Personal Finance: Mortgage options for single people

Even if you have a partner, it pays to think of yourself as a `single financial entity'.

Even if you are married or semi-attached, you could be better off thinking single as far as your money is concerned. According to statistics, many people are doing this already, but independent financial advisers say rising divorce rates have persuaded them to advise clients - even if they marry - to think of themselves as "single financial entities" all their lives.

Mortgage lenders, too, recognise that the singles market cannot be ignored, with a projected one in every three people living alone by 2000. They also recognise that the needs of single people are different from those who are married. The problem is what to offer them.

"No mortgage is branded specifically for single people," says Ian Darby, of the independent mortgage advisers John Charcol. "But their considerations are distinctly different from those who are married. The kind of mortgage they take - fixed, capped or variable-rate - largely depends on the individual's circumstances. Single people's situations are more fluid and they have fewer ties. But where single people do differ from married people is in their choice of associated protection policies."

"When people get married they have a lot of confidence about the future, as it has a definite shape," says Phillip Cartwright, director of London & Country Mortgages. "The future of single people is more open, as they may not stay alone for ever."

"Children consume a lot of money," explains the independent financial adviser Fiona Price, of Fiona Price and Partners, specialists in advising women. "You have different considerations if you are single. If you are seeking a mortgage and are not intending to have a family, then you will not need life assurance, for example."

Even if you do have a family, life assurance is not always necessary, even though lenders may persuade you otherwise. Sarah Pryor, a lawyer, who is a divorced mother of two, has an interest-only mortgage. She argues: "If I die, the capital is covered by my Pep [investments] and my children would be taken care of by my ex-husband. Life assurance is not necessary because it would not benefit me or my children."

Even so, singles need some kind of income protection, particularly if there is no other source of financial support. "You would need to think about taking out insurance to protect your income, such as critical illness cover or personal health insurance - particularly if you are self-employed," says Ms Price. "Even if you are employed, the company may pay out for only six months, so you need to check this and see if you need to top it up. If you can't afford insurance, then the next best option is to save enough money to cover yourself for three months' expenditure in case of emergencies."

In a society that predicts that most of us will be self-employed or in contract employment in the future, single people would appear even more vulnerable by going it alone with a mortgage. Mr Cartwright says that single people tend to worry more about what will happen if they are ill or unemployed. "The fear of being left in dire straits seems to be greater," he says. "So they ask more questions, and are psychologically more vulnerable."

Women top the bill in this department. "Single women go through every detail and get overly stressed," he adds. "Single men are more free and easy and relaxed."

"Fixed-rate mortgages are more popular with single and gay people, provided there are no tie-ins," says Alan Dickinson, senior partner at independent financial advisers Ivan Massow Associates. This company, which has a large number of gay clients, reports that many have difficulties in securing income protection for their mortgages. "On the other hand, we have found that some companies are more favourable towards gay people, because there aren't likely to be children involved," Mr Dickinson says.

The most suitable mortgages for single heterosexual and gay people are those which combine flexibility with security - ones where repayments will not change (fixed rate) or will not exceed a fixed limit (capped rate). Interest-only Pep mortgages are more flexible than endowments because there are lower penalties if they are cashed in early.

Naomi Benstead, 29, a single London solicitor, has taken out a four- year capped-rate mortgage with Halifax at 6.8 per cent to buy a two-bedroom flat in Crouch End. "I chose this over a fixed-rate because projections are that interest rates may fall if we join the euro, in which case my payments would also drop," she explains. "I am also not tied into staying with the Halifax afterwards on their variable rate, and the penalty payments are reduced on a sliding scale after two years if I need to sell. I have attracted other benefits, too, because I am a first-time buyer."

Naomi wanted the security of knowing precisely the maximum monthly amount she would have to pay and the flexibility of knowing that she would not be penalised heavily if her situation changed. She also has the option of taking a lodger to help pay her mortgage, and can receive up to pounds 4,250 a year in rent tax-free.

