BUILDING SOCIETIES A - Z FINDER

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Where mortgages may come from a bank just as easily as a building society, there is some confusion as to the differences between these institutions.

SUMMARY OF DIFFERENCES BETWEEN BANKS and BUILDING SOCIETIES

Banks are normally companies listed on the stock market and are therefore owned by, and run for, their shareholders.

As a result of not having to pay dividends to shareholders, building societies claim that they have historically offered higher rates of interest to savers and cheaper mortgages.

Building societies were set up as mutual institutions, which means that those with accounts become members and have certain rights to vote on issues affecting the society. Each member has one vote regardless of the amount they have saved or borrowed.

Traditionally they would only lend within their catchment area, but local societies have become more flexible to appeal to those who wish to save or borrow from them.

When it comes to choosing a building society there is no need to just look at those in your area, many will lend or accept deposits from those outside and also offer such services as postal, telephone and internet accounts.

WHEN THE SYSTEM MERGED

There has been monumental change in the market over the past decade and now, as far as savers are concerned, there is very little practical difference between banks and building societies.

Many building societies have thrown off their mutual status, offering their members shares or a lump sum bonus in return.  The process of building societies morphing into banks is called de-mutualisation.

Some groups of building society savers have been trying to get these traditional institutions to turn into banks in the hope of securing a windfall.  Some commentators have suggested that the days of building societies are numbered and that they will all have de-mutualised within a few years.

Competition means that banks now offer deals that can equal or beat what is on offer from building societies. Likewise, traditionally banks would offer current accounts, but these days most building societies offer them as well.

Many savings accounts can be opened through organisations such as retailers and large supermarkets as well, though in fact these are usually offered in partnership with a bank or building society.  However, building societies such as the Nationwide are holding their own on the High Street, suggesting that the days of the mutual are not numbered.

The following is a selection of United Kingdom Building Society websites to assist borrowers: 

