• Created by: LHarle04
  • Created on: 21-11-18 15:50

Mortgage Market Review (MMR)

  • lender responsible for assessment of affordability
  • sales could be advised or non-advised
  • non-advised sales no longer permitted
  • executive-only service provided they meet FCA criteria
  • mainly professional persons or high net worth individuals
  • vulnerable customers must be given advice (equity release, sale and rent back, right to buy, debt consolidation)
  • initial disclosure documentation removed
  • must still provide key information before contract
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Principles for Businesses

  • minimum standards expected of all financial services providers
  • 'higher level' principles
  • Integrity
  • Skill, care and diligence
  • Management and control
  • Financial prudence
  • Market conduct
  • Customers' interests
  • Comunications with clients
  • Conflicts of interest
  • Customers: relationship of trust
  • Clients' assets
  • Relationship with regulators
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Exempt bodies

  • The Bank of England
  • The European Central bank
  • The central banks of the European Economic Area
  • Local authorities
  • Various government bodies

Authorised person -someone who carries out regulated activities

Criminal offence to carry on a regulated activity unless authorised or exempt

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Approved Person

Appointed representative

  • A firm is exempt if it has a contract with an authorised person through which it can only advise on that authorised person's products
  • 'Tied' to the product provider (authorised person)

Approved Persons

  • Responsible for the advice given by the appointed representative
  • Any individual who is approved to perform a controlled function in any regulated organisation
  • satisfy the FCA that they can meet and maintain the criteria for approval (fit and proper test)
  • act with integrity
  • act with due skill, care and diligence
  • observe proper standards of market conduct
  • deal with the FCA and other regulators in an open and co-operative way

FCA categorises controlled functions as; Governing, Rquired, System and Controls, Significant Management and Customer Dealing

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MCOB Rules

Rules apply to:

  • mortgage lenders
  • mortgage advisers
  • mortgage arrangers
  • mortgage administrators

An intermediary can deal with:

  • the whole market
  • a limited number of lenders
  • a single lender

Home reversion plans - regulated 6 April 2007

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Regulated mortgage contracts

In order to be a regulated mortgage the following criteria must apply:

  • The lender provides credit to an indivdual or to trustees
  • The obligation of the borrower to repay is secured by a mortgage on land in the EEA, at least 40% of which is used for residential purposes
  • The mortgage is not a home purchase plan, a limited payment second charge bridging loan

The following contracts are not regulated mortgage contracts:

  • A loan to a company
  • A loan for the purchase of commercial property
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Credit Promotions

The MCOB rules apply to the following methods:

  • Advertisements
  • Telephone calls
  • Personal visits
  • Presentations to groups

The rules do not apply to:

  • Letters and illustrations to just one customer
  • Simple promotions containing only the name of the product, the firm's name, contact point, logo and brief factual description of the firm's activities, fees and products
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Real time v. non-real time credit promotions

Real time

  • personal visits
  • telephone conversations
  • interactive dialogue
  • does not call at an unsocial hour

Non-real time

  • advertisements
  • leaflets
  • brochures
  • websites
  • contain the name of the firm
  • contain an address and contact point
  • include the annual percentage rate (APR)

Records should be kept for at least one year after the last communication with the customer

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Advising and selling standards

Pre-application disclosure

  • lenders must provide 'key messages' to the customer as soon as they are considering entering into a mortgage contract

Key messages incude:

  • name of the firm, contact details, registration number
  • level of service provided (single provider, range of providers, whole of market)
  • the advice that will be given
  • the role of the FCA
  • the firm's membership


  • current interest rates which may increase in the future
  • the customer's current circumstances which might change in the future
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  • A mortgage lender cannot enter into a mortgage contract with a customer unless the customer has submitted an application
  • Before submitting the application, the customer must be supplied with a Key Facts Illustration (KFI)

A firm has to issue a KFI when:

  • a firm gives advice to a customer to enter into one or more contracts
  • the customer requests a KFI
  • the customer is an execution-only customer and has informed the firm of the product with which they wish to proceed
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Equity Release

Lifetime Mortgages

  • enables an older borrower, over 55 years of age, to release equity
  • open-ended
  • repaid from the estate on death when the property is sold or permanently vacated
  • interest can be rolled up and added to the debt
  • borrowers can make repayments or switch from an arrangement with repayments to one with rolled-up interest and no repayments

Home Reversion Plans

  • a contract under which the whole or a proportion of the property is sold to the finance provider
  • the occupant has a right of occupation for life or until the occupant permanently vacates the property
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Annual Percentage Rate (APR)

  • a way of comparing the cost of similar mortgages including fees, charges and interest
  • must be calculated in accordance with a formula by the FCA
  • includes charges incurred prior to completion of the mortgage
  • charges that may incur during the mortgage term are excluded such as early repayment charges and claw-backs
  • does not include life insurance or general insurance premiums
  • must be quoted as a percentage, rounded to one decimal place
  • used for personal loans, credit cards and hire purchase agreements

Annual Percentage Rate of Charge (APRC)

  • used for mortgages and second charge loans
  • calculated according to a formula in the Mortgage Credit Directive (MCD)
  • the amount of interest applied to a mortgage product on an annual basis including all additional expenses and discounts along with how much time is left on the mortgage term, to give the customer a full average cost of borrowing per year
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  • there is a requirement not to impose excessive charges on customers
  • early repayment charges should be disclosed (in cash terms) in the illustration and must relfect the cost of termination to the firm
  • any arrears charges must not be more than a reasonable estimate of the additional costs incurred by the firm as a result of the arrears
  • charges in general must not be excessive in comparison to charges for similar products or services on the market

Arrears and possessions

  • a firm must pay due regard to the interests of customers who fall into arrears and deal with them fairly
  • they must, within 15 working days of becoming aware of any arrears, issue to the customer the current regulatory Fact Sheet on mortgage arrears
  • adopting a reaonsable approach as to the time over which arrears should be paid
  • granting a customer's request for a change in the date on which the payment is made or the method of payment
  • considering allowing the customer to remain in the property to effect a sale
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Training and Competence (T&C)

  • The MMR rules insist that all mortgage advisers have passed an appropriate mortgage qualification, either Certificate in Mortgage Advice (CF6) or Certificate in Mortgage Advice anfd Practice (CeMAP)
  • If an advisor deals with lifetime mortgages or home reversion plans, then a specialist examination must be passed

Client Money Rules

  • must be held in a separate client bank account
  • must be banked within one day of receiving it
  • interest on the account belongs to the customer unless agreed otherwise
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Professional Indemnity Insurance

Intermediaries must have professional indemnity insurance (PII) unless they:

  • have a stock market capitalisation in excess of £50m
  • are a subsidiary of a bank, building society, insurance company or friendly society and use the parent company's name or their liabilities have been guaranteed by the parent

The PI policy must:

  • cover the negligence of the firm, its staff and appointed representatives (ARs)
  • over Ombudsman's awards (up to a maxium of £150,000), the dishonest of staff, ARs and the principals of ARs
  • meet set minimum limits of cover and maximum excess levels
  • apply retrospectively to claims regarding past work
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The Mortgage

  • it is secured lending arrangement which a borrower obtains finance by offering a property as security for the loan

Borrower's covenants or promises - the most important of which is to repay the debt with interest

Rights of the lender - there is a right to debit the mortgage account with repayments, but the rights of the lender are much extensive

