Steps to make Complain for Endowment Mortgage

Here is graphical representation of the steps one must take to make a complain for Endowment mortgage
You may click on the image to see a clear and enlarged picture

Link to previous article How do I make a complaint about endowment policy?

How do I make a complaint about endowment policy?

Step 1 – First, complain to the firm that sold you the endowment policy.

This may be a financial adviser, the endowment company or your mortgage lender. Check with the endowment company if you are not sure who you should complain to as they would have the details.

Firms must have a proper complaints procedure and tell you how to use it.

Try to find all the paperwork and any notes you made at the time. You are entitled to copies of the sales paperwork from the firm that sold you the endowment policy.

It is usually best to make your complaint in writing. You can phone to make a complaint, but if you do, make sure you keep detailed notes. Record the name of the person you spoke to and the date and time you called. Keep these notes in a safe place as they are a record of your complaint.

When you make a complaint, the firm may send you a questionnaire (commonly known as an endowment mortgage questionnaire) to complete and return to them. Fill this in to the best of your ability – it will speed up the process.

Step 2 – Then, if you are unhappy with the firm’s decision, you can usually take your complaint to the Financial Ombudsman Service

(the Ombudsman) – see Useful contacts.

You must do this within six months of the firm sending you a ‘final response’ letter. The Ombudsman provides a free, effective, straightforward process for resolving disputes.

If you are thinking of taking a complaint there, you can call its Contact Centre for help. You can choose whether or not to accept the Ombudsman’s decision. If you accept, it is binding on both you and the firm. If you don’t accept, you can take your case to court. There will be a charge for doing this, and depending on what your claim is for, time limits may apply.

See the FSA guide to making a complaint about financial services for more detailed information about the complaints process (including ‘tips for effective complaints’ and ‘taking a complaint to court’).

In some cases the complaints process may be slightly different:

_ If you took out your endowment policy on advice from a solicitor before 1 December 2001, see page 5.

_ If you were advised before 29 April 1988 to take out your endowment policy

Link to Previous article : Complaint about a mortgage endowment policy - 2

Complaint about a mortgage endowment policy - 2

I’ve surrendered my policy – can I still complain?

Yes, you may have a valid complaint and be due some redress – as long as you can show that you were not properly advised at the time of the sale and you lost out financially as a result.

Should I complain if:

_ My endowment policy finishes after I retire?
You may have a valid complaint if the adviser did not check that you were likely to be able to afford to carry on paying the premiums after you retired.

_ I was advised to cancel one endowment policy and take out another?
You may have a valid complaint. An endowment policy is a long-term investment that often gives a poor return if you cash it in early. You should usually avoid cashing in one policy and taking out another for the same purpose.

_ My endowment policy runs on after my mortgage loan is due to finish?
You may have a valid complaint. An endowment policy sold to repay a mortgage loan will not normally be suitable if it finishes after the date when the loan has to be repaid.

_ I was given a guarantee that the endowment policy would pay off my mortgage loan?
You are likely to have a valid complaint if you can show that you were told that the endowment policy was guaranteed to pay out enough to pay off your mortgage loan and that this was part of the legal contract between you and the firm. This is likely to be rare.

Will I be charged for making my complaint?

You will not be charged if you complain to the firm that sold you the policy.
If you need to refer your complaint to the Ombudsman, this service is also free.

Complaints management companies

Some companies offer to help consumers pursue their complaints with financial services firms and with the Ombudsman. In return, the consumer has to pay the company a fee, usually in the form of a fixed share of any compensation that is awarded for a successful complaint.

Some companies ask for a fee upfront, and you may still have to pay a fee if you decide not to use them. So make sure you understand what you may have to pay and when you would have to pay it.

A number of these companies are currently focusing on mortgage endowment complaints, where the ‘success fee’ you would have to give them can amount to hundreds or even thousands of pounds. This is money that you obviously won’t then be able to put towards paying off your mortgage. And using these companies does not necessarily increase the chances of your complaint succeeding or of your getting compensation.

Your own circumstances may mean that you would find it helpful to use one of these companies to handle the complaint for you.

But think carefully about the likely costs and benefits of this and do check the fees and conditions before you sign any contract.
From April 2007 complaints management companies operating in England and Wales must be authorised by the Department for Constitutional Affairs – see Useful Contacts .

What if I can’t trace the firm that sold me the endowment policy, or the firm has ceased trading?

If you bought your endowment policy through an independent financial adviser, your endowment company should have the details of who sold it to you. If you’re not sure the firm still exists, contact the FSA Consumer Helpline or use the Check our Register service – see Useful contacts .

If you cannot trace the firm because it has ceased trading, you can contact the Financial
Services Compensation Scheme (FSCS) – see
Useful contacts.

The FSCS is a ‘fund of last resort’ for consumers who have a claim against a firm that has been authorised by the FSA but is unable (or likely to be unable) to pay claims against it, often because it has ceased trading. But the FSCS is unlikely to be able to help you if the advice was given before 28 August 1988.

Link to Previous article : Complaint about a mortgage endowment policy - I

Complaint about a mortgage endowment policy

This set of articles from FSA is for you if:
_ you have a complaint about the way your endowment mortgage was sold to you.
It sets out:
_ what you can complain about and how to do it;
_ the time limits within which to make your complaint; and
_ how compensation is worked out.

This article from FSA explains what may give you grounds for complaint and tells you how to make a complaint about a mortgage endowment policy. But time may be running out, so if you want to complain, do it now. Otherwise you may be too late, or the amount of compensation you can claim may be limited.

If your endowment policy is not expected to pay out its target amount, you may be left owing money on your mortgage (known as a shortfall).


Making a complaint

Before you can get compensation you need to show that you have grounds for a complaint (see below) and that you have lost out financially as a result.

If you haven’t lost out, but are still unhappy with the risks of an endowment policy, you may be able to switch to a repayment mortgage. If the firm that sold you the policy has upheld your complaint it should help you switch and ensure that you don’t lose out if you have to pay any charges, such as transfer charges.

An endowment policy includes life insurance cover so that the mortgage loan will be paid off if you die early. If you stop the endowment when you move to a repayment mortgage and you need life cover, you should make other arrangements through a mortgage protection plan or a separate life insurance policy.

Do I have grounds for a complaint?

You may have grounds for complaint if your adviser did not:

_ tell you how your money would be invested and explain the risks involved; or

_ explain that an endowment policy is a longterm commitment that often gives a poor return if you cash it in early; or

_ check you were comfortable with the risks of your money being linked to investment performance, including the stockmarket; or

_ check there was a reasonable expectation you would be able to keep up payments until the end of the term; or

_ explain any fees and charges and how they would affect the return on your savings. If you bought your endowment policy between 29 April 1988 and 31 December 1994, you should have been given ‘product particulars’ including charges and surrender values for the first five years. If you bought your policy on or after 1 January 1995, you should have been given a Key Features document with details of fees and charges and their effect on your savings over the longer term.