A-Z of Mortgage Lenders -

Abbey National
www.abbeynational.co.uk

Alliance & Leicester
www.alliance-leicester.co.uk

Barclays Bank
www.personal.barclays.co.uk

Barnsley Building Society
www.barnsley-bs.co.uk

Bath Building Society
www.bibs.co.uk

Beverley Building Society
www.beverleybs.co.uk

Bank of Scotland
www.bankofscotland.co.uk

Birmingham Midshires
www.birmingham-midshires.co.uk

Bradford & Bingley
www.bradford-bingley.co.uk

Bristol & West
www.bristol-west.co.uk

Britannia Building Society
www.britannia.co.uk

Britannic Money
www.britannicmoney.com

Britannic Money
www.britannicmoney.com

Buckinghamshire Building Society
www.bucksbuildingsociety.com

Catholic Building Society
www.catholicbs.co.uk
 
Chelsea Building Society
www.thechelsea.co.uk

Cheltenham & Gloucester
www.cheltglos.co.uk

Chesham Building Society
www.cheshambsoc.co.uk

Cheshire Building Society
www.thecheshire.co.uk

Clay Cross Building Society
www.derbyshire.org/clay-cross/mortgage.htm

Clydesdale Bank
www.clydesdalebank.co.uk

Coventry Building Society
www.coventrybuildingsociety.co.uk

Darlington Building Society
www.darlington.co.uk

Derbyshire Building Society
www.thederbyshire.co.uk

Direct Line
www.directline.com

Dudley Building Society
www.dudleybuildingsociety.co.uk

Dunfermline Building Society
www.dunfermline-bs.co.uk

Egg
www.egg.com

First Direct
www.firstdirect.com

First National Mortgage Company
www.fnmc.co.uk

Furness Building Society
www.furnessbs.co.uk

Hanley Economic Building Society
www.thehanley.co.uk

Harpenden Building Society
www.harpenden-bs.co.uk

Hinckley & Rugby Building Society
www.hrbs.co.uk

Holmesdale Building Society
www.holmesdale.org.uk

HSBC
www.banking.hsbc.co.uk

igroup
www.igrp.co.uk 

Intelligent Finance
www.if.com

Ipswich Building Society
www.ipswich-bs.co.uk

Kensington Mortgage Company
www.kmc.co.uk

Kent Reliance Building Society
www.krbs.co.uk

Lambeth Building Society
www.lambeth.co.uk

Leeds & Holbeck Building Society
www.leeds-holbeck.co.uk

Leek United Building Society
www.leekunited.co.uk

Legal & General
www.landg.co.uk

Loughborough Building Society
www.theloughborough.co.uk

Manchester Building Society
www.themanchester.co.uk

Mansfield Building Society
www.mansfieldbs.co.uk

Market Harborough Building Society
www.mhbs.co.uk/mortgages.html

Marsden Building Society
www.marsdenbs.co.uk

Melton Mowbray
www.mmbs.co.uk

Mercantile Building Society
www.mercantile-bs.co.uk

Money Sorter

www.moneysorter.co.uk

Mortgage Express
www.mortgage-express.co.uk

National Counties Building Society
www.ncbs.co.uk

Nationwide Building Society
www.nationwide.co.uk/mortgage

NatWest Mortgage Services
www.natwest.com

Newbury Building Society
www.newbury.co.uk

Northern Bank
www.nbonline.co.uk

Northern Rock
www.northernrock.co.uk

Norwich and Peterborough Building Society
www.npbs.co.uk

Nottingham Building Society
www.thenottingham.com

Paragon Mortgages
www.paragon-mortgages.co.uk

Penrith Building Society
www.penrithbuildingsociety.co.uk

Portman Building Society
www.portman.co.uk

Principality Building Society
www.principality.co.uk

Prudential
www.pru.co.uk

Royal Bank of Scotland
www.rbs.co.uk

Saffron Walden Herts & Essex BS
www.swhebs.co.uk

Sainsbury's Bank
www.sainsburysbank.co.uk

Scarborough Building Society
www.scarboroughbs.co.uk

Scottish Building Society
www.scottishbldgsoc.co.uk

Scottish Widows Bank
www.scottishwidows.co.uk

Skipton Building Society
www.skipton.co.uk

Stafford Railway Building Society
www.srbs.co.uk

Standard Life Bank
www.standardlifebank.com  

Stroud & Swindon Building Society
www.stroudandswindon.co.uk

Sun Bank
www.sunbank.co.uk

Tipton & Coseley Building Society
www.tipton-coseley.co.uk

UCB Home Loans
www.ucbhomeloans.co.uk

Universal Building Society
www.theuniversal.co.uk

Virgin
www.oneaccount.com

Wesleyan Homeloans
www.wesleyan.co.uk

West Bromwich Building Society
www.westbrom.co.uk

The Woolwich
www.thewoolwich.co.uk

Yorkshire Bank
www.ybonline.co.uk

Yorkshire Building Society
www.ybs.co.uk

A to Z TYPES OF UK MORTGAGE

B

BASE RATE TRACKER MORTGAGE

Simply put this mortgage tracks the Bank of England base rate and applies it to you at an agreed rate.

So you might have a Base Rate Tracker Mortgage which sets your mortgage at 1% above the base rate for, say, the first two years.

BRIDGING LOANS

A bridging loan is one where you need to borrow a sum of money for a short period to cover a temporary shortfall as may occur when buying a property, business, or carrying out improvements or renovations.

This is quite normal where you may need to buy another property, but have not yet sold your home. Another example is when buying at auction.

They are more expensive, since they are more risky for the lender. Typical loans last for less than 6 months.

Bridging Loan are given to self employed or people with poor credit history, where otherwise these customers may find it more difficult to obtain loans or mortgages.

When buying a property, a Bridging Loan is usually secured by taking a mortgage on the new property in combination with a second mortgage on the property to be sold. 

