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Getting mortgage advice

It is always best to try a number of mortgage lenders or authorised financial advisers if you are looking for a mortgage.  You will need to explain your circumstances, needs and concerns to get the best advice and find the best deal possible. Financial Advisers may be restricted or independent, but all have to be authorised by the financial services regulator if they give advice on financial products.

An adviser must always tell you if they are tied to a particular company or agent because this means they can only advise you on products offered by that one company. Some advisers work to a whole of market panel. This is still restricted to a group of lenders. Independent advisers can give advice on products from a range of different companies. To find a financial adviser you can trust, ask friends or family for any contacts they may have. If this is not possible then you can get a list of local independent financial advisers (IFAs) from the organisation listed under sources of further information.

The Council of Mortgage Lenders has a code of practice which governs banks, building societies, brokers and authorised financial advisers. According to the code, they should make every effort to find the very best policy for you from what is available. Everything should be kept as simple as possible. Mortgages can be very complicated and you need to be able to make an informed choice on the type of mortgage that suits you. There is some consumer advice you can download from their website (use the link above to get there).

 

Taking out a mortgage and the different types

The amount of money you can borrow, whether it's a small personal loan or a home loan (mortgage), depends on your ability to pay it back. So the lenders will want to check your income, regular outgoings and expenses, age, financial history and security for the loan (your assets, or what you own).

There are various types of mortgage

Repayment mortgages

Repayment mortgages are the standard type of mortgage. You repay the amount borrowed plus an agreed rate of interest over a given term. The rate of interest usually varies throughout the term of the mortgage, but you are now more likely to be offered a fixed rate mortgage, which stays the same over a specified number of years. 

You can get repayment mortgages without having to give your medical history. The lender's greatest concern is your ability to repay the loan. But the lender may want you to protect the loan with insurance. And you will need to tell the insurer of any medical condition you have or have had in the past. Even if your lender does not insist you have insurance, it really may be in your best interests to protect the loan in this way. Talk to your financial adviser about it.

If you already have life insurance or critical illness insurance then check to see what the policy offers. It may be that your existing policies already cover the full repayment of a mortgage if you die before it is paid off. You may be able to add this benefit to an existing policy by arranging to pay extra premiums. You should talk this through with your financial adviser or insurer.

If you have income protection insurance you will probably have to increase your premiums to cover your mortgage repayments.

If you do not already have one or more of these forms of insurance then you may find it very difficult to protect the loan. If you have to stop working because of illness, you may be unable to meet the repayments. If you don't keep up the payments, your mortgage lender will be able to repossess your house, as it is the security for the mortgage loan. This is usually the last resort, but it is better to avoid this situation by arranging some sort of insurance.

Interest only mortgages (endowment mortgages)

Interest only mortgages require the payment of interest during the term of the loan, and then the payment of the full sum of the loan at the end of the term. One form of interest only mortgage is the endowment mortgage. This is an endowment policy and interest payment combined. These mortgages aren't as popular now as they used to be as they involve more risk than a repayment mortgage. Payments have to be made into the endowment policy to build up savings or investment so that you can accumulate the full amount of the lump sum to repay your loan. The payment of the lump sum is dependent on these savings or investments growing at an assumed and adequate rate. Performance is not guaranteed. If the investment doesn't perform as planned, there may not be enough money in your pot at the end to cover the original sum you borrowed.

Many people have had problems with endowment mortgages where they have not produced enough money at the end of the term to pay off the mortgage. So if you already have an endowment mortgage, it is a good idea to get some advice about it from a financial adviser. They will help you to check how well your endowment has performed, and advise you if you need to take any further action.

Endowment policies include life insurance. Because this is a necessary element of the policy, you will need to disclose your medical history in order to get this type of loan. Even if you have cancer, it is not necessarily impossible to get an endowment policy. But your premiums may be higher.

As with all aspects of insurance, it is best to ask a number of brokers, insurers and authorised financial advisers before making a decision. For a list of potentially suitable insurers contact the British Insurance Brokers Association (BIBA).

Interest only ISA mortgages

In recent years, there has been bad press for endowment mortgages, so there has been less demand for them. A new type of mortgage has been introduced called an Individual Savings Account (ISA ) mortgage. This is really another way of saving efficiently. It doesn't have any medical underwriting as it doesn't have any insurance attached to it. It is more flexible than an endowment as you don't have to continue with it for a fixed term and you can increase your savings at any time. You can also add lump sums of money up to the ISA limit for that tax year. This type of mortgage usually has lower charges and so should provide a better return for your money.

Do remember that you will need a separate insurance policy in order to protect the mortgage.

Offset mortgages

The idea of an offset mortgage is that any money that you have in your current account or savings is used to offset your mortgage debt. So money that you would not normally pay in to your mortgage account can be deposited in to the offset account and you can still withdraw it at anytime. This means that you only pay interest on what you owe overall. This can save you money on interest payments, and help to pay off the mortgage quicker. You also avoid paying tax on any interest that you would have got on your savings, and this interest might have been at a lower rate than your mortgage interest anyway. And you can make overpayments without being penalised. The downside of these mortgages is that interest rates have not been as good as on other types of mortgage. And you need to be quite well organised with your money to avoid getting yourself into difficulties. There are 2 types of offset mortgage available. A current account mortgage (CAM) keeps all your finances in one account. So if you have £2,000, but you owe £80,000 on your mortgage, then you are basically £78,000 overdrawn. In other offset mortgages, your current account, savings and mortgage are kept in separate pots, but are linked to calculate your interest.

