In Consuming Issues, David Hollingsworth of London & Country Mortgages answers your questions on mortgages.

Let’s kick off with this question from Pauline in London, who would like to repay her mortgage. She been told that she needs to be careful because she will have to hold the deeds to her property and that if she pays off the mortgage she’d be liable for some kind of tax penalty. ‘help’ she writes - ‘what should I do?’

As with any debt, paying off a mortgage will generally make good sense as you are effectively earning the mortgage rate on your money, which will outstrip the interest you could earn in a savings account.

It is worth thinking about the storage of your deeds though and most lenders will offer some sort of facility. Rather than paying the whole thing off you can usually maintain a nominal balance, which will mean that the deeds are kept safely rather than you having to find somewhere to store them.

An email from a Michael Smith. Some time ago you mentioned the Rent a Room Scheme in which parents can rent a room of their house to their child. You said that there was a specific amount which could be charged before the parents became liable for any kind of income tax on this money.
I have recently moved back to my parents home to return to university and would like to know how much I can pay them?

The Rent a Room scheme allows for homeowners to receive up to 4,250 per annum for board and lodgings, whether to their own son or daughter or a lodger, without any income tax liability.

If the income from the lodger is less than this amount then they will not even need to declare the income for tax purposes and is designed to avoid lots of paperwork and administration for what is a common scenario.

We’ve had a letter seeking some clarity on the sticky issue of leaseholds. Keith - who’s in East Sussex - gives the example of a three storey house converted into three flats some. He says there is a common front door and hallways and stairs. But the mortgage company of the person buying one of the flats says that, as only 59 years is left on the lease, a further 10,000 is required to extend the lease to 999 years. Keith asks that we explain the reasoning behind this. Who is the money payable to - in short can we explain what buying the leasehold is all about?

Leasehold title is usual for flats and can apply to houses as well. Essentially the property is split down into 3 flats, all of which are on a leasehold basis for a certain time period from the freeholder, at the end of which the title reverts to the freeholder. The freeholder could be an external individual or company and will be responsible for the upkeep of the common areas, for which they will collect a service charge from leaseholders.

A short lease is therefore unattractive for a purchaser and so it is an issue that a solicitor may advise upon. As far as a mortgage is concerned, lenders will generally require the lease to run for a minimum of 30 years after the mortgage term.

Leaseholders do have the right to have the lease extended in certain instances and flat owners have rights to buy the freehold, the advantage that they are then in charge of their own destiny.

For advice contact your solicitor although useful information can be found at the Leasehold Advisory Service - www.lease-advice.org.uk.

This query comes from one of our international viewers! Catherine writes I am British, but live and work in Frankfurt - and am looking to enter the property market. In the UK first time buyers seem to have no problem buying property, even with a very small amount of starting capital - michigan basic property insurance
this is NOT the case in Germany. House prices are high and a minimum of 30-40% starting capital is required before a bank will even think about giving you a mortgage. The mentality here is that you save until you are 45 and then buy a house - having rented in the mean time - this leaves you with 15-20 years to pay off the mortgages. My thinking is still the “British mentality” - i.e. it is better to buy early! I know that Working Lunch has covered Euro Mortgages before, but I’ve heard that these are mostly aimed at people looking to buy holiday properties in Spain or Portugal. What options are available to Catherine?

There aren’t any UK lenders who will look to lend on property in Europe due to the fact that they simply don’t have the infrastructure abroad for the administration of the mortgage account.

Those that can offer euro mortgages tend to be for those paid in euros but secured against a UK property. Lenders like Barclays are using their offshore functions to provide UK citizens with borrowing facilities on foreign property as a second home/holiday home. In addition there usually remains a requirement for a larger deposit than we have come to expect from deals available in the UK.

Here’s a quick question about mortgage fees. As a first time buyer I have saved some money to put towards a deposit, but how much of this will actually be needed to go towards solicitors fee, surveys, insurance and all the other charges? That one from Sarah-Jane in London.