The contract must be:

  • in writing
  • signed and dated
  • witnessed
  • sealed
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Creation/discharge of a mortgage

  • mortgage executed by a solicitor or a licensed conveyancer
  • no cooling off period
  • the lender never owns the prpoerty

Conveyance - relates to the creation and transfer of rights over land

A mortgage may be discharged by:

  • agreement - between two parties, such as where a new mortgage replaces the existing one
  • performance - whereby the borrower pays back all the monies due and the lender vacates the mortgage
  • breach - where the borrower fails to comply with the terms of the mortgage and the lender resorts to its legal remedies through the court
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Equity of redemption

  • legal right of any person to redeem a loan at any time
  • early repayment charges are always a feature of a fixed interest rate contract
  • the key features illustration (KFI) must alert the borrower to fees and charges


  • A guarantor enters into a separate contract to undertake to repay the mortgage if the borrower fails to do so
  • The guarantee may be supported with the individual offering security to the lender
  • Or unsupported with the lender relying only on the promise to pay
  • A supported guarantee is a surety
  • Guarantors should seek independent legal advice before committing themselves to a personal guarantee
  • a guarantor is not a party to the mortgage
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Property law in England, Wales and Northern Irelan

  • all land in the UK is owned by the Crown
  • Law of Property Act 1925


  • use and enjoy the land on a perpetual basis


  • gives the right to a person to occupy the land for a specified period of time
  • this right is granted by the owner of the freehold
  • at the end of the lease the property reverts to the owner of the freehold
  • Leasehold Reform, Housing and Urban Delelopment Act - extend the term of the lease by 90 years
  • at least one half of the qualifying tenants must agree to purchase the freehold


  • owners of property in an apartment block can form a Commonhold Association to assert their joint rights over their respective properties
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Rights and Obligations


  • rights in favour of one piece of land over another
  • right to land
  • right to hang a sign on a building belonging to another person
  • right to park a car
  • right of ventilation

Positive covenant

  • conditions attached to the title
  • require the owner to carry out certain actions, such as maintenance of specified boundaries

Restrictive covenant

  • negative conditions that prevent the owner from doing certain things such as running a business from the land or keeping certain types of animals

* All run with the title

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Overriding interest

  • Land Registration Act 2002
  • may arise when an individual who is not (and will not be) a party to the mortgage occupies the property at the time the mortgage is completed
  • they can claim an overriding interest which prevents the lender from obtaining vacant possession
  • any person over the age of 17 who will not be a party to the mortgage must sign a consent to mortgage form
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Form of Repair Notice

  • deemed to be in serious disrepair, in danger of falling into serious disrepair or in danger of causing damage to another property
  • can be forced to undertake repairs to a satisfactory standard by the local authority serving a Form of Repair Notice on them
  • up to the local authority to decide what is a satisfactory standard
  • take into account age, character of the property and the area it is in
  • only refers to external repairs, not internal decorations
  • 21 days to complete repairs
  • more than 21 days the local authority may complete the repairs themselves and send the bill to the owner
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Land Registration

  • process of recording and maintaining information on land in a public register
  • record of all land, who owns it and any rights recorded against it in favour of third parties

Registered Land

  • Land Registry - England, Wales and Northern Ireland
  • Land Register of Scotland

Unregistered Land

  • Land Charges Registry - England and Wales
  • General Register of Sasines - Scotland
  • Registry of Deeds - Northern Ireland
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Contract Law

  • Acceptance must be full and unconditional in order to be effective
  • If the offer is revoked before it is accepted or withdrawn before it is received, the party making it cannot be held to it
  • The terms of the contract must be clear, certain and free from doubt

Capacity to contract - the following individuals don't have capacity to contract:

  • minors
  • someone without mental capacity
  • someone who is bankrupt

Misrepresentation, duress and undue influence

  • a contract is voidable if one of the parties is guilty of misrepresentation of facts in order to induce the other to enter the contract
  • Duress is where coercion is used to force one of the parties to enter the contract
  • Undue influence, where one of the parties has too dominant an influence on the other
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Consumer Law

Consumer Credit Acts 1974 and 2006

  • protect personal borrowers when they enter into certain types of lending agreement up to a maximum threshold figure determined by the Government
  • loans in excess of £25,000 were unregulated
  • loans of £25,000 or less were regulated unless exempt
  • personal loans and credit cards regulated under the act

Sale of Goods Act 1979

  • goods must be of satisfactory quality
  • goods must be 'as described'
  • goods must be 'fit for purpose'

Supply of Goods and Services Act 1982 - all goods and services provided should be done:

  • to a reasonable standard
  • at a reasonable price
  • within a reasonable time
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Requirements of a valid will

  • be in writing
  • be properly executed
  • be made by someone aged at least 18 years
  • be clear in its intentions
  • have no unreasonable conditions placed on beneficiaries
  • be signed in the presence of two witnesses neither of who are beneficiaries

Executor can be next of kin, or solicitor

If there is a valid will, the executor applies to the court for a grant of probate which authorises them to deal with the estate according to the will

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Laws of Intestacy

  • Spouse/civil partner but no issue (children or grandchildren) - the surviving spouse/civil partner is the sole beneficiary of an intestate's estate
  • Spouse/civil partner and issue - spouse/civil partner takes personal chattels plus a statutory legacy of £250,000 plus half of the balance outright. The surviving issue will take the other half of the remaining estate on reaching 18 or marrying below that age
  • No spouse/civil partner - everything is taken by issue then successively: grandchildren, parents, brothers and sisters, grandparents, uncles and aunts
  • No relatives - if there are no surviving relatives, then the Crown takes all the remaining assets of the estate
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Wills and Intestacy in Scotland

  • Heritable estate - land and buildings
  • Moveable estate - goods and moveable possessions
  • anyone aged 12 or over can make a valid will
  • Civil Partnership Act 2004 - same intestacy rights as spouses

Prior rights - surviving spouse has claim to:

  • the home, or if the home is worth more than £473,000 then the value up to £473,000
  • the value up to £29,000 of the house furnishings
  • up to £50,000 of the value of the rest of the estate if there are children or other descendants or £89,000 if there are no children or other descendants

Legal rights - surviving spouse entitled to:

  • one third of the value of the moveable estate if there are children or other descendants
  • one half of the value of the moveable estate if there are no surviving children or other descendants

If there is a will, prior rights do not apply but legal rights do

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The Economic Environment

Residential property market

  • owner occupied housing
  • rented housing

Rented housing

  • social housing - council houses rented from local authorities

Private rented housing

  • assured shorthold tenacy - permits a property owner to fix the duration of a tenacy and the notice to be given by either party

Commercial property

  • office
  • retail
  • industrial
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Interest Rates

Fiscal policy - taxation and government spending

 Monetary policy - interest rates

Monetary Policy Committee (MPC)

  • under the Bank of England
  • set short-term interest rates
  • contain price inflation within the targets set by the Government
  • sets the base interest rate each month
  • set with reference to the Consumer Price Index (CPI)
  • excludes housing costs such as council tax and property insurance


  • no Capital Gains Tax on disposals of properties wholly used for personal residential purposes

Housing Act 1980 - gave public sector tenants the right to buy their council homes

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Stamp Duty Land Tax (SDLT)

