Mortgage Arrears & Post Completions Flashcards
Further Advance
- This is a top up loan from your initial lender
- Term of Advance = Mortgage term
- Lenders restrict lending if it breaches the LTV threshold
- Some wont consider loans unless it’s for essential home improvement
- The mortgage must be at least 6 months old
- Some lenders insist that the advance is paid on a capital repayment basis
- The rate of interest on the advance may be different to the original mortgage (charged at the current rate)
- Arrangement fees are lower than mortgage
- Early repayment charges apply
- Some lenders allow overpayments
Gathering Information for Further Advance
- Affordability Assessment
- Revalue the property
+ verify income & occupation
+ family circumstance (any 17+)
+ conduct of the existing account - HLC might apply
- Building societies must run a full valuation as required by law for their mortgage applications
Second Mortgages
- Higher rates are applied as they are more risky (2nd charge)
- Avoids a HLC
- Lender sends a questionnaire to the ‘original lender
- The original lender may charge to complete this
- If the borrower defaults, both lenders work together in litigation process
- 2nd charge loans for business are only regulated if it’s below £25k
- The term of the 2nd charge should end before the term of the 1st charge
Payment of 2nd Charges
Registered Land
- Paid back according to date registered at Land Registry - Charges Register
Unregistered Land
- Lender holding the title deed is paid first
- 2nd legal charge lender has their interest noted in the land charges registry
Covered under MCOB since 2016
Deed of Postponement
If a 2nd mortgage has already be granted and a further advance is requested from the original lender the original lender will often request a deed of postponement
This is where the original lender uses tacking, to tack the further advance to the original mortgage and make it a part of the first charge
The original lender would need to agree this with the 2nd charge lender.
The 2nd charge lender wouldn’t have much of a choice as, if they declined the original lender could create a new mortgage, pay off the 2nd charge and the 2nd charge lender would lose their interest payments
There are 2 circumstances where a deed of postponement is not required
1) The original lender wasn’t notified of the 2nd charge
2) The 1st charge offers a drawdown service
If the original lender states to allow further charges in the mortgage deed then tacking happens automatically
Debt Consolidation
Second mortgages are used a lot to consolidate debt
- Lender must check affordability
- Lender must ensure debts are paid off at the start
- Lender can opt to remortgage (start from scratch with the same property)
- The new mortgage must fit LTV threshold criteria
- Useful for people at the end of their term
- Not good if they are in a fixed rate as they’ll pay an early redemption charge and a new arrangement charge
- Debt consolidation customers are vulnerable and must get advice
- If the mortgage is unaffordable unless debts are wiped off, the lender must ensure they repay debt at the beginning of the term
- An alternative option is to give a drawdown facility with set limits
or
a flexible mortgage with overpay/underpay/drawdown facilities (only available on capital repayment)
Pre-Application Disclosure on Advances
Regulated Mortgage KFI unless unregulated - Based on the advance amount - Stating additional borrowing - Must include Loan amount and additional payment
MCD regulated
- ESIS based on advance only
- APRC on the advance amount must be provided #
Further Advance Drawdown Facility
- Some offer further drawdown with a chequebook provided
- Drawdown is considered a first charge
- Treated as a further advance and will be stated in the mortgage deed
- Avoids a formal application process provided it’s under the HLC
- Drawdown available of flexible & offset mortgages
Bridging Loans
- Short term, interest only loans
- Can be obtained at a reasonable rate
- Can be used to bridge a gap between buying and selling a home
- Can be extremely expensive if you miss the deadline
+ Closed Bridge
Person has found a firm buyer for their property but it’s taking a while to complete. Less risky, lower cost
+ Open Bridge
Person doesn’t yet have a buyer, Higher risk, higher rate
Lender - Bridging Loans
- Lender insists on the property being marketed
- Lender requires a clear exit strategy in case they can’t sell
- There are minimum borrowing amounts for bridging loans - £30k min
- Interest only, no repayment vehicle required
- The value of the property is considered only, not the borrowers affordability as the loan is short term
Borrower - Bridging Loans
Costs
- Loan interest payable for the length of the loan
- Interest can be 0.75% - 1% per month
- Valuation fees
- Legal fees
- Arrangement fees
- Exit fees
Regulation of bridging loans
- MCD exempt, bridging loans or a regulated mortgage with a term under 12 months
- If the loan meet criteria of bridging loans it is not subject to full MCOB rules
- Suitability and affordability still apply
2nd Charge bridging loans of £25k+ for business purposes or a 2nd charge bridging loan with 4 or fewer payments are exempt from MCOB rules
If the details are out of this definition then it’s treated as regulated
- If the bridging loan goes over 12-months or is extended over 12-months then it’s considered MCD regulated & MCOB rules apply.
+ ESIS is required, if details have changed or doesn’t match the original ESIS it must be treated as new borrowing and a new loan assessment is required
Extending a bridging loan term
- Can only be done if the borrower requests it
- Treated as a new loan
- Affordability assessment and impact on equity must be factored if interest is on a roll-up basis
- If the loan is for business or HNW borrowers then it’s not treated as a new loan
MCOB Bridging Finance
MCOB 4.7: Advertising and Selling
Firms assess and justify it’s in the best interest of the client and that they can repay the loan. Maybe a mortgage would be more suitable
MCOB 11: Responsible Lending
Affordability must be assessed unless interest is being rolled up
Must get a valuation to check equity within the property. The customer must be advised of the impact
Lenders must take care that the client can pay back
Changing a Mortgage with an Existing lender
A borrower might need to get a new mortgage or a new rate.
The borrower should be made aware that if staying with the same lender:
- Most mortgage deeds have clauses for allowing further lending without drawing up a new deed
- Client can move to a new mortgage without re-mortgaging.
- May have exit fees if in a special rate but can be waived
- May be extra costs like arrangement fees but these will be less as there will be no valuation fees
- Much faster process
- If a mortgage is a regulated mortgage
+ lender can waive affordability if there is no increase in lending
+ If before 2014 (MMR) they can increase lending if it’s for essential repairs
Lenders consider
- Conduct in the previous mortgage
- Purpose of the loan (MCD regulated)
- Status and personal circumstances of the applicant
- Value of the security offered for the mortgage
- Other considerations
+ Guarantor/Insurance/arranged by solicitors
- The new borrowing pays off old
