'Deadly' mortgage clause exposed

Tuesday, 22 January 2008 12:00

The existence of a "silent but deadly" clause in mortgage contracts is being exposed in a bid to prevent unwitting borrowers losing their homes.

Homeowners are being urged to look out for the "all monies charge" in the small print of mortgage agreement documents issued by some lenders.

The charge allows lenders to secure all further debts taken out with them, including additional borrowing such as personal loans or overdrafts, against the mortgaged property.

Should the borrower default on payments of these loans the lender is entitled to repossess the property.

According to data comparison site, Moneynet.co.uk, many borrowers do not realise they are signing up for what is, essentially, a secured loan although it might appear to be an unsecured loan.

Richard Brown, chief executive of Moneynet, said: "It is shocking borrowers who believe their additional borrowing is safely separated from their mortgage are actually agreeing to risk the security of their home - something many people would never consider doing."

Moneynet is alerting consumers to the clause as we move into what could be a challenging year for the economy. The company believes awareness of what it describes as a "silent but deadly" clause could make the difference between people losing and keeping their homes.

Mr Brown advised anyone in the process of taking out a mortgage to ask their solicitor to establish whether the lender applies the all monies charge.

If they do, he suggests asking the lender to remove the charge. If the lender refuses this request, borrowers should move their mortgage to another firm, Mr Brown said.

Meanwhile Mark Beaton, head of residential conveyancing for Ashton Graham solicitors, echoed the advice. He said the clause was not always investigated by borrowers and often came as a surprise at a later date.

"I would therefore advise clients to raise the questions with their mortgage broker or potential mortgage company at an early stage," he added.

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