Remember:

_ if you want to make a complaint, do it now – time may be running out; and
_ take your complaint to the Financial Ombudsman Service (FOS) if you’re not happy with the firm’s response – but do it quickly because time limits apply.

Link to Previous article : Important Tips about Home Purchase Plans (Ijara n Musharaka)

Important Tips about Home Purchase Plans (Ijara n Musharaka)

Firms regulated by the FSA have to give you certain documents. Whenever you see the sign, this means you are being given information that’s important for you.

Keyfacts documents that firms must give you

You should get the following documents:

■about our home purchase plan services –
explains the service and the range of products firms offer, and, if appropriate, the names of the Islamic scholars they have consulted.

■risks and features of this home purchase plan
– will explain the key risks, features and benefits of the plan.

■financial information statement –
will give you the costs involved in the plan – ie the overall cost and how much you will pay each month.

■Offer letter
including an updated financial information statement – you’ll get this when the firm offers you a home purchase plan. Use this to make sure you’re getting the product you applied for.

Complaints

If things go wrong with a firm, you should take your complaint to the firm first. If you can’t resolve the problem between you and the firm, you may have access to the Financial Ombudsman
Service – see Useful contacts . The Ombudsman deals with complaints that cannot be resolved between you and the firm.

Compensation

If you are dealing with a broker who advises you or arranges the sale of the plan for you, and the broker stops trading, you may have access to the Financial Services Compensation Scheme.
The scheme provides a safety net for consumers.

Don’t forget
■A home purchase plan may be suitable for you if you want to buy your home in a way that doesn’t involve paying interest.

■You will bear the costs of two solicitors’ fees and you may pay more for a property valuation and building insurance.

■You won’t legally own your home until the end of the plan – this could be between 7 and 25 years.

■Home purchase plans are complex products, so make sure you get independent legal advice.

■If you want Islamic services, the about our home purchase plan services document will tell you which firms can offer them.

■Make sure you deal with a firm FSA regulates.

■Make sure a home purchase plan is right for you – there are other ways of buying your home.

Link to Previous article : Islamic Mortgages

Islamic Mortgage

How Islamic Mortgage Works? An example of how Islamic Mortgage Works

Suppose that there is a married Muslim couple with the surname Taj, who are looking for a house according to their Islamic faith.
Mortgages from British financial institutions are interest-based, something which does not comply with Islamic Sharia law. Islam has no objection to wealth creation, but says it must be based on partnerships and fairness where risks and rewards are shared.

In the eyes of Islamic scholars, interest is an excess payment from one party to another which is unrelated to the value of the goods traded.

Mortgage interest is therefore unacceptable because one party gains at the other's expense without any regard to the price paid for the home.
This means many Muslims in Britain find themselves in a difficult situation, trying to balance the core principles of Islamic equality with the realities of the British mortgage market.

In many cases Muslims conclude they have no choice but to reluctantly take out an interest mortgage - something Mr Taj's own parents did.

But Mr and Mrs Taj are among a growing number of young couples who want to turn to the two lenders in the UK offering Sharia compliant mortgages - the United Bank of Kuwait and the West Bromwich Building Society.
Once the Tajs find a house, the lender buys on their behalf and owns it outright.
Just as with an interest mortgage, the couple move in and begin paying instalments to the lender to slowly buy the home over many years.
But the difference is they also pay a rent to the lender who has effectively become their landlord.
The lender owns the property and receives a rent until the Tajs pay the final instalment.
In Islamic terms, the rent is not another name for interest: It is seen as a fair payment for use of the property rather than a charge for borrowing money.
There are a number of factors which make this more expensive than an interest mortgage. Firstly, the couple need a large deposit of 20% of the value of the home.
Secondly, because the process means the home legally changes hands twice, the Tajs will end up paying stamp duty twice, rather than once.
The couple have an added worry of trying to save enough to keep up with the rising London property market.
Hence, the borrower ends up paying more, but the Muslims who believe in their faith are prepared to pay more
So is there a demand for this type of mortgage?
"There's enormous interest in this subject among young Muslims. A lot of our friends are in the same situation," says Mr Taj.
"Some have managed to raise the money to take out an Islamic mortgage.
"A few of them have taken out interest mortgages because they feel it is the only choice they have, given the costs.
"I think they feel guilty about it but believed they had no alternative.
"It would make a real difference if there were more products on the market. Then there would be more choice for Muslims."

Link to Previous article : Home purchase plans and regulation - 2
This example is based upon a cast from BBC

Home purchase plans and regulation – 2

A home purchase plan may be right for you if you want to buy your home in a way that does not involve paying interest and that a number of scholars of Islamic law consider acceptable. But you need to think about several things, some of which are listed below.

Islamic services

If it is important to you that the firm you use offers Islamic services, check that it does. Firms we regulate must give you a document called about our home purchase plan services. The document must tell you the names of the scholars who have checked that the firm’s services comply with Islamic law.
FSA regulates the financial services provided by a firm – FSA do not regulate its compliance with Islamic law. If you have any doubts about the Islamic nature of the product or services a firm is offering, you should speak to your imam or an independent Islamic scholar.

How much finance do I need?

Home purchase plans are a long-term commitment so think about how much you can afford. For example, what would happen if your circumstances changed and you lost your job or had to take a drop in income? Also you can't be sure that your rent won't go up in future. If you can't pay your rent, you'll be breaking the terms of the lease.

Shop around

There can be a big difference in what is available from different firms, so shop around to:
 -- get all the information available from firms about their individual services and products; and
 find out about different rental rates on offer – for example, standard, fixed and discount rates – and the total cost of each one.

Use the keyfacts document called about our home purchase plan services to compare the service being offered by different firms and the keyfacts financial information statement to compare the cost of the products on offer

Getting advice

Home purchase plans are complex products. Make sure you get advice from a specialist adviser to help you understand them.
Firms we regulate and their agents must follow the standards we set when giving you advice. They should only recommend those home purchase plans that are suitable for your personal circumstances, based on the information you give them.

What are the risks

■We require firms offering these products to protect your interests. However, there will be limits to what the firm can do, so it’s important to get independent legal advice to make sure your interests are properly protected. Take the time you need to make sure a home purchase plan is right for you.

■You need to remember that the firm, not you, owns the property, and that you won’t legally own your home until the end of the agreement – this can be anything up to
25 years.