Loan of up to 65% of the value of the two properties can be obtained, and this will depend on the valuations of the properties concerned, usually between £25,000 to £500,000 in the normal course of business.

BUY TO LET FINANCE

Mortgage providers' traditionally only offered loans for people buying homes. An increasing number are offering loans for a property you want to "buy to let", (ie not to live in as your home, but to rent/let out to tenants).

Getting income from the rent is seen as a good investment by some and is becoming more commonplace.

It's particularly popular for retirement planning because of the growing concerns about the inadequacies of traditional pensions. The old saying "There's nothing more solid than bricks and mortar" is more relevant than ever.

If you're interested in renting to students in a university town or to commuters in suburbia, the Council of Mortgage Lenders has two leaflets 'Buying to Let' and 'Thinking of Buying a Residential Property to Let' You can order them by phone on 020 7440 2255.

The fears over the past couple of years that the market was overheated seem to have been incorrect. However make sure that your buy to let property is in an area which is likely to have a demand.

There is a wealth of information on buying property to let. Just make sure if you're paying for it that it's been written by someone with direct experience in the field.

B

CASHBACK DEALS

These deals vary but, as the name suggests, you get cash - in addition to the money you're going to be borrowing. You may use it to pay for moving costs and furniture etc.

Cashback deals are perhaps best seen as a sales technique to get you to take out a mortgage with a particular lender.

It's very rarely a genuine gift and is probably used to tie you in to the mortgage lender - who will eventually more than make their money back.

If you need cash it may be an idea to shop around to look for better deals from your bank, credit card etc. (Best not try the local loan shark though).

CAPPED RATE

This is an interest repayment variation.

Capped rate mortgages are supposed to offer the best of both variable and fixed rate deals.

You agree to have a limit - a cap - on the maximum amount of interest you will pay over a particular period of time while allowing it to fall if the variable rate drops.

Good points: You get the best of both worlds. If the variable rate goes higher than your agreed capped rate then you're only paying up to the agreed capped rate.

Whereas if it falls below your capped rate then you pay less as well.

So you benefit from falling interest rates but are protected from rate rises. You know the max you'll be paying.

Bad points: There's only a limited number of these deals on the market and they're not thought to be very competitive because the interest rate you'll be paying is going to be higher than your average fixed or discounted rate mortgage.

You pay to get the best of both worlds.

Also there'll probably be an admin charge by the mortgage lender of £95 to £200 - though this may not be much compared to the amount you might have paid if your mortgage wasn't capped and interest rates went up.

However some mortgage lenders are now offering good deals which may even be cheaper than fixed rates.

COMBINED MORTGAGE and CURRENT ACCOUNT or Offset Mortgage

This is a relatively new type of product which goes further than the usual flexible mortgage.

Your mortgage account effectively becomes your bank account. You get a chequebook, direct debit facility, credit & cash card and regular statements etc. Your earnings are paid straight into this "mortgage/bank account".

This means that effectively you pay less interest on your mortgage - because your earnings are being used to "pay back" the loan.

Because the interest is calculated daily any changes in your balance, no matter how short the period, will change your interest payments.

You also avoid paying the tax, which you would have been liable for if you were putting your earnings into an interest /bank account because, technically, you are not earning interest.

You are unlikely to be charged for arranging the mortgage, or for any redemption penalties or compulsory insurance.

There is a definite financial advantage to this idea, in theory saving you thousands over the mortgage term.

The general criticism of Combined Mortgage and current accounts is that they don't give you a natural "speed limit" to your spending (i.e. you never seem to run out of money).

Most of us aren't great money managers. And the problem is if you mess up with this type of account you really mess up big time.

It's perhaps too easy to borrow too much from the account - for a holiday etc. - and before you know it your debt could have doubled.

Are you disciplined enough to be able to look carefully at what's happening with your account and to keep up regular repayments. You could easily be lulled into a false sense of security and overspend bit by bit till your debt is so big you've had it.

