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Property -> Mortgages explained
(March 2005)

Mortgages can be a financial minefield, so make sure you get good, honest advice before you buy.You might think there's nothing simpler than buying a house - you find a place to call home, borrow the money to pay for it and then move in. Well, that's the theory anyway. Unfortunately, the reality can be a bit more complicated. Some of the problems lie in getting the right mortgage for your needs. Banks and building societies are falling over themselves to grab customers, but it's difficult to know where to start.

The most important thing to do, especially if you are a first-time buyer, is to think sensibly about the whole buying process from initial budgeting to getting a good mortgage package.

Below are a few hints and tips to help you on your way.

1. Start by assessing how much you can afford. Think about your current outgoings and also any changes that are likely to occur in the future, like having children or buying a new car.

2. Consider carefully the type of mortgage you take. Shop around and talk to an Independent Financial Adviser to help you make the right decision.

3. Consider taking out protection against accident, sickness or redundancy to provide yourself with some money, should you be unable to work.

4. Get a decent valuation done and consider spending more money on a detailed report such as a full structural survey.

5. Choose your solicitor carefully, and get a good estimation of the likely costs you will have to pay beforehand.

6. Your house is a home, not an investment. House prices have been known to fall so don't overstretch yourself in the hope of making a fast buck.

7. Check the mortgage you decide upon for redemption penalties, which can stretch far into the future and prevent you from changing to a better deal.

8. Make sure the product you take is portable. This means should you move home, you can take your loan with you.

9. Pick a mortgage lender and/or financial adviser of good repute.

10. Consider the merits of flexible mortgages, as many allow you to take payment holidays which could help to ease the financial burden.

11. If buying a property with a boyfriend or girlfriend, consider taking out a joint tenancy or tenancy in common to protect yourself should you split up at a later date. Your solicitor will help you with this.

In any event, it is always best to seek independent financial advice to ensure you receive impartial, objective points of view, and products that are suitable to your individual circumstances and needs.


1. Repayment
You borrow a lump sum over a fixed period of time (usually 25 years). You pay the interest and some of the capital on a monthly basis to the lender. Can be slightly more expensive than endowment or PEP mortgages. Not much capital is paid off in the early years.

2. Endowment
Endowments have plummeted in popularity following widespread mis-selling during the 1980s and it's far less common for people to buy in this way today. The basic principle is that you borrow the sum for your house purchase, but then make two payments a month; one to pay the interest on the sum and the second into an investment vehicle which, at the end of the mortgage term, should be enough to pay off the loan. Endowments were popular for their flexibility, but many homeowners have found, to their cost, that their investments failed to meet their loan commitments.

3. Pension-Linked Mortgage
Again, you make two payments. One to the lender to repay the interest on your borrowings and another sum into a personal pension plan. The aim is to build up the pension fund sufficiently to repay the loan and provide a retirement income.

It is also possible to combine two of the above options to repay your loan.

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