■During this time, if the firm goes bust, or sells its part of the property to someone else, unless your interests have been properly protected you may risk losing your share of the property and your right to live there.

■Make sure that the lease giving you the right to live in the property has been properly registered with HM Land Registry or you may lose your right to live there.

■As with any method of buying a home, you need to think about whether or not you will be able to continue to make payments if your circumstances change.

Additional Costs

Two solicitors will be needed – one to act on behalf of the firm and one to act on your behalf. You will have to bear the costs of both.

Because the firm is the owner of the property, you may also pay more for a valuation and buildings insurance than you would with a mortgage.

Features not included

Because of the way they work, home purchase plans may lack some of the features of an interest-based mortgage.

For example:
■Overpayments normally allow you to pay for your home more quickly. When you take out a home purchase plan you can only make overpayments when the rent is reviewed, and this does not reduce the term but the amount you pay each month. This means you usually won’t benefit immediately from overpaying each month as you could with a mortgage.

■A further advance of money is often used to pay for things like home improvements. Unlike a mortgage, you may not get a further advance on an existing home purchase plan.

■Payment holidays allow you to stop making payments for a time. This may be useful if you were to lose your job or take time off to look after a child, for example. You can’t usually take a payment holiday with a home purchase plan.

Check the information from firms to see what features they offer.

Link to Previous article : Home purchase plans and regulation - 1

Home purchase plans and regulation

What are home purchase plans?

Home purchase plans help you buy your home in a way that doesn’t involve paying interest.
So they may be of special interest to Muslims who want to buy a home in a way a number of scholars of Islamic law consider acceptable.

What does regulation mean for you?

Firms we regulate must meet set standards. Among other things, this means that firms must:

■have staff with the necessary skills and knowledge;

■give you clear information about the services they provide –and

■only sell you products that suit your needs and circumstances.

And if things go wrong with a firm FSA regulate, you may have access to schemes that deal with complaints and possibly compensation.

Always check that the firm you’re dealing with is regulated by FSA.

■You won’t pay interest with a home purchase plan.

■Keyfacts documents contain important information that you should read.

■Protect yourself – only deal with firms regulated by the FSA.

Home purchase plans work in the following way:

Step 1: You find the property you want to buy and agree the purchase price with the seller.

Step 2: You pay the home purchase plan firm a contribution towards the purchase price.

Step 3: The firm buys the property in its name.

Step 4: You enter an agreement to buy the property from the firm at the end of a fixed period (known as ‘the term’) at the same price as the purchase price paid by the firm.

Step 5: At the same time you enter the agreement with the firm to buy the property, you also take out a lease with the firm allowing you to live in the property during that fixed period.

Step 6:
You make monthly payments to the firm. Each payment is made up of a rental payment and a payment towards the purchase price of the property.

Step 7:
Once you have made all the payments to the firm, the property is transferred into your name and
becomes legally yours.

Two types of home purchase plan are currently available – the ijara and the diminishing musharaka.

1. The ijara

Under the ijara, the monthly payments you make towards buying the property are held by the firm and used to buy your home at the end of the agreement.



2. The diminishing musharaka

Under the diminishing musharaka, each payment you make towards buying the property buys a slice of the firm’s share. So the firm’s share in the property gets smaller while your share increases. As your share in the property increases, so the rent you pay for the use of the firm’s share will get smaller.


Ask the firm for full details of their home purchase plans to make sure you understand how they work. You can then choose which is best for you.

Link to Previous article : Open Market Home Buy Scheme - 5

Open Market Home Buy Scheme - 5

Don’t forget

■ With Open Market HomeBuy, you get an equity loan from a mortgage lender and a HomeBuy Agent, as well as a standard mortgage loan.

■ You pay interest on the standard mortgage loan, and after five years on the lender’s equity loan too. You won’t ever pay interest on the HomeBuy Agent’s equity loan.

■ The amount you owe on the equity loans will increase if the value of your home increases. Over time, this could mean you owe much more than you originally borrowed. Think about how you would repay this.

■ Any money from the value of your home that you have to pay the mortgage lender and the HomeBuy Agent will mean you have less to put towards buying a new house if you want to move home.

■ Make sure you understand what you will owe if your home falls in value.

■ All the loans must be repaid before you get any money from the sale of your home.

■ If your home is worth less than the amount you owe, you usually won’t have to repay the HomeBuy Agent in full.

■ Whenever you repay one of the equity loans, you’ll have to pay for a valuation of your home.

Is this type of mortgage right for you?

■ There are many types of mortgage available and different ways to get onto the property ladder. Open Market HomeBuy gives you an extra option, but it’s important to consider all the choices available to you before you decide what’s right for you. Perhaps you could get a conventional mortgage by choosing a cheaper property, buying with a friend or building up a deposit. There are also other government housing schemes that your HomeBuy Agent can tell you about.

■ If you do decide to use the Open Market HomeBuy scheme, you’ll also have to decide which mortgage lender to borrow from. The about this mortgage document will help you compare different mortgages and choose the one that is best for you.

■ If you are unsure about all the different options available, consider getting some independent
financial advice. Your HomeBuy Agent may be able to give you details of a specialist adviser.

What is right for you will depend on your needs and circumstances. Before making a decision about an Open Market HomeBuy mortgage, you should make sure you have considered all the options open to you.

Useful FSA publications

0845 numbers will be charged at the local rate based on current charges from BT landlines.
Charges for calls from mobile phones and other networks may vary.
Available from FSA website:
www.fsa.gov.uk/consumer or on our Leafletline on: 0845 456 1555

■ Choosing a mortgage – taking the right steps

■ You can afford your mortgage now but what if...?

Work out what you can afford using our online mortgage calculator:

FSA mortgage calculator:
www.fsa.gov.uk/consumer

Other information

More information about the Open Market HomeBuy scheme, including eligibility and the application process can be found in the Housing Corporation leaflet, Have you heard about Open
Market HomeBuy? This is available from the Housing Corporation’s website at www.housingcorp.gov.uk

Link to Previous article : Open Market Home Buy Scheme - 4

Open Market Home Buy Scheme - 4

Repaying the equity loans

Because the amount you owe on the equity loans is based on the value of your home, when you repay them your property will have to be valued. You will have to pay for this valuation.

Repaying the mortgage lender

The mortgage lender’s equity loan will run for the same length of time as your standard mortgage loan – often known as ‘the term’. You will agree this with the mortgage lender when you take out the loans. At the end of this time, you must pay whatever you owe on the equity loan. The mortgage lender will often allow you to repay your loans earlier, but they may charge you a fee for this, known as an ‘early repayment charge’.

You may also have to repay the mortgage lender’s equity loan if you move home – check whether your lender will allow you to transfer the loan to a new property. The amount you owe on the equity loan will have gone up if the value of your home has increased.