If you're interested in this type of mortgage, there are now various ones on offer. The best way to find one is to get a mortgage adviser to help you.

This is an interest repayment variation. To tempt new customers most lenders will offer a new borrower a discount on their standard variable rate, for a set period.

Your payments will go up and down, as with a standard variable mortgage, but you're paying less.

After the agreed set period the interest rate will switch into the mortgage lender's usual variable rate.

So it may be worth checking what their track record has been for their variable rate charge because, if they're pricier than most, they're unlikely to have changed and you may end up as one of the mugs paying over the odds.

The rate for new borrowers is usually lower than for existing customers. So try to shake off that customer inertia and change mortgage lenders every couple of years - having checked, of course, that there's no penalty for leaving.

The penalties for changing to another mortgage lender may last longer than the agreed discount term. But they're usually less than for a fixed rate period.

Good points: You're paying less.

Bad points: You're locked in for the agreed term so if the interest base rate goes up you're stuck. However when the period ends, you can swan along to the next best discount rate.

The shorter the term the better. You probably don't want to tie yourself down for longer than 2 years.

EQUITY RELEASE MORTGAGES

Already a Homeowner? Want to Release Some Equity?

If you are already a homeowner - with or without a mortgage - then you might want to release some equity from your home to give you a cash lump sum.

This means that if you have paid off a significant amount of your mortgage and/or property prices have risen, you can benefit from some of the "profit" that is locked into your house without having to sell your home.

Lenders provide a variety of packages for doing this, but they are generally described as "equity release" mortgages.

Typically you will be able to borrow up to 95% of the equity in your home, given to you in a lump sum which you then pay back like a normal mortgage. This can be used to pay for home improvements, lifestyle changes, home repairs – almost anything, really.

WARNING Be very careful when doing an equity release mortgage. For some reason they are not regulated by the Government. Many experts are worried about this new trend and there are concerns it could become yet another personal finance scandal.

Watch out for the following

• Make sure that your proposed equity release plan has a negative equity guarantee. This means that should the value of your property decrease then the debt will also decrease proportionally.
  

• Make sure that you can keep full ownership of your home until your death.
  

• Make sure that you are allowed to move home after taking out an equity release plan.
  

• If you are living “in sin” with a partner, Make sure that you take out a joint plan that makes the debt reclaimable only after the death of the last surviving partner.
  

• Make sure that any outstanding debt after the sale of your property will not be passed on to your relatives.
  

• Watch out for the extra charges involved, like legal fees, the property survey and setting up fees or other admin charges

ENDOWMENT MORTGAGES

These are basically a mix of savings, investments and life assurance "wrapped up" into an insurance policy. Got that?

Well don't waste too much time trying to. They were very popular in the 80s and 90s but, they've resulted in a lot of trouble because the "side" or "by product" investments have done worse than expected and people are looking at a "shortfall" in paying back the mortgage lender.

(In other words the property will not be theirs because they won't have paid off the loan).

It looks as if millions will be badly affected. Accordingly we don't feel it's appropriate to tempt you by going into details of how they work.

If you want to see if you can claim that you were mis-sold an endowment policy call the Financial Services Authority. (Tel. 0845 606 1234).

Getting rid of your Endowment

If you already have an endowment and want to get rid of it you can "sell" it. This could be to the company that sold it to you originally. However you might make more by selling it on the open market. There are a lot of firms who will do this for you.

We can put you in touch with a reputable one we know who will be able to "trawl" the open market and get you the best price. Further info

MORTGAGES for  UK EXPATRIATES WORKING OVERSEAS

If you are working overseas and want to buy a property in the UK you will probably find that many mortgage lenders won't want to know.

The problem is that the mortgage lender needs security on their loans and if you're thousands of miles away they'll be more nervous about this. For example it will be harder to chase you if you start defaulting on the repayments.

If you need this type of mortgage they are possible to get but you really need a specialist mortgage broker to check the market for you and give you some quotes.

