More on building societies

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More on building societies

We mentioned earlier that a number of major building societies are prepared to undertake pension mortgages. One society, the New Cross, is willing to consider giving loans on the basis of a single premium pension plan; the others all require regular premium pension plans to be taken out.

How much will they lend?

As with endowment policies, building societies have particular rules as to how much they will lend. Most will consider a loan that is equal to 80% to 100% of the anticipated cash sum available at retirement. The Woolwich stipulates 25% of the total fund available at retirement (which, they reckon, is about equivalent to 100% of the cash sum).

The other lending criteria also remain, so that getting a pension mortgage is rather like jumping a series of hurdles:

1 Is the loan for not more than 80% of the valuation of the property?

2 Is it for not more than three times your income?

3 Is it for not more than 80% (100%) of the maximum cash sum available to you at retirement under your pension plan?

4 Is your pension plan on the 'approved list' accepted by the building society in question?

And sometimes:

5 Are you at least 35 years old?

6 Are you a 'professional person'?

Read More onbest offset mortgages

How building societies treat pension mortgages

If you were not linking your pension to a mortgage, you could save for your retirement by a series of single premiums, which could be adjusted each year in the light of your income earned. This is obviously more flexible, and it has another (hidden) advantage that the rate of commission payable to intermediaries or financial advisers low compared to the regular premium plans, where in the first year of a plan it can be as high as 60%.

6 What if you fall ill?

If you are a self-employed person and your income falls because you can't work, you'll have enough problems as it is. And even if you have covered this risk by taking out a permanent health insurance policy (to pay an . . .... see: How building societies treat pension mortgages

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