Richard Wollacott

Director and Solicitor

Residential Property


Guide to Mortgages

Richard Wollacott

This information guide should be read in conjunction with your mortgage offer. It is by no means a definitive guide to mortgages but we hope it will clarify certain points of which you should be aware in connection with your mortgage. Your mortgage is a serious commitment which you should not undertake without careful consideration. If you have any questions about the contents of this guide, please do not hesitate to contact us and we will be happy to assist.

Your Obligations as a Borrower

If you are purchasing a property with the aid of a mortgage, your Bank or Building Society will send us a copy of your mortgage offer at the same time as you and request us to act on their behalf in relation to the mortgage. Accordingly, we will be acting for both you and your Lender during the transaction and will owe a separate and distinct duty to each of you. This is standard practice in property transactions but the arrangement means you should be aware of your requirements to comply with a number of obligations specified by your Lender.

Under the terms and conditions of your mortgage, by signing the Mortgage Deed you are agreeing with the Lender to undertake certain obligations, the most important of which is to repay the loan in accordance with the terms agreed between you and the Lender.

The loan will be secured as a charge against the property which means that, if you do not pay, the Lender will have the right to compel you to leave the property and to sell it. Sales by lenders often realise less than the borrower believes to be the full value and it is important that you fully understand that in the event of this happening, if the debt owed to the Lender (including interest and costs) is more than the proceeds of sale, you would still be liable for the shortfall. If you are purchasing the property jointly with another person, the Lender can claim against one or both of you.

High Percentage Borrowing

If you are borrowing a high percentage of the value of the property, your Lender may require additional security to protect itself in the event that it has to enforce a sale of the property at a price which does not cover the debt owed.

Some Lenders will obtain an insurance policy which offers a guarantee against high percentage borrowing, for which a single premium is paid by you on completion of the mortgage. Other lenders will carry the risk themselves but will charge you an additional fee for doing so. Please note, in the event of a shortfall arising on repossession by the Lender, and a claim being made by the Lender under this type of Guarantee, the Insurer is entitled to recover the payment from you.

Vacant Possession

If you are buying a property to live in it, your Lender will require that you purchase the property with ‘vacant possession’. If you subsequently wish to rent out the property, you must not do so without the Lender’s consent. Lenders are often willing to agree to you letting the property, provided you comply with certain conditions which protect their security, such as letting the property on an Assured Shorthold Tenancy Agreement where the provisions allow the Lender to give notice to the Tenant in the event repossession proceedings are undertaken.

Title Indemnity Insurance

Occasionally, investigation of title to the property will reveal a defect, for instance, that the property has been extended in breach of a restrictive covenant imposed upon it. In these circumstances, and in the absence of any other remedy, your Lender will require us to obtain Indemnity Insurance against the risk that enforcement of the covenant will be made at some point in the future.

The cost of this insurance is met by a single premium which should be met by the Seller, but in certain circumstances, may have to be paid by you. If insurance of this kind is required,  we will notify you at the earliest opportunity, and, if you are to be responsible for payment, tell you how much it will be.

Property Insurance

It is a requirement of your mortgage that you keep the property adequately insured against certain risks throughout the term of the mortgage via a buildings insurance policy. You will normally be free to either arrange your own buildings insurance or to choose to arrange this via your Mortgage Lender.

If you have arranged for the Lender to organise insurance for you, no further action is needed on your part other than to confirm to us that the Lender will be insuring. If you arrange buildings insurance yourself, please complete and return the Buildings Insurance Form attached to enable us to confirm to your Lender that adequate provisions are in place. The terms and conditions of the mortgage will list the types of risk against which the property should be covered (including flood, fire, explosion and terrorist activity, etc.) and will also require that the policy is index linked or adjusted annually to reflect the rebuilding cost of the property.

If the property you are purchasing is leasehold, it is usual practice for the Landlord or Management Company to obtain and maintain adequate buildings insurance. In this event, we will check the policy schedule on your behalf, and confirm to the Lender that it satisfies the Lender’s requirements and that the Lender’s interests are protected.

Independent Legal Advice

In certain circumstances, for example where the mortgage is being guaranteed by someone else, the Lender may require that the third party concerned is given independent legal advice. The person concerned is, of course, free to choose their own Solicitor for this purpose but in the absence of such a choice, we are required to make the necessary arrangements. The Solicitors giving independent legal advice will charge a separate fee for this purpose and will bill the Guarantor directly.
If, following completion of the mortgage, someone other than you will be occupying the property who is over 17 years of age (such as a relative), your Lender may require that this person sign an Occupier’s Consent form. They may also require that before signing it, they obtain advice from an independent Solicitor. Again, in this event, the Solicitors giving independent legal advice will charge a separate fee for this purpose and will bill that person directly.

Payment of the Purchase Price

Before releasing the mortgage loan to us, your Lender requires us to verify how the balance of the purchase price is to be paid. If the balance of the purchase money is being provided from the sale of a property which we are dealing with on your behalf, we will be able to satisfy this requirement without difficulty. In other circumstances, we will have to ask you to confirm where the funds are coming from and, in particular, to satisfy ourselves that you do not intend to provide the balance through any form of additional borrowing, such as a second mortgage or charge against the property. If any payments are received by us on your behalf from someone who is not a party to the mortgage, we will be required to report this to your Mortgage Lender.