If you want to buy a property overseas, some mortgage lenders will have products aimed specifically at you. These will come and go depending on the marketing cycle, so we can't recommend one in particular.

If you want to find one the best thing is to apply to a mortgage broker and ask them to source the latest overseas mortgage packages for UK citizens working overseas.

This type of mortgage is where you and the mortgage lender agree to fix the interest rate owed on your loan for a set period of time.

The period of time is usually between 1 and 5 years but could be longer. (That simply depends on the exact mortgage deal you choose).

After the agreed period, the interest rate owed on your loan usually reverts to the lender's Variable Rate.

Good Points: You know exactly what you'll owe. No surprises.

Bad points: If interest rates drop you may be paying more than you might have done if you'd gone for the Variable Rate. But interest rates might rise... At least you're not gambling with your home.

If you want to leave before the agreed term the early redemption penalty is usually significant. For example you may be charged six months gross interest if you leave a five-year fixed rate agreement.

Some penalties could even go beyond the fixed-rate period. This would be an "overhanging redemption penalty". Always read the small print and ask as many "stupid questions" as you feel like. You must be clear on what everything means.

FLEXIBLE MORTGAGES

The details will vary but basically this type of mortgage allows you to be flexible according to your future circumstances/ needs without having to pay a penalty.

So if you need to pay less due to unemployment or whatever, you can take a "payment holiday".

Or, if you win the lottery, you can pay more than usual - ie saving on interest payments in the long run.

(Traditional mortgages would penalise you for not sticking rigidly to the agreed repayments).

A truly flexible mortgage allows the following without penalty:

Quite a few High Street mortgage lenders offer these but some are more flexible than others.

When you're comparing them make sure there isn't a minimum amount you have to pay or a limit to the number of any over/under payments.

Most people simply want a loan which allows them to "over pay" their repayment without penalty. It is this aspect of flexible loans where the greatest savings can be made because the quicker you pay off your loan the less interest you'll have to pay.

(It's been estimated that over paying on a loan with an interest rate of 7.74 per cent by £100 a month over 25 years will save you £41,000 in interest payments).

This is an arrangement where you're only paying off the interest on the loan.

Unlike a standard mortgage you are not paying off the capital debt part of the mortgage.

So the mortgage costs you less... which means you can borrow more.

But this idea that you can pay less is only a short term solution because you are supposed to set up a side by side investment because the capital debt part is supposed to have been repaid by the end of the mortgage term by your having made simultaneous monthly payments into a separate investment fund.

The idea is that this fund has hopefully grown enough to pay off the capital and leave you with a surplus.

To do this your mortgage salesperson may offer you an investment "side" or "by product" (i.e. what they'll claim is a suitable type of investment to pay off the capital part of the mortgage).

Before accepting anything always shop around for other deals. You may have heard of the endowment mortgage scandal where tens of thousands of people were left with a shortfall. That was a type of interest mortgage.

In our view you'd be best off consulting an IFA. Make sure that s/he specialises in investments.

The majority of mortgage providers no longer ask for proof of an investment side/by product when confirming your mortgage.

You should be very clear that if the investment is not a success then you could lose your home - probably at the end of the mortgage term ie when you're close to retiring.

 

Out of the frying pan, into an ISA

 

Patrick Collinson issues a warning on the hidden pitfalls that come with a new range of offers (Guardian)

 

"The endowment mortgage is dead, long live the ISA. That appears to be the refrain from big lenders such as Abbey National and Halifax, which have recently piled into ISA mortgages. But are ISA mortgages likely to be a better bet than controversy-ridden endowments?"

 

MORTGAGES IN PRINCIPLE

Getting a mortgage and buying a house are usually very much intertwined.

When you find a house, you'll probably have to move fast to secure it. To prevent being delayed while sorting out a mortgage you could first get a "mortgage in principle".