Think about how you will repay this money.

Repaying the HomeBuy Agent

The HomeBuy Agent’s equity loan won’t have a fixed date for repayment. You repay the loan when you sell your home, or if you are no longer eligible for the scheme – for example, if you leave your qualifying employment. Your HomeBuy Agent will tell you more about how this could happen.

You can repay the HomeBuy Agent’s loan earlier if you wish, but remember that whenever you repay the loan, if the value of your home has increased you will need to give the HomeBuy Agent their share of the increase. You have to pay back the full amount of the loan and any increase in one go – you can’t pay it in stages.

Can I move to a new home without having to repay the loans?

When you sell your home, you will always have to repay the HomeBuy Agent’s loan, including the HomeBuy Agent’s share of any increase in the value of your current property. But you may be able to apply for another Open Market HomeBuy loan to buy a new home. Your HomeBuy Agent will be able to tell you if you are still eligible for the scheme.

And remember you may also have to repay the mortgage lender’s loans if you move home. This may mean paying early repayment charges. The about this mortgage document will give you this information. Bear in mind that you may have to repay the loans earlier than you planned – you may need to sell your home to move with your job for example.

Could I lose money with this scheme?

In some cases when house prices fall, you could owe more than the house is worth. This is known as ‘negative equity’. It would make it difficult for you to move. This is a risk with any mortgage.
Open Market HomeBuy gives you some protection against negative equity. If the money from the sale of the house won’t pay off all the loans, then you don’t have to pay the HomeBuy Agent their full share – just what is left over after everything you owe to the mortgage lender has been paid. But in these circumstances you won’t get any money from the sale – whatever money there is must go towards paying as much of the HomeBuy Agent’s loan as possible. All the loans secured against your home need to be paid off before you get any of the money from the sale – you are last in line. So any money you put down as a deposit could be at risk.

What if I want to switch to a different mortgage deal?

If you want to switch the standard mortgage loan to a different deal, you will have to pay back what you owe on the mortgage lender’s equity loan as well. That means paying back the standard mortgage loan, the original equity loan and the mortgage lender’s share of any increase in the value of your home. You will need to think about whether you can afford to do this. You may also need to pay an early repayment charge.

Link to Previous article : Open Market Home Buy Scheme - III

Open Market Home Buy Scheme - III

What would happen to the equity loans if the value of my home falls?

Different mortgage lenders deal with a fall in value differently, so it’s important to understand how any loan you apply for works.
With some mortgage lenders, the amount you owe will fall if the value of your home falls. Mortgage lenders who take this approach will share any fall in value, in the same way that they share any increase.

Example 2 – The mortgage lender shares any fall in value

Remember, Adam bought a house for £150,000 using an equity loan of £18,750 from his mortgage lender (12.5% of the property’s value).

Suppose the value of the house falls by 5% when he decides to sell his home. It is now worth £142,500. What does he owe the mortgage lender? Because his mortgage lender is sharing any fall, what Adam owes is based on the new value of the property. He originally borrowed 12.5% of the property’s value so he now owes 12.5% of £142,500, which is £17,812.50.

That’s £937.50 less than he originally borrowed.



Other mortgage lenders won’t share a fall in value, although they will take a share of any increase, so the amount you owe them on the equity loan will never fall below the amount you originally borrowed.

Example 3 – The mortgage lender doesn’t share any fall in value

If Adam’s equity loan from his lender worked like this, then if prices fall he will still owe the lender the amount he originally borrowed – in this case £18,750.

Link to Previous article : Open Market Home Buy Scheme - II

Open Market Home Buy Scheme – II

This is part II of the article: Open Market Home Buy Scheme - I. Please read the article from part I, before proceeding with this part.

The FSA document covers a very good example as below:

Example 1 – The value of your home increases

Adam buys a house for £150,000. He has a deposit of £3,750. In addition to a standard mortgage loan of £112,500, he takes out a £18,750 equity loan from the mortgage lender and another equity loan for £15,000 from the HomeBuy Agent.

■ The mortgage lender’s equity loan is 12.5% of the property’s value (£18,750 is 12.5% of £150,000).

■ The HomeBuy Agent’s equity loan is 10% of the property’s value (£15,000 is 10% of £150,000).

When Adam decides to sell his home, the value of his house has increased by 20% to £180,000. This is an increase of £30,000. So what would he owe on the mortgage lender’s equity loan and what would he owe on the HomeBuy Agent’s equity loan?


The mortgage lender’s equity loan

Adam originally borrowed 12.5% of the property’s value from his mortgage lender. So, in addition to the £18,750 he originally borrowed, he will also owe 12.5% of the £30,000 increase, which is £3,750.

So, on the mortgage lender’s equity loan, Adam now owes £18,750 plus £3,750, giving a total of £22,500.

The HomeBuy Agent’s equity loan

Adam originally borrowed 10% of the property’s value from the HomeBuy Agent. So, in addition to the £15,000 he originally borrowed, he will also owe 10% of the £30,000 increase, which is £3,000. So Adam now owes the HomeBuy Agent £15,000 plus £3,000, making a total of £18,000.

What happens to the equity loans if the value of my home increases?

The amount you finally repay to the mortgage lender and HomeBuy Agent on the equity loans will depend on the value of your home at the time you repay the loans. The share of any increase in value that you owe will be based on the percentage of your home’s value you originally borrowed.



Adam will also have to pay back the amount he borrowed on the standard mortgage loan from his mortgage lender, but this isn’t affected by changes in the value of his home.

Remember:
If you borrow under the scheme, part of any increase in the value of your home will belong to the mortgage lender and the HomeBuy Agent. This means that the amount you owe them both will increase if the value of your home increases. The more the value of your home goes up, the more money you’ll owe on your equity loans. This could mean a big increase in the amount you owe. You need to keep this in mind – think about what you owe and how you will repay it.

Link to Previous article: Open Market Home Buy Scheme - I

Open Market Home Buy Scheme

The Open Market HomeBuy scheme is led by the government in partnership with a small group of mortgage lenders. It helps key workers, social tenants, priority groups on a housing register and priority first-time buyers to borrow money to buy a home.

■ The Open Market HomeBuy scheme is just one way for you to raise money to buy a home. You need to decide whether it is right for you.

■ The mortgage lenders offer different Open Market HomeBuy mortgages with different terms and conditions. Make sure you shop around and choose the right deal for you.

■ If you are unsure about the scheme or want to know more about the other types of home loan available, consider getting independent financial advice. Your HomeBuy Agent may be able to give you details of a specialist adviser.

How does the Open Market Home Buy scheme work?