Please note, we are expressly forbidden by your Lender to use the mortgage advance for your purchase unless we are also in possession of sufficient cleared funds to pay the Stamp Duty Land Tax on the property (if any), and the Land Registry registration fees. We will also need cleared funds in respect of our fees before completion of the transaction.

We are under an obligation to report to your Lender any incentives in relation to your purchase, such as a discount off the purchase price if Exchange of Contracts takes place within a short period of time, a cash contribution towards legal fees or the deposit, or allowances against the purchase price. Please ensure you disclose any such matters to your Lender when making your mortgage application or as and when such incentives arise, to help prevent unnecessary delays.

To ensure the price in the documentation matches the figures provided to your Lender on application, your Lender also requires that all payments for the property are made through us, and not directly to the Seller.

Retentions

On occasion, a Lender will hold back money from the loan on account of building works which need to be carried out at the property. These funds will be released once the works have been satisfactorily completed provided that, at the time when payment of it is required, you have fully complied with all of your obligations under the mortgage and, in particular, are up to date with all payments. Please note, that once the retention has been released, your mortgage payment will increase accordingly.

You may also be required to produce evidence that the works have been carried out, and, in certain instances, the Lender may wish to instruct a Surveyor to carry out an inspection of  the property (at your expense) to ensure the works have been completed properly. Please ensure, therefore, that you fully understand your Lender’s requirements before commencing any building works, to avoid the risk of a situation where you have paid for the works in reliance of the retention monies being released and then find yourself unable to obtain that release.

Redemption Penalties

If you wish to repay your mortgage early, for example if you wish to remortgage the property with a different lender, the amount required to pay off your mortgage in full, and obtain a release of their charge over your property, will be the mortgage debt (the original loan), plus accumulated interest, a penalty for early redemption and an administration fee for dealing with the formalities of redemption.
Please ensure you are fully versed of any early redemption penalties which apply before committing yourself, as this can sometimes amount to several thousand pounds depending on the type of mortgage product you have chosen.

The Valuation

As part of the application process, your Lender will have arranged for a Surveyor to attend the property for the purposes of a mortgage valuation. Even if you have paid a fee for this valuation and have received a copy of it, you should not rely on it in deciding whether or not to proceed with the purchase of the property.Other than a very brief inspection, the valuation will offer little information regarding the state and condition of the property, and, as the Valuer owes no Contractual duty to you, you will have no recourse for any omissions or inaccuracies.Accordingly, if you have not already done so, we strongly advise that you arrange for your own Surveyor to attend the property before legally committing yourself to the purchase. Further details on surveys can be found in the section 'Valuations & Surveys' in our Buying Guide.
Upon receipt of your valuation, please ensure you send a copy to us.

Mortgage Compliance Form

With this information guide we have attached a Mortgage Compliance Form for you to complete which asks for confirmation of certain conditions your Lender requires us to obtain from you. Please complete the form and return it to us as quickly as possible, as we are unable to request funds from your Lender in order to Complete until such time as we have received it. All parties to the mortgage should sign but in the event they do not, please note that the signature of any party to the mortgage will be accepted as being by and on behalf, and with the authority of, all parties.

Conflicts of Interest

Although, in many respects, the interests of the Buyer and the Lender are the same in a purchase transaction, in that both parties want the property to be acquired with a good and marketable title, there are certain circumstances in which a conflict of interest may arise because information comes into our possession which you would prefer us not to tell the Lender, such as:

  • The price you are paying for the property is actually lower than the price you have told your Lender;
  • You are receiving a cash payment or some other inducement from the Seller as an incentive to buy the property which you have not disclosed to your Lender;
  • You have decided to rent the property rather than occupy it personally; or
  • Your financial circumstances have changed since the mortgage application, for example, you have been made redundant, and have not disclosed the change in circumstances.

Because we owe you a duty of complete confidentiality, if a conflict of interest arises in which we are obliged (under our separate duty to your Lender), to report a scenario such as those listed above, we must first ask your permission to do so. If you withhold permission and instruct us not to reveal such information, we will not do so, but it will not be possible for us to continue to act for you or for your Lender. In this event, we would return the Lender’s papers and advise the Lender that a conflict of interest has arisen without disclosing the circumstances involved. Naturally, this will signify to the Lender that something unusual has occurred and the Lender will, in all probability, withdraw the mortgage offer. If this should happen, please note that you will still be responsible for payment of our fees incurred acting for you and the Lender up to the point at which the conflict arises.

On a final note, you should take cognisance of the fact that both during the transaction and after Completion, your Lender will be entitled to demand access to our legal file relating to your transaction. Because of our duty of confidentiality to you, this right is restricted only to documents relating to your loan unless you have signed a waiver form (as most Lenders demand), which entitles the Lender to the whole file including letters written by us to you and vice versa, and notes which we may have taken following meetings or telephone discussions.

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