.

"Baby break" mortgages are increasingly being offered by the major lenders. The concept is simple. Having a baby often means that earnings go down - at least for a period - while expenditure goes up, so your mortgage payments are reduced for a time.

Abbey National is the latest lender to offer a baby break package - although it is being offered only by telephone through Abbey National Direct, not through the branch network. It provides a three- month interest "holiday", followed by a 3 per cent reduction for the next six months.

You can decide when the discount starts: during pregnancy, at the start of maternity leave or after the birth. The offer is available both to people moving home and those transferring their mortgages from other lenders. Other items in the package include a refund of up to pounds 320 on the mortgage valuation fee and a contribution - maximum pounds 300 - to legal fees.

There are some important qualifications. First of all, the package is based on Abbey's standard variable rate - currently 7.29 per cent - rather than any of the lower, fixed-rate offers. And you have to pay at least nine months at the full rate before claiming the discount.

The offer is available to couples or single applicants on the usual earnings multiples of 2.5 x joint earnings or 3 x single income, and is available on repayment, endowment or pension mortgages. It is worth bearing in mind that if you have opted for repayment terms then you will have to continue with the capital repayments during the interest rate holiday.

Bradford & Bingley takes a slightly different approach, offering a discount of either 5 per cent for 12 months or 2.5 per cent for two years - but the qualifying period is a year, rather than nine months. Again, the offer is based on the standard variable rate terms.

Abbey, B&B and several other lenders offer similar discount arrangements for other reasons, such as a sabbatical or a degree course.

"What we are saying to people is that it might be more sensible to go for a half-and-half approach. Put half the mortgage on normal capital repayment terms and tie the rest to the pension. Your monthly outgoings will be more, because you're repaying half the capital sum over the life of the mortgage. But then on retirement you only have to find the other half."