The scheme involves borrowing money from a mortgage lender and a HomeBuy Agent. HomeBuy Agents manage the money that the government puts into the scheme.

If you borrow under the scheme, you will take out three different loans. Each works in a different way, so it’s important that you understand the features of each one. These are:

■ A standard mortgage loan from a mortgage lender.

The mortgage lender will charge interest
and you’ll make monthly payments. This loan
will usually be the largest of the three.

■ An ‘equity loan’ from the same mortgage lender.

This works in a very different way from the lender’s standard mortgage loan. When you pay off this loan the mortgage lender takes a share of any increase in the value of your home. The share it takes is based on the percentage of the property’s value you originally borrow through the equity loan. The example on page 3 shows how this works. The lender won’t charge you interest for the first five years. After this time you will pay interest. The rate you pay will depend on the lender you choose.

■ Another ‘equity loan’ from the HomeBuy Agent.

As with the mortgage lender’s equity loan, the HomeBuy Agent will take a share of any increase in the value of your home when you sell the property or repay the loan. However, the HomeBuy Agent won’t ever charge you interest and there are no monthly payments.

FSA regulates the mortgage lenders involved in the Open Market HomeBuy scheme, which means they have to meet our standards. The mortgage lender has to give you details about the loans in a document called about this mortgage. This will tell you:

■ what you are borrowing;

■ what you’ll be charged; and

■ what your repayments will be.

Use this document to help you compare products from different mortgage lenders to see which is most suitable for your needs. We don’t regulate HomeBuy Agents, so the document won’t include information about their equity loan. Ask your HomeBuy Agent for more information.

Remember:

If you can’t pay back the money you owe, there is a risk you could lose your home, because all three loans are secured against your property. And when you sell your home, the loans must be paid off before you get any of the money from the sale.

Link to Previous article: Mortgage Shortfall: can’t avoid mortgage shortfall?

Mortgage Shortfall: can’t avoid mortgage shortfall?

Firstly, when your investment pays out at the end of the mortgage term, you should pay all the money into your mortgage to find out exactly how much you still owe the lender. You then need to look at how best to pay off the shortfall.

Talk to your lender as soon as possible. You may have a number of options available to you, some of which we list below.

■ Pay the shortfall from savings you have elsewhere.

■ Discuss a new repayment period with your lender to pay the shortfall. The quickest way may be to carry on with your previous monthly payment, although you may be able to agree a lower payment over a longer term. You should avoid extending the term beyond your retirement, unless you’re sure you can afford it.

In general, provided you keep up the new agreed monthly mortgage payments, you should not lose your home as a result of the shortfall.

■ You could sell your property to repay the mortgage, and buy a cheaper property so that you don’t need a mortgage.

■ If you have retired, or are about to retire, you could consider a lifetime mortgage. This is repaid from the proceeds of the sale of your home when you die or if you move out of it (perhaps into a care home) when the scheme will usually end.

But you should think very carefully about this as there are risks as well as benefits. The FSA factsheet Raising money from your home will tell you more about these and other options, but you should think about taking professional advice on this option.


FSA documents list a very good Example as below

Joe has come to the end of his mortgage term and the endowment company has paid him £35,000, but this is not enough to pay off his mortgage and he is left owing the mortgage lender £8,000. The interest rate on his mortgage is 4.4%. Joe could carry on with the monthly payment he has been making, which is £157.67. This would repay the remaining capital and interest in 4 years and 9 months, costing £8,987 in total, but the monthly amount is more than Joe wants to pay. Joe will retire in seven years. So he has agreed with his lender that he will repay the £8,000 over seven years and his monthly payment will be £110.66, which will cost him £9,295 in total.

Useful contacts

Call rates may vary

FSA Consumer Helpline

Tel: 0845 606 1234
Minicom/Textphone: 08457 300 104
Leafletline: 0845 456 1555
Website: www.fsa.gov.uk/consumer

To find a financial adviser
IFA Promotion

Tel: 0800 085 3250
Website: www.unbiased.co.uk
(for a list of four independent financial advisers local to your area)

Link to Previous article: Repaying your mortgage: Alternative available

Repaying your mortgage: Alternative available

Make changes to your existing investment or savings plan

If you want to make changes to your investment or savings plan, you should talk to your product provider or a financial adviser. They should be able to tell you if the changes below are possible on your particular investment.

Extend the term.


􀀗 You could check whether it is possible to rearrange the investment or savings plan over a longer term, and if you are able to do so, ask your lender to extend the mortgage term to match.

􀀗 Gives you more time to pay off the loan by making more payments into your policy if you can’t afford to increase your payments.

􀀗 You may face extra charges, and a tax liability, if you vary an endowment policy. So it may be
a good idea to take advice first.

􀀛 The growth of your investment or savings plan is still linked to the stockmarket, so there’s still
no guarantee it will reach its target amount.

􀀛 Not a good idea if it means taking your mortgage into retirement, unless you are sure you’ll be able to afford it.

􀀛 The longer the term of the loan, the more interest you’ll end up paying in total.


Top up your investment or savings plan by paying in more each month.

􀀗 You should ask your product provider if it is possible to do this and, if so, whether there are any charges. If there were high charges, it may make this option poor value for money.

􀀗 You may also face tax liabilities, so you may want to take advice.

􀀛 Your investment or savings plan is still linked to the stockmarket.

􀀛 You could be worse off than if you used the same monthly payments to reduce your mortgage.

􀀛 Under a personal pension only part of any increased savings can be taken in cash. And nothing can be taken before age 50 (rising to 55 by 2010).

Link to Previous article: Mortgage Endowment Policies

Mortgage endowment policies

If you think you have grounds for complaint about the sale of your endowment policy, but have not yet made a complaint, do it now – time may be running out. But remember – having a potential shortfall doesn’t necessarily mean you were missold your endowment policy.

If you get compensation from making a complaint about the sale of your endowment policy, you should consider using it to reduce the amount you owe on your mortgage.

What can I do now to make up a shortfall?

There are various ways to make up the gap. Some offer more certainty than others. The options available to you are to make changes to your mortgage, start an additional investment or savings plan, or to make changes to your existing investment or savings plan. These are explained below.

You may find that one of the options already matches your existing repayment arrangements. If so, consider the pros and cons of continuing or switching to an option that is better for you. Always take advice if you are not sure which option is right for you.


The figures in the examples that follow are for illustration only.

Example
Helen is 48 and has an interest-only mortgage of £50,000 linked to an investment. The mortgage has seven years left to run and the interest rate is 4.8%.
She asked her product provider to give her an up-to-date projection and this told her there is likely to be a shortfall of about £10,000.