 

Mortgage Payment Protection Insurance (MPPI)

This is sometimes called Accident, Sickness and Unemployment Insurance (ASU). You pay monthly premiums and the policy pays your mortgage repayments for up to 12 months if you become seriously ill or lose your job. This can be important, because unless you took your mortgage out before October 1995 you cannot get help from the Benefits Agency until you have been claiming benefits for 9 months. Mortgage Payment Protection Insurance can help until you qualify for benefits. However, you will still need some money put by. There is usually a period of notice (between 60 and 90 days) before the policy takes over the repayments. So the first 2 or 3 payments will still be down to you.

If you have this insurance, you should put in your claim for help as soon as possible, including documents confirming your financial situation and medical condition. This policy can also pay off a mortgage if you die. If you already have cancer, you may be able to take out this insurance depending on the type of cancer you have and the stage you have reached in its treatment.

 

Guarantors

If you can't take out a mortgage yourself because of your illness, then it may be possible to have someone stand guarantor for you. This is someone who guarantees to pay your mortgage if you can't. The guarantor may also have to arrange any necessary insurance. A suitable guarantor must have enough income to cover your mortgage and their own, if they have one. Your financial adviser, potential lender or insurance company will be able to explain the possibilities to you.

 

If you have a mortgage

If you are diagnosed with cancer, you are not obliged to tell your mortgage lender. If the mortgage can be paid as usual then you don't need to do anything.

But your mortgage repayments may be affected by your illness. You may have to take time off work and your income may drop. You may then have trouble meeting your mortgage payments. If you are having financial difficulties or are behind with your repayments, then tell your mortgage lender as soon as possible. The code of practice produced by the Council of Mortgage Lenders says that lenders should be sympathetic towards borrowers' financial problems and should offer positive solutions. This will almost always be the case. After all, it is in the lender's interests to help you out. Repossession of a house or flat as security for a mortgage is usually the last resort. Your lender may be able to

  • Suspend your repayments for a short period
  • Reduce your payments to interest only for an agreed period
  • If you have a repayment mortgage, reduce your repayments and extend the term or duration of your mortgage

Many mortgages are issued with some form of insurance which will cover repayments for a certain period of time. If you are off work, you may wish to call on this insurance to help cope with or to maintain your mortgage repayments. You should contact your insurer as soon as possible. This can be very important as it is usually 2 or 3 months before the insurance pays out (this is called the 'period of notice').

If you are having financial difficulties, then you should also tell your mortgage lender. Your lender can offer advice if they are aware of your situation and can put in place temporary measures (such as suspending or reducing your repayments).

If you have an endowment mortgage, it is a good idea to get some advice about it from a financial adviser. Many people have had problems with endowment mortgages where they have not produced enough money at the end of the term to pay off the mortgage. A financial adviser or mortgage expert will help you to check how well your endowment has performed, and tell you if you need to take any further action.

 

Help with mortgage repayments

If you are having financial difficulties and have no insurance, tell your mortgage lender as soon as possible: they may be able to suspend repayments for a short period, reduce your payments to interest only for an agreed period, or for repayment mortgages, reduce your repayments and extend the term (duration) of the mortgage. If you have mortgage payment protection insurance, you should let your insurers know as soon as possible that your circumstances have changed and you may need to make a claim.

 

Further information and advice

Below there are sources of help in finding a financial adviser, getting a mortgage, getting insurance or help if you are having difficulty meeting payments.

To find independent financial advisers:

Unbiased.co.uk
2nd Floor
117 Farringdon Road
London
EC1R 3BX
Email: contact@unbiased.co.uk
Website:www.unbiased.co.uk

For advice and guidance on mortgages available by post or online:

The Money Advice Service
Holborn Centre
120 Holborn
London
EC1N 2TD
Helpline: 0300 500 5000 (Monday to Friday, 8am to 6pm)
Website: www.moneyadviceservice.org.uk

An organisation set up by the government to give clear, unbiased money advice.

For help in finding an insurance broker:

British Insurance Brokers Association
8th Floor
John Stow House
18 Bevis Marks,
London
EC3A 7JB
Phone: 0870 950 1790
Email: enquiries@biba.org.uk
Website: www.biba.org.uk
 

For information about insurance, including different types of cover:

Association of British Insurers
51 Gresham Street
London
EC2V 7HQ
Phone: 020 7600 3333
Email: info@abi.org.uk
Website: www.abi.org.uk/

For help and advice if you are having difficulty making mortgage repayments:

Citizens Advice – look in the Yellow Pages under Counselling and Advice for your local branch. Or you can search for one on their website. 
Website: www.citizensadvice.org.uk

Credit Action
6th Floor
Lynton House
7-12 Tavistock Square
London
WC1H 9LT
Phone: 0207 380 3390
Email: office@creditaction.org.uk
Website: www.creditaction.org.uk

This organisation aims to help people to avoid getting into debt. Their sister organisation, the Consumer Credit Counselling Service, is more appropriate if you are already having debt problems.

Step Change Debt Charity (formerly the Consumer Credit Counselling Service)
Wade House
Merrion Centre
Leeds
LS2 8NG
Phone: 0800 138 1111 (freephone) Open 8am to 8pm, Monday to Friday
Website: www.stepchange.org

National Debtline
Tricorn House
51-53 Hagley Road
Edgbaston
Birmingham
B16 8TP
Phone: 0808 808 4000 (freephone) Open 9am to 9pm, Monday to Friday and 9.30 to 1pm on Saturdays
Website: www.nationaldebtline.co.uk

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Updated: 8 August 2013