It is really important to do your sums and budget carefully, particularly as a first time buyer. The costs of buying a home unfortunately do not end with the funding of a deposit and then the ongoing mortgage costs.

In addition there are legal fees, which could typically amount to 600 to 700 for a first time buyer. Survey fees will vary depending on the property value and on the level of survey taken - a basic valuation, homebuyers report or a full structural survey but bargain for at least a couple of hundred pounds at the very least. One of the biggest costs to contend with is of course stamp duty, which is chargeable at 1% of the purchase price on properties of 60,000 up to 250,000, then 3% above this and 4% above 500,000.

Whilst stamp duty can’t be avoided (unless the property is in a specified insurance jms property
area), shopping around could cut the other costs particularly on associated insurances.

A rather unhappy viewer in Citizen property insurance corporation who has just taken out a mortgage has written in. He says there was pressure from them to insure his house and contents with them, but his existing policy is at a better rate. However, he writes my lender told me that, because I wasn’t insuring my house with them, I would have a penalty deducted from my mortgage loan. This they have done to the tune of 26. Apparently other lenders do the same. To me, this smacks of blackmail and a scam. Any advice would be much appreciated.

This is a standard charge by lenders when the borrower does not take their Buildings insurance with the mortgage lender. As it will be a requirement of the mortgage for the property to be insured this fee is an administration charge to cover the fact that the lender needs to make sure that adequate provision has been made.

The typical charge is around 25 but this is usually outweighed by the fact that shopping around for insurance can yield big savings when compared with the lenders insurances.

A viewer in Essex writes I am 39 year old citizen property insurance
lorry driver earning around 45,000 to 50,000 a year. I’m a first time buyer and have 30,000 towards a deposit. I am thinking of an Off Set mortgage - but am not sure if this would be suitable for my needs. The IFA promotion hot line are sending me a list of local, unbiased, fee paying, IFAs in my area. Would I be better off to go with an IFA or go on the advice given to me from estate agents as to which mortgage to go for?

There are thousands of different mortgage products on the market at any one time so it certainly makes sense to enlist the help of a mortgage broker who can trawl through and find the product that best suits your needs.

When choosing which adviser to go with its important to understand what the differences can be, the main thing being whether they will search the whole market or a limited number of lenders.

The other thing to bear in mind is cost, as some brokers will charge a fee of up to 1% of the mortgage amount whereas others will not charge any broker fee.

A Richard Harrison thinks he may have found a mortgage bargain. He is looking to re-mortgage and is considering a deal with a British lender - the Leeds and Holbeck Building Society - linked to the U.S. 3 month LIBOR rate, rather than British interest rates. Short of having a crystal ball, could your expert say if this would be a mistake? And what are the forecasts for U.S. interest rates compared to British ones?

LIBOR US$ products allow the borrower to effectively link their mortgage deal to the currently lower US rates without having to take the mortgage in dollars. This eliminates the problem of exchange rate risk that comes with foreign currency loans.

However, the rates are variable and whilst US rates were cut hard and fast to a lower level than Bank of England Base rate, there is also the potential that they could rise more quickly. These deals can carry long tie-in periods so be sure that you are happy locking into this type of deal for the medium term.

Tim in Southampton says when I took out a mortgage in 1990, my solicitor showed me the original Victorian deed document and since then I have looked forward to having it framed and displayed.
I have just cleared my mortgage but my current building society do not have the original deed and say that it was never forwarded to them by my previous lender . My previous lender have deleted everything from their archive. I have contacted both lenders and the Land Registry but each places the responsibility on the other and no one will tell me if it is true that these documents do get destroyed.” He asks if we can shed some light on this situation - and whether it’s worth continuing to pursue this through his solicitor?

More and more documentation is being held traveler property casualty insurance
these days, which does help with lost documents and also speeds the sale and purchase of property. It could well be the case therefore that the document was no longer required by your mortgage lender.

When you remortgaged, any documentation not required by the new lender or by the registry would usually be forwarded to you or perhaps the solicitor that acted for you on the remortgage, who would usually forward it to you in turn. It could be worth asking your solicitor if they have held on to it. If it’s not with any of these parties then it looks like it could be a case of the unfortunate loss of the document.