Helen wanted to change £10,000 of her mortgage to a repayment method, but her payments would have increased from £200 a month to £302.97 a month and she didn’t think she could afford the increase. Helen talked to her lender, who told her that she could extend her mortgage term by five years as it will still be repaid by the time she retires, though extending the term does mean that she will pay more in total.

Her monthly payments will now be £252.96. When the investment pays out in seven years and she pays off most of the mortgage, her payments will reduce.


1. Make changes to your mortgage

Ask your lender to switch part of your mortgage – the amount of your projected shortfall – to a repayment method.

􀀗 Your current projected shortfall should be paid off by the end of the mortgage term.

􀀗 Should be fairly simple to arrange at low cost.

􀀗 Could be a flexible option – if the projected shortfall grows, you can switch more of your loan to a repayment method.

Ask your lender to convert your whole mortgage to a repayment method so that you repay all the capital by the end of the term.

􀀗 Your mortgage will be paid off at the end of the term if you keep up the payments.

􀀗 The longer your mortgage has to run, the smaller the increase in your monthly repayments will be.
􀀗 If you can afford it, you could continue with your investment or savings plan just for saving.
And some investment products include useful insurance cover such as life cover, or another
type of cover such as critical illness insurance.
􀀛If you were to cash in your investment you could lose out financially, and you may need to arrange other insurance cover.

So consider getting advice first if you are at all unsure.

If you want to convert your whole mortgage to a repayment method but are worried that you might not be able to afford higher payments talk to your lender. The increase in payments may not be as much as you think and your lender may be able to come up with a plan that can help you.

For example, a repayment mortgage of £50,000 and an interest rate of 4.75% with 15 years to run will cost you £388.41 a month. But in some cases you may be able to extend the term of your mortgage – a mortgage of £50,000 with 20 years to run and an interest rate of 4.75% would be £322.74 a month. This would limit the increase in the monthly payments, though it does mean that you would pay back more in total over the mortgage term. Think very carefully about extending the term if it would end after your retirement age.

Repay part of your mortgage early by paying off a lump sum, or by overpaying each month.

􀀗 This will reduce the amount you owe, and the amount you need your investment or savings plan to cover.
􀀗 It may be better value than saving up separately to pay off the shortfall in future.
􀀗 You should check whether your lender will make an early repayment charge if you overpay.
􀀗 You should also check when your lender will give you the benefit from extra payments – some do so only once a year.

Making changes to your mortgage is probably the lowest-risk option to make up a shortfall. Ask your lender if there will be any charges for making changes to your mortgage, and how much these will be.

2. Start an additional investment or savings plan

Use a cash savings account.

􀀗 The amount you get back does not depend on the performance of the stockmarket.

􀀗 May be a good option for the short term – for example, if you have to delay paying off a lump sum from your mortgage because of early repayment charges, or your mortgage is near the end of its term.

􀀗 Taxpayers can avoid paying tax on their interest by saving in a cash ISA. (But remember there are limits on how much you can pay into an ISA each year.)

In the long term, other options (such as overpaying on your mortgage payments) are likely to prove better value for money.

Use a stocks and shares ISA.

􀀗 Potentially a good way of saving over the longer term. Historically, stocks and shares have grown more than cash savings accounts which have interest added. (But remember there are limits on how much you can pay into an ISA each year).

􀀗 Currently a tax-efficient way of saving. However, not sure of the government policies in the future

􀀛This type of product is linked to the stock market, and the value of your investment could fall as well as rise. So there’s no guarantee that your investment will grow enough to make up a projected shortfall.

􀀛Stocks and shares ISAs are meant for investing in the long term, and generally may not be suitable if you only have a short time to build up a lump sum.

If you decide to start an investment or savings plan to make up a shortfall, it would be a good idea to take financial advice.

Link to Previous article: Pay your mortgage with investment/saving plan

Mortgage endowment policies

If you think you have grounds for complaint about the sale of your endowment policy, but have not yet made a complaint, do it now – time may be running out. But remember – having a potential shortfall doesn’t necessarily mean you were missold your endowment policy.

If you get compensation from making a complaint about the sale of your endowment policy, you should consider using it to reduce the amount you owe on your mortgage.

What can I do now to make up a shortfall?

There are various ways to make up the gap. Some offer more certainty than others. The options available to you are to make changes to your mortgage, start an additional investment or savings plan, or to make changes to your existing investment or savings plan. These are explained below.

You may find that one of the options already matches your existing repayment arrangements. If so, consider the pros and cons of continuing or switching to an option that is better for you. Always take advice if you are not sure which option is right for you.


The figures in the examples that follow are for illustration only.

Example
Helen is 48 and has an interest-only mortgage of £50,000 linked to an investment. The mortgage has seven years left to run and the interest rate is 4.8%.
She asked her product provider to give her an up-to-date projection and this told her there is likely to be a shortfall of about £10,000.

Helen wanted to change £10,000 of her mortgage to a repayment method, but her payments would have increased from £200 a month to £302.97 a month and she didn’t think she could afford the increase. Helen talked to her lender, who told her that she could extend her mortgage term by five years as it will still be repaid by the time she retires, though extending the term does mean that she will pay more in total.

Her monthly payments will now be £252.96. When the investment pays out in seven years and she pays off most of the mortgage, her payments will reduce.


1. Make changes to your mortgage

Ask your lender to switch part of your mortgage – the amount of your projected shortfall – to a repayment method.

􀀗 Your current projected shortfall should be paid off by the end of the mortgage term.

􀀗 Should be fairly simple to arrange at low cost.

􀀗 Could be a flexible option – if the projected shortfall grows, you can switch more of your loan to a repayment method.

Ask your lender to convert your whole mortgage to a repayment method so that you repay all the capital by the end of the term.

􀀗 Your mortgage will be paid off at the end of the term if you keep up the payments.

􀀗 The longer your mortgage has to run, the smaller the increase in your monthly repayments will be.
􀀗 If you can afford it, you could continue with your investment or savings plan just for saving.
And some investment products include useful insurance cover such as life cover, or another
type of cover such as critical illness insurance.
􀀛If you were to cash in your investment you could lose out financially, and you may need to arrange other insurance cover.

So consider getting advice first if you are at all unsure.

If you want to convert your whole mortgage to a repayment method but are worried that you might not be able to afford higher payments talk to your lender. The increase in payments may not be as much as you think and your lender may be able to come up with a plan that can help you.

For example, a repayment mortgage of £50,000 and an interest rate of 4.75% with 15 years to run will cost you £388.41 a month. But in some cases you may be able to extend the term of your mortgage – a mortgage of £50,000 with 20 years to run and an interest rate of 4.75% would be £322.74 a month. This would limit the increase in the monthly payments, though it does mean that you would pay back more in total over the mortgage term. Think very carefully about extending the term if it would end after your retirement age.