Having one means you should be able get the actual mortgage quicker when the race to buy your chosen home begins.

A mortgage in principle is a conditional offer made by a mortgage lender that - provided the information you give them is correct - they will "in principle" give you the loan you have discussed with them.

Knowing what you can afford will also help you narrow your search.

It's very useful to have one before you even start looking for a house to give you the edge over any competition.

You can get this offer in writing to show to Estate Agents and sellers who will see you as a serious prospect and not a timewaster who's interested, for example, in looking around peoples' homes for a laugh.

To get a mortgage in principle you have to go through the same motions as an actual mortgage. That is: Consider what type of mortgage do you want and then find a mortgage lender you feel can offer you the best deal.

You should be able to get mortgages in principle offered over the phone. It's only when applying for the actual mortgage that the mortgage lender will want to see the proof of your income etc.

PENSION MORTGAGES

Don't bother with these. When we asked about them our experts suggested we think of the words "barge pole" and "don't touch with".

REPAYMENT MORTGAGES - CAPITAL and REPAYMENT

This is the old fashioned, traditional type of mortgage and remains the only way the property is actually guaranteed to be yours at the end of the mortgage term - provided you have repaid the loan.

Your mortgage debt is divided into capital repayments (ie repayment of the money you borrowed) and interest payments (ie repayment of the interest you're being charged for the loan).

As you pay off your mortgage every month you're paying off a bit of capital and a bit of interest until the full debt is repaid.

You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that's because unlike the other types of mortgages you're paying off the capital and not just the interest.

Here's how these type of mortgages work.

The Bank of England sets a base rate. This is the basic interest rate - which is that bit on the news you've probably ignored for years when they get all excited about interest rates going up or down.

The mortgage lender's interest rate is set higher than the base rate - say 1 or 2% above it.

So if the base rate is 5% and your mortgage lender is charging you 2% above the base rate, you'll be paying 7% interest.

Now the Bank of England can change the base rate at any time. So if they raise it by 1.5% overnight the base rate is now 6.5%.

So your mortgage is now 8.5% i.e. still 2% above the base rate.

Your mortgage is variable because it goes up and down ie as the base rate varies

Each of the mortgage lenders have their own variable interest rate. They vary a great deal offering as much difference as 1%. It may not sound much but on a £100,000 loan that's £1000 per year.

Good Points: You might get lucky and see the interest rate drop.

Bad points: Errm. You might be unlucky and see the interest rate rise.

100% MORTGAGES

A 100% mortgage is where the mortgage lender lends you the full amount that the property costs. (So if the house costs £100,000 you borrow £100,000).

Usually you'd only get a loan to value mortgage between 75% to 95% (eg if the house cost £100,000 a 75% mortgage means you would borrow £75,000).

The problems with getting a 100% mortgage are:

However if, like many, you don't have enough spare cash and a 100% mortgage is your only realistic option, the good news is that there are some reasonable deals out there.

You've got to shop around to find one. This may be a drag but shouldn't be as difficult if you use an expert see ways to find your mortgage.

Here's how these type of mortgages work.

The Bank of England sets a base rate. This is the basic interest rate - which is that bit on the news you've probably ignored for years when they get all excited about interest rates going up or down.

The mortgage lender's interest rate is set higher than the base rate - say 1 or 2% above it.

So if the base rate is 5% and your mortgage lender is charging you 2% above the base rate, you'll be paying 7% interest.

Now the Bank of England can change the base rate at any time. So if they raise it by 1.5% overnight the base rate is now 6.5%.

So your mortgage is now 8.5% i.e. still 2% above the base rate.

Your mortgage is variable because it goes up and down ie as the base rate varies

Each of the mortgage lenders have their own variable interest rate. They vary a great deal offering as much difference as 1%. It may not sound much but on a £100,000 loan that's £1000 per year.

Good Points: You might get lucky and see the interest rate drop.

Bad points: Errm. You might be unlucky and see the interest rate rise.