  • tax on the execution of certain types of document
  • relevant to homebuyers as they are charged with reference to the consideration paid to the seller of a property
  • land and buildings transaction tax (LBTT) - Scotland
  • land transaction tax (LTT) - Wales

Inheritance tax (IHT)

  • payable on the value of the estates of deceased persons
  • the value assessable depends on the value of net assets on death plus any gifts made by the deceased within the seven years preceding death
  • for the 2018/19 tax year the threshold is £325,000

Council tax

  • levied by local authorities to pay for local services
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Borrowers and Lenders

Surplus equity - when a buyer sells their previous property for a price in excess of the mortgage secured on it

Negative equity - when a borrower owes more on their mortgage than their home is worth. They are locked into ownership of their property, known as property prisoners

Bridging loans

  • can help people complete the purchase of a property before selling their current house by giving them temporary access to money at a high rate of interest
  • can also help someone planning to renovate and quickly sell a home or someone who is buying a home at auction
  • most common type is closed bridging - the borrower has already exchanged contracts to sell a property
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Borrowers and Lenders

Further advance

  • a top-up loan on an existing mortgage
  • additional funds are advanced without the need for a new mortgage deed
  • a variation of a mortgage contract

Second mortgage (second charge)

  • a loan secured on the property is obtained from a source other than the original lender
  • used to raise money on a property as an alternative to remortgaging
  • usually require a new valuation of the property
  • ********* risk
  • under the Mortgage Credit Directive, second mortgages secured on residential land are regulated mortgage contracts


  • those who wish to purchase a property and let it out to tenants to generate income
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Regulated and unregulated buy-to-let mortgages

Under the MCD rules, a buy-to-let mortgage (a property occupied as a dwelling under a rental agreement) can be either:

  • an investment property loan (where a person buys a property in order to let it out)
  • a loan regulated by the FCA (where the property is occupied by the borrower or a related person)
  • a loan regulated under the MCD as a consumer buy to let (where the borrower has inherited a property and lets it out to another person)

Consumer buy to let

  • regulated by the FCA
  • where a borrower has no other rental properties and wishes to obtain a mortgage (or remortgage) on a property - accidental landlords

Business buy to let

  • not regulated
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Limited Companies

  • business entity owned by shareholders and run by its directors
  • if a limited company enters into a mortgage, the company is considered in law to be a 'person' in its own right, so the mortgage is enforeable against the company, not the persons who own it or run it
  • they may ask for the directors (or shareholders) to stand as personal guarantors
  • special purpose vehicles (SPVs) - will hold property and do nothing else
  • trading companies - do anything other than this


  • going to a new lender for a mortgage loan that will replace their existing one
  • the new term can either finish at the same date as the original term or extend the final repayment date
  • taken out because the terms of the new lender are more attractive and/or
  • because the borrower wants to raise further capital on the security of the property
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Right to Buy

  • tenants who have lived in a council house for a qualifiying minimum period of 3 years have a right to buy it at a substantial discount of up to 70% of its value
  • discount is calculated on the number of years the tenant has been a council tenant (maximum 40 years)
  • if the owner wishes to sell the property within 10 years of buying it, they must first offer it to the old landlord, e.g. the council
  • if the landlord does not agree to buy the property back within 8 weeks, the owner is free to sell it on the open market
  • any right-to-buy buyer will have to pay back some or all of the discount if they sell the property within 5 years of buying it
  • the maxiumum discount is £78,600 or £104,900 in London

Shared ownership (equity share)

  • buy a share of the property, usually 25%, 50% or 75% with the remaining being owned by the housing association
  • pays rent to the housing association
  • increase their share known as 'staircasing'
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Help to Buy

Help to Buy equity loan

  • newly built home can be purchased with at least 75% of the cost met by a mortgage and a deposit of at least 5% of the purchase price
  • the rest (up to 20%) is paid for by the Government through an equity loan
  • fees are not charged for the first five years of the mortgage but 1.75% of the loan's value is charged in the sixth year
  • open to first-time buyers and home movers on new-build homes worth up to £600,000

Help to Buy ISA

  • individual savings account (ISA) for first-time buyers
  • opened with a deposit of up to £1,200
  • £200 can be saved per month
  • once £1,600 has been save the account holder can claim the minimum government bonus of £400
  • by saving £12,000 the account holder can claim the maximum bonus of £3,000
  • use to buy a a first home worth up to £450,000
  • £20,000 ISA subscription limit for 2018/19 tax yar
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Status Considerations

If the status of the applicant is less favourable than anticipated, several options are available:

  • a longer term of years may be considered to reduce the monthly repayments
  • it may be recommended that the applicant seeks a less expensive property
  • the lender may be prepared to accept a guarantor
  • the applicant may consider a shared ownership scheme
  • the application may be declined altogether


  • a guarantee is a written contract entered into by one person to discharge the debt of another person
  • it must be in writing
  • the guarantor are recommended to seek independent legal advice
  • full liability - liable for the entire debt
  • limited liability - limited to the borrower's shortfall amount plus 10%
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Non-status borrowers

Some mortgage applicants are unable to borrow the amount of money they need to buy a residential property because of their circumstances. They present a higher risk to the lender:

  • an actor
  • a footballer at the end of their professional career
  • a start-up self-employed person or one who has been in business for less than 3 years
  • a person who was discharged from bankruptcy 5 years ago but is not debt-free and in gainful employment
  • a person with a bad credit history

Those who cannot borrow

  • undischarged bankrupts
  • mentally incapacitated
  • minors
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Mortgage Prisoners

  • existing borrower doesn't meet the new affordability criteria and lender won't let them switch products, they are trapped, hence the phrase 'mortgage prisoners'

Transitional arrangement

  • apply when lending to borrowers who already had a mortgage before the amended affordability rules came into effect
  • lenders are permitted to 'switch off' some elements of the affordability criteria provided the borrowers are not increasing the overall size of their borrowing and on the condition that this action will serve the borrower's best interests

Vulnerable customers

  • someone who, due to their personal circumstances, is especially sustainable to detriment
  • includes people who have unmanageable debt or learning disabilities
  • Money Advice Liaison Group's (MALG) report
  • lenders have a duty of care to ensue that all customers are treated fairly
  • it is essential that vulnerable cusomers are identified and dealt with according to their individual circumstances
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Commercial Mortgages

A mortgage can be used to purchase a property that will be used partly for residential accommodation and partly for business. They are treated as higher risk propositions and are regulated under the MCOB rules. Some lenders call these semi-commercial mortgages:

  • public houses
  • bed and breakfast
  • doctor's surgeries
  • shops and offices
  • workshops and studios

Commericial mortgages

  • loans secured on land that will not be used for residential purposes
  • fall outside the MCOB regulations
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The mortgage lending sector


  • funded their lending by borrowing in the wholesale market
  • interest rates linked to the costs of borrowing

Building societies

  • owned by their members (savers and borrowers)
  • obliged to raise at least 50% of their funding from retail sources (mainly personal savings accounts)
  • at least 75% of their commericial assets must be mortgages secured on land for residential use

Specialised lenders

  • securitisation - process through which funds are raised in the secondary market by issuing mortgage-backed securities
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Correspondent Lenders

  • a process whereby the firm which deals directly with the borrower is not the one which is actually providing the funds for the loan
  • used by a firm when the customer requires a product which they do not market themselves or where the firm does not itself fund any of the products it markets
  • the borrower needs to be made aware of who the actual end lender is

