Borrowing from the experts

Independent financial advisers will be able to answer your questions when considering a business mortgage

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It could be your largest overhead so make sure you get sound advice when finding a mortgage

With house prices still on an upward curve, people in the UK are racking up record property-related debt.

Even with a brief cooling off period in December, year on year lending volumes in the mortgage market soared 20% overall in 2006. The Council of Mortgage Lenders estimates that the gross total borrowed by home and business owners totalled a staggering £346 billion.

David Dooks, BBA director of statistics, said: "The final quarter of last year, despite seasonally lower activity in December, showed the mortgage market to be stronger than at the same time a year earlier and lending still growing."

The Bank of England moved to cool the market with a sooner than expected interest rate hike to 5.25% earlier this month. Forecasts from economists suggest the rate could hit 5.5% later in the spring as a means of managing inflation.

None of which makes good news for anybody borrowing to finance a business investment. But the need to keep a close eye on mortgage expenditure was brought into even sharper focus by the findings from a recent study carried out by the Financial Services Authority.

The research looked at a range of firms providing mortgage advice and found, rather surprisingly, that two thirds did not have the appropriate processes in place to provide customers with suitable advice. Some of the "significant failings" identified by the FSA were in crucial areas such as the assessment of customer needs - including affordability.

The FSA insisted that the report was focused on the processes rather than the services provided but Clive Briault, managing director of retail markets, said any failings in procedure impacted on the service provided to customers.

?Poor processes increase the risk of unsuitable advice being given,? he says. "It is crucial that customer needs are assessed properly. Customers should consider what they can afford both now and in the future."

The Forum of Private Business, a lobbying group that supports small firms, says securing the appropriate mortgage is a critical consideration. Spokesperson Matt Hardman explains: "Many firms are tied into mortgages on their premises and the type of mortgage dictates the reaction to interest rates. The size of the mortgage and the percentage it takes of the company?s outgoings is also a consideration."

Hardman advises small business owners to search for a recommended Independent Financial Adviser and to establish the answers to questions such as how long you will be tied in for, what the potential penalties are for changing the mortgage and what impact any changes in the interest rate will have.

IFAs can provide advice tailored to your specific circumstances on the benefits of mortgage types, the various rates available and any hidden charges. While this is valuable in cutting through a wide variety of products, make sure you know just how independent the advice you are getting is. Documents should be provided up front that explain whether you are looking at products from a single provider, a limited selection of providers or from the whole market.

There are also considerations when it comes to providing information on associated products, such as mortgage protection. Research from IFA Promotion, the organisation that promotes independent financial advice, has found that more than three quarters (78%) of people who take out a mortgage buy at least one protection or investment product at the same time.

Chief executive David Elms says: "It is important to bear in mind that even if your mortgage adviser is independent for mortgage products ? and you should check this initially ? they may not be independent for other financial products, such as life cover and pensions, which could restrict the amount of choice they can offer to you."

When dealing with an IFA it is also important to clarify how you are going to pay for their services to avoid getting an unpleasant surprise in a final bill. From the first advice meeting the menu of fees should be made clear.

Keeping tabs on all these details and costs might seem onerous but. Hardman of the FPB emphasises its importance.

He says: "The smaller the business the fewer the resources and the greater the drain on the time of the owner/manager, but when it comes to something as important as a mortgage there can be no excuses."

MORTGAGE FACTS

• Only one third of the 252 firms giving mortgage advice ? from banks and building societies to small advisers ? had robust processes in place to provide customers with suitable advice
• 24% of new mortgages are taken out on an interest-only basis
• 10% of people taking out interest-only mortgages have either no idea or only a rough idea of how to pay it off
• 5% of interest-only borrowers claim to have a robust payment strategy ? but this includes people who plan to sell their home

Source: Financial Services Authority