Lenders, Borrowers and Mortgages

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Property lawyer, Terese Kingman, summarises the basics

What is a mortgage?

At its simplest, a mortgage is an agreement between a lender and a borrower. The lender lends money to the borrower who promises to pay back the loan with interest. Usually the mortgage agreement will include a specified date for the loan and the interest to be repaid.

How is a mortgage created?

Most people who have bought a property with a mortgage will remember signing a mortgage deed (called a charge) which secures the loan (usually from a bank or building society) on their property. When the borrowers register their legal title to the property at the Land Registry, details of the charge will also be added to the register of title. Any future purchaser will see instantly that there is a charge on the property and will require it to be redeemed before they buy.

What does redemption of the mortgage mean?

Redemption occurs when the borrower pays off the money they have borrowed together with any interest that is due. Once the mortgage has been redeemed they will then own their property free of the mortgage and free of the lender’s rights over their property.

What powers does a lender have?

A lender has the power to sell the property if the borrower breaks the mortgage conditions. This includes non-payment of the mortgage as well as breaches of covenants such as non-insurance or failure to maintain the property.

If a borrower is only a matter of days late making a mortgage payment, what would happen?

The lender can still sell the property. However, the borrower has the right to keep the property if he pays back the whole debt and the interest. Under the equitable right of redemption. the borrower not only has the right to pay off the debt plus the interest but also has the right to the equity in the property ie the value of the property less the loan to the building society.

What happens if the borrower cannot repay his mortgage because he has not got any money?

There would be no point in the lender suing someone who has no assets. Therefore the lender might exercise his right to take possession of the property. The lender will want the borrower to leave the property so it can sell the house with vacant possession and recoup its loan and interest. If the property is sold for less than the mortgage plus arrears of interest the lender can bring court proceedings for up to 12 years to recover the balance owed.

Is there any way the borrower could prevent possession proceedings?

A borrower can claim postponement of possession under the Administration of Justice Act 1970 if the lender has obtained a court order for possession and can prove that he can pay the arrears along with future repayments of the mortgage. If it is the borrower’s residence a court order is needed anyway.

If you have any queries about mortgages or any issue raised in this article please contact Terese Kingman at Slee Blackwell Solicitors, Lime Court, Pathfields Business Park, South Molton on 01769 575982 or by email at [email protected]