Repay part of your mortgage early by paying off a lump sum, or by overpaying each month.

􀀗 This will reduce the amount you owe, and the amount you need your investment or savings plan to cover.
􀀗 It may be better value than saving up separately to pay off the shortfall in future.
􀀗 You should check whether your lender will make an early repayment charge if you overpay.
􀀗 You should also check when your lender will give you the benefit from extra payments – some do so only once a year.

Making changes to your mortgage is probably the lowest-risk option to make up a shortfall. Ask your lender if there will be any charges for making changes to your mortgage, and how much these will be.

2. Start an additional investment or savings plan

Use a cash savings account.

􀀗 The amount you get back does not depend on the performance of the stockmarket.

􀀗 May be a good option for the short term – for example, if you have to delay paying off a lump sum from your mortgage because of early repayment charges, or your mortgage is near the end of its term.

􀀗 Taxpayers can avoid paying tax on their interest by saving in a cash ISA. (But remember there are limits on how much you can pay into an ISA each year.)

In the long term, other options (such as overpaying on your mortgage payments) are likely to prove better value for money.

Use a stocks and shares ISA.

􀀗 Potentially a good way of saving over the longer term. Historically, stocks and shares have grown more than cash savings accounts which have interest added. (But remember there are limits on how much you can pay into an ISA each year).

􀀗 Currently a tax-efficient way of saving. However, not sure of the government policies in the future

􀀛This type of product is linked to the stock market, and the value of your investment could fall as well as rise. So there’s no guarantee that your investment will grow enough to make up a projected shortfall.

􀀛Stocks and shares ISAs are meant for investing in the long term, and generally may not be suitable if you only have a short time to build up a lump sum.

If you decide to start an investment or savings plan to make up a shortfall, it would be a good idea to take financial advice.

Link to Previous article: Pay your mortgage with investment/saving plan

Pay your mortgage with investment/saving plan

If you have an interest-only mortgage, you may have taken out an endowment policy, Individual Savings Account (ISA), Personal Equity Plan (PEP) or personal pension to pay off the loan at the end of the mortgage period. This article from FSA explains what you can do if your investment or savings plan may not be on target to pay off your mortgage.

Interest-only mortgages

Unlike a repayment mortgage where your monthly payments gradually pay off the amount you borrowed (the capital) as well as the interest, with an interest only mortgage your monthly payments only cover the interest on the loan. They do not pay off any of the money you have borrowed. Money left owing at the end of the mortgage period (the term) is known as a shortfall.

You may have arranged to pay off the capital at the end of the term, by paying money into an investment or savings plan such as an endowment policy, Individual Savings Account (ISA), Personal Equity Plan (PEP), or you may have linked it to a personal pension. It is important to check your investment or savings plan regularly to see if it is on track to pay out its target amount.

If you haven’t made any arrangements to pay off the capital at the end of the term, you should think carefully about how you can do this and talk to your lender as soon as possible.

Do I need to take action?

If you think you may have a shortfall, you should consider taking action as soon as possible to make sure you can repay your mortgage. If you don’t think you can avoid a shortfall, there are options available to you.

How can I check if I have a shortfall for mortgage?

If you have an endowment policy, you should have received regular letters over the last few years telling you whether your policy is on track to repay your mortgage. These are called ‘re-projection letters’ and are marked ‘red’ if there is a high risk that the policy is not on track, ‘amber’ if there is a significant risk that the policy is not on track or ‘green’ if the policy is on track.

Endowment policies are linked to investments such as bonds and shares, which can vary in value. So make sure that you check each re-projection letter, even if the policy has so far been on track to repay the mortgage.

If you have an ISA or PEP you probably won’t get regular re-projection letters, but you can ask your product provider to give you an up-to-date projection of the value of your plan.

If you have a personal pension, your yearly statement won’t necessarily show you what your pension fund may grow to by the time you retire, so ask your product provider for an up-to-date projection of the fund. Remember that only part of a personal pension fund can be taken in cash to help pay off any loan.

Contact the provider if you are not sure where you stand on any of your investment or savings plans. You will need to continue to check the value right up to the time you repay your mortgage.
Never just cash in an investment or savings plan or stop paying in without taking professional advice – you could lose out financially.

Remember the following important points:

■ review your investment or savings plan regularly to see if it’s on track to repay your mortgage;

■ don’t delay – consider taking action now to make sure you will be able to pay off your mortgage – talk to your lender; and

■ if you can't avoid a shortfall, there are options available to you – talk to your lender.

Link to Previous article: Can’t repay your mortgage? What to do? -IV

Can’t repay your mortgage? What to do? -IV

This is part iv of the article Can’t repay your mortgage? What to do? -I. Please read the first part before proceeding with this one.


As a last resort, you could –

■ Sell your home

If you can’t afford your mortgage payments and you think this situation won’t change in the long term, you may wish to think about selling your home. However, before you do this, think carefully about where you will live. Your local council may say you have made yourself intentionally homeless and will not help you find somewhere to live.

If you live in Scotland, you may be eligible for the national Mortgage to Rent Scheme. The scheme may be able to arrange for you to sell your home to a social landlord and remain there
as a tenant. Advice agencies can give you more information about this scheme – see Useful contacts .

What if your lender takes you to court?

If you have taken all the possible steps mentioned above to get help, hopefully it won’t come to this. But if it does:

■ don’t ignore the paperwork you are sent – seek advice from any of the agencies
■ just because a lender starts court proceedings it doesn’t mean you will automatically lose your home. Make sure you get advice and make sure you attend the court hearing;
■ if you do have to go to court, a money adviser from one of the agencies can help you prepare your case and may be able to represent you.

Complaints

If you feel that your mortgage lender or insurance company is not dealing with your case fairly, ask them for a copy of their internal complaints procedure.
Consumer Helpline: 0845 606 1234

You can often get matters sorted out quickly and easily if you do this. But if you’re not happy with the answers, you can take the matter to the Financial Ombudsman Service – see Useful contacts below.

See also the FSA guide to making a complaint about financial services for useful tips – available from the FSA Consumer website at www.fsa.gov.uk/consumer or the FSA Consumer
Helpline on 0845 606 1234.

