Topic 26 Flashcards
Raising additional funds from property (66 cards)
What is a further advance?
A further advance is a ‘top‑up’ to an existing mortgage, usually over the remaining term of the existing loan. It is generally the most cost‑effective way to raise additional funds and involves less legal and administrative work than remortgages or second‑charge loans.
What alternatives must lenders disclose to customers seeking additional funds via a further advance?
Lenders must inform customers that a second‑charge loan or a remortgage could be suitable alternatives to a further advance, although they are not required to provide further advice on their suitability.
How long do further advances usually run for?
They usually run for the remainder of the term of the original mortgage, but some lenders may offer a shorter term, with minimum terms typically between five and ten years.
What typical Loan to Value (LTV) limits do lenders consider for further advances?
Lenders may allow further advances up to between 80% and 90% LTV, though some set lower maximum LTV limits, especially if the funds are not for home improvements or repairs.
What minimum property and mortgage conditions do lenders typically require for further advances?
Lenders may set a minimum property value and generally require the existing mortgage to have been in force for at least six months.
On what basis do many lenders consider further advances?
Many lenders will only consider further advances on a repayment basis.
How do interest rates and fees for further advances compare to regular mortgages?
Interest rates and options are based on the current market and may differ from the original loan. Application and product fees are generally lower than for regular mortgages.
Can early repayment penalties apply to further advances?
Yes, early repayment penalties may apply if the further advance is on a special rate.
Is the original mortgage lender always the best choice for a further advance?
No, there is no guarantee the original lender will be the best option; the market is competitive and other lenders may offer better deals.
What is a key advantage of applying for a further advance compared to a new mortgage?
The process is usually faster and less costly because the lender already has information about the applicant’s track record and the property, and no conveyancing is required.
What two main aspects must lenders assess when considering a further advance?
1) The borrower’s ability to repay, including status and track record.
2) The adequacy of the property as security for the further lending.
How is affordability assessed for a further advance?
Affordability is assessed the same way as for a new mortgage application, including detailed scrutiny of regular and irregular expenditure.
How do family or household changes since the original mortgage affect a further advance?
If a party has left, they likely won’t take on more debt. If new occupants have moved in who are not parties to the mortgage, they must sign a ‘consent to mortgage’ form or be added as parties to the mortgage.
How do lenders assess the security of the property for a further advance?
They reassess property value, often through a formal valuation, desktop valuation, or comparison with similar sales, focusing on loan-to-value limits.
What conditions apply if the further advance is for home improvements?
Lenders may consider the enhanced value after improvements, requiring plans, estimates, possibly planning permission, and may inspect the work after completion.
What legal and local authority conditions affect further advances for repairs or improvements?
Loans must comply with planning consent, building regulations, and other local authority legislation to avoid enforcement orders that could reduce property value.
What long-term factors do lenders consider about the property’s location?
Whether the area is new or established, improving or declining, and any future development plans that could affect property value.
What does the Law of Property Act 1925 state about the priority of mortgage charges?
Priority is determined by the date of registration at the Land Registry; for unregistered land, priority is based on who holds the title deeds and the order recorded in the Land Charges Registry.
What is a deed of postponement?
A legal document executed to set aside a second charge, allowing a further advance by the first charge lender to take priority over the second charge.
What is “tacking” in relation to further advances?
The process of adding a subsequent mortgage to the original one after postponing an intervening second charge, effectively allowing the new loan to ‘jump the queue’ and become part of the first charge.
When is a deed of postponement NOT required? (Name at least one situation)
If the first charge holder had no notice of the other charge at the time of the further advance; or if the mortgage deed obliged the first-charge holder to make further advances registered at the Land Registry; or if a maximum lending limit was agreed allowing drawdowns up to that limit.
What is a higher lending charge (HLC) and when is it typically applied?
An additional charge applied by lenders when the loan-to-value (LTV) exceeds a threshold (usually 75–80%), including when further advances push the LTV above the threshold.
Why might lenders require an architect’s certificate for further advances?
When the advance funds building work not carried out by an NHBC member, an architect’s certificate confirms the work meets required standards.
What must lenders provide before a borrower submits an application for a further advance under MCOB rules?
Pre-application disclosure information such as an ESIS or illustration based on the further advance amount, including total borrowing and new total payment.