Mortgage intermediaries

  • exist to give advice to borrowers owing to the enormous choice of products and types of mortgage available
  • mortgage lenders, advisers, arrangers and administrators are subject to MCOB regulations
  • estate agents often act as mortgage intermediaries
  • solicitors may also undertake mortgage broking
  • independent financial advisers and appointed representatives of product providers can also give advice on mortgages
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The home buying process

  • decide on a budget - approach a lender
  • find a house
  • make an offer subject to contract
  • appoint a solicitor

Role and responsibilities of the seller

  • bring the property to market
  • set the price
  • agree on the items that will be included and excluded from the purchase price by completing a solicitor's enquiry form

Fixtures - integral part of the property (fitted carpets, fitted wardrobes, kitchen cupboards)

Fittings - household items or appliances that will be taken away from the property by the seller unless there is an agreement to include them in the selling price or a decision to abandon them on leaving the property

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Gazumping, gazundering and gazanging


  • property prices are buoyant
  • the seller, despite accepting the offer (but before contracts are exchanged), accepts a higher offer from another buyer
  • not only does the original bidder lose out on the property, they incur expenses


  • property prices are sluggish
  • the buyer waits until contracts are just about to be exchanged and then lowers their offer


  • when a vendor decides to pull out of a property transaction having intimated that an offer has been accepted
  • the seller can do this at any time up to the exchange of contracts
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Estate Agent

  • an agent is any person who acts on behalf of another
  • the estate agent represents the seller of the property from when it is brought to market to the point at which a sale is agreed
  • estate agents do not represent the buyer
  • many estate agents belong to the National Association of Estate Agents (NAEA)
  • its objectives include the protection of the general public against fraud, misrepresentation and malpractice
  • most estate agents charge less to the client if they have a sole agency
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Advising on method of sale

Private Treaty (England, Wales and Northern Ireland)

  • most common method of sale
  • the estate agent advertises the property and arranges for those interested to view it by appointment
  • anyone who wishes to make an offer can do so 'subject to contract' through the estate agent

Private Bargain (Scotland)

  • also most common method of sale
  • anyone who makes a written and unconditional offer for a property is legally bound to complete the transaction once that offer is accepted

Public Auction

  • a bid at auction is legally accepted at the fall of the gavel
  • a deposit (usually 10% of the purchase price) is paid and the contracts are exchanged on the same day
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Role of the surveyor/valuer

  • the lender will insist that the property offered as security is valued by a professional person
  • commissioned by the lender, paid for by the applicant
  • determine whether to lend and if so how much to lend

Home information pack (HIP)

  • the energy efficiency report is a continuing requirement
  • the energy performance certificate grades the property in relation to energy efficiency on scale of A-G
  • a second scale enables the user to assess the effect of the property on the environment

Role of the mortgage advisor

  • the mortgage adviser should always point out the limitations of the basic valuation and the advantages of considering a more detailed report
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  • the lender will insist that the builder is a member of National House Building Council (NHBC)
  • if not, a minimum requirement is that the construction of the property is supervised by a qualified architect
  • the lender will require a final inspection by a suitably qualified person to ensure that the work is complete

Many lenders offer stage payments. These are predetermined proportions of the advance that are released as key stages of the construction are completed. These include:

  • laying of foundations
  • wall plate stage (where the walls are complete but the roof has not yet been constructed)
  • building finished
  • utilities connected, access and boundaries finished
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Investigation/examination of title

Before a property can be sold, the solicitor must confirm that the:

  • seller is entitled to sell; and
  • property offered is exactly what the purchaser believes it to be

Investigation of title is carried out by searching the:

  • Land Registry/Land Register of Scotland - registered land
  • Land Charges Registry/General Register of Sasines - unregistered land

Where land is unregistered, the solicitor has to establish a good 'root of title' by searching back over the history of the property for the last 15 years

Title insurance - legal indemnity insurance that protects the policyholder against a sale being delayed or aborted due to title defects

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Home purchase transaction

England, Wales and Northern Ireland

  • the solicitor acting for the seller requests a deposit of 10% from the purchaser
  • before exchange of contracts, the solicitor should advise the buyer to put buildings insurance in place as the purchaser is committed to buy
  • exchange of contracts is therefore the 'point of no return'


  • once an offer to purchase is accepted, this forms a legal contract, binding on both parties
  • conclusion of missives occurs when an offer is made and has been accepted

Builders' sales

  • The solicitor deals with the legal transfer of the property from seller to purchaser, including registration of title
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Mortgage documentation

The solicitor is responsible for drawing up the contract between lender and borrower.

  • In England, Wales and Northern Ireland this is called a legal charge
  • In Scotland, it is called a standard security
  • Both may be referred to as mortgage deeds
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Property defects

Dry Rot

  • it arrives in airborne fungal spores which attach themselves to wet timber
  • it thrives in moist, poorly ventilated areas (roof space) and can travel through brick to attack other timbers
  • the timber becomes weak and crumbly and a mushroom like fungus appears
  • add extra ventilation bricks
  • remove all infected timber up to a metre beyond the contaminated area

Wet Rot

  • decaying of timber because of water damage but without the presence of dry rot spores
  • prevention includes sealing areas where water can enter

Subsidence and heave

  • subsidence is structural damage caused when the land below the property drops
  • heave is when the ground below the property rises
  • both are usually covered in buildings insurance
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Three main causes of damp:

  • rising damp - ground water rising through the brick work
  • condensation - caused by a lack of ventilation which allows warm air to condense on colder surfaces
  • leaks - can be from loose or missing roof tiles, leaking window or door frames, washing machines or domestic appliances

Electrical defects

  • if a valuer believes that a property is in urgent need of having its wiring replace, it is likely to that retention will be recommended to the lender

Undertaking - property is a good security but requires some remedial work to bring it up to an acceptable standard

Retention - where the repairs are so vital that the lender holds back some of the monies which will only be released once the repairs have been carried out to a standard acceptable to the lender

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  • responsibility of the lender
  • determining whether the applicant is eligible for a mortgage and how much can be borrowed
  • statutory requirement to make an assessment of affordability whenever a regulated mortgage contract may come into effect
  • most mortgage lenders take a holistic approach to assessing affordability
  • consider disposable income once essential and committed expenditure have been met
  • permanent income is the baseline figure or the normal minimum expected income
  • the lender has to take into account the committed expenditure plus as a minimum the basic essential expenditure and basic quality of living costs
  • stress test the applicant's income and expenditure choosing different interest rate scenarios

There are two types of expenditure incurred by any household:

  • Committed - has to be met irrespective of the financial circumstances of the household
  • Discretionary - can be put aside permanently or temporarily
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Household budgeting and the lending decision

  • most lenders now support their risk decisions with credit scoring systems
  • IT-based programs into which the lessons of previous lending can be input to enable scores to be generated for current lending propositions

Lending Criteria

  • the Financial Conduct Authority (FCA) requires equity release customers and those borrowers for debt consolidation purposes to be refarded as vulnerable customers

Self-employed persons and limited companies

  • both have to make annual self-assessment returns to Her Majesty's Revenue & Customs (HMRC) in order to assess their liability for income tax and capital gains tax

To a trader who deals in physical goods, the net profit is:

  • the turnover (sales) of the business
  • less the costs of goods sold (such as stock)
  • less overheads - the expenditure wholly incurred in the course of business
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Limited companies