Useful contacts

Citizens Advice Bureaux (CAB)

Website: www.citizensadvice.org.uk

Citizens Advice Scotland (CAS)

Website: www.cas.org.uk

Northern Ireland Association of Citizens Advice Bureaux

Website: www.citizensadvice.co.uk
Look in the phone book for your local bureau, or on their website

National Debtline

Provides a free, confidential and independent phone service
Tel: 0808 808 4000 – freephone
Website: www.nationaldebtline.co.uk

Business Debtline

Free, confidential and independent advice for
self-employed people and small businesses
Tel: 0800 197 6026 – freephone
Website: www.birminghamsettlement.org.uk

Advice UK
All members provide free and confidential advice, but not all provide money advice. To find your nearest centre
Tel: 020 7407 4070

Money Advice Scotland

Tel: 0141 572 0237
Website: www.moneyadvicescotland.org.uk

Consumer Credit Counselling Service (CCCS)

CCCS offers a structured programme on how to
manage your money
Tel: 0800 138 1111 – freephone
March 2005

The Community Legal Service (CLS)

Aims to make it easier for the public to get legal help and advice – look on their website for details of agencies in your area
Website: www.clsdirect.org.uk

Credit Action

Provides information and guidance for people with debt or money worries
Tel: 0800 591 084 – freephone
Website: www.creditaction.com

Jobcentre Plus Office

Your local office can advise you if you are eligible
for any benefits.
Look in your phone book for details

Financial Ombudsman Service

If you are not satisfied with the way your mortgage
or insurance company has dealt with your complaint
Tel: 0845 080 1800. Call rates may vary
Website: www.financial-ombudsman.org.uk

Local Trading Standards Department

Also known as the Consumer Protection Department
Look in the phone book for your local office

Financial Services Authority (FSA)

Consumer Website: www.fsa.gov.uk/consumer
Consumer Helpline: 0845 606 1234. Call rates may vary
Minicom/textphone: 08457 300 104
(available 8.00am - 6.00pm Monday - Friday: call rates may vary)

Link to Previous article: Can’t repay your mortgage? What to do? -III

Can’t repay your mortgage? What to do? -III

Should you use a fee-charging debt management company?

You may see adverts for companies that will handle your debts for a fee. Be wary of claims that your debts will disappear – and remember that because you have to pay a fee, you are likely to end up paying off your debt for longer. Rather than paying a fee you could use one of the many organizations that will give free advice.

What can you do to pay off your mortgage arrears?

You could think about any of the following:

■ Start repaying arrears as soon as you can

It’s important to do this because arrears can often lead to extra charges that will increase the total amount you owe. Although paying off your arrears quickly could mean you have less spending money for a while, it is cheaper in the long run.

■ Make extra payments

You can arrange to pay your arrears by paying more each month than the standard monthly mortgage payment. But make sure you can realistically afford the extra. Even if your mortgage lender is unhappy with what you offer, pay the extra anyway. Explain why you can only afford this amount – there may be circumstances such as illness or a drop in income that your mortgage lender is not aware of.

■ Add the arrears to your mortgage

You could ask your mortgage lender to consider ‘capitalising’ your arrears. This means adding
them to your total mortgage balance, spreading the arrears over the remaining period of your mortgage.

Your monthly payment will then increase to take account of this. Your mortgage lender is unlikely to agree to this if you have previously failed to stick to revised repayment arrangements, or if your house is worth less than the balance of your mortgage including the arrears.

■ Extend your mortgage period

Most mortgages are normally repayable over 25 years. If you have a repayment mortgage and have been paying it for several years, you could ask your mortgage lender to extend the term back to 25 years again. This would reduce your monthly payments BUT you would be making them for longer – perhaps into your retirement.
This is more difficult to arrange with interest only mortgages that are connected to an endowment policy, PEP or ISA.

■ Ask to delay paying off your arrears

If you can now manage to meet your monthly payments, but can’t afford to pay anything towards the arrears, you could ask your mortgage lender not to demand payment towards your arrears for a period of time.

■ Changes you can consider if you have an interest-only mortgage

■ If you have an interest-only mortgage linked (for example) to an endowment policy and can’t afford both the mortgage and the endowment policy payments, you could ask the endowment company whether you can have a payment holiday. You will have to arrange with them how to make up the backlog of payments once you restart your policy.

■ If you have an endowment policy that has been running for several years, it may have built up a reasonable sum of money that you could use to pay off your arrears. This would mean cashing in the policy to take the money, or selling the policy. If you did this, then you would have to change to a repayment mortgage to make sure that the money you borrowed would be repaid. Before you do this, you will need to speak to both your mortgage lender and the endowment company. Cashing in an endowment policy early may result in the value of your policy being considerably reduced. You should think carefully before deciding to do this and askyour endowment provider for a cash-in value.

Link to Previous article: Can’t repay your mortgage? What to do? -II

repay your mortgage? What to do? – II

This is part II of the article Can’t repay your mortgage? What to do? – I. Please read the article from part I before continuing with this part.


Things you must to avoid if you cannot pay your mortgage

■ Loans to repay debts

Think long and hard before taking out a loan to repay your debts. Such loans are often very expensive and secured on your home – putting it at greater risk if you can’t keep up the payments. If you are thinking about taking out a further loan, get advice from one of the agencies mentioned on contacts links.

■ Handing back the keys

If you can’t afford the mortgage and want to hand back the keys to the mortgage lender, think carefully. You are still liable for the mortgagee until the property is sold. Often, empty properties sell for less than their market value.

This could mean that your mortgage is not repaid in full and the lender may still pursue you for any outstanding balance – they can do this for up to six years after the sale (five years in Scotland). Your name will be on the repossession register – making it harder to get a mortgage in the future. Seek advice first.

Is any financial help available?

■ Insurance

If you can’t meet your mortgage payments because of a loss of income or your income has fallen (perhaps because you’re on long-term sick leave), you should check whether you have any mortgage payment protection insurance.

If you do, check whether your policy covers your specific circumstances and make a claim straightaway. If your claim is refused, and you don’t agree with the refusal, you may be able to take your case to the Financial Ombudsman Service – see Useful contacts .

The Financial Ombudsman Service provides consumers with a free, independent service for resolving disputes with financial firms.

■ Benefits

There may be benefits you could claim to increase your income – contact your local Jobcentre Plus office (details in the phone book) or an advice agency for information.

■ If you claim Income Support or Job Seeker’s Allowance, the local Jobcentre Plus office will usually provide some help with your mortgage payments. How much you get and when it starts will depend on when you took out your mortgage and how long you have been receiving benefits. The local Jobcentre Plus office can help only with interest payments and these will be paid at a rate set by the government.

■ If you, or your partner are aged 60 or over you may be entitled to Pension Credit. In certain cases you could get an extra amount of Pension Credit to cover mortgage interest payments. To find out more see the Pension Service’s website at www.thepensionservice.gov.uk or get a copy of the leaflet PC1L Pension Credit from your Post Office.

Link to Previous article: Can’t repay your mortgage? What to do?