According to a survey by the insurance firm Prudential, the fastest-growing category of households is formed by single people living alone. This is borne out by Bank of Ireland, which reports that 40 per cent of its mortgages over the past year have been taken out by single people. A bank spokesman says: "We are in the process of devising a maternity option mortgage with a nine-month payment holiday built in, which we hope will be attractive to single and married women who are planning to have a family."

MORTGAGE DEALS

THOUGH NO UK lender is branding a mortgage product specifically for singles, it is worth checking out the following:

London & Country Mortgages (0800 373300) - 6.49 per cent capped rate mortgage until September 2000; no penalty or mortgage indemnity guarantee;

Halifax (0800 101110) - four-year capped rates and discount mortgages;

Portman Building Society (0800 807080) - cashback and no acceptance fees mortgages;

Chelsea Building Society (0800 429429) - fixed rate and cash-back for first-time buyers; 5 per cent cashback mortgage with no arrangement fee for older borrowers;

Cheltenham & Gloucester (01452 372372) - capped and fixed-rate mortgages; no mortgage indemnity premium, valuation fee, or insurance tie-in.

Contacts

Ivan Massow Associates (0171-631 1111); Fiona Price and Partners (0171- 430 0366); John Charcol (0171-611 7000); Bank of Ireland Home Mortgage (0118 939 3393); Virgin Direct (0345 900900)

All Singles Should:

Keep future options open and look for mortgage offers with no redemption penalties or indemnity premiums.

Consider capped, then fixed or discount packages.

n Whether on staff with a pension, or self-employed, check that adequate payment protection and health insurance covers sickness, accident and redundancy and permanent illness.

Be wary of taking life assurance - it may well be unnecessary.

n Go for a portable mortgage; opt for one that allows a breathing space after leaving one place and buying another.

Look for lifestyle payment breaks, such as interest holidays for the self-employed at tax payment time and nine-month maternity breaks.

Young, single, first-timers:

Go for reduced payment options - allowing more cash to fund extras such as holidays.

Demonstrate the ability to budget - young singles are often seen as irresponsible.

Older, recently divorced or the bereaved:

Find a repayment mortgage. It will probably be too late to get the benefits of an interest only/endowment one.

Shop around for extra finance to buy out another party - don't be put off by the three times one income lending criteria. Equity from a previous home will help.

Look for good cash-back deals to absorb extra legal fees.

Prepare for divorce from the start

GLOOMY DIVORCE statistics are affecting the independent advice given on joint mortgages.

"You should look at a mortgage as two halves - independent and complementary," advises Fiona Price. "Your half could be linked to an endowment and your spouse/partner could have a straightforward repayment." Should the partnership turn sour, each can walk away with their own half intact.

Suzanna Mansfield, a chartered surveyor, decided to take out an interest- only joint mortgage when she bought her home with her partner, John, five years ago. "I had endowments, so it made sense to do that on a one-year fixed rate of 4.99 per cent with the Bank of Ireland," she says.

Suzanna paid the entire deposit for the property and asked her solicitor to draw up a deed of covenant in case the couple separated. This meant there would be no argument about who contributed what to the home, and each's entitlement should they split.

This tenants-in-common document is also useful if both parties are contributing unequal monthly sums toward the mortgage.

Many financial advisers avoid broaching the subject of a marriage ending, but as the independent financial adviser Ray Boulger, of John Charcol, explains: "If they don't take the plunge and are living together, then we tend to advise keeping finances separate."

Darren Stevens, of the Chelsea Building Society, advises: "If you want to really protect yourself and decide to take out a mortgage with someone else, it is best to opt for a straight repayment."

Single people buying together should also be mindful that if their names are not listed first on the mortgage form, they could lose out on extra benefits such as reward bonuses or shares offered by the lender.

After a year with Bank of Ireland, Suzanna and John decided to move their mortgage to a two-year fixed rate with Alliance and Leicester. Because they continued after the two-year period, the company gave them some shares which went to John because he was first named on the mortgage.