  • only public companies may join the London Stock Exchange
  • when a limited company enters into a borrowing contract, it is the company that is liable to pay

For underwriting purposes, the lender will require:

  • details of the directors and secretary
  • three years' financial accounts
  • confirmation that the person approaching the lender is authorised to do so
  • the business plan
  • cash flow projections

Semi-commercial mortgages

  • where there is a commercial element to the propositon, property values can be much more volatile in the short term than for residential properties
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Verifying information supplied by customers

  • almost all lenders use a credit bureau to check the status of applicants for a mortgage
  • a search of a bureau should reveal important information about the applicant including current obligations, track record on previous ones and County Court Judgements (CCJs) or Court Decrees in Scotland
  • where debts have been incurred in the past, the bureau records will indicate whether these have been satisfied or not
  • information obtained from a credit bureau is only relevant to the recent past - records are generally deleted six years after being placed on file
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  • most lenders offer products which are designed to pay a cash sum on maturity or when the investor decides to terminate the contract
  • only a full, with-profits endowment policy guarantees a specified minimum sum and that only applies if all premiums are met
  • most with-profits plans mature on a fixed date which might prevent extension of the mortgage term
  • the mortgage applicant should be encouraged to undertake a fact-find exercise to identify needs
  • the mortgage term should be compatible with the financial circumstances of the borrower

These include:

  • with-profits endowments
  • unit-linked policies
  • personal pensions
  • ISAs
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Types of Security

  • on the land
  • indemnity insurance charged to the applicant through a higher lending charge
  • assignment of life insurance policies

Attributes of security

Simplicity of title - the security should be completed easily and inexpensively, the lender must confirm that the person offering the security has the right to do so.

Stability of value - many lenders allow a margin of safety against fluctuations in value

Realisability - necessary for the lender to ensure that the security can be realised quickly and without undue formality

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Survey and valuation reports

Commissioned by the lender of the prospective home purchaser at application stage

Basic Valuation Report

  • provides an open market valuation figure on which the maximum loan is to be based
  • usually paid for by the applicant
  • for the lender's sole benefit
  • assess the adequacy of security for mortgage purposes
  • recommends an insurance value
  • indicates more obvious defects
  • applicant must satisfy themselves with the value of the purchase

The valuer is likely to be judged negligent if the:

  • disclaimers are insufficiently prominent or;
  • applicants are inexperienced
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RICS Valuation Report

Level 1 - RICS Condition Report

  • carried out by a RICS surveyor who provides an independent assessment of the condition of the property at the time of inspection
  • any defects are highlighted and a traffic light system is used - red, amber, green
  • mainly suitable for newer, conventionally built homes

Level 2 - RICS Homebuyer Report

  • contains more detail than the Condition Report
  • uses the traffic light system to highligh any defects
  • used for properties that are in reasonable condition

Level 3 - RICS Building Survey

  • comprehensive report on all material aspects of the property
  • uses the traffic light system
  • priced on a sliding scale according to the size or value of the property
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Valuer's recommendations

Undertaking - the lender can exhort the borrower to carry out the work but in all but the most extreme cases would not resort to litigation to force the work to be done

Retention - forces the hand of the applicant in that the repairs have to be done in order for the final portion of the advance to be released by the lender

Property Description

Location - most important determinant of its value

Rental potential - lenders will seek to ensure that the rental income is at least 125% of the mortgage payment based on the lender's affordability rate or that the rental income covers 100% of the mortgage payments plus running costs

Age - most lenders will only lend on new homes if they are covered by a guarantee issued by the National House Building Council (NHBC). For one-off properties or very small developments, some lenders may accept a certificate issued by an architect or surveyor who has inspected the property

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National House Building Council (NHBC)

  • regulator and standard setter for the new homes industry
  • registers house builders and inspects newly built houses to ensure they meet definitive standards of construction set by the NHBC
  • 'Buildmark' scheme provides insurance against a builder's fraud or insolvency and agaist major faults appearing in the first 10 years of the property's life
  • Buildmark is subject to insurance premium tax and VAT
  • the most that the NHBC will pay is the purchase price of the property, subject to a maximum of £1m for a newly built property
  • if a builder does not start or fails to complete a home, the NHBC will reimburse any money which cannot be recovered from the builder
  • in the case of unfinished work, can arrange for the building to be completed to NHBC standards
  • there is a limit of a maximum of 10% of the purchase price or £100,00 whichever is less
  • in the first 2 years after completion, the builder must put right any defects resulting from their failure to meet NHBC standards
  • in year 3-10 the cover is restricted to putting right any major structural faults subject to a minimum claim value
  • for 2019, the minimum claim value is £1,600
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Architect's certificate

  • if a self-build property or building improvement is not covered by the Buildmark scheme, the lender will usuall insist that the construction of the property be supervised by a qualified architect, fees are usually 10-15% of total build cost
  • the lender will require the architect to certify completion of works before funds are released

Planning Permission


  • house extensions (conservatories, loft conversions, dormer windows, roof additions)
  • building a separate home in the garden
  • building a fence, wall or gate over two metres high
  • installing a satellite dish

Don't need:

  • small extensions or porches
  • paths, patios or driveways
  • sheds, garages, greehouses, summer houses
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Procedures for obtaining planning consent

Initial contact - seek advice from the local council's planning department

Submit the application - the application should be sent to the planning department with the correct fee

The role of the council - the council will acknowledge the application and place it on the Planning Register at the council offices so that it can be inspected by any interested parties

Commitee assessment - a senior officer in the planning department may decide the application or that a report must be submitted to the local planning committee

Decision-making - a decision should be made within eight weeks of application

The decision could be to:

  • grant permission
  • grant permission with conditions;
  • refuse permission (with reasons)
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Listed Buildings

The restrictions which apply to each grade are set by local authorities.

The statutory bodies responsible for the system and for listing the buildings are: English Heritage, Cadw (Wales) and Historic Scotland.

England and Wales

Grade I - Buildings of exceptional interest

Grade II - Particularly important buildings of more than special interest

Grade III - Buildings of special interest, warranting every effort to preserve them


Category A - National or international importance

Category B - Regional or more than local importance

Category C - Local importance

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Rights of third parties and owner's obligations


  • a right which one person or persons can exercise over the land of another, such as a right of way or the right to view

Positive covenant

  • a condition of title imposed by an earlier owner (what the present owner must do)

Restrictive covenant

  • states what the present owner cannot do such as run a business from the premises

In Scotland, most rights of third parties over land are called real burdens

Due Diligence

  • the legal adviser should make due diligence enquiries which means checking for any outstanding legal disputes involving the property
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Costs of home purchase

  • There is often a need for a deposit of 10% of the purchase price
  • Legal fees are subject to the scale set down by the solicitor
  • It is important the applicant obtains an estimate of legal fees (and VAT chargeable on them)


  • solicitor's fee - obtain quotes - subject to VAT
  • land registration fees
  • SDLT
  • local authority search fees


  • valuation fee
  • arrangement fee
  • higher lending charge
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Fees, charges and taxation

Lender's fees

  • the lender will occur costs in setting up the loan which will need to be paid by the applicant (arrangement, administration, reservation, application and booking)
  • the fees may be charged up front or be payable on completion of the mortgage and added to the loan
  • 0.5% of the loan with an upper limit of £300