Tracey Wyatt would like to know more about offset mortgages. Her fixed rate mortgage is finishing in January and she’d also like to make overpayments on any remortgage we take out. Could you explain the offset mortgage system as she thinks it make be suitable for her?

Overpaying on your mortgage to repay it sooner is a good idea if you can afford it. Offset deals are really an extension of flexible mortgages and carry a savings account alongside the mortgage, with interest only being charged on the difference between the outstanding mortgage.

This means that you slightly overpay each month and pay off the mortgage sooner and save in interest paid.

The downside is that the rates are often higher than standard deals so you really need a fair proportion of your mortgage in savings to make up the difference in rate.

Having said that there are lots of deals that allow overpayment without penalty (typically up to 10% p.a. of the mortgage balance) without compromising on the rate. Just make sure that daily interest applies so that you get the benefit of the overpayment straight away rather than at the end of the year.

Things you want to protect in your life do not come much bigger than your home and your uk property insurance.

Your biggest single purchase and your greatest financial commitment is likely to be your home, so it makes sense to protect your bricks and mortar and what is inside against the worst.

From fire to flood, storm to subsidence, loss of possessions to legal liabilities, you cannot afford to cut corners when it comes to safeguarding your home and its contents.

Reducing the risk of fire, flood damage and burglary can mean cheaper insurance

While household insurance should be a “must have”, you can maximise your protection and minimise your costs by taking some simple precautionary measures.

Getting the best deal

The most important thing is to get the right level of cover in the first place.

It is a false economy to go for the cheapest policy at the expense of the full cover you need.

While most buildings and contents policies will cover the same “core” risks, terms and conditions will vary, so start by assessing the risks you want to protect against.

A local insurance broker can help to assess your needs.

For example, the level of alternative accommodation costs that will be paid will vary between policies.

This can be very important if you suffer a flood or serious fire, when you may be out of your home for a number of months.

Reducing risks

Since premiums are based on risk, reducing the risk of fire, flood damage and burglary can mean cheaper insurance.

Some straightforward measures you can take against fire and burglary loss include:

• Fit approved locks to doors and windows. The level of security will depend on the type of doors and windows, so talk to insurers first. Do not forget that in some cases (such as if you live in an area with a high crime rate) insurers will require a prescribed level of security to be installed before they can consider offering cover.

• Intruder alarms. Installing an approved alarm can typically reduce your premium by between 5-15%.
• Occupancy. Reflecting the fact that most burglaries occur during the day some companies may quote cheaper premiums if someone is usually at home during the day.
• Fit a smoke alarm. With the costs of domestic fires rising, some insurers may offer cheaper premiums on both buildings and contents policies if you fit smoke detectors.

Reducing flood damage risks

If you are one of the two million homeowners whose home is vulnerable to flooding, taking steps to reduce the risk of flooding, or the cost of damage if it does occur, can make house insurance more readily available and possibly cheaper.

If your home is insurance property thatched vulnerable you should consider:

• Replacing timber floors with concrete and cover with tiles;

• replace chipboard/MDF kitchen and bathroom units with plastic equivalents;
• replace gypsum plaster with more water-resistant material, such as lime plaster
• move electrical points well above the likely flood level.

Remember that these changes will usually pay for themselves by the reduced damage, often from a single flood.

Many insurers insist that window locks are fitted

You should speak to your insurer or broker before taking on these more costly projects to assess their benefit to you.

Shop around

Household insurance is a competitive market, with the cost of both buildings and contents insurance varying between insurers.

You can buy policies from your mortgage provider, bank, and an insurance broker. Even some louisiana citizen property insurance corporation
are getting in on the act.

The average cost of a buildings insurance policy stands at 209, and has risen by only 2% over the past ten years.

The average cost of contents insurance is 152 and has risen by 5% over the same period - still a very modest increase in view of the cover provided and amounts which insurers pay out.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.