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25 Jan, 2008

Published: 12:13 Friday 25 January 2008
By: Lorna Bourke, Money Columnist

A little known clause in many mortgage contracts could put the homes of mortgage holders at risk if they default on a personal loan.

Financial website has warned that many people are not aware of an 'all monies charge' which appears in the small print on some mortgages -notably some offered by Barclays and HSBC.

This means that any debts, including overdrafts and personal loans, taken out with the same lender are secured against the borrower's home.

'It's shocking that borrowers who believe their additional borrowing is safely separated from their mortgage are actually agreeing to risk the security of their home,' commented Richard Brown, chief executive of Moneynet.

'People may think "better the devil they know" when deciding which lender to choose for an unsecured loan. But unless they read all the small print they could be unaware that they are to all intents and purposes signing up for a secured loan rather than an unsecured loan,' he warns.

The 'all monies charge' clause in the mortgage agreements of some lenders means the lender secures all debt against the mortgaged property, including any additional borrowing such as personal loans or overdrafts.

This means they are entitled to repossess the property should the borrower default. Whether they would do so for small arrears is doubtful, but it still represents a worry for people who believe that the personal loan is not secured against their property.

It is important to understand that this is only the case where the personal loan or overdraft is taken out with the same lender as the mortgage. 'It's difficult to find out which lenders include this clause because as you can imagine, the lenders are very cagey about this,' said Brown.

Mark Beaton, head of residential conveyancing at law firm Ashton Graham, said, 'this issue is not always investigated by a borrower and can come as a surprise at a later date. I would therefore advise clients to raise the question with their mortgage broker or potential mortgage lender at an early stage.'

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