Valuation fees

  • usually exceed £200
  • often charged on a sliding scale depedent on the purchase price of the property
  • a homebuyer's report will usually be from £350 upwards
  • full survey will normally cost in excess of £800
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Fees, charges and taxation

Legal fees

  • conveyancing - transferring the ownership of the property
  • search fees - investigate whether the seller has good title to the property
  • local authority search - to identify any road charges, town planning schemes
  • land registry fees - to register the property in the buyer's name
  • bankruptcy search
  • conveyancing charges are around 0.5% of the cost of the property
  • search fees and registry fees average around £100 each

Selling fees

  • if the owner is selling their existing property through an estate agent, a fee will be payable for the costs of selling
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Stamp Duty Land Tax (SDLT)

  • first time buyers will pay no SDLT on the first £300,000 of the purchase price 
  • no relief will be available where the total purchase price is more than £500,000

Capital gains tax

An individual has to pay if they dispose of:

  • a dwelling house (house, flat, houseboat or fixed caravan) which is their home
  • part of a dwelling house which is their home
  • part of the garden attached to their home

An individual is entitled to full relief under the Private Residence Reflief rules if the following are met:

  • the dwelling house has been their only or main residence throughout their ownership
  • they have not been absent other than for an allowed period of absence
  • the garden or grounds including the buildings are not greater than the permitted area
  • no part of the home has been used exclusively for business purposes
  • each individual has a CGT annual allowance of £11,700
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Underwriting the mortgage

The underwriter's duties are to ensure that:

  • the mortgage application is consistent with lending policy for the status, affordability and personal circumstances of the applicant and security offered
  • all necessary checks have been made and all documentation received
  • statutory obligations have been fulfilled, e.g. compliance with money laundering regulations

Offer of advance

  • regarded as an expression of willingness to enter into a contract with the applicant, subject to specific conditions being met
  • always made conditionally
  • invitation to treat

Specific conditions of offer

  • completion of access road
  • consent to mortgage form (required when a person aged over 17 years will occupy the property but not pay towards the mortgage) - overriding interest
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Mortgage-related requirements

  • nearly all lenders insist that the property is covered for its full reinstatement value by a suitable buildings insurance policy
  • reinstatement value is the cost of restoring the property to a condition that is no better or not worse than its current condition

The lender insists on evidence of cover being in place and will always require that:

  • the sum insured is for the full resinstatement value of the property as estimated by the valuer
  • the lender's interest in the policy is noted
  • large claims will be paid directly to the lender or jointly to the lender and the borrower

The buildings insurance should be in place by exchange of contracts (or conclusion of missives in Scotland)

  • it is necessary to consider covering the debt with a suitable term insurances
  • some lenders require that the life policy used to protect the debt is assigned. If this is the case the lender will require the solicitor to execute a deed of assignment before completion
  • this will legally transfer the rights to the proceeds of any claim or surrender value of the policy to the lender
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  • the mortgage takes legal effect from the completion date
  • usually the same date as that on which the property is legally transferred to the purchaser
  • settlement is often used in Scotland to refer to completion
  • the legal charge (standard security in Scotland) is executed and the rights of the lender and the duties of the borrower come into effect
  • all deeds of assignments become effective
  • the property is legally transferred to the new owner
  • the solicitor engrosses the transaction - bringing together all monies received and due
  • at the appropriate entry time on the completion date, the borrowers can gain access to the property
  • the solicitor issues a completion statement to the borrower
  • the guarantor contract should come into force at the same time as the mortgage
  • large-scale movements of funds required at short notice may be transferred using the CHAPS system which guarantees same day irrevocable delivery of funds
  • push payment fraud - the criminal requests that funds be sent to a destination account which is managed by the criminal 
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Buildings Insurance

  • where the purchase of buildings insurance through the lender's agency is compulsory, the cost must be included in the calculation of the APRC and the premiums must be included in the key facts illustration
  • from the date that contracts are exchanged (or conclusion of missives in Scotland) until completion, damage to the property remains the responsibility of the seller who is still the legal owner of the property
  • the sum insured should be for the reinstatement cost i.e the cost of rebuilding the property if it is destroyed, to idential design and of similar materials including the cost of debris clearance and architects' and surveyors' fees
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Home contents insurance

  • insuring the buildings and contents together with the same insurer usually makes the total premium lower and claims settlement more straightforward
  • covers the contents of the property against loss or damage
  • contents will be covered against theft
  • contents are covered against loss or damage only while in the property
  • the contents are insured under one total sum insured

Combined buildings and contents insurance

  • lenders' block policies provide the assurance that the property will always have cover provided for full reinstatement value
  • cover is continuous
  • premiums can be paid on a monthly basis
  • block policies are designed to address the broader needs of borrowers and often include features that are not required
  • block policies usually have a maximum property value limit
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Financial Conduct Authority (FCA)

The MCOB rules require that a firm must deal fairly with any customer who:

  • is in arrears on a regulated mortgage contract
  • has a mortgage shortfall debt

Mortgage shortfall - when a part of a loan remains unpaid either as a result of a build-up of arrears or because at the end of the mortgage term part of the mortgage remains unpaid

The lender must have and follow a written policy and procedures for dealing with clients in these circumstances and this policy should include procedures for:

  • using reasonable efforts to reach agreement with a customer
  • liaising with a third party if the customer has arranged this
  • adopting a reasonable approach to the time over which the arrears or shortfall should be paid and agreeing a repayment plan with the customer
  • acceding to a customer's request to change the date of payment in the period or method of payment unless there is good reason not to
  • considering allowing a customer to remain in possession to enable them to sell the property
  • taking possession only as a last resort
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  • adequate records must be kept for at least 3 years after the arrears or shortfall have been paid
  • a lender must issue a mortgage warning as soon as possible and in any event within 15 days of becoming aware of the arrears
  • this warning can be given orally but must also be issued to the customers in a durable medium within the 15 working days

The warning must contain:

  • the current FCA information sheet on mortgage arrears
  • a list of the due payments missed or only paid in part
  • the total sum of the payment shortfall
  • the charges incurred as a result of the payment shortfall
  • the total outstanding debt, excluding charges that may be added on redemption
  • an indication of the nature (and where possible the level) of charges the customer is likely to incur unless the payment shortfall is cleared
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  • the lender must not attempt to process more than two direct debits in any one month
  • if a direct debit has been refused on at least one occasion in any two consecutive months due to insufficient funds, the lender must consider whether the method of repayment remains suitable for the customer
  • up to two direct debit requests can be made in a single month if the lender has made reasonable attempts to contact the customer and the customer has not responded
  • the pursuit of mortgage shortfall debts is limited to a maxiumum of six years

There are several reasons why early contact with the lender can ease an arrears situation:

  • early contact prevents arrears building up on the account
  • early contact is a signal to the lender that the customer has a serious attitude to the proble and wants to address it
  • as arrears build up, penalties and charges accumulate
  • the lender will have experienced advisers who can identify ways forward
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Arrangement to pay

  • the arrears are cleared by paying more than the scheduled monthly repayment for a specified period
  • this course of action is often imposed by a court, should the case go to litigation
  • a common outcome is a suspended possession order, requiring the borrower to maintain a specified level of repayment
  • if the borrower fails to keep to the requirement, the lender can enforce its possession order

The lender will wish to ensure that:

  • the borrower is committed to the arrangement
  • the arrangement is monitored closely
  • all contacts, including meetings and telephone calls, are fully documented

Freeze the arrears

  • if the borrower has experienced temporary difficulties but will be able to service repayments at an identifiable future date, the lender may be prepared to freeze the arrears for the time being
  • loss of employment, self employed unable to work due to illness
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Debt Advice Agencies

  • Citizens Advice
  • Money Advice Service
  • Community Money Advice
  • Department for Work and Pensions (DWP)

Mortgage Rescue

  • the borrower may enter into an arrangement with a housing association through which a proportion of the property is sold to it
  • assist eligible borrowers to stay in their homes if there is a danger that the home might be taken into possession
  • the occupier then becomes part owner and part tenant, with total monthly outgoings lower than they had been under the mortgage contract 
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Options available to lenders on default

The legal remedies of the lender are the actions that the lender may take under due process of law to recover a debt. These are set out in:

  • Law of Property Act 1925 (England and Wales)
  • Conveyancing and Feudal Reform (Scotland) Act 1970


  • is a right of a lender rather than a remedy
  • in order to gain vacant possession, it is necessary for the lender to obtain a court order
  • in England, Wales and Northern Ireland, an application is made to the County Court
  • in Scotland an application is made to the Sheriff Court

Three possible outcomes of an action for possession:

  • an outright posession order may be granted, giving the lender the right to apply to the court for a warrant to enter the property and obtain vacant possession after 28 days
  • a suspended possession order may be granted, this imposes a repayment schedule on the borrower and gives the lender the right to petition for a warrant if the borrower fails to comply with the schedule
  • case may be adjorned
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Peaceable Possession

  • the borrower may choose to hand over the keys of the property to the lender and thereby surrender possession voluntarily

Possession and ownership

  • once a lender enters into possession of a property it does not become the owner
  • ownership remains with the borrower
  • the lender acts on behalf of the owner to market the property and recover its debt

Exercising the right to possession

  • possession is normally exercised on a day specified by the court
  • a warrant for possession is issued and an officer of the court attends the property

Once possession is secured the lender must:

  • secure the property against re-entry by the borrower or entry by others
  • ensure meters are read
  • ensure buildings insurance remains in place
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Proceeds of sale

  • the lender has the right to recover all monies due under the mortgage (capital, interest, fees and charges, legal fees and disposal costs)
  • if there is a surplus remaining, any subsequent lender has the right to be repaid out of this
  • any surplus then belongs to the borrower
  • if they can't be traced, the funds must be paid into court or into an interest-bearing account

Appointment of a receiver

  • different to Official Receiver in bankruptcy cases
  • the lender will appoint a receiver when there is a flow of income directly relating to the property
  • the duty of the receiver is to act on behalf of the lender to collect monies due and apply them to credit of the mortgage account

Sue on personal convenat

The lender normally sues on the personal convenant of the borrower when there is a:

  • shortfall on the mortgage once the property has been sold
  • reasonable prospect of successfully suing the borrower for the money due
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Drawdown facilities

  • offset and current account mortgages often allow the borrower to increase their borrowing up to an agreed level over and above the initial mortgage loan
  • used to alter or improve a property
  • used if the borrower encounters an unexpected financial crisis
  • is added to the mortgage and interest may be paid for a longer period of time

Further advance - top-up mortgage to an existing mortgage client

* Second mortgages are now treated as regulated loans


  • the lender may seek postponement of the second lender's interest in order to 'tack' the new lending onto the original mortgage thereby aggregating the new loan and the original one as a first charge
  • this is achieved by executing a deed of postponement through which the second lender agrees to permit tacking to be carried out
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Deed of further charge

  • if the original deed does not provide for further advances, it may be necessary to execute a new deed - this is called a deed of further charge

Second Mortgage

  • a loan secured on the property is given from a source other than the original lender
  • the second lender takes priority to the first lender
  • they require a new valuation of the property
  • used to finance home improvements


  • a replacement loan taken out by the same borrower, secured on the same property usually with a different lender
  • the borrower may wish to avail themselves of a cheaper or better product with a different lender
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Bridging Loans

  • short term loans used to bridge any time gap between buying a property and selling the old one

Closed bridging - arises when the customer has already sold a property and there is a binding contract in place with the purchaser

Open bridging - more risky for both lender and borrower, in that the customer has not yet secured a sale so there is less certainty in relation to the duration of the bridging arrangement

Release of part security

  • occurs when an existing mortgage borrower requests that some of the land occupied by the mortgaged property be released from the charge over the land
  • the borrower may wish to sell off some of the land to raise capital
  • a transfer of part of the land will involve costs including professional fees for drawing up new plans and Land Registry charges
  • the lender may permit the release of part security unconditionally
  • the lender may permit the release of part security subject to repayment of a proportion of the outstanding mortgage debt to restore its safety margin
  • the lender may refuse the release of part security
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Releasing equity from a property

Equity release schemes - aimed at older borrowers, allowing them access to the equity 

Lifetime mortgages

  • designed for older homeowners to raise cash on their homes without having to pay anything to the lender during their lifetime
  • the youngest applicant must be at least 55 years of age
  • the outstanding amount of capital and any accumulated interest is repaid whenever the property is sold or on the death of the last to die
  • the amount that can be borrowed is a percentage of the value of the property
  • ranges from 20% to 40%
  • all advisers in lifetime mortgages require a specialist qualification
  • if the interest rolls up on the account, it is estimated that a typical lifetime mortgage will double the debt approximately every 15 years 

Home reversion plans

  • involves the sale of the property or part of the property rather than the mortgage of it
  • allows the seller to live in the property rent free until death or vacating the property
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Converting interest only to repayment

  • the borrower may be in financial difficulties and may wish to realise the value of the long term investment to pay off the capital at the end of the term so that this can be used to offset arrears
  • the borrower may be unhappy with the performance of the investment product

Three scenarios:

  • the investment product may be assigned to the lender
  • the policy document may have been deposited with the lender but not assigned
  • the investment product is neither assigned nor the policy deposited with the lender

Standing mortgage - the mortgage will remain as an interest-only mortgage, leaving the responsibility of raising the capital required to pay off the mortgage to the borrower

  • The mortgage can be converted to a repayment mortgage whereby some portion of capital and interest are repaid each monh
  • converting the account will result in a new repayment amount being required
  • as the amount of capital will have remained constant since completion, this will increase the monthly repayment
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Repayment to interest only

  • a borrower with a capital and interest mortgage may decide to take advantage of the benefits offered by a long-term investment and request that a mortgage be converted to interest only
  • some lenders will insist on either a deposit of the relevant policy or assignment of the policy to the lender
  • if the long-term investment is a personal pension or ISA, this cannot be assigned by law
  • the details of the chosen investment have to be consistent with the lender's policy
  • as most mortgage protection policies are decreasing term insurances, they are unsuitable for interest-only mortgages where the capital balance owed does not reduce until maturity

Removing a party from the mortgage

  • the original terms can only be altered with the consent of both parties
  • a request to remove a name from a mortgage is a variation of the mortgage contract so the lender has to issue statutory documentation to the party who will remain on the mortgage
  • spouses or partners agree to separate
  • a person anticipates insolvency proceedings
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Stamp duty land tax (SDLT)

In the event that a partner takes over the property, HMRC will take account of any:

  • money paid to the other party
  • additional mortgage that is taken out
  • When a property is transferred into the name of one spouse or civil partner, ending the joint commitment, the transaction is exempt from SDLT.
  • If the co-inhabitants are/were not married or in a civil partnership, the transaction is subject to SDLT
  • SDLT is not payable if two or more people jointly own property and they decide to divide it physically and equally and own each part separately
  • if one person takes a bigger share or all of the other's share, and pays cash or some other consideration in exchange, then HMRC must be notified of the transaction
  • if the amount they pay is more than the current threshold, they will have to pay SDLT
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Adding a party to the mortgage

There are various reasons why a customer may add someone to the mortgage:

  • sole name borrower may marry or enter into a cohabiting relationship
  • borrower may have severed an existing relationship and entered into a new one
  • borrower may have a mortgage in their sole name and wish to add the name of a spouse or partner already living in th property in order to increase future borrowing capability

The lender has to ensure that the new party has the capacity to enter into the contract

  • credit checks will be carried out to ascertain if there are any court judgements in place
  • the parties to the mortgage will have to complete registration formalities at the Land Registry

Redemption of a mortgage

  • occurs when all monies due under the mortgage contract have been received by the lender
  • once the final payment has been received, the lender must vacate its interest in the property
  • releasing the borrower from the mortgage - discharging the mortgage
  • care has to be taken by the lender not to release the title deeds to the customer if second or subsequent charges are in place
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Equity of redemption

  • all borrowers have an equitable right to redeem a credit contrat at any time, the lender can't prevent it
  • if a borrower wishes to redeem a mortgage, a request for a redemption figure will be made
  • the redemption figure will comprise capital outstanding and interest
  • several charges can be levvied on the borrower for early redemption (legal and admin costs)

Early repayment charge

  • penalties imposed for early redemption compensating the lender for the loss of business or recouping cashbacks offered when the loan is taken out
  • details must be provided in the key facts illustration of all fees and charges

Redemption interest - represented as a specified number of months' interest

Discharge and sealing fees - legal fees associated with redemption and vacation of the mortgage


  • the features, benefits and limitations applicable to the current mortgage are transferrable
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Capital reductions

  • can be usually done at any time
  • some lenders specify a minimum sum which will be accepted by of capital reduction (£500)


  • the features, benefits and limitations applicable to the current mortgage are transferable when the borrower decides to move home
  • the lender must inform the customer whether the mortgage is portable or not
  • the mortgage cannot be CAT marked if it is not portable
  • the terms and conditions currently applicable will continue in force
  • it might mean that certain fees and charges are avoided when the customer moves
  • the customer may choose to forego this portability if the terms and conditions applicable to newer mortgage products are more adventurous than the existing mortgage
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Debt consolidation

  • consolidate all debts by effecting one large loan to pay them all off

There are several disadvantages and dangers to debt consolidation:

  • the borrower may not be able to service the lower level of repayments
  • the interest rate may be higher, especially if the mortgage is taken out with a company that specialises in lending to those in financial difficulty
  • the total amount payable increases sometimes signficantly
  • for those who are not good at handling debt management, it may encourage them to believe that consolidation will always solve their problems

Debt Management Programme - informal agreement with lenders to reduce payments by passing less each month but over a longer period

Individual Voluntary Agreement (IVA)

  • formal arrangement put together as a proposal to the creditors
  • an agreed affordable amount is paid to the adminstrator over of period of five years
  • the IVA becomes legally binding on all parties if 75% of the creditors accept
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Full with-profits endowment

Reversionary bonuses

  • annual bonus
  • credited to the value of the policy
  • once added they can't be taken away unless the policy is lapsed or surrendered
  • only declared if the company performs sufficiently well to do so
  • expressed either as a percentage of the basic sum assured
  • or as a percentage of the compounded value of the policy

Terminal Bonus

  • paid on a one-off basis either on death during the term or at maturity
  • the right to a terminal bonus is lost if the policy is lapsed or surrendered
  • expressed as a percentage of the basic sum assured
  • dependent on the number of years that the policy has been in force
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Endowment Shortfalls

  • investment products generate insufficient returns to pay off the mortgage
  • the difference between the capital due to thelender and the value of the investment product must be met from the borrower's own financial resources or an alternative arrangement is necessary

The Association of British Insurers introduced a Code of Practice on endowment policies providing for minimum standards to be observed when issuing reviews:

  • initial reviews should be no later than the earlier of half the policy term, ten years from inception or maturity
  • subsequent reviews should not be less frequent than every five years
  • reviews in the last five years should be annual if there is any mortgage shortfall risk
  • policy review assumptions must be provided on either two projections at rates current at the time or a reasonable rate
  • the current surrender value should be the value to which projection rates are applied

Endowment providers now issue review letters as standard practice. A system of red, amber and green warnings are used.

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Buy-to-let mortgages

  • enables an individual or entity to purchase a rental property with a loan secured on that property
  • the purposes of the borrower are to generate income and to obtain long-term capital growth on the investment
  • there is no certainty that property prices will continue to rise in the future or that there will be a steady demand for rental property
  • the lending critieria will normally be underwritten on the basis of projected cash flows from rents to be paid by tenants
  • many lenders require prospective rents of 120%-125% of the mortgage payments to give some surplus during periods of non-occupancy

Voids - periods in which the property is not occupied

High percentage mortgages

  • some lenders are prepared to lend 95% or above of the valuation but may make a higher lending charge
  • building societies cannot lend more than 100% of valuation through a mortgage
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Shared ownership mortgage

  • the buyer acquires a stake in the property, often 25% or 50% of the value of the property
  • the remainder is owned by the lender or a housing association
  • the borrower pays a mortgage repayment based on the capital borrowed and pays rent to the owner of the remainder of the property
  • the borrower can purchase additional shares in the property, called staircasing
  • the lender may be prepared to permit the borrower to sell a stake in the property to a housing association, reducing the monthly repayment to the lender and replacing it with a rent payable to a housing association

Shared appreciation mortgage

  • the lender provided a mortgage at a low interest rate but in return took a stake in the equity of the property when it was sold
  • they are only attractive to lenders when property prices are rising
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Lifetime mortgages

  • only available to older applicants (aged over 55 years)
  • need to raise cash but can't afford the repayments for a further advance or remortgage
  • no prescribed final redemption fee
  • regulated lifetime mortgage contract#
  • loan is repayable when the property is sold
  • the debt needs to be repaid when the property is sold on their death(s) reducing the estate to be passed on to their family
  • the borrower may find their entitlement to State benefits compromised

Home reversion plans

  • enable older homeowners (over 55) to release equity 
  • selling the property, or a proportion of it, to the home reversion plan provider
  • can remain in the property as a tenant until the property is permanetly vacated or for life
  • regulated under MCOB
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Importance of regular review

  • in order for the lender to be able to identify and anticipate customer needs, it is important that a good quality database is maintained and constantly updated
  • most lenders have moved to a relational database approach
  • this usually operates by allocating a customer number or code through which the various product relationships can be recorded and monitored
  • carrying out a fact-find allows products and services to be matched to inidividual needs

When a client's needs are reviewed the following matters should be fully discussed:

  • personal/family circumstances
  • financial position
  • future plans

The fact-find will provide both quantitative (tangible) information such as facts on income and outgoings and also qualitative information on attitudes and beliefs. 

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